Finding Text
Compliance Requirement - Costs Allowed or Allowable
Finding Type - Material Weakness
Federal Agency - U.S. Department of Health and Human Services
Federal Program Title - Administration for Children & Families - Head Start
Assistance Listing Number - 93.600
Criteria: The Organization receives federal assistance from the Department of Health and Human Services. The Organization requests draw down of grant funds based on actual expenditures incurred. The Organization is required to maintain adequate internal controls over financial reporting in order to ensure expenditures are properly supported, reported under the correct funding source, and within the correct grant period. 2 CFR 200.403 details the factors affecting the allowability of cost. Specifically, 2 CRF 200.403(e) provides that costs must be determined in accordance with generally accepted accounting principles (GAAP). GAAP provides that costs are not incurred until the services are performed or the product is received.
Condition: During audit procedures, we noted total reimbursements received exceeded expenditures. The Organization has charged costs to the program and received reimbursement; however, the products cost charged to the program had not been received prior to June 30, 2024. We consider this to be a material weakness.
Questioned Costs: $562,831
Cause: In an effort to obligate funds before the end of the grant period, certain expenditure amounts and adjustments to various accounts for products to be purchased were recorded as expenditures within the Organization’s books and records before the products were received and a liability was incurred. Therefore, the reports used in supporting draw down of funds were not accurately stated.
Effect: Inaccurate financial reporting of expenditures resulted in the Organization’s reimbursement requests exceeding total program expenditures.
Recommendations: We recommend that all expenditures and adjustments are accounted for in the books and records of the Organization when a liability has been incurred, and that revenue and expenditure reports be review for accuracy prior to submitting draw down requests. A reconciliation should be prepared of the expenditures recorded on the books and records to the amount submitted for reimbursement on a regular basis. All excess, unexpended funds from the current year as well as from prior year’s should be returned to remain in compliance.
View of Responsible Officials: There is no disagreement with the audit finding. The Head Start Program obligated funds for supplies in June but did not receive the merchandise until August. Payables were entered in the accounting software from purchase orders then the checks were voided after the draw down occurred which caused the reports to be inaccurately stated.