Federal Agencies: Department of the Treasury
Federal Assistance Listing Numbers: 21.023, 21.027
Programs: COVID-19 Emergency Rental Assistance Program, COVID-19 Coronavirus State and Local Fiscal Recovery Funds
Award/Pass-Through Entity Identifying Numbers: COVID-19 HCS-21-37-2103-018(7), HCS-23-AR-2111-018, ARPA - HCS-22-AR-2104-018, COVID-19 - EL-22-AR-27-018, ARPA - EL-22-AR-35-018(1), ARPA - EL-21-AR-03-018(4), ARPA - EL-21-AR-04-018(5), ARPA - EL-22-AR-29-018(2), ARPA - HS-21-AR-01-018(2), BH-22-AR-02-018(1), HCS-23-67-2301-018, HCS-23-AR-2107-018, ARP – 19911, CRF-2024-01, Agreement, 3733, COVID-19 – Agreement, K501, K4893, K4786, K4560, K4862
Criteria: The Uniform Guidance in 2 CFR §200.303 requires that non-Federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award.
Per 2 CFR §200.430 Compensation – personal services:
(g) Standards for Documentation of Personnel Expenses.
(vii) “Budget estimates (meaning, estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that:
(A) The system for establishing the estimates produces reasonable approximations of the activity performed;
(B) Significant changes in the related work activity (as defined by the recipient's or subrecipient's written policies) are promptly identified and entered into the records. Short-term (such as one or two months) fluctuations between workload categories do not need to be considered as long as the distribution of salaries and wages is reasonable over the longer term; and
(C) The recipient's or subrecipient's system of internal controls includes processes to perform periodic after-the-fact reviews of interim charges made to a Federal award based on budget estimates. All necessary adjustments must be made so that the final amount charged to the Federal award is accurate, allowable, and properly allocated.”
Per 2 CFR §200.465 Rental Costs of Real Property and Equipment:
(b) “Rental costs under ‘sale and lease back’ arrangements are allowable only up to the amount that would have been allowed if the recipient or subrecipient had continued to own the property. This amount would include expenses such as depreciation, maintenance, taxes, and insurance.
(c) Rental costs under “less-than-arm's-length” leases are allowable only up to the amount described in paragraph (b) of this section. For this purpose, a less-than-arm's-length lease is one under which one party to the lease agreement can control or substantially influence the actions of the other...”
Condition: Policies and procedures were not adequately established to ensure allowability of rent charges and other cross-charges to federally funded programs. We noted the Organization’s subsidiary charges rent to the Organization’s programs to utilize office spaces for their operations and cross-charges certain other miscellaneous costs. The rent and certain other costs are based on budgeted costs plus a market rate, which is an unallowable method under the Uniform Grant Guidance. Since these transactions are less-than-arm’s-length due to the Organization’s control and significant influence over its subsidiary, costs charged should be based on actual costs incurred.
• For the COVID-19 Emergency Rental Assistance Program:
o 1 out of 25 selections was charged based on a market rate and budgeted costs. This selection was for a rent expense.
• Allocated cost pool of IT costs:
o 2 out of 25 selections were charged based on a market rate and/or budgeted costs. One of the selections was for a rent expense and the other was for building maintenance performed by an employee.
Cause: The Organization’s policies and procedures lacked a step to reconcile and/or true-up budget and market rates to actual expenditures.
Effect or Potential Effect: Without adequate controls in place to ensure expenditures represent actual costs, the Organization could incorrectly charge expenditures to the Federal program, or not request the appropriate reimbursement the Organization is entitled to under the grant.
Questioned Costs: None above the $25,000 reporting threshold.
Context: This is a condition identified per review of the Organization’s compliance with specified requirements not using a statistically valid sample.
• For the COVID-19 Emergency Rental Assistance Program, nonpayroll costs were $1,166,466 and rent charged to the program was $12,743.
• IT costs are accumulated and allocated to grants on an allowable basis. The total IT cost pool was $759,731,which was allocated across all programs (federal and nonfederal).
Identification as a Repeat Finding: No similar finding noted in the prior year.
Recommendation: We recommend that the Organization implements policies and procedures to timely reconcile and, if necessary, true-up rent charges to actual expenditures incurred.
Views of Responsible Officials: Management agrees with the finding. Management is updating procedures for how certain costs are cross-charged to federal programs.