Finding Text
Questioned Costs: $44,046 - The overbilled amount has been reclassified to a liability to the funder but has not been repaid or settled.
Criteria:
In accordance with 2 CFR § 200.403 and 2 CFR § 200.405, costs charged to federal awards must be allowable, allocable, and necessary to the performance of the federal award. Under the terms of a cost-reimbursement federal contract, as governed by 2 CFR § 200.403, § 200.404, and § 200.405, all costs charged to a federal award must be:
• Actually incurred,
• Allocable to the program,
• Allowable under federal cost principles, and
• Supported by adequate documentation.
Under 2 CFR § 200.414 indirect costs may only be charged based on an approved rate (e.g., NICRA or de minimis), applied to the proper base and only if such costs are actually incurred during the performance period. Billing the full invoice amount of shared costs without allocating based on an approved indirect cost rate is not compliant with Uniform Guidance.
Condition:
The Organization billed indirect costs totaling $45,096 to a federal cost-reimbursement contract, despite not having incurred qualifying indirect costs during the contract period. The Organization charged entire invoice amounts for shared indirect costs. The billed amounts were based solely on the approved indirect cost rate applied to direct cost invoices, however, there is a maximum of $1,050 in actual indirect expenses for administrative support, or other shared costs incurred or allocated.
Cause:
The Organization misinterpreted the cost allocation rules and did not have an adequate process for applying the approved indirect cost rate. Billing practices defaulted to charging the entire invoice amount to federal awards when costs benefitted multiple programs. The Organization lacked adequate controls over indirect cost invoicing and did not perform timely reconciliations between budgeted and actual costs incurred. The outside accountant relied on budgeted percentages rather than actual expenses, and there was no final adjustment process in place to reconcile at year-end.
Effect:
The Organization received $44,046 in federal funds that were not supported by actual indirect costs incurred. These funds represent unallowable costs and are considered questioned costs under the Uniform Guidance.
Identification of Repeat Finding
☐ Yes ☑ No
Recommendation:
We recommend that the Organization:
• Implement policies and procedures to reconcile indirect costs billed to actual costs incurred.
• Implement a post-invoicing reconciliation process to compare actual indirect costs with amounts billed.
• Ensure that all invoicing for federal awards complies with the approved indirect cost rate agreement.
• Return the $44,046 of unexpended indirect cost reimbursements to the granting agency.
• Provide additional training to accounting and grants management staff on the treatment of indirect costs under 2 CFR Part 200.