Finding 566902 (2024-004)

Condition: HOPE has elected to use the de minimis indirect cost rate of 10%. While billing the federal grantor on a monthly basis, HOPE applied this 10% rate to the direct costs. However, there was no clear documentation demonstrating how this application related to the organization's actual indirect costs incurred to support the federal program, beyond simply adding the percentage to the direct cost billing. Criteria: Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Subpart E, § 200.403, states that costs charged to Federal awards must be allowable, allocable, and reasonable. While § 200.414(f) permits the use of a de minimis indirect cost rate of 10%, its application should serve as a mechanism to recover a portion of the organization's actual indirect costs. Cause and effect: HOPE experienced turnover in the CFO position during the year. In prior years, HOPE recorded all costs, including indirect costs, in the cost center (“class”) assigned to the funding source. During the year under audit, this practice wasn’t consistently followed. Recommendation: I recommend that HOPE continue to use “classes” consistently in the accounting software to capture program expenditures by funding source, including indirect costs. Views of Responsible Officials: This discrepancy resulted from a lack of understanding by the CFO in processing grant related funding. Grant policies have been updated, and personnel trained to direct and understand the role of independent accounting by funding sources through class codes.