Finding number: 2023-006 Significant Deficiency in Internal Control Over Compliance:
Allowable Costs and Activities
Federal Program #1 HIV Emergency Relief Project Grants: CFDA Number 93.914
Federal Program #2 HIV Care Formula Grants: CFDA Number 93.917
Federal Program #2 HIV Prevention Activities: CFDA Number: 93.941
Name of federal
agency:
U.S. Department of Health and Human Services (HHS)
AIDS Arms, Inc. dba Prism Health North Texas and Subsidiary
Schedule of Findings and Questioned Costs
For the Year Ended December 31, 2023
SECTION III - SUMMARY OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (continued)
Name of pass-through
entity:
Multiple
Repeat finding: No
Criteria: 2 CFR §200.405 requires that costs be allocable to the federal program based on
relative benefits received and be supported by appropriate documentation.
For personnel costs, 2 CFR §200.430(i) requires that compensation for
employees whose time is charged to federal awards be based on records that
accurately reflect the work performed, such as time and effort reporting or
equivalent documentation. For shared costs, 2 CFR §200.412-200.414 requires
that cost allocations be based on documented methodologies that are reasonable
and supported by underlying calculations.
Condition: The Organization does not have formalized internal controls to support the
rationale for allocation of shared costs and employee time across federal
programs. Specifically:
Time and effort is being tracked and maintained by employees, including
hours charged to the specific efforts for the programs. Often, employees
charge hours to specific programs in excess of amounts allocated to the
program as expenditures. The specific amount of employee salaries and
wages that are allocated to specific federal programs for reimbursement, and
which are less than the amounts reflected in the time and effort records, are
determined by members of the finance staff. The rationale for the amount
actually allocated for reimbursement, if less than the amount reflected in the
time and effort records, is not documented.
Review and approval of the allocation of employee compensation to specific
federal programs reimbursement requests is not maintained.
Cause: The deficiency exists because the Organization has not implemented a structured
process for documenting the extent to which allowable compensation costs will
be allocated for reimbursement to specific federal programs in instances where
the allowable compensation cost exceeds the amount allocated for
reimbursement.
AIDS Arms, Inc. dba Prism Health North Texas and Subsidiary
Schedule of Findings and Questioned Costs
For the Year Ended December 31, 2023
SECTION III - SUMMARY OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (continued)
Possible effect: The absence of documented allocation methodologies in instances where
allowable compensation costs exceed the amount allocated for reimbursement
increases the risk that:
Costs may be improperly allocated between federal programs, resulting in
potential noncompliance with federal cost principles.
Federal expenditures may be misstated, impacting financial and grant
reporting.
Although questioned costs were not identified, the lack of specific supporting
documentation and controls represents a significant deficiency in internal control
over compliance.
Questioned cost: None identified at this time.
Recommendation: We recommend that the Organization implement the following corrective
actions:
1. Develop and Implement a Written Cost Allocation Policy – Establish a
formal policy outlining the methodology for allocating shared costs and
personnel time across programs, especially in instances where allowable
costs exceed amounts allocated for reimbursement, ensuring compliance
with 2 CFR Part 200 cost principles.
2. Document Allocation Methodologies for Shared Costs – Ensure that
allocations for shared costs (e.g., rent, utilities, and administrative expenses)
are based on a reasonable and documented methodology that can be
reviewed and reperformed.
3. Retain Evidence of Implementation of Internal Controls - Implement review
and approval controls over all requests for reimbursement, including review
and approval of allocation of personnel and shared costs to specific funding
sources. In circumstances where costs can be appropriately allocated to
multiple funding sources, document the rationale for allocating the specific
amount to each funding source.
AIDS Arms, Inc. dba Prism Health North Texas and Subsidiary
Schedule of Findings and Questioned Costs
For the Year Ended December 31, 2023
SECTION III - SUMMARY OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (continued)
Views of responsible
officials:
Management respectfully disagrees with this Finding.
Under Condition, the finding states, “Time and effort is being tracked and
maintained by employees, including hours charged to the specific efforts for the
programs.…” This is not accurate. Employees report their time worked each
day, including the amount of time they worked on different projects if
applicable. Employees report this in our commercial HRIS/Payroll system,
where it is maintained and where it is reviewed and approved by the employee’s
manager. The employees report the time they worked and which project(s) they
worked on, their managers review and approve the time and the distribution, and
the data is tracked and maintained in our HRIS/Payroll system (ExponentHR).
Also under Condition, the finding states, “The specific amount of employee
salaries and wages that are allocated to specific federal programs for
reimbursement, and which are less than the amounts reflected in time and effort
records, are determined by members of the finance staff.” It is correct that we
would have to invoice sponsors for less than the total cost of an employee’s
allocated time and effort if a sponsor’s budget is not sufficient to cover that full
amount. This is the correct procedure to follow. Employees correctly continue
documenting their hours worked on a specific project even if the budget is
expended and the accounting staff can no longer bill the sponsor. If a particular
grant does not have sufficient sponsor funds, then the Grants Accounting staff
reduce the bill accordingly.
Also under Condition, the finding states, “The rationale for the amount actually
allocated for reimbursement, if less than the amount reflected in time and effort
records, is not documented”. This is incorrect. Our monthly invoices to each
sponsor accumulate, with each invoice clearly showing not only that month’s
expense but also the year-to-date expense and remaining balance, which forces
the sponsor invoice to stop at an amount less than the total cost of employees’
time and effort when the budget is exhausted.
Also under Condition, the finding states, “Review and approval of the allocation
of employee compensation to specific federal programs reimbursement requests
is not maintained.” Each employee records their hours worked, and the
project(s) on which they worked those hours, in our HRIS/Payroll system. The
employee’s manager reviews and approves both the hours worked and the
projects on which the hours were worked. This review and approval is
maintained in our HRIS/Payroll system. Financial staff calculate the amount to
allocate to specific federal programs based on these HRIS/Payroll system records
(or other records such as clinical units produced, based on the terms of each
grant). Separate accounting staff review the sponsor invoice and post the
Receivable once they deem the invoice correct.
Under Cause, the finding states, “…..the Organization has not implemented a
structured process for documenting the extent to which allowable [emphasis
added] compensation costs will be allocated for reimbursement to specific
federal programs in instances where the allowable compensation cost exceeds
the amount allocated for reimbursement.” This means that we do not have a
AIDS Arms, Inc. dba Prism Health North Texas and Subsidiary
Schedule of Findings and Questioned Costs
For the Year Ended December 31, 2023
SECTION III - SUMMARY OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (continued)
process for documenting how much of a payroll expense already deemed
allowable on a particular grant will actually be invoiced there. We disagree and
believe that the presence and documentation of a limited sponsor budget, along
with cumulative tracking and documentation of compensation expenses against
that budget, proves and documents why sometimes full compensation costs are
not charged to a grant.
Under Possible Effect, the finding addresses possible effects of “the absence of
documented allocation methodologies.” We don’t agree that our process could
lead to improper allocation between federal programs (as the finding states) nor
to misstating federal expenditures (as the finding states). When a sponsor’s
budget is insufficient to cover its appropriately allocated compensation costs,
those costs are paid from unrestricted, non-federal funds. As also noted in the
finding, no questioned costs were identified.