Finding Text
Finding Number: 2021-001; Finding Type: Federal award finding and financial statement finding; Federal Assistance Listing No.: 16.556; Program Name: State Domestic Violence and Sexual Assault Coalitions; Federal Agency: U.S. Department of Justice; Pass-Through Entity: n/a; Grant Number: 2019-MU-AX-0017; Federal Award Year: 2021; Control Deficiency Type: Material weakness in internal controls over compliance and financial reporting; Instance of Noncompliance: Yes; Compliance Requirement: Allowable costs; Questioned Costs: None over $25,000; Repeat Finding: No;
Criteria: According to 2 CFR §200.414, an organization that does not have a current federally-negotiated indirect cost rate may either negotiate a rate with the pass-through entity or elect to charge a de minimis rate of 10% of Modified Total Direct Cost (“MTDC”). An organization must use an equitable distribution base to allocate its indirect and administrative costs. An organization using total direct costs as a distribution base must modify the base to exclude capital expenditures and other distorting items, such as subcontracts or subawards for $25,000 or more, rental costs, tuition remission, scholarships and fellowships, and participant support costs, in accordance with 2 CFR §200.68. The organization should have controls in place to ensure that indirect costs are charged uniformly to both federally funded activities and other activities of the organization, and the allocation methodology results in an equitable allocation of indirect and shared administrative costs.
Condition: The organization did not have a federally-negotiated indirect cost rate nor a negotiated rate with pass-through entities, and therefore, should have charged a de minimis rate of 10% of MTDC. Instead, the organization charged indirect costs using salary as an allocation base.
Cause: The organization did not have a proper understanding of the Uniform Guidance regulations governing the expenditure of federal funds.
Effect: The Coalition had to go back through the entire fiscal year and reallocate costs using the de minimis rate of 10% of MTDC. This resulted in adjustments to costs charged to Federal awards and other funding sources, and the related revenues recognized for cost reimbursement agreements.
Audit Recommendation: We recommend the Coalition develop a cost allocation plan for recovering direct and indirect costs. The cost allocation plan should be consistently applied to ensure that costs charged to grants and contracts are reasonable, adequately supported and the allocation methodology provides for an equitable allocation of direct and indirect costs. Documentation of the expense allocations, including support for the underlying expenses being allocated, and the determination of the allocation percentages used should be reviewed by a supervisor and maintained by the Coalition.
Management’s Response: The Coalition added an Administrative Cost Center to its General Ledger effective 10/01/22, the beginning of FY23 and began costing administrative payroll cost to that cost center. Additionally, the organization retrained administrative staff on direct cost allowable activities vs. administrative activities relative to timekeeping and timesheet preparation and the necessity of daily work descriptions supporting the hourly allocation. The Payroll policy that requires supervisors to review and sign off on timesheets and hourly allocations to cost centers was also reviewed. The Coalition is developing a formal cost allocation plan for recovery of direct and indirect cost using the 10% de minimis of MTDC. The allocation will be applied on a monthly basis and be incorporated in the annual budgeting process.