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FINDING 2022-001 Subject: Headstart Cluster ? Allowable Costs/Cost Principles Federal Agency: Department of Health and Human Services Federal Program: Headstart CFDA Number: 93.600 Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Significant Deficiency Condition: An effective internal control system was not in place at Paladin, Inc. in order to ensure compliance with requirements related to theCost Principles/compliance requirements. Paladin, Inc. had not designed an adequate policy or procedure to ensure that the mileage rate used for reimbursement matched Paladin?s rate. Context: The lack of sufficient internal controls was an isolated issue involving two employees sporadically during the audit period Criteria: 2 CFR 200.475(a) states in part: ?Travel costs are the expenses for transportation, lodging, subsistence, and related items incurred by employees who are in travel status on official business of the non-Federal entity. Such costs may be charged on an actual cost basis, on a per diem or mileage basis? provided the method used results in charges consistent with those normally allowed in like circumstances in the non-Federal entity?s non-federally-funded activities and in accordance with non-Federal entity?s written travel reimbursement policies?? Cause: Management of Paladin, Inc. had not developed or implemented a system of internal controls to ensure compliance with the compliance requirements listed above. Effect: The failure to establish an effective internal control system placed Paladin, Inc. at risk of noncompliance with the compliance requirements listed above. A lack of consistent oversight within an internal control system could have also allowed noncompliance with the compliance requirements and could have allowed the mismanagement of Federal funds and assets by lacking proper oversight, reviews, and approvals over the activities of the programs. Questioned Costs: There were no questioned costs identified. Recommendation: We recommend Paladin Inc.?s management establish a system of internal controls to ensure compliance with thecost Principles compliance requirements. Views of Responsible Officials: For the views of responsible officials, refer to the Corrective Action Plan that is part of this report