Finding 8074 (2023-002)

Significant Deficiency
Requirement
A
Questioned Costs
$1
Year
2023
Accepted
2024-01-10
Audit: 10627
Auditor: Bdo USA

AI Summary

  • Core Issue: The Agency incorrectly calculated indirect costs as 10% of total costs instead of the required 10% of modified total direct costs for two contracts, leading to noncompliance.
  • Impacted Requirements: This finding violates the Code of Federal Regulations Sections 200.414(f) and 200.303 regarding consistent application of the de minimis rate and effective internal controls.
  • Recommended Follow-Up: Implement policies and procedures to ensure proper rate calculations for federal grants and establish controls to consistently follow these procedures.

Finding Text

Criteria: The Code of Federal Regulations Section 200.414(f) states that non-federal entities may elect to charge a de minimis rate of 10% of modified total direct costs (MTDC), which may be used indefinitely. If chosen, this methodology once elected must be used consistently for all federal awards. Additionally, the Code of Federal Regulations Section 200.303, Internal Controls, states that a non-federal entity must (a) establish and maintain effective internal control over the federal award that provides reasonable assurance that the non-federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Condition: During our testing of indirect costs, we noted that three of the 25 drawdown requests sampled calculated indirect costs as 10% of total costs instead of calculating indirect costs as 10% of modified total direct costs, as elected by the Agency, totaling $29. The sample of 25 drawdown requests relates to multiple awards; however, the three drawdown requests using the incorrect indirect cost rate calculation relate to two contracts passed through the City of Chicago Department of Family and Support Services, Global PO 180897 and Global PO 181205. Cause: When the Agency elected the de minimis rate, the Manager of Grants and Contracts did not update the indirect cost rate calculation for two contracts to apply the de minimis rate. Effect: Management’s controls did not detect and timely correct the error identified in the condition above allowing the Agency to over-claim indirect costs related to federal awards. This resulted in noncompliance with federal requirements. Known Questioned Costs: $537 Context: We tested a sample of 25 items from a population of 492 items, totaling $30,955,994 and found three exceptions as noted in the condition, resulting in likely questioned costs of $29 and known questioned costs of $537. This is a condition identified per review of the Agency’s compliance with specified requirements using a statistically valid sample. Repeat Finding: This is not a repeated finding. Recommendation: We recommend the Agency implements policies and procedures in place to address rate changes applicable to federal grants and have controls in place to ensure those policies and procedures are followed on a consistent basis. Views of Responsible Officials: Historically, one small City of Chicago Department of Family and Support Services award had a lower cap on administrative costs than the Agency’s negotiated indirect cost rate. As a result, the Agency applied the lower rate of 10% of total costs to that grant. However, when the Agency’s request to elect the de minimis rate for indirect costs was approved for FY23, the grant’s administrative cost cap was no longer lower than the indirect costs calculated using the de minimis rate. At that time, we should have changed our indirect cost calculation methodology, but that change was not effectively implemented, and this error was not detected due to the very small impact of the error on revenue. The performance period of the grant affected by this error concluded on November 30, 2022, and all active awards are using the correct indirect cost calculation. As soon as this error was detected, the Agency issued a refund to the funder for the total over-claimed indirect cost amount.

Corrective Action Plan

Management’s Corrective Action Plan Management takes its responsibility to maintain effective internal control over the federal award that provides reasonable assurance that the agency is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the award seriously and gave significant consideration to what additional controls would be effective to ensure the proper amount of indirect costs are charged to all federal grants. To prevent another occurrence, the organization will: On October 17, 2023, the agency refunded the indirect costs that were overbilled in error. By December 31, 2023 and annually thereafter, the Director of Grants Management will provide training and technical assistance to all Grant Specialists and Grant Accountants on allowable costs, including detailed training on proper determination of indirect costs for each grant. This training will also be incorporated into the onboarding process for any new grant staff. Continue its current policy that the Director of Grants Management complete a detailed review of each grant reconciliation monthly, to ensure all costs charged to the grant are reasonable and necessary for the performance of the award. This review will include appropriate tests of indirect costs including ensuring the appropriate indirect cost base is used, all items required to be excluded from the indirect cost base are excluded, and the appropriate indirect cost rate is applied to the indirect cost base. Continue its monthly analytical review to test the reasonableness of grant revenue relative to grant-funded expenditures. At least twice annually, the Controller will complete a second detailed, documented review of each grant reconciliation to ensure all costs charged to the grant are reasonable and necessary for the performance of the award, which will also include appropriate tests of indirect costs. At the end of each award cycle, the CFO will complete a third detailed, documented review of each grant reconciliation to ensure all costs charged to the grant are reasonable and necessary for the performance of the award, which will also include appropriate tests of indirect costs. Going forward, should indirect rates or methodologies change for any award, the CFO will review the grant reconciliation the first month following the effective date of the change to ensure the change has been properly implemented.

Categories

Questioned Costs Cash Management Period of Performance Matching / Level of Effort / Earmarking Internal Control / Segregation of Duties

Other Findings in this Audit

  • 8068 2023-001
    Significant Deficiency
  • 8069 2023-001
    Significant Deficiency
  • 8070 2023-001
    Significant Deficiency
  • 8071 2023-001
    Significant Deficiency
  • 8072 2023-001
    Significant Deficiency
  • 8073 2023-001
    Significant Deficiency
  • 8075 2023-002
    Significant Deficiency
  • 8076 2023-002
    Significant Deficiency
  • 8077 2023-002
    Significant Deficiency
  • 8078 2023-002
    Significant Deficiency
  • 8079 2023-002
    Significant Deficiency
  • 584510 2023-001
    Significant Deficiency
  • 584511 2023-001
    Significant Deficiency
  • 584512 2023-001
    Significant Deficiency
  • 584513 2023-001
    Significant Deficiency
  • 584514 2023-001
    Significant Deficiency
  • 584515 2023-001
    Significant Deficiency
  • 584516 2023-002
    Significant Deficiency
  • 584517 2023-002
    Significant Deficiency
  • 584518 2023-002
    Significant Deficiency
  • 584519 2023-002
    Significant Deficiency
  • 584520 2023-002
    Significant Deficiency
  • 584521 2023-002
    Significant Deficiency

Programs in Audit

ALN Program Name Expenditures
10.553 School Breakfast Program $117,370
93.667 Social Services Block Grant $74,453
10.558 Child and Adult Care Food Program $70,411
93.870 Maternal, Infant and Early Childhood Home Visiting Grant $23,536
84.126 Rehabilitation Services_vocational Rehabilitation Grants to States $11,754
21.027 Coronavirus State and Local Fiscal Recovery Funds $10,207
10.579 Child Nutrition Discretionary Grants Limited Availability $8,128
93.600 Head Start $7,123
10.555 National School Lunch Program $628