Finding Text
Type of Finding: Significant weakness in allocation of administrative costs for financial reporting.
Condition: For the major programs selected Dallas County System of Services, Inc. uses the de minimis 10% allocation of indirect administrative costs if indirect administrative costs are allowed for the grant. If not allowed for the grant, they are built in the approved grant budget at a rate lower than 10% allowed, so there is no reportable weakness for major programs. For financial reporting, there is no formal explainable allocation of administrative costs which could distort proper allocation of administrative costs. Costs are allocated for the administrative and accounting salaries at the budget level based on estimated time spent on programs and the remaining costs are posted to management and general for the program based on estimated non explainable allocations. Also noted in management and general, some costs that could be considered joint program costs (i.e. rent and occupancy for buildings which program supervisors are located) which could be spread to program costs of the grant based on square footages used by the program.
Criteria: Under the Uniform Guidance (2 CFR 200) the organization has elected the 10 percent de minimis cost rate. Normally if the de minimis rate is elected under Uniform Guidance requires that you use the Modified Direct cost as your cost base which the Organization does on its grant budgets for federal costs. However, for financial reporting purposes there is no formal explainable allocation of indirect (administrative) costs which could distort the cost to run each program of the organization.
Context: For financial reporting purposes the Organization is still using the same allocation method it used when there were only 4 grants with 1 large grant. With additional grants this allocation method may not be effective, and it is not easily explainable and there is no formal allocation of indirect costs to each program.
Cause: Additional grants received by the Organization made the old allocation method not effective and not explainable.
Recommendation: Come up with a formal allocation method to allocated indirect costs to each program using an explainable method (i.e. direct program costs to total direct costs) and review posting to administrative costs for joint program costs (i.e. Rent and Occupancy) and spread these costs to programs used based on an explainable method (i.e. square footage of program to total square footage).
Planned corrective actions
The organization agrees with the findings and will start implementing procedures to make their allocation of indirect costs using an explainable method allowed by uniform guidance and consistent with all programs.