Finding Text
#2022-006 - Major Federal Award Finding - Allocation of Costs
Nature of Finding: Compliance Finding - Allowable Costs and Material Weakness in Internal Controls Over Compliance
Criteria/Condition: Federal regulations 2 CFR 200.405 provide that costs benefiting two or more projects in proportions that can be easily determined must be allocated to the projects based on the proportional benefit. If proportions cannot be easily determined, the costs may be allocated to the benefitted projects on a reasonable and documented basis.
Questioned Costs: Not able to be determined.
Identification of How Questioned Costs Were Computed: Of the major program expenditures selected for testing, certain costs charged to the major program appear to be under-allocated, while others appear to be over-allocated to the major program. These matters are not isolated or contained to any particular type of expenditure. There was no meaningful methodology identified to quantify or extend the errors to the population.
Cause/Context: Controls were not in place to evaluate the allocation of costs to grants based on proportional benefit provided to each grant. For 5 of the 40 expenditures selected for testing, costs were divided arbitrarily when charged to grants. No documented support for the allocation methodology was present.
Effect: Expenditures that involve an allocation of costs between grants are not supported. The lack of controls results in questioned costs as a disproportionate amount of expenditures may be charged to the federal program.
Recommendation: We recommend management establish procedures and controls to allocate costs between grants based upon actual costs attributed to the grant and the particular expenditure allowed by the grant. Any such allocations should be supported by activity-level substantiation and be reviewed. Documentation of the allocation methodology, review and approval should be maintained.
Views of Responsible Officials and Planned Corrective Actions: MARR will retain a CPA consultant to recommend to management the establishment of procedures and controls allocate costs between grants based on actual costs attributed to grant and the particular expenditure allowed by the grant. All such allocations will be supported by activity-level substantiation and be reviewed. Documentation of the allocation methodology, review and approval will be maintained in writing.