Finding Text
2023-005 – Allowable Costs/Cost Principles and Cash Management
Federal Program: Refugee and Entrant Assistance Program
Federal Agency: U.S. Department of Health and Human Services
Assistance Listing Number: 93.566
Repeat of Prior Finding: No
Type of Finding: Noncompliance and Material Weakness in Internal Controls Over Compliance
Criteria
In accordance Title 2 of U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Subpart D § 200.303 states the following regarding internal control:
“The 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. These internal controls should be in compliance with guidance in ‘Standards for Internal Control in the Federal Government’ issued by the Comptroller General of the United States or the “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). (b) Comply with the U.S. Constitution, Federal statutes, regulations, and the terms and conditions of the Federal awards. (c) Evaluate and monitor the non-Federal entity's compliance with statutes, regulations and the terms and conditions of Federal awards. (d) Take prompt action when instances of noncompliance are identified including noncompliance identified in audit findings (e) Take reasonable measures to safeguard protected personally identifiable information and other information the Federal awarding agency or pass-through entity designates as sensitive or the non-Federal entity considers sensitive consistent with applicable Federal, State, local, and tribal laws regarding privacy and responsibility over confidentiality.”
Additionally, 2 CFR Section 200 Subpart E outlines cost provisions, including what constitutes allowable costs, and permitted allocations of costs. To be allowable, costs generally must: be necessary and reasonable for the performance of the federal award and be allocable under the principles in 2 CFR Part 200, Subpart E; conform to any limitations or exclusions set forth in 2 CFR Part 200, Subpart E; be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-federal entity; be accorded consistent treatment; be in accordance with U.S. GAAP; not be included as a cost or used to meet cost-sharing or matching requirements; and must be adequately documented. Further, in accordance with cash management compliance requirements, expenses should be incurred prior to charging the grant.
Condition and Context
During our testing of certain cost reimbursement government contracts, it was determined that certain budgeted costs, including certain administrative and overhead line items, that were not actually incurred were billed by the Organization and reimbursed by the purchasing agency. The errors occurred, in part, because the Organization billed the maximum budgeted amount of administrative and overhead line items for certain contracts rather than the actual amount of costs incurred. Additionally, there was an instance where costs were not incurred prior to being billed.
Cause
The Organization had insufficient internal controls and policies to ensure that billings under cost reimbursement contracts did not exceed actual costs incurred (overbillings) and that billings are only submitted after expenses have been incurred.
Effect or Potential Effect
The Organization was not in compliance with the requirements for cost reimbursement contracting or recording in accordance with the Code of Massachusetts Regulations (CMR) and allowable cost principles set forth by the OMB (Office of Management and Budget) Uniform Guidance. This resulted in revenues that exceeded actual costs incurred of approximately $98,041. The overbillings resulted in a liability in that amount, subject to final adjustment by the Commonwealth of Massachusetts.
Questioned Costs
None noted.
Recommendation
We recommend the Organization establish internal controls and policies to ensure that costs which are not incurred are not charged to contracts and that costs are actually incurred prior to being charged to contracts.
Views of Responsible Officials and Planned Corrective Actions
Management agrees with the finding and recommendations. See the attached corrective action plan.