Finding Text
Criteria: Rents paid between the Agency and its subsidiary resulted in amounts charged to the program in amounts greater than the allowable amounts based on 2 CFR 200.465.
Condition: The Agency leases office space from its subsidiary, Capital Area Community Action Agency Holdings, Inc. (Holdings). Rental payments are based on a set monthly rate. However, rental costs under less-than-arm's-length leases are allowable only up to the amount of actual costs incurred to own the property. This amount would include expenses such as depreciation, maintenance, taxes, and insurance. Management calculation of rental costs included unallowable components such as loan principle, future planned repairs and maintenance, and the amortization of a future loan payment. These costs are not allowable under 2 CFR 200. Questioned Costs: $20,679 Effect: The Agency is out of compliance with the allowable costs principles concerning related party rental payments.
Cause: Management's interpretation of the allowable costs principles included various other costs such as principal payments, future repairs, and the amortization of future principle payments. Recommendation: The Agency should review its lease agreement and reconcile payments made to Holdings for allowable expenditures and determine if any amounts are due back to the grantor. The Agency should also amend their lease agreement to include only allowable costs. Management's Response: See the Management's Response to Findings section for management's detailed response to item 2022-002.