Many nonprofit organizations that receive grants from the federal government require a single audit for assurance that the organization is in compliance with the Uniform Guidance requirements. Quite often these audits result in one or more findings that the organization must address. Of the 12 compliance requirements, there are four under which most audit findings fall. These frequent trouble spots are allowable costs; procurement, suspension and debarment; reporting; and sub-recipient monitoring. This article is the first in a 4-part series that will focus on these common findings; here we will address allowable costs.
The most common problems in this area stem from an organization’s failure to review or update allocation bases for indirect costs, or failure to submit them to the appropriate federal oversight agency. This issue can be resolved simply by having the right controls in place and establishing a process for thorough review and timely submission of the allocations.
Other common findings include those related to payroll allocations and unallowable direct costs. Auditors often find that organizations are allocating payroll to federal grants based on a budget for time spent. This is a violation of the regulations, as the Uniform Guidance requires that payroll be allocated based on the actual time spent working on the program to which the federal funds relate. In many organizations, the systems used to track hours can make it more difficult to allocate payroll as required. Even if that is the case, there will still be a finding if payroll is allocated based on a budget. To avoid this problem organizations should ensure that timesheets allow employees to document their actual hours spent on various programs and administrative work.
Auditors also often identify unallowable costs such as alcohol, penalties, advertising or lobbying. Frequently this finding stems from a simple lack of awareness within the organization regarding what does and does not qualify as an allowable cost. To build awareness of the distinction, organizations should encourage staff to use and frequently refer to resources that clearly define allowable costs. Unallowable costs that apply to all federal awards are listed in Subpart E of Title 2 Part 200 in the Code of Federal Regulations. Another place to look is Part 4 of the Compliance Supplement.
Some expenses that may be generally allowed under the Uniform Guidance are disallowed under the terms of an individual grant. For that reason, it is especially important that organizations scrutinize grant agreements carefully to identify any costs that may be unallowable for that specific grant. Organizations that accept multiple grants with differing expense allowances must take care to maintain clear records that allow separate accounting for each grant.
To avoid findings in your next audit, take initiative by implementing policies and procedures that will ensure compliance with all applicable requirements. If you need assistance, the nonprofit professionals at HBP are always available to answer your questions. Stay tuned for the next article in this series, where we’ll focus on audit findings related to procurement, suspension and debarment.
Written by Allison Griesbach, Senior Accountant