So we’ve talked a lot about keeping grant funds from being misused. Let’s shift gears and look at a real life case study from the Office of the Inspector General:
Organization Claimed Unallowable Grant Costs for Expenditures under the Recovery Act
The Office of the Inspector General for the Department of Health and Human Services found that an organization receiving federal funds under the American Reinvestment and Recovery Act charged the federal government for $22,602 of fringe benefit costs that were unallowable under the federal Cost Principles regulations and had another $122,000 set aside for review and possible disallowment of costs.
Wow, over $144,000 in potential disallowed costs and repayment of federal funds. Ouch!
What type of costs were disallowed or set aside?
$22,602 of fringe benefit costs were unallowable
• $28,796 of salaries and wages were set aside because the costs were based on budget estimates
• $21,789 of fringe benefits related to the set-aside salaries and wages
• $71,415 of shared costs because the costs were not allocated to the programs in reasonable proportion to the benefits received.
What were the main issues?
The main issues had to do with labor tracking of administrative and program employees,
Big no-no #1: Timesheets were adjusted to match the program budget
Timesheets were kept for each employee, but after the fact, timesheets were adjusted to match the program budget, rather than submitting actual costs incurred.
Big no-no #2: Timesheets didn’t show where the time was spent-on the program or not?
Timesheets didn’t track the hours worked specifically on the federal grant so it was impossible to determine what the correct amount of time charged should have been.
Big no-no #3: Not knowing what really made up the charges
The $22,602 was unallowable because the organization didn’t have supporting documentation to justify the charges made. Officials said they didn’t know how these fringe benefits were calculated and whether they should have been charged to the award. They believed that a previous officer charged fringe benefits so they could “use up” the rest of the grant funds available under the award.
What is required for a federal award?
Remember, the federal cost principles state that charges to awards for salaries and wages must be supported by personnel activity reports that reflect an after-the-fact determination of the actual activity of each employee. Budget estimates by their very nature are determined before the services are performed.
You must document spending
Next the cost principles state that costs must be reasonable for the performance of the award and adequately documented to be allowable to charge an award. It is not considered reasonable nor adequate documentation to just charge the grant based on budget numbers, it must be actual allowable costs.
Don’t be a cost- shifter
Costs must be attributable to the grant in reasonable proportion to the benefit received. Shifting costs to other Federal awards to overcome funding deficiencies or to avoid restrictions is not allowed.
A thorough understanding of what is required by the federal cost principles for labor and salaries and related fringe benefits could have eliminated this whole unfortunate situation. How about you? Do you see any of these “no-no’s” happening at your organization?
Do you work for a non-profit organization?
Here’s one of our handy reference guides: Labor Reporting-Key Points for Non-profit Organization for you to download.
Read more of the Office of the Inspector General report:
Lucy Morgan CPA, MBA
CEO, Compliance Warrior