Common Audit Findings And How to Avoid Them

Common Audit Findings And How to Avoid Them Lisa Negri, Chief Auditor February 7, 2019 California Energy Commission

Welcome • Housekeeping • Hand Out • Questions

Purpose • Overview of Audits, Investigations, and Program Review • Information presented is based on results from prior grant audits • Goal is to help recipients avoid mistakes • Focus on grant expenditures • Based on Criteria

Disclaimer • Information presented is from an auditor’s perspective • Should always consult your attorney and accountant

Indirect Expenditures • Definition– OMB 200. 56 those costs incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved.

Indirect Expenditures • Method for the whole company • Indirect Cost Pools • Allocation Basis

Indirect – What Can Go Wrong • • • No Allocation Plan or documentation to support rate Allocation Plan based on estimates not actual expenditures Supported rate per the plan is less than the rate claimed Allocation method used to claim indirect is different than actual method Indirect Cost Pools contain expenditures claimed as direct costs, i. e. double billing Unallowable costs included Includes direct costs for other cost objectives Not updated each year 100% allocated to the grant

Labor Expenditures • Hourly Rates – Calculated using payroll documentation and/or W-2 s • Project Hours – Strong Internal Controls – All Hours Tracked

Labor – What Can Go Wrong • Claimed hourly rates that are higher than the actual hourly rate • Claimed hourly rates that are “loaded”, i. e. include fringe benefits and other costs • Claimed overtime hours for salaried employees • Claimed hours are not supported by timesheets • Missing timesheets

Fringe Benefits • Fringe Benefits are the additional costs paid by the Recipient to either provide benefits to employees such as medical insurance or are required to employ staff such as payroll taxes. • Unsupported fringe benefit expenditures – Claimed rate not supported – Including expenditures not properly classified as fringe benefits

Other Expenditures • Expenditures paid for equipment, materials, and subcontractors • Common Findings: – Incurred prior to beginning of grant – Incurred, but not paid – Expenditure claimed, but goods or services not received

In-Kind Match • Match that is provided by a 3 rd party such as a subcontractor, or is based on the value of assets either donated or that are already owned by the recipient • If provided by a 3 rd party, should be spelled out in the contract and on invoices • If based on assets owned or donated, must be able to verify Fair Market Value of the asset for the period the asset is actually used

Deliverables • Each grant task includes a list of products • Failure to provide products may be considered to be a material non-compliance • Non-compliance may result in reduced or remitted grant funds

Sources • Grant agreement, all exhibits • Office of Management and Budget Federal Cost Principles • Federal Acquisition Regulations • California Department of Finance Bond Accountability Guide

Questions?