«Audit Report Consumer Federation of America Foundation - Costs Claimed Under EPA Cooperative Agreements CX825612-01, CX825837-01, X828814-01, ...»
The Federation also stated that it did account for lobbying costs. Individuals who engaged in lobbying activities submitted a record of the time spent on those activities twice a year. Lobbying expenses were excluded from the indirect expense pool and therefore not claimed for recovery under any Federal award.
We disagree with the recipient’s contention that it properly accounted for costs associated with its membership, lobbying, and public outreach activities. Even though required by OMB Circular A-122, Attachment A, subparagraph B(4) and OMB Circular A-122, Attachment B, Paragraph 25, the recipient did not treat all costs associated with its membership, lobbying, and public outreach activities as direct costs.
The recipient operates a membership program and maintains a membership list identifying over 300 current members. In order for the recipient to operate the membership program, it incurs costs to: (1) administer the program; (2) collect membership dues; (3) submit publications and e-mailed information; and (4) provide technical assistance to members. The recipient’s accounting system should have been designed to accumulate costs related to these activities as direct costs. The regulation further states that costs of activities performed primarily as a service to members or the general public must be treated as direct costs.
For instance, in reviewing the recipient’s single audit reports for the fiscal periods 1997 through 2001, we noted that the recipient received membership dues totaling $930,711.
Yet the recipient did not identify any direct expenses associated with its membership activities. In fact, the recipient’s indirect cost rate proposal for fiscal period 2002 identified membership activities as an indirect expense.
With respect to lobbying, the recipient stated that the individuals who engaged in lobbying activities submitted a record of time spent on those activities twice a year. It is true that the recipient reported total lobbying expenses twice a year to the United States Senate, however, the recipient did not provide support as to where these costs were accounted for in the accounting system. The lobbying reports were submitted for years 1998 through 2002 and were for direct lobbying of covered executive branch officials or covered legislative branch officials. During this period, the recipient reported that it expended $940,000 in direct Federal lobbying costs and had 17 lobbyists.
Further, the recipient’s accounting system did not specifically identify lobbying expenses, except an annual awards dinner, which were treated as a direct cost and excluded from the indirect cost pool. There was no evidence that the 17 lobbyists had specifically identified their salary costs as a direct cost. For example, we noted in reviewing the recipient’s 2002 indirect cost rate proposal that the Federation’s legislative director and the legislative assistance both accounted for 100 percent of their time as indirect.
In addition, the provisions of OMB Circular A-122, Attachment B, Paragraph 25, provides that when an organization seeks reimbursement for indirect costs, total lobbying costs7 shall be separately identified in the indirect cost rate proposal, and thereafter treated as other unallowable direct costs. Lobbying costs are treated as a direct cost in order to calculate the indirect cost rates and allocate a proportionate share of indirect costs to the recipient’s lobbying activities.
Most importantly, the recipient’s certified public accountant indicated that the recipient’s financial management system was not structured to allow for the treatment of lobbying and membership activities, or public outreach efforts, like preparing and distributing publications, as direct cost objectives. Most of these costs were included as indirect costs although some lobbying and membership costs derived from an annual awards dinner were treated as a direct cost, but this amount was small compared to what the recipient reported as a lobbying expense each six-month period.
Consequently, accounting of membership, lobbying, and public outreach activities remained unidentified and commingled with the Federation’s other indirect costs, and were not allocated an equitable share of indirect costs as required by OMB Circular ATotal lobbying costs under the provisions of OMB C ircular A-122, Attachment B, Paragraph 25, includes those lobbying efforts at the state and local level as well as grass-roots lobbying.
Unsupported Labor Costs The recipient did not maintain support for its salaries and wages as required by OMB Circular A-122. As a result, we were unable to determine whether labor costs recorded in the recipient’s general ledgers were allowable.
Title 40 CFR 30.27 provides that nonprofit organizations shall follow the provisions of
OMB Circular A-122 for determining allowable costs. That Circular requires that:
(1) charges to awards for salaries and wages, whether treated as direct costs or indirect costs, will be based on documented payroll approved by a responsible official(s) of the organization; and (2) labor reports reflecting the distribution of activity of each employee must be maintained for all staff members (professionals and nonprofessionals) whose compensation is charged, in whole or in part, directly to awards. Reports maintained by
nonprofit organizations to satisfy these requirements must meet the following standards:
• The reports must reflect an after-the-fact determination of the actual activity of each employee. Budget estimates (i.e., estimates determined before the services are performed) do not qualify as support for charges to awards.
• Each report must account for the total activity for which employees are compensated and which is required in fulfillment of their obligations to the organization.
• The reports must be prepared at least monthly and must coincide with one or more pay periods.
The recipient’s time distribution system did not meet the minimum requirements of OMB Circular A-122, Attachment B, as required by Title 40 CFR 30.27. In fact, the recipient did not require its personnel to fill out time sheets. Even though some of the employees prepared time sheets, the recipient used budget estimates, which were determined before services were performed, as support for labor costs claimed under the agreements.
Without an adequate labor distribution system, the reported labor costs were not allowable under the agreements.
The recipient had a complete set of time sheets meeting the requirements of Attachment B, subparagraph 7(m) for the three individuals whose time constituted approximately 70 percent of the labor hours charged to the cooperative agreements for the period covered by the audit. In addition, at the request of EPA, the individuals who supplied almost all the remaining labor hours prepared activity reports that recorded time spent on activities charged to the cooperative agreements.
The recipient recognized that budget estimates were used to support the claimed labor costs, rather than the time sheets prepared by the individuals. The recipient instituted a revised time-keeping system that included a revised time sheet and required all invoicing for labor be based exclusively on the time sheets and the record of time actually spent on various activities.
Auditor’s Reply We disagree that the recipient had a complete set of time sheets meeting the requirements of OMB Circular A-122, Attachment B, subparagraph 7(m) for individuals who charged time to the cooperative agreements during the audit period. Some personnel completed time sheets reflecting hours worked on the cooperative agreements, yet the time sheets were not prepared at least monthly from August 1996 through 20028, which is required by Federal regulations. Other personnel who charged time to the cooperative agreements, including the executive director, never completed the required time sheets. In addition, one employee went back and summarized total hours worked on the EPA cooperative agreements from 1997 through 2002, however, the summary spreadsheet only identified the EPA cooperative agreements and not the total activities for which the employee was compensated, which is also required by Federal regulations.
OMB Circular A-122 specifically states that the reports (time sheets) must reflect an after-the-fact determination of the actual activity of each employee. Budget estimates do not qualify as support for charges to awards. The recipient agreed that it used budget estimates to support claimed labor costs rather than the few time sheets that were prepared. A recipient official mentioned that prior to 2003, the time sheets were reviewed only to compute the personnel budgets for the ensuing award amendments.
In summary, all labor costs claimed during our audit scope were based on budget estimates, which OMB Circular A-122 prohibits. Therefore, we were unable to determine whether the claimed labor costs recorded in the general ledger were allowable to the EPA cooperative agreements.
Unreconcilable Reported Costs
The recipient could not reconcile the reported costs by cost element with the general ledgers. Title 40 CFR 30.21(b) provides that the recipient’s financial management system shall provide for accurate, current, and complete disclosure of the financial results of each Federally sponsored project or program in accordance with the reporting requirements set forth in Title 40 CFR 30.52. It also states the system shall provide for a comparison of outlays with budget amounts for each award.
Prior to 2001, the recipient’s general ledger did not account for the various cost elements
identified in the agreements. The general ledger included only three cost elements:
personnel, overhead, and contractual. However, the agreements included budgeted amounts for salaries, travel, postage, contractual, and supplies. Consequently, a comparison of outlays with the budget amounts could not be made. In 2001, the general Our audit scope was August 1996 through December 2002.
ledger changed to provide sufficient information on all the cost elements in the agreements.
In reviewing the general ledgers, we noted that some contractual costs were mis-classified as either printing or personnel costs. This resulted in inaccurate totals for the cost elements, which made it impossible for the recipient to accurately compare budgeted versus actual costs incurred. One recipient official, who was responsible for the programmatic aspects of the agreements, maintained spreadsheets for the agreements that detailed expended costs for each of the cost elements identified in the approved budgets.
The spreadsheets were used by the recipient’s program official to prepare the financial reports that were submitted to EPA. However, the recipient did not and could not reconcile the spreadsheet with the recipient’s general ledger to ensure accuracy.
The recipient acknowledged that prior to 2001, a “comparison of outlays with budgeted amounts” could not be made using the Foundation’s general ledger. However, nothing in Title 40 CFR 30.21 (b) or OMB Circular A-110 requires that this comparison be made using the general ledger. The Foundation prepared job cost activity reports on a consistent basis for each of its cooperative agreements. These job cost activity reports accurately reflected the amounts expended on each cooperative agreement, allowing the required comparison of “outlays to budgeted amounts.” In regard to misclassified contractual costs, the Foundation stated that all contractual costs were properly classified on the general ledger. Since 1997, the classification of costs was tested as part of an OMB Circular A-133 audit conducted by an independent auditor and found to be satisfactory.
We agree that a recipient of Federal funds is not required to establish a new accounting system or subsystem to maintain financial data related to an assistance agreement or agreements. However, the recipient’s accounting system must be capable of providing the financial information required by the agreements. The recipient can maintain separate records of the agreements’ activities on worksheets and periodically reconcile the information to the general ledger. However, the recipient could not reconcile the job cost activity reports to the general ledger.