San Joaquin Council of Governments - Fiscal Year 2017-18
P1580-0028
Indirect Cost Allocation Plan
Issued: 5/14/2019
At the request of the Independent Office of Audits and Investigations, the California Department of Finance, Office of Audits and Evaluations (Finance) completed an audit of the San Joaquin Council of Governments' (SJCOG) Indirect Cost Allocation Plan (ICAP) for fiscal year 2017 /18. The purpose of the audit was to determine whether the ICAP was presented in accordance with Title 2 Code of Federal Regulations (CFR) Part 200 and Caltrans Local Assistance Procedures Manual (LAPM) Chapter 5. In addition, the audit was performed to determine whether SJCOG had an adequate financial management system, which includes procurement, in accordance with 2 CFR 200 and LAPM Chapter 10. The complete audit report is attached.
Based on the audit, Finance determined that SJCOG's ICAP was not in compliance with 2 CFR 200. Finance found weaknesses in SJCOG's financial management system and identified unallowable costs that impacted the indirect cost rate. In addition, Finance identified unallowable overpayments to SJCOG in two fiscal years totaling $535,042. Below is the audited indirect cost rate. SJCOG will need to reconcile their FY 2017 /18 billings to the California Department of Transportation (Caltrans) using the audited rate and reimburse Caltrans the difference.
Rate Type
Indirect Cost
Previously Accepted Rate
168.29%
Audited Rate
160.69%
In addition, SJCOG will need to reimburse Caltrans for the overpayments identified above.
Please provide our office with a corrective action plan addressing all the recommendations in the audit report, including time lines, by July 17, 2019.
SJCOG Response to Audit Findings
Based on the procedures performed and evidence obtained, it was determined SJCOG's
2017-18 ICAP was not in compliance with 2 CFR 200 and LAPM. Weaknesses were
identified in SJ COG' s financial management system's ability to accumulate and
segregate reasonable, allowable, and allocable project costs as noted in Finding#!.
Additionally, as described in Finding #2, unallowable costs were identified that
impacted the 2017-18 ICAP rate and recommend a rate change decrease of 7 .6 percent
as identified in Table 1 below. No change to the fringe benefit rate was identified.
Further, a review of the 2017-18 actual direct labor costs as noted in Finding #3 could
impact SJCOG's ICAP for 2019-20 when submitted.
Table 1- Summary of Accepted and Audited 2017-18 ICAP and Fringe Benefit Rates*
Rate Type
ICAP
Accepted Rate
168.29%
Audited Rate
160.69%
Difference
(7.60%)
Rate Type
Fringe Benefit
Accepted Rate
62.02%
Audited Rate
62.02%
Difference
(0%)
*The ICAP and Fringe Benefit Rates submitted by SJCOG was approved by Caltrans on April 26, 2018.
Finding 1: Inadequate and Inconsistent Internal Practices
Recommendations from IOAI
A. Develop procedures that defines appropriate charging practices for direct and indirect activities.
B. Develop review procedures to ensure direct billing to Caltrans are based on actual labor costs incurred.
C. Obtain Board approval for internal policies and ensure those policies, such as the time keeping and education reimbursement, are consistently adhered and applied.
SJCOG Response
SJCOG Management does not disagree with the findings and reports:
A. Procedures are being developed and published defining appropriate charging practices for direct and indirect activities.
B. Procedures have been developed to ensure direct billing to Caltrans are based on actual labor costs incurred.
C. The necessary steps have been implemented to obtain Board approval for internal policies and ensure those policies, such as the time keeping and education reimbursement, are consistently adhered and applied.
Recommendation From IOAI
A. Adjust the 2015-16 actual indirect cost pool by $146,512 for the unallowable costs and ensure these costs are not included in future indirect cost pools. In addition, SJCOG must reconcile their 2017-18 billings using the audited rate of 160.69 percent and reimburse Caltrans any overpayments.
B. Review all indirect accounts to ensure costs are in compliance with 2 CFR 200, properly segregated between direct, indirect, and unallowable costs, and supported by original source documentation.
C. Ensure SJ COG' s travel policies and procedures and MFT A provisions related to travel are
adhered.
SJCOG Response
A. SJCOG Management is generally in agreement with the determination that certain office expense items and professional and special service items have been deemed unallowable. Purchasing procedures have been implemented with items separated at point of purchase to ensure allowable items are charged separately Regarding the facility related charges, SJCOG believes, after previous negotiations with Caltrans determining the 3rd floor was being used for storage, we appropriately were including associated costs in the indirect cost calculation. Notwithstanding, SJCOG has agreed to the terms in the finding. The necessary steps have been implemented to adjust the 2015-16 actual indirect cost pool by $146,512 for the unallowable costs and ensure these costs are not included in future indirect cost pools. In addition, SJCOG must reconcile their 2017-18 billings using the audited rate of 160.69 percent and reimburse Caltrans any overpayments.
B. The necessary steps have been implemented to review all indirect accounts to ensure costs follow 2 CFR 200, properly segregated between direct, indirect, and unallowable costs, and supported by original source documentation. SJ COG continues to assert that a portion of membership dues for the Self-Help Counties Coalition and National Association of Regional Councils should be allowable indirect costs. SJCOG has provided documentation from both the SHCC and NARC executive directors quantifying the amount of "lobbying" undertaken by their respective organizations. This was provided to the auditors during their field work. Those documents are attached.
C. The necessary steps have been implemented to ensure SJCOG's travel policies and procedures and MFTA provisions related to travel are adhered to. Additionally, SJCOG will be holding a workshop for employees reviewing travel policies and procedures.
Finding 3: Unallowable Direct Labor Costs
Recommendation from IOAI
A. Reimburse Caltrans for overpayment of $305,519 in unallowable costs for 2015-16 and $229,523 for 2017-18.
B. Ensure personnel responsible for preparing and reviewing billings are familiar with each work element's eligible tasks and report accurate QPRs accordingly ..
SJ COG Response
SJCOG Management does not disagree with the findings and reports:
A. The necessary steps have been implemented to reimburse Caltrans in the amount of $305,519 for 2015-16 and $229,523 for 2017-18
B. The necessary steps have been implemented to ensure personnel responsible for preparing and reviewing billings are familiar with each work element's eligible tasks and report accurate QPRs accordingly.