Federal Assistance Manual Chapter 6-70

CHAPTER 6-70 PROJECTION OF COST DISALLOWANCES RESULTING FROM SYSTEMS DEFICIENCIES REPORTED BY AUDIT

• 6-70-00 Purpose
  
• 6-70-10 Background
  
• 6-70-20 Policy

6-70-00 PURPOSE

This chapter provides consistent OSM guidance regarding the projection of cost disallowances to periods before and after a system deficiency is found by auditors. This chapter applies to: (1) audit findings which cite deficiencies in a recipient's management system and which result in a dollar settlement on an organization-wide basis; and (2) other findings which involve the use of statistical sampling or other projection techniques in determining dollar settlements.

6-70-10 BACKGROUND

Deficiencies in an organization's overall management system are sometimes cited in audit reports, which raise questions about the propriety of costs charged to OSM awards. Examples of these deficiencies include inadequate payroll distribution systems, undocumented cost transfers and the like. Since the deficiencies relate to the organization's overall operations rather than to specific grants or cooperative agreements, their impact on charges to the awards is often difficult to determine.

6-70-20 POLICY

When deficiencies in an organization's management system are reported by audit, primary emphasis shall be placed on ensuring that the deficiencies are adequately corrected. If cost disallowances are made, they shall be limited to costs incurred during (a) the organization's three fiscal years immediately preceding the starting date of the audit, and (b) subsequent periods up to the date the deficiencies are corrected.

Example:

Date audit started: December 12, 1997
Organization's fiscal year: July 1 through June 30
Date deficiencies corrected: July 1, 1998
Limitation on cost disallowances: July 1, 1994, through June 30, 1998

FEDERAL ASSISTANCE MANUAL
January 2, 1998