24 CAPTURE. COSTTREE 2016 Q3 ISSUE
NAVIGATING
THE
AUDIT
Reasonable - Ordinary and necessary to accomplish the purpose of the contract and comparable to market prices
Allowable - As per the 2 CFR Part 200 regulations, costs are identified by category as to whether they are allowable or unallowable—only allowable cost categories may be charged
Allocable - The expense must benefit the cost objective per the Scope of Work
Consistently Applied - You cannot switch methods to generate more revenue or treat one cost as direct for one contract and indirect for another
Documented - The methodology for allocating cost must be documented; this includes time studies and functional timesheets
The requirements that costs are allowable, consistently applied, and documented is black and white. Costs are either allowable or unallowable as dictated by the Uniform Guidance and need to be applied consistently throughout the plan, with accompanying documentation. If you understand and follow the guidelines and use the associated record keeping, you should have no issues for these requirements in an audit.
The other requirements for costs to be reasonable and allocable are much more gray. As a cost-plan preparer, you are responsible for understanding the nature of the programs you are charging costs to, as well as the nature of the services being provided. When charges are questioned in an audit, understanding both the direct and indirect services associated with your cost plan will leave you prepared to defend the plan. The auditor’s job is to ensure that your plan conforms to the Uniform Guidance. As you understand your operation better than they do, you must understand the regulations and provide adequate support in order to be compliant. Just like you, auditors are learning the new guidelines, and they may make mistakes. When presented with a finding from an audit, always negotiate your point.
As you probably know, the 2 CFR Part 200, or the Uniform Guidance, contains the federal regulations dictating what costs can and cannot be charged to federal- or state- funded programs. According to the Guidance, costs must meet five criteria: