J. Craig Venter Institute

FINDING 2019-001 ? Allowable Costs / Costs Principles: Significant Deficiency in Internal Control over Compliance See Schedule of Findings and Questioned Costs for chart/table Criteria ? 2 CFR section 200.405(d): Direct cost allocation principles. If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost must be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then, notwithstanding paragraph (c) of this section, the costs may be allocated or transferred to benefitted projects on any reasonable documented basis. Condition/Context ? A sample of 5 procurements were selected for testing of procurement, suspension, and debarment compliance requirements from a list of all procurements exceeding $10,000. We obtained the purchase order for those purchases and compared them to the underlying amounts in the general ledger by project. Of those 5 purchase orders, 1 included documentation that the purchased item was intended to be allocated to multiple projects and was not subsequently allocated. Management performed a review of all purchase orders issued during the year to determine the extent of the error, identifying an additional 5 purchase orders that were not properly allocated to the associated grants. Cause ? J. Craig Venter Institute?s (the ?Institute?) purchasing system does not allow the allocation of the costs to more than one project at the time the order is placed and the purchase order is recorded. The allocation to multiple projects, if any, is made by the accounts payable team when the invoice is received. These allocations are not a normal practice, as a result, the accounts payable team did not identify the allocation instructions on some purchase orders. In addition, a detective control was not in place to identify potential misallocated costs. Effect ? Purchased items which benefited multiple projects were not allocated to the appropriate projects, and in all cases were charged to just one project. Repeat Finding ? This is not a repeat finding. Recommendation ? We recommend the Institute provide training to the accounts payable team to ensure they are actively looking for allocations on purchase orders. In addition, the Institute should consider implementing a detective control that may identify significant errors. Views of Responsible Officials and Planned Corrective Actions ? The Institute has automated the current cost allocation process by implementing the new functions within the Purchasing System. These additional controls allow the creation of the purchase order set up to allocate single purchase unit costs to applicable multiple research projects automatically once the purchase order is matched in the Accounts Payable system. Testing and validation of the new process has been performed and implemented successfully. The Institute adopted these new procedures immediately and has corrected the above finding. The Accounts Payable staff have been made aware of this system change. Further training will continue to be provided in the use of the system and in reviewing/matching invoices to purchase orders with the applicable allocation of cost.

FINDING 2019-002 ? Reporting: Significant Deficiency in Internal Control over Compliance See Schedule of Findings and Questioned Costs for chart/table" in place of the chart or table within the textCriteria ? 2 CFR section 200.302(b)(1): The non-Federal entity must identify in its accounts all federal awards received and expended, as well as the federal programs under which they were received. Federal program and award identification must include, as applicable, the CFDA title and number, the federal agency, and the name of the pass-through entity, if any. This information enables the auditee to reconcile amounts presented in the schedule of expenditures of federal awards. Condition/Context ? Certain grants and contracts, where the Institute is a subrecipient were not included on the preliminary Schedule of Expenditures of Federal Awards. Cause ? The Institute has a checklist to assist the Institute in determining whether it is a subrecipient or a contractor as defined by the federal government. This determination was not consistently performed at the inception of the agreements, but was done at the end of the year. Effect ? Awards were not assessed for classification between either subrecipient or contractor until an informal assessment during final review of the Schedule of Expenditures of Federal Awards. As a result, awards had been improperly excluded from the preliminary Schedule of Expenditures of Federal Awards. Repeat Finding ? This is not a repeat finding. Recommendation ? We recommend the Institute implement a process to evaluate awards for classification as either a subrecipient or a contractor relationship at inception of the agreement, and then use this information when setting up the agreement in the general ledger. The Institute uses a numbering scheme to identify the nature of the agreements and to identify compliance requirements that are applicable. Views of Responsible Officials and Planned Corrective Actions ? The Institute is committed to ensuring the accuracy of the SEFA and corrective action has been taken and tested to confirm the accuracy of the 2019 SEFA report. The Institute has completed its evaluation of all active federal awards and where applicable, classifying the Institutes relationship as a subreceipient or contractor. The Institute will use the ?Checklist to determine JCVI subreceipient or contractor/vendor classification? form at the inception of the award and this will be included in the standard operating procedures for all extramural research funded award activations in the Institutes financial system. A further review of the Institutes financial system will take place to determine whether or not an additional user defined field can also be created to check those awards that are eligible for the SEFA report.