INSTITUTE FOR ADVANCED CLINICAL TRIALS FOR CHILDRENNon-Profit

Criteria: According to 2 CFR Section 200.430(i) charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non- Federal entity, not exceeding 100% of compensated activities;(iv) Encompass federally-assisted and all other activities compensated by the non-Federal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-Federal entity?s written policy; (v) Comply with the established accounting policies and practices of the non-Federal entity; (vi) [Reserved] (vii) Support the distribution of the employee?s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non- Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards.? Condition: We noted during our 2021 audit that while I-ACT is keeping employee timesheets to track actual time spent on each project (both Federal and non-Federal), the allocation of employee time is not consistent, and is not based on the employee?s actual salary. Allocations are based on the Grantor?s budgeted salary caps for each employee assigned to the award. Time charged to the award should not be based on budgeted allowances, it should be based on the employee?s actual salary for the pay period or period in question. Cause: I-ACT does not have appropriate policies in place regarding salary allocations for charging to the federal award. Effect or Potential Effect: I-ACT could inadvertently charge more or less salary expense to the federal award for a particular period than was actually incurred based on the employee's actual salary. Questioned Costs: Unknown Context: This is a condition identified per review of I-ACT's compliance with the specified requirements using a statistically valid sample. Identification as a Repeat Finding: Not applicable Recommendation: We recommend that I-ACT revise their salary allocation process to ensure that salary expense billed to the federal award for each employee is based on each employee?s actual time spent and salary paid. Salary expenses allocated to the federal award for each employee should be tracked against their allowed salary cap to ensure that the employee is not overbilled.

Criteria or Specific Requirement: According to 2 CFR 200.414 Subpart F, Appendix IV, Section C.2.f, the provisional and final rates must be negotiated where neither predetermined nor fixed rates are appropriate. Predetermined or fixed rates may replace provisional rates at any time prior to the close of the organization's fiscal year. If that event does not occur, a final rate will be established and upward or downward adjustments will be made based on the actual allowable costs incurred for the period involved. Condition: During our review of I-ACT's indirect cost rate calculation, we noted that the indirect cost base considered salaries, fringe benefits and consulting expenses. According to I-ACT's approved Negotiated Indirect Cost Rate Agreement (NICRA), the base for indirect rate calculation should only include salaries and fringe benefits. As a result of the miscalculation, during the year ended December 31, 2021, I-ACT overbilled the Federal Government for indirect costs. The overbilled amount has been adjusted during the year ending December 31, 2022. Cause: I-ACT does not have the appropriate internal controls in place to ensure that indirect rates are calculated using the base approved in the established NICRA. Effect or Potential Effect: I-ACT billed the Federal Government for more indirect costs than were permitted per the NICRA. Questioned Costs: None Context: This is a condition identified per review of I-ACT's compliance with the specified requirements using a statistically valid sample. Identification as a Repeat Finding: Not applicable Recommendation: We recommend that going forward, I-ACT calculate their indirect costs based on the base approved in the NICRA. I-ACT should pay special consideration to all terms and conditions within their current, and any future NICRAs to ensure that indirect costs are calculated appropriately.

Criteria: As stated in 2 CFR 200.332 part (b), all pass-through entities must evaluate each subrecipient's risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring which may include consideration of such factors as: (1) The subrecipient's prior experience with the same or similar subawards;(2) The results of previous audits including whether or not the subrecipient receives a Single Audit in accordance with Subpart F, and the extent to which the same or similar subaward has been audited as a major program; (3) Whether the subrecipient has new personnel or new or substantially changed systems; and (4) The extent and results of Federal awarding agency monitoring (e.g., if the subrecipient also receives Federal awards directly from a Federal awarding agency). Condition: During our audit work over subrecipient expenditures, we were unable to verify that preaward risk assessment procedures were performed. It is our understanding that I-ACT has ongoing relationships with these subrecipients and evaluation of these subrecipients' risk is a continual process; however, these procedures were not formally documented. Lastly, we noted that these requirements were not incorporated into I-ACT?s current policies and procedures. Cause: I-ACT's internal policies and procedures do not include any requirements for pre-award risk assessments. Effect or Potential Effect: I-ACT could inadvertently engage in relationships with subrecipients of higher risk without the appropriate level of oversight to ensure subrecipients are expending funds in accordance with the provisions and terms of the subaward. Questioned Costs: None. Context: I-ACT failed to perform and/or properly document its due diligence with respect to these requirements. The issue is considered systemic in nature. Identification as a Repeat Finding: Not applicable Recommendation: We recommend that I-ACT update its policies and procedures surrounding subrecipients to establish criteria to be used in the evaluation of the risk of noncompliance associated with the intended subrecipient for the purpose of determining the expected level of oversight during the period of performance.This evaluation should include a scaling system, such as high, medium or low risk (for example),and the monitoring tools and procedures to be performed at each of these levels (additional training, on-site reviews, types of and frequency of reporting, etc.).

Criteria ? The Code of Federal Regulations 2 CFR 200.303, Internal Control, requires the non-federal entity to establish and maintain effective internal control over Federal awards that provides reasonable assurance that the non-federal entity is managing Federal awards in compliance with Federal statutes, regulations, and other terms and conditions. Per 2 CFR Section 200.430 Compensation ? Personal Services: ?Costs of compensation are allowable to the extent that they satisfy the specific requirements of this part, and that the total compensation for individual employees: (1) Is reasonable for the services rendered and conforms to the establish written policy of the non-Federal entity consistently applied to both Federal and non-Federal activities; (2) Follows an appointment made in accordance with a non-Federal entity?s laws and/or rules or written policies and meets the requirements of Federal statute, where applicable; and (3) Is determined and supported as provided in paragraph (i) of this section, Standards for Documentation of Personnel Expenses, when applicable.? 2 CFR Section 200.430(i): ?Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities; (iv) Encompass both federally assisted and all other activities compensated by the non-Federal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-Federal entity?s written policy; (v) Comply with the established accounting policies and practices of the non-Federal entity; (vi) [Reserved] (vii) Support the distribution of the employee?s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards.? Condition ? During our testing of payroll transactions, we noted that the Organization maintains timesheets for employees and these timesheets supported the actual time spent and charged to the federal grant. However, a system of internal controls must exist over timesheets that provides for reasonable assurance that the time spent and charged to a federal grant is accurate allowable and properly allocated. A key element of a system of internal controls include employees? certification and supervisory approval of the time spent and charged to the federal grants. The following exceptions were noted: ? For 12 of 12 payroll transactions sampled, the Organization did not have timesheets certified by the employee and approved by the supervisor. Questioned Costs ? Not determinable. Total payroll costs charged to the federal grant in 2020 was $794,946. Context ? This is a condition identified per review of the Organization?s compliance with the specified requirements using a statistically valid sample. Effect ? The Organization was unable to demonstrate that key elements in a system of internal controls exist over timesheets that provides assurance that the time spent and charged to the federal grants is accurate allowable and properly allocated. As such, the payroll expenditures were not in compliance with 2 CFR Part 200.430 standards for documentation of personnel expenses. Cause ? The Organization does not have adequate policies and procedures in place to ensure that key controls are in place to ensure the accuracy, allowability and allocability of payroll costs. Recommendation ? We recommend that the Organization establish policies and procedures to ensure that payroll costs charged to the federal grant are supported by a system of internal control that allows for timely employee certification and supervisory approval of timesheets.

Criteria ? The Uniform Guidance in 2 CFR Section 200.303 requires that non-Federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award. In accordance with the Uniform Guidance in 2 CFR Section 200.331(a) Requirements for Pass-Through Entities requires that pass-through entities must: Ensure that every sub-award is clearly identified to the subrecipient as a sub-award and includes certain information outlined in the section noted above, including FFATA; pre-award assessment, indirect cost rated for the award, CFDA number, finding and award follow-up and other pertinent actions. In accordance with the requirements of 2 CFR Section 1402.300, the non-Federal entity is responsible for complying with all requirements of the Federal award. For all Federal awards, this includes the provisions of FFATA, which includes requirements on executive compensation, and also requirements implementing the Act for the non-Federal entity at 2 CFR part 25 Financial Assistance Use of Universal Identifier and System for Award Management and 2 CFR part 170 Reporting Subaward and Executive Compensation Information. In accordance with 2 CFR Part 170, Appendix A, under the Federal Funding Accountability and Transparency Act (FFATA), the Organization is required to collect and report information on each subaward or amendment of $25,000 or more in federal funds in the FFATA Subaward Reporting System. Condition ? Our examination of the program?s subrecipient monitoring requirements included a review of the Federal Funding Accountability and Transparency Act (FFATA) requirements for the Food and Drug Administration Research Grant. The Organization submitted the subaward data to fulfill the FFATA requirements after it was mentioned to management during the audit. The following exceptions were noted: ? The Organization did not comply with the FFATA reporting requirements for two out of three subrecipients. Questioned Costs ? None. Context ? This is a condition identified per review of the Organization?s compliance with specified monitoring requirements on the program?s subrecipient. Effect ? The Organization is not in compliance with the FFATA requirements as it failed to submit subaward data for the Food and Drug Administration Research Grant. Cause ? Management did not have proper internal controls and policies and procedures in place to ensure that the FFATA requirements were performed before the audit started. Recommendation ? We recommend that the Organization implement policies, procedures and controls that will ensure the personnel comply with all the required laws, guidelines and requirement under the award.

Finding 2019-005 ? Material Weakness U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration Research ? CFDA No. 93.103; Grant period: Year ended December 31, 2019 Material Weakness: As discussed in finding 2019-004, internal controls related to allowable costs were not operating effectively to ensure direct costs billed to the federal award were representative of actual costs incurred. Accordingly, fringe benefits were billed to the federal award in excess of actual costs incurred. Procedures should be implemented and properly performed to provide for adequate review and approvals by the appropriate level of management. Questioned Costs: $84,777

Finding 2019-006 ? Significant Deficiency U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration Research ? CFDA No. 93.103; Grant period: Year ended December 31, 2019 Criteria: Per 2 CFR 200.318 and 200.331 the grantee is required to obtain certifications on debarment and suspension for its third parties and subrecipients. Context: During our audit, it was identified the Organization did not document that third parties were not suspended or debarred on SAM.gov. Additionally, the Organization failed to document the annual monitoring over sub-recipients for suspension and debarment. Condition: The Organization established procurement policies and procedures based on criteria in 2 CFR 200.318 which were implemented during the year ended December 31, 2019; however, the implementation regarding suspension and debarment was not retroactively applied. Further, the Organization does not document annual subrecipient monitoring over suspension and debarment. Cause: Controls over procurement, suspension and debarment and subrecipient monitoring were not appropriately implemented and consistently followed. Effect: Lack of effective controls in place over procurement, suspension and debarment and subrecipient monitoring increases the risk of misstatements, fraud, errors, or noncompliance occurring and not being detected and corrected in a timely manner. Recommendation: We recommend the Organization ensure policies and procedures over federal awards are followed and properly documented for all new and existing contracts. Annually, the Organization should document that subrecipients are not suspended and debarred. Views of Responsible Officials and Planned Corrective Action Plan: The management of I-ACT for Children recognizes the importance of effective internal controls and proper documentation of policies and procedures over federal awards for all new and existing contracts. I-ACT for Children will verify and document that subrecipients are not suspended or debarred on an annual basis.

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