Imagine that you work for an auditing firm performing a local government audit.
ID: 2418763 • Letter: I
Question
Imagine that you work for an auditing firm performing a local government audit. The government has received federal grant funding. The audit manager on the engagement has asked you to perform the necessary research, reviewing the following costs charged to the federal grant in order to determine whether or not they are allowable. Those costs include:
1.travel to a conference overseas, the primary purpose of which is the dissemination of technical information
2.employee recreational activities and counseling services
3.charges for investment counsel incurred to enhance income from investments
4.lobbying activities undertaken to obtain a grant
5.depreciation
6.insurance
Required:
1.What document will you research to determine whether the costs can be allowed?
2.Write a short memo to document your opinion about whether these costs would be allowable indirect costs to be recovered in part by federal grants. If certain limitations or specifications must be met for allow-ability, note them in your memo.
Explanation / Answer
1. To be allowable under Federal awards, costs must meet the following general criteria:
2. Travel to a conference overseas: Direct charges for foreign travel costs are allowable only when the travel has received prior approval of the awarding agency. Each separate foreign trip must receive such approval. For purposes of this provision, "foreign travel" includes any travel outside Canada, Mexico, the United States, and any United States territories and possessions. However, the term "foreign travel" for a governmental unit located in a foreign country means travel outside that country.
Employee recreational activities and counseling services: The costs of employee information publications, health or first-aid clinics and/or infirmaries, recreational activities, employee counseling services, and any other expenses incurred in accordance with the governmental unit's established practice or custom for the improvement of working conditions, employer-employee relations, employee morale, and employee performance are allowable.
Charges for investment counsel incurred to enhance income from investments: Costs of investment counsel and staff and similar expenses incurred to enhance income from investments are unallowable.
Lobbying activities undertaken to obtain a grant: The cost of certain influencing activities associated with obtaining grants, contracts, cooperative agreements, or loans is an unallowable cost.
Depreciation: The computation of depreciation or use allowances shall be based on the acquisition cost of the assets involved. Where actual cost records have not been maintained, a reasonable estimate of the original acquisition cost may be used. The value of an asset donated to the governmental unit by an unrelated third party shall be its fair market value at the time of donation. Governmental or quasi-governmental organizations located within the same State shall not be considered unrelated third parties for this purpose.
Insurance: Costs of insurance required or approved and maintained, pursuant to the Federal award, are allowable.