California Department of Food and Agriculture CDFA Audit Process of CAC’s contracts Presented By: Alicia Lauron, CPA Jason Jones, Staff Auditor

Audit Process Engagement letter Planning Fieldwork Preliminary report Response from CAC (Recipient), if applicable Final report

Preparing for the Audit You will receive an engagement letter that includes a request for accounting records and supporting documents such as: General ledgers / Object Expenditure Report Organization chart / flowchart Contract /agreement files and billing records Payroll information Operating expenses documentation Travel, indirect cost rates and certifications, expense allocation worksheets Contract agreements, if applicable

Audit Objectives Ensure the CAC / Recipient is in compliance with: Terms and conditions of the contract / agreement Appropriate state and federal requirements and guidelines Determine whether the billings are supported by the accounting records and submitted in compliance with all applicable requirements and guidelines

Purpose of Audit The CDFA is accountable for monitoring recipients & sub- recipients of Federal Awards entered into with CDFA. Our audit is based upon selective testing of your accounting records and related data. Since we will not examine all transactions, there is a risk that we may not detect all errors and irregularities, whether material or not.

Cost Principles Applicability We will perform our audit in compliance with cost principles applicable to state and local governments, Title 2 in the Code of Federal Regulations, Part 225 (2 CFR 225), and the grants management common rule, Title 7 in the Code of Federal Regulations, Part 3016. Federal 2 CFR 225 can be found at the following website: http://www.gpo.gov/fdsys/pkg/CFR-2012-title2-vol1/pdf/CFR-2012-title2-vol1-part225.pdf

Allowable Costs An allowable cost is one that meets both the criteria for authorized expenditures specified in the cost principles in 2 CFR 225 and / or the contract / agreement. Note: The contract / agreement can be more restrictive than the CFR.

Criteria: Allowability of Costs Cost charged to an award must be: Necessary and reasonable for proper and efficient performance and administration of Federal Awards Allocable to Federal Awards under the provisions of 2 CFR 225 Treated consistently as a direct or indirect cost Adequately documented Net of applicable credits Determined in accordance with generally accepted accounting principles (GAAP), except as otherwise stipulated in the applicable cost principles.

Criteria: continued Not included as cost or used to meet the cost-sharing or matching requirements of another federal award, unless specifically permitted by federal law or regulations. Authorized or not prohibited under state or local laws and regulations. In conformance with limits or exclusions on types or amounts of costs, as set forth in the applicable cost principles, federal laws, award terms & conditions, or other governing regulations. Consistent with the recipient’s policies, regulations, and procedures that apply to both federal awards & other activities of the recipient.

Composition of Cost Direct Costs – those that can be identified specifically with a particular final cost objective. Indirect Costs – those incurred for a common or joint purpose benefiting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved.

Personnel Costs Compensation for personal services paid currently or accrued, for services rendered during the period of performance under Federal awards includes wages, salaries, and fringe benefits. Charges to Federal Awards for salaries and wages, whether treated as direct or indirect costs, will be based on payrolls documented in accordance with generally accepted practice of the governmental unit and approved by a responsible official(s) of the governmental unit.

Personnel Cost Documentation Where employees work solely on a single Federal Award or cost objective, charges for their salaries & wages will be supported by periodic certification at least prepared semi-annually and will be signed by the employee or supervisory official having first hand knowledge of the work performed by the employee. Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports or equivalent documentation which meets the standard discuss on the next slide.

Standards: Personnel Activity Reports Must reflect an after-the-fact distribution of the actual activity of each employee. Must account for the total activity for which each employee is compensated Must be prepared at least monthly and must coincide with one or more pay periods Must be signed by the employee Budget estimates or other distribution percentages determined before the services are performed do not qualify as support for charges to Federal Awards.

Sample: Personnel Activity Report

Sample: Payroll Register Report

Mileage Reimbursement Cost claimed needs to be adequately documented, and necessary for the performance of the contract. Transportation costs may be charged on an actual cost basis or mileage basis in lieu of actual costs incurred. Mileage reimbursement covers gasoline, the cost of maintenance, insurance, licensing, registration, depreciation, and all other costs associated with the operation of the vehicle. Federal mileage rate can be found at the following website: http://www.gsa.gov/mileage

Sample: Vehicle Mileage Logs

Vehicle Mileage Log Form

Additional Information Federal 2 CFR 225 website: http://www.gpo.gov/fdsys/pkg/CFR-2012-title2- vol1/pdf/CFR-2012-title2-vol1-part225.pdf Federal mileage rate website: http://www.gsa.gov/mileage SCO mandated cost program for local agencies website: http://sco.ca.gov/ard_mancost.html CDFA Audit Office Main: (916) 900-5026 Fax: (916) 999-3001

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