US. Department of Labor Office of Inspector General

Audit Report

WAVE

This document is a summary of a printed document. The printed document may also contain charts and photographs which are not reproduced in this electronic version. If you require the printed version of this document, contact the Freedom of Information Act Officer, Office of Inspector General, U.S. Department of Labor, Washington, DC 20210, or call (202) 219-4930.

This report reflects the findings of the Office of Inspector General at the time that the audit was issued. More current information may be available as a result of the resolution of this audit by the Department of Labor program agency and the auditee. For further information concerning the resolution of this report's findings, please contact the program agency

Report Title:  WAVE

Report Number: 18-94-021-07-735

Issue Date: September 27, 1994

WAVE is a national, non-profit organization which received grants from ETA for job training programs for youth (a Partnership grant and an Apprenticeship grant). The OIG audited the FYs 1990-1992 grants (about $1.4 million a year) and issued an audit report on September 27, 1994. ETA has not renewed WAVE's grants; the last grant with DOL expired June 30, 1994.

In prior Semiannual Reports, we reported on our audit of WAVE's grants for FYs 1987-1989. We also reported that the ETA Grant Officer issued a Post-Final Determination disallowing net questioned costs of $622,602. WAVE then requested an administrative hearing which was held in 1993. In December 1993, the Administrative Law Judge (ALJ), issued a decision fully supporting the audit findings and the Grant Officer's Final Determination, and ordered WAVE to repay DOL $622,602.

WAVE then appealed the ALJ's decision to the Secretary of Labor; however, the Secretary declined to accept the case for review. In March 1994, WAVE petitioned the United States Circuit Court of Appeals for the District of Columbia Circuit to review DOL's decision. The court will hear the case in October 1994.

Of the total $4.8 million claimed by WAVE for FYs 1990, 1991, and 1992, the audit resulted in $1.2 million in questioned costs (or about 25 percent of the overall grant funds) for the DOL Partnership and Apprenticeship grants ($448,058 direct costs and $758,158 indirect costs). Because of the reported findings, the auditors issued an adverse opinion on the costs claimed for the audit periods. WAVE disagreed with the questioned costs.

Direct Costs

The questioned direct costs were primarily due to WAVE: (1) failing to reduce rental costs, which included rental costs of sublessees, by the rental income received from the sublessees; (2) allocating to the Partnership grant unallowable losses of other contracts/grants; (3) including the costs of the Board of Directors as direct costs instead of indirect costs; (4) reclassifying costs without adequate documentation to justify the reclassification; and (5) understating revenues resulting from erroneous journal entries.

Indirect Costs

As in the previous 3 years, WAVE charged a disproportionate share of its supporting service costs (indirect costs) as direct costs to the Partnership grant. In addition, WAVE included substantial amounts of unallowable costs in its indirect costs, improperly treated the costs of fundraising activities as indirect costs; and allocated little or no indirect costs to its largest program, Directly Administered Programs (DAPs), and its private foundation grants. WAVE was also inconsistent in the methods used to propose indirect cost rates and to allocate indirect costs to its programs. Both the indirect cost rate agreement and the grant provided provisional indirect cost rates based on the use of total direct costs as the allocation base. In proposing the rates for FYs 1990-91, WAVE excluded the total direct costs of the DAPs from its allocation base, but, in proposing the rate for FY 1992, included such costs in the allocation base. However, in allocating indirect costs for FYs 1991-92, WAVE used direct salaries, excluding those of the DAPs.

Administrative Matters

In July 1990, WAVE revised its cost accounting practices to stop (1) accounting for time spent on the Partnership grant, and (2) charging any costs to the grant during a fiscal year. WAVE charged all of its costs to all other projects during the year and, at year end, "allocated" (transferred) to the Partnership grant the deficits of various cost centers whose activities, according to WAVE, were within the scope of the Partnership grant. WAVE transferred the deficits to the Partnership grant in a manner that the amounts transferred agreed with the grant budget by line item and by total.

WAVE's new method violated at least three key provisions (or requirements) of OMB Circular A-122: (1) the requirement to account for salaries based on the "actual activity of each employee" reflected by timesheets, (2) the requirement to charge direct costs based on the concept of specific identification, and (3) the requirement to treat losses (or deficits) on other contracts/grants as unallowable costs.

Because it did not account for the actual time spent on and the actual costs incurred for the Partnership grant, WAVE not only violated key provisions of OMB Circular A-122, it did not have accurate, reliable financial data to (1) drawdown the proper amount of Federal funds on a bi-weekly basis, and (2) prepare and submit to DOL the required quarterly financial status reports. This deprived DOL of the necessary data to monitor WAVE's financial operations under the grant.


 [ Return to Audit ReportsReturn to Audit Reports    ]                             [  Return to Audit Reports (Text Only)  ]
 
 [ Return to OA Home PageReturn to OA Home Page   ]                          [  Return to OA Home Page (Text Only) ]