Statewide Indirect Cost Allocation Plan

Michigan Office of the
Auditor General
Thomas H. McTavish, C.P.A.
Auditor General

EXECUTIVE DIGEST #0713196
Statewide Indirect Cost Allocation Plan

INTRODUCTION
This report contains the results of our financial related audit of the Statewide Indirect Cost Allocation Plan (SWICAP), Department of Management and Budget, for the period July 1, 1994 through September 30, 1996.

AUDIT PURPOSE
This financial related audit was conducted as part of the constitutional responsibility of the Office of the Auditor General. Financial related audits are conducted at various intervals to permit the Auditor General to express an opinion on the States financial statements. Also, this audit complements our departmentwide financial audits, including the provisions of the Single Audit Act of 1984, which are conducted pursuant to Act 251, P.A. 1986.

BACKGROUND
A SWICAP is the mechanism by which a state identifies, summarizes, and allocates indirect costs in a logical and systematic manner. A SWICAP is necessary for the State to obtain reimbursement from the federal government for the costs of central support services provided to operating departments by the Department of Civil Rights, Department of Civil Service, Department of Management and Budget (DMB), Department of Treasury, and Office of the Auditor General.

The State prepares both a proposed SWICAP based on estimated costs and a final SWICAP based on actual costs. The U.S. Department of Health and Human Services (HHS) is the cognizant agency that annually approves the States SWICAP on a fixed cost basis with a carry-forward agreement. This agreement allows the State to base its proposed SWICAP on estimated costs. The difference between the estimated costs in the proposed SWICAP and the actual costs in the final SWICAP for each fiscal year is included as an adjustment in the subsequent years proposed SWICAP. Because of the nature of this process and the timing of it, the SWICAP for fiscal year 1993-94 was the most current SWICAP with final approval at the time of our review.

The DMB Office of Financial Management is responsible for the States SWICAP. Since 1986, DMB has contracted with a private consultant to prepare the SWICAP.

For fiscal year 1993-94, the State received $6 billion in federal funds. Of this amount, $14.2 million was recovered in indirect costs.

AUDIT OBJECTIVES AND CONCLUSIONS

Audit Objective: To assess the allowability of costs (per Office of Management and Budget Circular A-87) included in the SWICAP.

Conclusion: Our assessment of costs included in the SWICAP disclosed that they were allowable.

Audit Objective: To assess the reasonableness of the SWICAP methodology used to allocate central support service costs to user departments.

Conclusion: Our assessment of the allocation methodology disclosed that it was reasonable.

Audit Objective: To assess whether the SWICAP included all documentation required by HHS.

Conclusion: Our assessment of SWICAP documentation disclosed that all required documentation was included.

AUDIT SCOPE
Our audit scope was to examine the State's Statewide Indirect Cost Allocation Plans which were completed in our audit period. Our audit scope was mainly to examine the final SWICAP for fiscal year 1993-94. We also examined the proposed SWICAP's for fiscal years 1994-95 and 1995-96. Our audit was conducted in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States and, accordingly, included such tests of the records and such other auditing procedures as we considered necessary in the circumstances.

PRIOR AUDIT FOLLOW-UP
DMB had complied with the one prior audit recommendation.

Full Audit Report - #0713196 - Statewide Indirect Cost Allocation Plan

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INTRODUCTION This report contains the results of our financial related audit of the Statewide Indirect Cost Allocation Plan (SWICAP), Department of Management and Budget, for the period July 1, 1994 through September 30, 1996.

AUDIT PURPOSE This financial related audit was conducted as part of the constitutional responsibility of the Office of the Auditor General. Financial related audits are conducted at various intervals to permit the Auditor General to express an opinion on the States financial statements. Also, this audit complements our departmentwide financial audits, including the provisions of the Single Audit Act of 1984, which are conducted pursuant to Act 251, P.A. 1986.

BACKGROUND A SWICAP is the mechanism by which a state identifies, summarizes, and allocates indirect costs in a logical and systematic manner. A SWICAP is necessary for the State to obtain reimbursement from the federal government for the costs of central support services provided to operating departments by the Department of Civil Rights, Department of Civil Service, Department of Management and Budget (DMB), Department of Treasury, and Office of the Auditor General. The State prepares both a proposed SWICAP based on estimated costs and a final SWICAP based on actual costs. The U.S. Department of Health and Human Services (HHS) is the cognizant agency that annually approves the States SWICAP on a fixed cost basis with a carry-forward agreement. This agreement allows the State to base its proposed SWICAP on estimated costs. The difference between the estimated costs in the proposed SWICAP and the actual costs in the final SWICAP for each fiscal year is included as an adjustment in the subsequent years proposed SWICAP. Because of the nature of this process and the timing of it, the SWICAP for fiscal year 1993-94 was the most current SWICAP with final approval at the time of our review. The DMB Office of Financial Management is responsible for the States SWICAP. Since 1986, DMB has contracted with a private consultant to prepare the SWICAP. For fiscal year 1993-94, the State received $6 billion in federal funds. Of this amount, $14.2 million was recovered in indirect costs.

AUDIT OBJECTIVES AND CONCLUSIONS	Audit Objective: To assess the allowability of costs (per Office of Management and Budget Circular A-87) included in the SWICAP. Conclusion: Our assessment of costs included in the SWICAP disclosed that they were allowable. Audit Objective: To assess the reasonableness of the SWICAP methodology used to allocate central support service costs to user departments. Conclusion: Our assessment of the allocation methodology disclosed that it was reasonable. Audit Objective: To assess whether the SWICAP included all documentation required by HHS. Conclusion: Our assessment of SWICAP documentation disclosed that all required documentation was included.

AUDIT SCOPE Our audit scope was to examine the State's Statewide Indirect Cost Allocation Plans which were completed in our audit period. Our audit scope was mainly to examine the final SWICAP for fiscal year 1993-94. We also examined the proposed SWICAP's for fiscal years 1994-95 and 1995-96. Our audit was conducted in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States and, accordingly, included such tests of the records and such other auditing procedures as we considered necessary in the circumstances.

PRIOR AUDIT FOLLOW-UP DMB had complied with the one prior audit recommendation.