If a Reporting Entity had unallowable costs identified during an audit, can auditors replace the unallowable costs (e.g. questioned costs) with unreimbursed lost revenues noted in the submitted report being audited?

No. Questioned cost per 45 CFR §75.2, means a cost that was questioned by the auditor because of an audit finding: 

1. Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a Federal award, including for funds used to match Federal funds; 
2. Where the costs, at the time of the audit, are not supported by adequate documentation; or 
3. Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances.

It was the responsibility of the Reporting Entity to address questioned costs through its corrective action plan and HRSA to evaluate the Reporting Entity’s corrective action plan to determine its appropriateness. Auditors must associate questioned costs with the specific award number(s) (AL) in the audit finding detail and must not perform any offset, which results in the reduction of questioned costs.

(Added 2/16/2024)