2023-007 Lack of Documentation for Employee Rate of Pay (Material Weakness)
Federal Agency: Department of Homeland Security
Pass-through Agency: New Hampshire Department of Safety
Cluster/Program: COVID-19 – Disaster Grants – Public Assistance (Presidentially Declared Disasters)
Assistance Listing Number: 97.036
Passed-through Identification: 23DR4516PA
Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles
Type of Finding:
Internal Control over Compliance – Material Weakness
Material Noncompliance
Criteria or Specific Requirement: Federal regulations 2 CFR 200.303 states, the Town, as a recipient of Federal funds, must establish and maintain effective internal controls over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.
In addition, under 2 CFR 200.430, it states that charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must (1) be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated, (2) be incorporated into the official records of the non-Federal entity, (3) reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities, and (4) support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award or a federal award and non-Federal award.
Entities must maintain adequate documentation to support payroll charges, including specific details on employee pay rates used for calculating reimbursements. This documentation is necessary to ensure that payroll costs charged to federal programs are reasonable, accurate, and in compliance with applicable laws and regulations.
Condition: During our audit we noted that the Town was reimbursed for overtime hours performed by police and fire personnel who responded to the COVID-19 pandemic during 2020 and 2021. The rate of pay used was reflective of the employee’s overtime rate inclusive of fringe benefits. The Town was unable to provide documentation verifying the employee’s rate of pay used to calculate reimbursement for payroll charges. Specifically, records reflecting the employee’s overtime rate inclusive of fringe benefits, were not available for review. In addition, the Town acknowledged that they attempted to recalculate the rate of pay for each employee selected for testing, but it yielded figures that could not be matched to the original source worksheet submitted to the federal agency.
Cause: The Town lacks a standardized process for recording and maintaining documentation for payroll rates, including the breakdown of overtime and fringe benefit components used for federal reimbursement. This is due to inadequate internal controls and oversight in the payroll and accounting processes, as well as limited staff training on federal documentation requirements.
Effect: The inability to verify the overtime rate with fringe benefits used in reimbursement calculations creates a risk of non-compliance with federal requirements, which could lead to questioned costs and potential disallowance of the submitted payroll charges as it may not reflect actual, allowable costs. Additionally, the lack of supporting documentation undermines the Town’s ability to substantiate its payroll expenditures and comply with federal grant accounting requirements. Failure to provide adequate documentation could affect future funding eligibility. Consequently, essential payroll records were not retained, resulting in noncompliance with federal grant documentation standards and a disclaimer of opinion on the major program.
Questioned Costs: $1,947,729
Identification as Repeat Finding: This is not a repeat finding.
Recommendation: We recommend that the Town implement enhanced record-keeping procedures to ensure that all payroll charges, especially complex rates involving overtime and fringe benefits, are documented and verifiable. Specifically, the Town should establish a process to document and track each component of the rate of pay used in reimbursement calculations. This process should involve establishing a systematic approach to linking payroll records with source documents and include clear guidelines for calculating and recording overtime rates inclusive of fringe benefits. Additionally, we advise the Town to establish periodic internal reviews and staff training to ensure payroll charges are fully supported, align with federal requirements, and comply with documentation requirements.
Views of Responsible Officials: Management’s views and corrective action plan is included at the end of this report.
2023-007 Lack of Documentation for Employee Rate of Pay (Material Weakness)
Federal Agency: Department of Homeland Security
Pass-through Agency: New Hampshire Department of Safety
Cluster/Program: COVID-19 – Disaster Grants – Public Assistance (Presidentially Declared Disasters)
Assistance Listing Number: 97.036
Passed-through Identification: 23DR4516PA
Compliance Requirement: Activities Allowed or Unallowed and Allowable Costs/Cost Principles
Type of Finding:
Internal Control over Compliance – Material Weakness
Material Noncompliance
Criteria or Specific Requirement: Federal regulations 2 CFR 200.303 states, the Town, as a recipient of Federal funds, must establish and maintain effective internal controls over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.
In addition, under 2 CFR 200.430, it states that charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must (1) be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated, (2) be incorporated into the official records of the non-Federal entity, (3) reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities, and (4) support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award or a federal award and non-Federal award.
Entities must maintain adequate documentation to support payroll charges, including specific details on employee pay rates used for calculating reimbursements. This documentation is necessary to ensure that payroll costs charged to federal programs are reasonable, accurate, and in compliance with applicable laws and regulations.
Condition: During our audit we noted that the Town was reimbursed for overtime hours performed by police and fire personnel who responded to the COVID-19 pandemic during 2020 and 2021. The rate of pay used was reflective of the employee’s overtime rate inclusive of fringe benefits. The Town was unable to provide documentation verifying the employee’s rate of pay used to calculate reimbursement for payroll charges. Specifically, records reflecting the employee’s overtime rate inclusive of fringe benefits, were not available for review. In addition, the Town acknowledged that they attempted to recalculate the rate of pay for each employee selected for testing, but it yielded figures that could not be matched to the original source worksheet submitted to the federal agency.
Cause: The Town lacks a standardized process for recording and maintaining documentation for payroll rates, including the breakdown of overtime and fringe benefit components used for federal reimbursement. This is due to inadequate internal controls and oversight in the payroll and accounting processes, as well as limited staff training on federal documentation requirements.
Effect: The inability to verify the overtime rate with fringe benefits used in reimbursement calculations creates a risk of non-compliance with federal requirements, which could lead to questioned costs and potential disallowance of the submitted payroll charges as it may not reflect actual, allowable costs. Additionally, the lack of supporting documentation undermines the Town’s ability to substantiate its payroll expenditures and comply with federal grant accounting requirements. Failure to provide adequate documentation could affect future funding eligibility. Consequently, essential payroll records were not retained, resulting in noncompliance with federal grant documentation standards and a disclaimer of opinion on the major program.
Questioned Costs: $1,947,729
Identification as Repeat Finding: This is not a repeat finding.
Recommendation: We recommend that the Town implement enhanced record-keeping procedures to ensure that all payroll charges, especially complex rates involving overtime and fringe benefits, are documented and verifiable. Specifically, the Town should establish a process to document and track each component of the rate of pay used in reimbursement calculations. This process should involve establishing a systematic approach to linking payroll records with source documents and include clear guidelines for calculating and recording overtime rates inclusive of fringe benefits. Additionally, we advise the Town to establish periodic internal reviews and staff training to ensure payroll charges are fully supported, align with federal requirements, and comply with documentation requirements.
Views of Responsible Officials: Management’s views and corrective action plan is included at the end of this report.