Audit 366976

Federal agency: U.S. Department of Agriculture, Natural Resources Conservation Service Federal program Name: Partnerships for Climate-Smart Commodities Assistance Listing Number: 10.937 Federal Award Identification No.: NR243A750004G023 Award Period: 12/9/2023 – 12/31/2028 Compliance Requirement: Activities Allowed or Unallowed, Allowable Cost/Cost Principles Type of Finding: • Significant Deficiency in Internal Control over Compliance • Compliance Finding 2024-001: Partnerships for Climate-Smart Commodities- Allowable Cost/Cost Principles Criteria: 2 CFR Section 200.430 (8)(i) Standards for Documentation of Personnel Expenses states that charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities; (iv) Encompass both federally assisted, and all other activities compensated by the non-Federal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-Federal entity's written policy; (v) Comply with the established accounting policies and practices of the non-Federal entity; (vii) 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; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. Additionally, per 2 CFR section 200.303(a), a non-Federal entity must establish and maintain effective internal control 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. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: During our review of the payroll allocation for August 2024, we noted that one employee’s payroll costs were incorrectly charged to the grant, resulting in an overstatement of grant expenditures for that period.Context: The total federal expenditures under the Partnerships for Climate-Smart Commodities program were approximately $3,074,267 for the year ended December 31, 2024. The payroll charges tested during our procedures were approximately $95,770, which represented approximately 3% of total expenditures charged to the grant during the year. The misallocation noted was isolated to a single employee’s payroll costs for one month and did not represent a systemic issue across all payroll transactions. Cause: The misallocation occurred due to insufficient review of payroll allocations. Existing internal controls did not include a detailed verification process to ensure that employee time charges were accurately aligned with actual grant-related activities. Effect: As a result, grant expenditures were overstated for the period. If not corrected, this misallocation could impact the accuracy of financial reporting and result in potential noncompliance with grant cost allowability requirements. Identification as a Repeat Finding, if Applicable: No. Questioned Costs: None identified. Recommendation: We recommend that management strengthen internal controls over payroll allocation by implementing a documented review and approval process to verify the accuracy and allowability of personnel expenses charged to Federal awards. This process should ensure compliance with 2 CFR §200.430 and be incorporated into official records, consistent with the entity’s established accounting policies. Responsible Official: President Views of Responsible Official and Planned Corrective Action: Management concurs with the audit finding. See the accompanying management’s corrective action plan for planned corrective action.