Audit 372503

Criteria: The Agency should be paying its unemployment expenses in accordance with the formula provided by the South Carolina Department of Employment and Workforce. Condition: The transition to new accounting software and returning payroll processing back to in-house has created a challenging process that requires additional training and changes in accounting procedures to accommodate the software. Context: The Agency’s payroll software automatically accrues payroll liabilities to each grant. When those liabilities were paid by the Agency, the Agency used the expense reports for unemployment from the general ledger instead of the payroll liability report from the payroll module. Additionally, when the liabilities were paid, the Agency recorded the payments into the expense account and not the liability account. These compounding factors led to the overpayment in unemployment expenses charged to federal programs. It was then discovered that Agency was properly applying the credits as applicable, however, the grant drawdowns reflected additional requests for money to cover those expenses. As a result, the amounts owed to the grantors increased, not decreased. As of December 31, 2024, the amounts due to the grantor are as follows: (SEE CHART IN SHCEDULE OF FINGINGS AND QUESTIONED COSTS FOR THE YEAR ENDED DECEMBER 31, 2024) Both the Head Start Cluster and the Low-Income Home Energy Assistance Program were major programs identified for the audit of the year ended December 31, 2024. Cause: The Agency has gone through a software implementation, change in payroll service outsource to in-house and several staff changes that led to gaps in the skills, knowledge and experience required to process payroll properly. Effect: Unemployment expenses were overpaid by the Agency and subsequently overstated to the grantors. Recommendation: We recommend that formal procedures be put in place for recording and reporting unemployment expenses. This should include a reconciliation between the payroll module, general ledger and quarterly filing reports. Additionally, the Agency needs to have the overpayments refunded and notify the grantors of overpayments. Views of responsible officials and planned corrective action: Management has reviewed the matter and agrees that an error has occurred. The payroll procedures in place for processing payroll and paying related liabilities will be reviewed and adjusted to correct the misstatement of payroll expenses and to prevent future overpayments of liabilities. Additionally, the identified overpayments will be reimbursed to the Grantor. This will be accomplished by applying a Head Start 2025 Accounts Payable adjustment and issuing a refund check to the Office of Economic Opportunity (OEO) for the applicable programs. These corrective measures will ensure that all affected program accounts are accurately reconciled and that a zero balance is achieved for finding 2024-001.