Audit 383203

Finding 2024-002 Noncompliance and material weakness in internal control over compliance with allowable costs/cost principles requirements. Federal Agency: United States Department of Treasury Assistance Listing Number: 21.027 Assistance Listing Name: Coronavirus State and Local Fiscal Recovery Award Number: DA-202310-02403 Award Year: January 1, 2024 through December 31, 2024 Name of Pass-Through Entity: King County Regional Homelessness Authority Criteria Nonfederal entities must follow the standards for documentation of personnel expenses set out at 2 CFR section 200.430(i). Under those standards, charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. Additionally, those standards require that the records a) reasonably reflect the total activity for which the employee is compensated by the nonfederal entity, not exceeding 100% of compensated activities; b) 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 nonfederal 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; and c) budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards. Condition During our testing of the payroll costs charged to the major program, we noted that ACLT is allocating payroll costs for individual employees using budget estimates of time and effort on different activities. In December 2024, ACLT implemented processes to document after-the-fact determinations of time spent for each employee to support the allocations. However we noted the documentation was not completed for all employees selected for testing. We also found the documentation supporting the after-the-fact determinations was not completed timely for the pay period tested. Cause ACLT’s system of internal control is designed appropriately to capture and document after-the-fact determination of time and effort for each employee on different activities. However the controls were not found to be operating effectively for all of 2024. Effect The effect is that ACLT is not in compliance with the requirements of 2 CFR section 200.430(i). Payroll costs charged to the major program are not supported by documentation evidencing that those costs reasonably reflect the work performed on the activity. Questioned Costs Of the total expenditures of $2,008,301 charged to the major program in 2024, $1,913,220 are for payroll costs and related fringe benefits. Context ACLT maintains a timekeeping and payroll system for charges to federal awards that documents approved wage and salary rates, hours, and actual amounts paid to employees. However, the system does not include the documentation required in 2 CFR section 200.430(i) specifically related to documenting actual time and effort performed on different activities. The payroll charged to the major program includes a mix of employees that work 100% of their time on the major program activity and other employees that allocate their total hours to the major program activity and other activities. Of the $1,756,161 of gross payroll cost charged to the major program in 2024, 74% of that cost relates to employees that work 100% of their time on the major program activity; the remaining 26% of the cost relates to employees that allocate their total hours to the major program activity and other activities. Repeat Finding This is a repeat finding. Recommendation We recommend management ensure documentation for after-the-fact determination of work effort be completed and retained for each employee to support the percentage of payroll cost allocated to federal programs. We also recommend management complete documentation within the month following the end of the pay period end for actual time and effort performed on program activities. Timely documentation ensures allocations of payroll costs best represent actual time performed on the federal program. Views of Responsible Officials and Corrective Action Plan Management agrees with the finding and has provided the accompanying corrective action plan.