Finding 2025-001: Allowable Costs/Cost Principles (Material Weaknesses and Noncompliance) Federal Agency: Department of Commerce Assistance Listing Number and Title: 11.034 - MBDA Capital Readiness Program Criteria: Per 2 CFR §200.430, Compensation - personal services, (i) Standards for Documentation of Personnel Expenses, charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. Among other requirements, these records must: • Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; • Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities; • Encompass both federally assisted and all other activities compensated by the non-Federal entity on an integrated basis; and • 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. Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that the award recipient’s system of internal controls includes processes to review after-the-fact interim charges made to a Federal awards based on budget estimates, and that all necessary adjustments be made such that the final amount charged to the Federal award is accurate, allowable, and properly allocated. Condition: For this program, there was no evidence that actual employee time was tracked, reviewed and approved, or that the actual time spent was used as a basis for allocating personnel charges to the grant before payroll period ending February 28, 2025. Questioned Costs: None. Context: For our direct labor allowable costs sample, management was unable to provide attestations of timesheets or other effort tracking for all payroll expenditure selections before payroll period ending February 28, 2025, totaling $66,474 (20 of 25 selections). There was no evidence that a subsequent review of budget estimates was performed for all the impacted selections. Cause: Before payroll period ending February 28, 2025, policies and procedures did not require documented timekeeping by employees working on the grant program, which is appropriately reviewed, approved and used as a basis for charges to the grant. Effect: Personnel costs charged to federal awards without appropriate documentation may be subject to disallowance. Repeat Finding: No Recommendation: Policies and procedures should be implemented to ensure that employee timekeeping, as well as the salary and wage allocations to the grant, are appropriately documented and accurately reflect the work performed. Views of Responsible Officials: Management notes the details of this finding and the resulting material weakness. Management implemented processes and controls outlined in our Corrective Action Plan to correct this deficiency before payroll period ending February 28, 2025.