Audit 389278

U.S. Department of Health and Human Services - 93.600 Head Start 2025-002 Lack of Documented Approval Criteria: Per 2 CFR §200.303, the entity must establish and maintain effective internal controls over federal awards that provide reasonable assurance that the entity is managing the award in compliance with federal statutes, regulations, and the terms and conditions of the award. Adequate documentation of approvals is a fundamental internal control to ensure expenditures are necessary, allowable, and properly authorized. Condition: During our testing of expenditures charged to the Head Start program funded by the U.S. Department of Health and Human Services, we noted that the Organization did not maintain documented evidence of management approval prior to incurring or paying costs. The transactions reviewed lacked documented authorizations, supervisor sign-offs, or other documentation showing formal approval. Cause: The lack of documented approval appears to be due to inconsistent application of internal controls and the absence of a standardized process for documenting expenditure authorization for federal programs. Effect: Without documented approval, there is an increased risk that unallowable or unauthorized expenditures could be charged to the federal award. It also weakens the audit trail and compliance with Uniform Guidance requirements. Questioned Costs: None noted. Recommendation: We recommend the Organization implement and enforce a formal process requiring documented pre-approval of all expenditures charged to federal programs. This may include standardized approval forms or electronic workflows that clearly demonstrate appropriate review and authorization prior to payment. Views of Responsible Officials and Planned Corrective Actions: Management agrees with the finding and has implemented various approval and documentation procedures.

U.S. Department of Health and Human Services - 93.600 Head Start 2025-003 Inconsistencies with Cost Allocations Criteria: In accordance with 2 CFR §200.405(d), any cost allocated to a federal award must be allocable, reasonable, and based on a method that is supported and consistently applied. In addition, 2 CFR §200.403(g) requires that costs be adequately documented. A written allocation plan is essential to demonstrate that the allocation of shared costs is equitable and in compliance with Uniform Guidance. Condition: During our audit testing of payroll allocations, we noted the Organization uses a payroll allocation spreadsheet to distribute employee salaries across programs and administrative cost centers. However, the spreadsheet did not include all employees, resulting in staff members’ payroll costs being allocated based on default or informal assumptions rather than established methodology. During our review of expense allocations for both payroll and non-payroll expenses, we noted that the Organization did not consistently follow the cost allocation plan. Cause: The omission of certain employees appears to be the result in oversight in maintaining the allocation spreadsheet and/or the inconsistent communication between HR/payroll and program management. This may have been due to changes in personnel that were not adequately briefed on procedures or lack of review for the allocated expenses. Effect: Failing to include all employees in the payroll allocation policy may result in noncompliance with the Organization’s cost allocation plan and applicable grant requirements or inaccurate distribution of payroll costs to programs. Not following the cost allocation plan increases the risk of noncompliance with grant requirements, inaccurate reporting of program costs, or misstatement of financial results. Questioned Costs: None noted. Recommendation: We recommend the Organization implement a formal process for updating the allocation spreadsheet whenever there are staffing changes and conduct periodic reviews (at least quarterly) to verify that payroll allocations remain accurate and compliant with the cost allocation plan. We recommend the Organization implement a stronger documentation process for shared cost distribution and monitor compliance regularly to ensure all allocations continue to follow the cost allocation plan. Views of Responsible Officials and Planned Corrective Actions: Management agrees with the finding and will document the allocation methods used for employees and expenses.