Audit 395427

Federal Agency: United States Department of the Treasury Federal Program Name: Ocean ARPA (State and Local Fiscal Relief) Assistance Listing Number: 21.027 Federal Award Identification Number and Year: Fiscal Year 2025 Award Period: October 1, 2022 through September 30, 2025 State Agency: New Jersey Department of Human Services State Program Name: Division of Mental Health and Addiction Services System Advocacy and Division of the Deaf and Hard of Hearing Grant Number: 50001 State Award Identification Number and Year: Fiscal Year 2025 Award Period: July 1, 2024 to June 30, 2025 Type of Finding: Significant Deficiency in Internal Control over Compliance and Other Matters. Criteria or specific requirement: Allowable Costs/Cost Principles – Payroll transactions must be accurately recorded, properly allocated, and supported by sufficient documentation to ensure compliance with federal and state grant requirements. Condition: Manual payroll transactions were found to be insufficiently reviewed, resulting in errors such as overpayments and misallocated hours. These errors affected the allowability of costs under federal and state grant agreements and represent noncompliance with applicable federal and state requirements. Questioned costs: None Context: During testing of payroll transactions for both major federal and state programs, the auditor identified two discrepancies, one federal and one state, out of a sample of 32 selections each. 1. Ocean ARPA Program: One employee recorded 4.25 hours worked on the Ocean ARPA program for pay period 8. However, during the payroll distribution process, these hours were mistakenly switched with the 2 hours recorded for the Ocean Aging program. 2. DMHS Program: Another employee received a manual payroll adjustment for an additional day of pay owed from a prior period. Due to a typographical error in the manual calculation, the employee was overpaid by $240. This overpayment was then allocated to the DMHS grant based on the employee’s recorded hours. Cause: These findings demonstrate that manual payroll processes, particularly those involving adjustments and reallocations, are susceptible to human error and lack sufficient oversight to ensure compliance with federal and state cost principles. Effect: As a result of the misreading of the recorded timesheet hours, Ocean ARPA was underbilled by 2.25 hours (equivalent to $95.52), and Ocean Aging was overbilled by the same amount. Although the dollar value is immaterial, the error highlights a breakdown in the review process for payroll allocations. Another employee was overpaid by $240. This overpayment was then allocated to the DMHS grant based on the employee’s recorded hours, resulting in an overcharge of $186.00 to the DMHS program. While the amount is also immaterial, the error underscores the risk associated with manual payroll adjustments and the need for enhanced review controls. Repeat Finding: Not a repeat finding. Recommendation: We recommend that management implement automated payroll and timekeeping systems to reduce reliance on manual calculations. Additionally, formal review procedures should be established to ensure that all manual entries are verified for accuracy and compliance prior to posting. Views of responsible officials: Management acknowledges the deficiency and has reviewed the payroll distribution process and added a separate layer of review of all manual calculations.