Audit 398938

Finding 2025-002 - Allowable Costs/Cost Principles (Allocation of Payroll) Funding Agency: U.S. Department of Veterans Affairs Direct Funding Grant: Homeless Providers Grant and Per Diem Program Assistance Listing Number: 64.024 Type of Finding: Significant deficiency Over Compliance and Compliance Criteria: Uniform Guidance section 200.430(h)(8)(i) indicates that the standards for documentation of personnel expenses are such that (1) Charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must:(i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the nonfederal entity and(iii) Reasonably reflect the total activity for which the employee is compensated by the nonfederal entity, not exceeding 100% of compensated activities. Furthermore, subsection (viii) indicates: Budget estimates alone do not qualify as support for charges to federal awards, but may be used for interim accounting purposes, provided that: (A) The system for establishing the estimates produces reasonable approximations of the activity actually performed; (B) Significant changes in the corresponding work activity are identified and entered into the records in a timely manner and (C) The nonfederal entity’s system of internal controls includes processes to review after-the-fact interim charges made to a federal awards based on budget estimates. Condition: The Organization is charging payroll costs to the grant and the general ledger through predetermined percentage as entered into the payroll system rather than the actual time spent on the grant through the personal action report (“PAR”) as signed by the employee and supervisor. There are also several instances of no record keeping for certain payroll runs and individuals. Questioned Costs: The Organization switched payroll companies during the year and was unable to provide 5 out of 8 payroll details related to what was allocated to the VA Homeless Providers Grant and Per Diem Program (“VOM”) program which represented $118,085 of payroll expenditures allocated to the program. Out of the 3 payroll registers (15 employees) we were able to test, 2 PAR reports did not match the allocation charged to the grant, and 5 PAR reports were missing which represented $724 of payroll expenditures allocated to the program. Context: This condition occurred on certain employees. We tested 3 payroll period and a total of 15 employees, of which 7 had exceptions. Cause: The Organization has a tracking system in place to monitor the wages by employees charged to federal grants, but the actual time worked on the grant is not updated in the payroll system. Effect: Inaccurate payroll costs may be charged to federal programs. Recommendation: Management should develop a process whereby payroll costs allocated to federal grants are supported by a system of internal controls which provides reasonable assurance that the charges are accurate allowable and properly allocated, reasonably reflect the total activity for which the employee is compensated, and support the distribution of the employee’s wages among specific activities or cost objectives if the employee works on more than one federal award. Management’s Response: Management agrees with the finding and has prepared a corrective action plan.