2024-004 - Material Weakness in Internal Controls over All Compliance Requirements Federal Agency: U.S. Department of Health and Human Services Federal Programs: Refugee and Entrant Assistance State/Replacement Designee Administered Programs, Refugee and Entrant Assistance Discretionary Grants Federal Assistance Listing Numbers: 93.566; 93.576 Pass-Through Entity Name: Wisconsin Department of Children and Families Pass-Through Grantor's Numbers: 7056, 7060, 7062A, 7065, 7068, 7071, 7072 This is a new finding in 2024 Criteria: Management is required to establish and maintain effective internal controls that provide reasonable assurance they are managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Internal controls should be designed and implemented to ensure compliance with each applicable compliance requirement. Statement of Condition: The Organization did not adequately implement or maintain internal controls to ensure compliance with applicable federal award requirements. Specifically, controls over activities allowed or unallowed, allowable costs/cost principles, cash management, eligibility, period of performance, and reporting areas were either not established, not consistently performed, or not adequately documented. Cause: There was no evidence that reviews occurred by an appropriate member of management related to the Organization's compliance with direct and material compliance requirements. Effect: As a result of these deficiencies, the Organization was exposed to increased risk of noncompliance with federal statutes, regulations, and award terms. Federal funds may be expended for unallowable costs, and financial and program reports may be incomplete, inaccurate, or untimely. The Organization is also at an increased risk of questioned costs, repayment of federal funds, or other administrative actions by the awarding agency. Context: During our audit procedures, we found numerous instances where there was no evidence that controls had been designed and implemented to address compliance with activities allowed or unallowed, allowable costs/cost principles, cash management, eligibility, period of performance, and reporting requirements. Questioned Costs: None. Recommendation: We recommend that management strengthen its internal controls over compliance with federal awards by implementing documented supervisory reviews over activities allowed/allowable costs, cash management, eligibility, period of performance, and reporting. The Organization should also periodically evaluate the effectiveness of the internal controls over all compliance requirements and make improvements where deficiencies are identified. Management Response: The Organization acknowledges that enhancements were necessary to strengthen and document internal controls over compliance with applicable federal award requirements. During fiscal year 2024, the Organization continued working with granting agencies through technical assistance, monitoring, and programmatic training to improve compliance practices. These improvements continued throughout fiscal year 2024. Management recognizes that responsibility for the design, implementation, and maintenance of effective internal controls over federal award compliance remains with the Organization. Corrective actions implemented and ongoing include: • Strengthen documented internal controls over applicable federal compliance requirements. • Maintain documented supervisory reviews over activities allowed or unallowed, allowable costs, cash management, eligibility, period of performance, and reporting. • Periodically evaluate the effectiveness of compliance controls and address identified deficiencies. • Continue utilizing grantor technical assistance and monitoring, as appropriate, while maintaining management responsibility for the Organization’s internal control environment. • Continue training appropriate financial and program personnel regarding federal award requirements and documentation expectations.
Federal Agency: U.S. Department of Health and Human Services Federal Programs: Refugee and Entrant Assistance State/Replacement Designee Administered Programs, Refugee and Entrant Assistance Discretionary Grants Federal Assistance Listing Numbers: 93.566; 93.576 Pass-Through Entity Name: Wisconsin Department of Children and Families Pass-Through Grantor's Numbers: 7056, 7060, 7062A, 7065, 7068, 7071, 7072 This is partial repeat of finding 2023-001 Criteria: In accordance with 2 CFR 200.430(g) salaries and wages must be based on records that accurately reflect the work performed. The records must be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Allocations should reasonably reflect the total activities performed by the employees and support the distribution of payroll costs among federal awards and other activities when employees work on multiple cost objectives. Statement of Condition: The Organization did not allocate payroll expenses to federal awards in accordance with federal requirements. Employees whose compensation was charged to multiple federal awards were not supported by an allocation methodology that accurately reflected the actual work performed. Specifically, payroll costs were allocated using budget estimates or other unsupported methodologies that were not periodically compared to actual activity and adjusted as necessary from July 2023 through October 2023. In addition, management did not maintain sufficient documentation demonstrating that payroll allocations accurately reflected employees' work performed during the reporting period. Cause: The Organization had not implemented effective internal controls over payroll cost allocation as it initially relied on budgeted allocations rather than actual employee activities. Effect: The Organization allocated costs and submitted and received reimbursement from federal awards for payroll costs that were allocated a budget and not based on actual costs or time incurred. Context: For the period from July 1, 2023 through October 31, 2023, payroll costs were allocated based on budgeted amounts. Payroll costs submitted and reimbursed during this period were $73,553 and $69,173 for ALN 93.566 and ALN 93.576, respectively. Starting in November 2023, the Organization allocated its payroll costs based on actual costs incurred. Questioned Costs: Payroll costs for ALN 93.566 of $73,553 were allocated based on budgeted amounts. Payroll costs for ALN 93.576 of $69,173 were allocated based on budgeted amounts. The questioned costs were not based on a statistical sample. Recommendation: We recommend that management strengthen internal controls over payroll allocation by establishing written policies and procedures for allocating payroll costs in accordance with federal requirements. Allocation policies should be based on records that accurately reflect the actual work performed rather than budget estimates or predetermined percentages. The Organization should periodically monitor and adjust payroll allocations to ensure continued compliance with federal requirements. Management Response: The Organization acknowledges the finding regarding the allocation of payroll expenses to federal awards during the period July 2023 through October 2023. Fiscal year 2024 was a significant transition period for the Organization. New payroll and financial systems were implemented during the transition period from June 2023 through January 2024, and management implemented significant corrective actions related to payroll allocation beginning in November 2023. These corrective actions included transitioning away from the prior budget-based payroll allocation methodology, strengthening timekeeping and payroll processes, implementing procedures designed to document actual employee activities, and enhancing supervisory review of payroll allocations. Although aspects of the prior-year condition affected the July through October 2023 period of fiscal year 2024, significant corrective measures were implemented during fiscal year 2024 beginning in November 2023. The Organization continued strengthening these processes throughout fiscal year 2024. Corrective actions implemented and ongoing include: • Implement and maintain written payroll allocation policies and procedures. • Utilize systematic timekeeping practices designed to document actual employee activities. • Allocate payroll costs based on actual work performed and appropriate supporting documentation. • Maintain supervisory review and approval procedures over employee time reporting and payroll allocations. • Maintain appropriate levels of management review and oversight to provide checks and balances over payroll reporting and allocation. • Periodically review payroll allocations for consistency with actual employee activity and make adjustments when necessary.
Federal Agency: U.S. Department of Health and Human Services Federal Programs: Refugee and Entrant Assistance State/Replacement Designee Administered Programs, Refugee and Entrant Assistance Discretionary Grants Federal Assistance Listing Numbers: 93.566; 93.576 Pass-Through Entity Name: Wisconsin Department of Children and Families Pass-Through Grantor's Numbers: 7056, 7060, 7062A, 7065, 7068, 7071, 7072 This is repeat of finding 2023-002 Criteria: In accordance with 2 CFR 200.431, fringe benefits must be allocated in a manner consistent with the pattern of benefits attributable to the employees whose salaries and wages are chargeable to the program. Statement of Condition: The Organization used 32% of salaries and wages to report benefits through the year. The actual benefits recorded in the general ledger would reflect that benefits as a percentage of salaries for the Organization was 18% in fiscal year 2024. Cause: The Organization allocated benefits to federal awards based on 32% in fiscal year 2024. The Organization's internal controls over compliance of allowable costs did not ensure benefits were being charged based on actual costs. Effect: Payroll benefit percentages should be reviewed throughout the year for accuracy to ensure all grants and programs properly account for the activities of the Organization and to properly report benefit cost reports to funding sources. Context: For the year ending June 30, 2024, payroll benefits were charged based on estimated amounts. Payroll benefits submitted and reimbursed during this year were $132,096 and $70,790 for ALN 93.566 and ALN 93.576, respectively. Using the same percentage of benefits calculated from the Organization's overall benefits cost of 18%, payroll benefits were $75,354 and $40,382 for ALN 93.566 and ALN 93.576, respectively. Questioned Costs: The difference in payroll benefits between the estimated 32% and the Organization's actual payroll benefit rate of 18% was $56,742 for ALN 93.566 and $30,408 for ALN 93.576. The questioned costs were not based on a statistical sample. Recommendation: We recommend the Organization develop a review process to reconcile that benefits charges are reasonable based on the Organization's actual benefit rate. We also recommend that all calculations be reviewed by personnel other than the preparer to ensure proper accuracy and compliance. Management Response: The Organization acknowledges the finding regarding the fringe benefit allocation methodology used during fiscal year 2024. The 32% rate represented a fringe benefit package that included employer payroll taxes and other applicable employee benefit costs. Based on actual costs recorded in the general ledger, the appropriate fringe benefit percentage for fiscal year 2024 was approximately 18%. The Organiization recognizes the importance of ensuring that fringe benefit costs charged to federal awards are based on a reasonable, consistently applied, and adequately supported methodology that appropriately reflects allowable fringe benefit costs. Management has strengthened its procedures for reviewing the components and calculation of fringe benefit costs and will continue to evaluate the methodology used to allocate these costs to grants and programs to ensure that the amounts charged are appropriately supported and consistent with applicable federal award and grant requirements. Corrective actions implemented and ongoing include: • Strengthen procedures for identifying and documenting the allowable costs included in the fringe benefit calculation. • Ensure fringe benefit calculations include applicable employer payroll taxes and other allowable components of the fringe benefit package. • Review the fringe benefit methodology and supporting calculations against actual costs to determine whether the methodology reasonably reflects costs incurred. • Maintain review procedures and checks and balances over the calculation and allocation of fringe benefit costs to grants and programs. • Adjust the methodology or amounts charged when review of actual costs indicates that modification is necessary. • Utilize outside accounting expertise to provide additional review of fringe benefit calculations, methodology, and supporting documentation. • Continue working with applicable granting agencies, as appropriate, to ensure fringe benefit costs are appropriately supported and comply with applicable federal award requirements.