Audit 410376

Finding 2025-002 – Activities Allowed/Allowable Costs Type of Finding: Material weakness over controls over compliance and noncompliance Federal Agency: U.S. Department of Treasury & U.S. Department of Health and Human Services Federal Program: Coronavirus State and Local Fiscal Recovery Funds – ALN 21.027 and Refugee and Entrant Assistance State/Replacement Designee Administered Program – ALN 93.566 Criteria An organization should have a strong system of internal control that includes review of general disbursements and payroll transactions for proper classification and allowability in accordance with the terms and conditions of the award agreements and federal regulations. Uniform Guidance section 200.430, paragraph (i) standards for documentation of personnel expenses require that 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 non-federal entity; (iii) reasonably reflect the total activity for which the employee is compensated by the non-federal entity, not exceeding 100 percent of compensated activities; (iv) encompass both federally assisted and all other activities compensated by the nonfederal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-federal entity’s written policy; (vi) comply with the established accounting policies and practices of the non-federal entity; (vii) 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; and (viii) budget estimates alone do not qualify as support for charges to federal awards but may be used for interim accounting purposes. Condition and Context ALN 93.566 - Salaries and wages of employees charged or allocated to the grant were not supported by formal records that accurately reflected the work performed. During our testing of forty payroll transactions, we noted the Organization recorded amounts based on budgeted estimates rather than actual amounts. ALN 21.027 – The organization maintained timesheets for program staff whose payroll costs charged totaled $105,771.50. However, based on a review of employee timesheets and allocation methodologies, program staff payroll costs attributable to the program should have totaled $145,652.35, resulting in an underbilling of $39,880.85. In addition, the organization charged $52,946.37 of administrative payroll costs to the award; however, sufficient supporting documentation, including timesheets or other personnel activity records, was not maintained to substantiate the allocation of these costs to the program. As a result, the allowability and allocability of the $52,946.37 in administrative payroll costs could not be confirmed. After considering the identified $39,880.85 underbilling of program payroll costs, the net amount charged to the award that cannot be supported or confirmed is $13,065.52. Questioned Costs Unknown. Cause Payroll costs charged to the grants were approximated for budgetary purposes which was utilized for reporting; however, a subsequent review of time and effort for the individuals allocated to the grant and evaluation of allowability of costs incurred was not performed, which resulted in inaccurate amounts charged to the grant. Effect or Potential Effect Because the actual time spent by employees was not appropriately charged to the grant, the amounts charged to the grant could be under or overcharged and unallowable. Identification as a Repeat Finding 2024-003 Recommendation We recommend the Organization implement a process and related controls related to review and approval of payroll expenditures for allowability in accordance with the terms of the grant award and federal regulations. Payroll amounts charged to the grant should be based on actual time and effort reported by the employee working on the grant and related documentation maintained by the Organization to support those amounts. The Organization should implement a review process over recording time and effort for payroll transactions, for proper classification and allowability.