Audit 410986

Finding 2025-002 Lack of Internal Control over Activities Allowed or Unallowed and Allowable Costs/Costs Principles Significant Deficiency Federal Agencies: U.S. Department of the Treasury Federal Programs: Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) ALN: 21.027 Award Numbers: SLFRP2531 Award Years: 2025 Type of Finding: Significant deficiency in internal control over compliance & instance of noncompliance. Condition and Context: During our testing of internal controls and compliance over payroll expenditures, we noted that payroll costs for two employees were not fully supported by payroll documentation. While the hours worked were supported by time records, the employees had been transferred to a new department with a different rate of pay, and the personnel files were not updated to reflect the change in position or compensation. Criteria: Under the federal Uniform Guidance Cost Principles, charges to federal awards must be based on records that accurately reflect the work performed and must be supported by adequate documentation. Furthermore, internal controls must be designed and operated to ensure compliance with the specific terms, conditions, and allowable cost limits of the federal award. Cause: The Village's internal controls did not operate effectively to ensure that changes in personnel and funding were properly documented and that the change in employee’s compensation rate was reviewed and approved. Per discussion with management, the deficiency was caused by a natural disaster, the community experienced significant flooding caused by Typhoon Halong, that created an emergency within the community; as a result, management's attention was diverted, and hiring package information was not updated in the personnel file on a timely basis. Effect: Without timely updates to personnel records, there is an increased risk that payroll payments could be processed at an incorrect rate and that management may lack sufficient documentation to support compensation leading to unallowable cost recorded in the program. changes. Questioned Costs: None identified that exceed the reporting threshold. Repeat Finding: No Recommendation: We recommend the Village strengthen internal control procedures to ensure personnel files and payroll rate changes are updated timely upon a change in position or compensation, including a secondary review to confirm changes are properly documented and reflected in the payroll system. Management Response: Management concurs with the finding. See Corrective Action Plan.