Finding Text
2022-006 Cost Principles over Compensation (Noncompliance and Material Weakness in Internal Controls over Compliance – 21.023)
Criteria: 2 CFR 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, §200.430(i)(1)(viii) states budget estimates (i.e., estimates determined before the services are performed) 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 (as defined by the non-Federal entity's written policies) are identified and entered into the records in a timely manner. Short term (such as one or two months) fluctuation between workload categories need not be considered as long as the distribution of salaries and wages is reasonable over the longer term; and (C) The non-Federal entity's system of internal controls includes processes to review after-the-fact interim charges made to a Federal award based on budget estimates. All necessary adjustments must be made such that the final amount charged to the Federal award is accurate, allowable, and properly allocated.
Condition and Context: Audit procedures revealed that there was a lack of clear documentation to support the actual hours that were allocated or expensed to each program.
Cause: The Organization records payroll expenses by award based on an estimate with a set number of hours allocated per pay period to each award. Actual payroll hours expensed to the grant were not tracked.
Effect: The Organization was not in compliance with financial management standards for maintaining payroll expenditure supporting documentation
Questioned Costs – Unknown
Recommendation: Management should strengthen their processes, controls, and review over payroll recording and documentation to ensure compliance with Uniform Administrative Requirements.
Views of Responsible Officials and Planned Corrective Actions: Management will revise their policies for tracking of time and related payroll costs to at least have some follow-up of tracked hours and consider the need for a subsequent adjustment to initial allocation of payroll costs.