Finding 2023–002: Internal Controls over Allowable Activities and Costs
Federal Department: U.S. Department of Treasury
Pass-through Agencies: Cook County, Illinois and Women's Business Development Center
COVID-19 - Coronavirus State and Local Fiscal Recovery Funds, Federal Assistance Listing Number 21.027
Criteria
2 CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Subpart D – Post-Federal Award Requirements Standards for Financial and Program Management Section 200.303, Internal controls states “The non-Federal” entity must: (1) establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and terms and conditions of the Federal award.
Section 200.430 (i) Standards for Documentation of Personnel Expenses states (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 non-federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-federal entity, not exceeding 100% of compensated activities…; (v) Comply with the established accounting policies and practices of the non-federal entity…; (viii) 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.
Per Exhibit A, Section D – Program Administration and Process Overview of the Subrecipient Agreement for the American Rescue Plan Act – State and Local Fiscal Recovery Funds dated July 20, 2022 with Cook County, Illinois, SDA was required to perform certain eligibility verification of program participant. The agreement notes that the subrecipient (SDA) has discretion on how to verify participants eligibility but should define and consistently apply an intake policy that includes maintaining documentation on each beneficiary that supports their eligibility, such as signed self-attestation forms from beneficiaries, financial documents that demonstrate economic hardship, geographic data showing that a program participant operates in a region that experienced disproportionate pandemic harm. SDA utilized an eligibility form (formerly panel review form) to document compliance with this requirement.
Condition
During the current audit period, SDA did not maintain adequate controls over allowable activities and costs related to its federally funded program.
Cause
SDA implemented the fiscal policy in 2023, which improved data retention and management for grant reporting of federal programs. Due to inconsistency in staffing during 2023, however, some historical gaps in data were found that were unable to be corrected prior to or during the 2023 audit. In addition, with the implementation of SDA’s customized Salesforce data management system, some data was deleted or lost during the transition, resulting in incomplete or missing records.
Effect
The failure to maintain adequate supporting documentation to ensure all expenditures, including personnel costs, are accurate, reasonable and allowable is a violation of federal regulations. Also, not maintaining support for actual time spent by employees on the program could result in unallowed payroll costs being charged to the federally funded program.
Questioned Costs
We noted total questioned costs of $36,170.
Context
During our review of 40 expenditures (from a 547 population) and related payroll activities (from a population of 58 totaling $231,798), we noted the following:
For 18 expenditures reviewed, we were not provided with the cost allocation schedule to support the actual charges to the federal program. Following our review of the total invoice amount, we did not note any costs that were deemed to be unallowed per the grantor(s) requirements and federal regulations.
During our review of 10 payroll expense items, we noted that payroll expenses charged to the program were based on estimates instead of the actual time and effort of reporting, which totaled $36,170.
We were provided with a listing of 244 clients served who were required to undergo an eligibility/intake review as specified in the grant agreement. We were not provided documentation, such as a completed eligibility form, to verify that the eligibility/intake review was performed for 21 of 25 clients served that were tested. It appears data was lost during the Salesforce (electronic system utilized to store eligibility data) system migration.
Identification of Repeated Findings
Repeated (Prior Finding No. 2022-002).
Recommendation
We recommend that SDA implement procedures to ensure all expenditures, including personnel costs, are properly reviewed and supporting documentation maintained in accordance with federal regulations.
Views of Responsible Officials and Planned Corrective Action
SDA agrees with the finding and recommendation. See SDA’s Corrective Action Plan on pages 40 – 44.