Finding Text
Criteria: The Association’s procedures for processing expenditures, and primarily allocating expenditures to programs, should include controls that ensure expenditures are properly charged to program and allocated in accordance with the federal grant requirements. The objective of the Assistance Listing 93.600 Head Start program (including Early Head Start and Early Head Start Partnerships) is to promote school readiness of low-income children (including American Indians, Alaska Natives and migrant and seasonal farm workers) by enhancing children’s cognitive, social and emotional development. During the fiscal year ending December 31, 2022, the Association expended $4,546,478 in major program funding.
Federal regulations require award recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls.
Federal regulations require the Association to have adequate time-and-effort documentation to support all payroll costs charged to the Head Start awards. 2 CFR 200.430, Compensation – personal services, states, in part:
“(i) Standards for Documentation of Personnel Expenses
(1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must:
(ii) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated…”.
Depending on the number and types of activities employees perform, time and effort documentation can be in the form of semi-annual certification or monthly personnel activity reports, such as a timesheet.
Condition: The Association’s controls were not effective to ensure it maintained adequate time and effort documentation, as required by federal regulations and the grantor. During review of payroll costs for the year ended December 31, 2022, it was noted payroll costs were charged according to budgeted time rather than reconciling to actual hours worked.
This internal control deficiency is considered to be a significant deficiency.
Questioned Costs: None.
Context: Procedures included examining payroll charges for 40 randomly selected employees for January through December 2022.
Cause: The Association changed the software used for payroll processing from QuickBooks to MIP in July 2020. They then changed their fiscal accounting software from QuickBooks to MIP in January 2021. The new software implementation was fraught with many challenges, one of which being implementing electronic processes that met the time and effort requirements outlined in the Association’s policy manual.
Effect: By not keeping proper time-and-effort records, the Association cannot demonstrate compliance with grantor’s requirements that require support for payroll costs charged to the federal program.
The Association provided alternate documentation that demonstrated the payroll costs charged to the program were allowable. Therefore, we are not questioning costs. Repeat finding: This finding is a repeat finding in the immediately prior year. Prior year finding number 2021-004.
Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample.
Recommendation: The Association follow its own documented controls to ensure it prepares adequate time-and-effort documentation to support payroll costs charged to the federal grant.
View of Responsible Officials: There is no disagreement with this audit finding.