Finding Text
Finding #2023-002 – Material Weakness – Activities Allowed or Unallowed, Allowable Costs Principles
93.558 Temporary Assistance for Needy Families – Out of School Time Program
93.600 Head Start
Payroll Approval
Criteria
Under the Uniform Guidance (2 CFR 200), entities are required to maintain effective internal controls to ensure the proper stewardship of federal funds, including appropriate oversight of payroll expenditures. Specifically, payroll transactions should be reviewed and approved by management prior to payment to ensure accuracy, completeness, and compliance with relevant policies.
Condition
During our audit of the Organization for compliance with Uniform Guidance requirements, we noted that the client was unable to provide sufficient evidence of management review or approval of payroll transactions before disbursement. Payroll costs were verified through additional supporting documentation including payroll registers and time cards. In total sixty-five payroll samples were selected for testing and the lack of review occurred for all items tested.
Cause
It appears that the client has not enforced sufficient procedures to document the review of payroll prior to processing. This may be due to turnover in the Accounting/Finance Department which resulted in these procedures not being properly documented and maintained.
Effects
Without proper review of payroll before payment, there is an increased risk of inaccuracies, fraud, or noncompliance with federal and organizational requirements. Failure to detect errors in a timely manner could lead to unauthorized or incorrect payroll disbursements, potentially resulting in questioned costs or disallowed expenditures. Payroll costs were verified through additional supporting documentation including payroll registers and time cards.
Questions Costs
None.
Perspective
This audit finding is systematic.
Statistical Sample
The sample was a statistically valid sample.
Repeat Finding
This audit finding is not a repeat finding.
Recommendation
We recommend that Organization establish and enforce formal procedures requiring documented management
review and approval of all payroll transactions before they are processed. The review process should be supported by evidence, such as approval signatures, electronic audit trails, or other verifiable records. In addition, management should perform regular reconciliations of payroll to ensure compliance with federal and organizational policies.
Views of Responsible Officials
Management agrees with the finding. The Organization concurs with the finding and has already begun implementing a revised payroll approval process. Management is developing a formal payroll review policy, including electronic approval workflows, to ensure proper documentation and oversight of payroll prior to disbursement is maintained.