Finding Text
Finding 2023-006 Unallowable and Improperly Documented Payroll Expenditures
Type of Finding:
Noncompliance and Material Weakness in Internal Control over Compliance
Condition and Context:
The Organization failed to establish critical processes and internal controls over payroll expenditures to ensure compliance with Uniform Guidance requirements and several compliance issues were identified. As part of audit procedures, 44 transactions were selected in a testing sample from a population of 243 direct payroll transactions. Of the transactions tested, the auditors noted 8 instances of payroll costs overclaimed by way of claiming the same work effort for the same period on multiple grants. The auditors noted 18 instances of failure to properly calculate and allocate the work effort completed by employees that worked on multiple grants and programs. The auditors noted 9 instances of the Organization failing to have approved pay rates on file that matched the amounts paid to the employees. The auditors also noted a significant lack of supervisory approval on timesheets or other time allocation support.
Criteria:
According to Uniform Guidance 2 CFR §200.430, charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records should be adequately documented, authorized, and supported by timesheets or other documentation approved by appropriate officials. These records should also reasonably reflect the total activity for which the employee is compensated, not exceeding 100 percent of compensated activities. The records should also support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one Federal award. Further, proper internal controls should be in place to ensure compliance with federal requirements.
Cause:
The Organization failed to implement appropriate policies, procedures, and internal controls that would allow management to properly record, track, and claim payroll expenditures compliant with Uniform Guidance requirements. The root cause of these matters appears to be due to a lack of sufficient skills, knowledge, and experience in the grant administrators and leadership roles.
Effect:
The impact of failing to establish a robust system of processes and internal controls to specifically allocate the work performed for employees among specific grants, there is a significant risk that the Organization would charge work efforts against the wrong grants. Failure to have an appropriate system in place also increases the risk that the Organization would make duplicate claims for the same work effort. Failure to have supervisory approval over work effort could lead to claims of employee work that cannot be substantiated. Failure to have approved pay rates could lead to employees being paid more or less than owed, and federal programs being under or over claimed. Overall, the failure to establish sufficient internal controls in these areas greatly increases the risks that federal funds would be spent outside of the Uniform Guidance requirements.
Questioned Costs:
Known questioned costs of $32,393 were identified.
Repeat Finding:
This is not a repeat finding.
Recommendation:
It is recommended that the Organization implement more robust processes and internal controls over their accounting for payroll. All employees should complete timesheets or have up to date work effort allocations that clearly document their work efforts. These forms should be updated regularly and approved by appropriate supervisors. Employee pay rates should be documented and approved through offer letters and pay rate change forms. The Organization should evaluate the personnel involved with the payroll cycle and ensure that appropriate segregation of duties are in place, or other internal controls are implemented to ensure Organizational funds are properly safeguarded. The Organization should also better utilize its accounting database to ensure payroll costs are properly tracked and categorized against its grant activities to prevent duplicate claims.
Views of Responsible Officials:
The Organization retained a licensed CPA firm with significant expertise in financial reporting and single audit compliance. The Organization will conduct mandatory training for all supervisors to reinforce the importance of accurate timesheet approval processes, proper time allocation for employees working on multiple grants or programs, and ensuring timely and consistent documentation of payroll expenditures. The Organization will ensure all approved pay rates are documented, signed, and filed for each employee. The Organization will configure QuickBooks to ensure payroll costs and grant allocations are clearly identifiable and traceable and linked to corresponding grants and federal claims.