Finding 1104637 (2023-004)

Inadequate Controls Over Payroll Federal Program Name and Year: McKinney Education for Homeless Children Project Number: 2022-4920-RF and 2023-4920-RF Assistance Listing No.: 84.196 Passed Through: Illinois State Board of Education Federal Agency: U.S. Department of Education Criteria/Specific Requirements Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) section 430 requires charges for salaries and benefits to be supported by a system of internal controls which provide reasonable assurance that the charges are accurate, and properly allocated. It also requires records to be used to support the distribution of employee salaries and benefits among specific activities if the employee works on multiple programs. The Uniform Guidance section 200.303 Internal Controls states the following: “The non Federal entity must: 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 the terms and conditions of the Federal award.” Condition During our testing of a sample of four payroll transactions from the McKinney Education for Homeless Children grant, we noted that time sheets or time and effort reports were not available for any employees tested. As a result, we were unable to determine the accuracy of the payments to those employees. During our testing of an additional sample of 40 payroll transactions covering 29 employees and 10 pay periods of the Regional Office of Education #56 for purposes of testing controls over financial reporting, we noted the following: • Contracts specifying gross pay could not be provided for six employees • Three employee contracts lacked approval by the Regional Superintendent • Twelve payroll transactions were not supported by timesheets • Timesheets for four payroll transactions lacked supervisory approval • The Payroll Payment Authorization form for one pay period was not approved by the Regional Superintendent. During our testing of salary expenditures, we noted that total wages reported on the quarterly Form 941s for the year were $152,269 less than salary expenditures reported in the general ledger accounts. Regional Office of Education #56 personnel could not explain the variance or provide a reconciliation of Form 941 amounts to the general ledger. Questioned Costs None Context The Regional Office of Education expended a total of $1,187,011 of federal awards in fiscal year 2023. Total salaries and benefits charged to the McKinney Education for Homeless Children grant of $141,933 represents 21 percent of expenditures of that grant for the year. Effect Without maintained time sheets or time and effort reports, the allocation of employee’s time to grant programs cannot be accurately determined, and, in the case of hourly employees, the accuracy of pay cannot be verified. Also, lack of approvals on supporting documentation and lack of an audit trail increases the risk of unauthorized or erroneous payments to employees. Finally, the inability to reconcile wages per Form 941s to the general ledger could be indicative of errors in general ledger classifications or in the preparation of employee Form W-2s or Form 941s. Cause Regional Office of Education #56 management indicated that Lincoln School has had several bookkeepers recently and the current bookkeeper has only been at her position for a short amount of time and did not have access to and/or could not locate these files. Recommendation We recommend that the Regional Office of Education #56: • Review their payroll files to ensure that contracts approved by the Regional Superintendent or other authorization for pay rates exist; • Enhance procedures to ensure that timesheets or time and effort reports are prepared, maintained and approved; • Ensure that Payroll Payment Authorization forms are approved by the Regional Superintendent prior to payment of the payroll; and • Prepare and maintain documentation reconciling Form 941 wages to general ledger salary expenditures. Management Response We agree with the finding. The new CFO/CPA will ensure contracts support the payroll and that rates have approval and a rationale; timesheets are approved and maintained properly; payroll is approved by the Regional Superintendent prior to payroll; and, that 941's are reconciled to the general ledger.