Finding Text
Finding 2023-002: Internal Controls over Allowable Costs
Federal Department: U.S. Department of Education
Pass-through Agencies: State of South Carolina Department of Education, Minnesota Department of Education, and DC Office of the State Superintendent of Education
Federal Program Name: Twenty-First Century Community Learning Centers
Assistance Listing Number: 84.287
Type of Finding:
Significant Deficiency in Internal Control over Compliance
Other Matters
Criteria
2 CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Subpart D – Post-Federal Award Requirements Standards Section 200.303, Internal controls states “The non-Federal” entity must: (1) establish, document, 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.
Condition/Context
During the current audit period, CDF did not maintain adequate control over allowable costs related to its federally funded program.
Exceptions were noted in 21 of 60 tested payroll expenditures:
For 16 payroll expenditures, we were not provided with any evidence of approval of allocations. We noted these allocations were based on budget estimates, instead of actual time and effort reporting.
For five payroll expenditures tested, we were not provided with any supporting documentation to determine if the expenditures were allowable.
Exceptions were noted in nine of 60 non-payroll expenditures tested:
For six non-payroll expenditures tested, we were not provided with any evidence of approval of the overhead allocations. We reviewed the supporting documentation, and the expenditures are deemed allowable.
For three non-payroll expenditures tested, we were not provided with any supporting documentation to determine if the expenditure was allowable.
Cause
Based on our discussions with management, this finding occurred due to staff turnover. As a result, consistent documentation was not maintained to support the approval of expenditure allocations.
Effect
The failure to maintain adequate documentation to verify that expenditures are properly reviewed and approved and to maintain adequate supporting documentation to ensure all payroll and non-payroll expenditures are reasonable and properly reviewed is a violation of federal regulations, which could result in unallowed costs being charged to the federally funded program.
Questioned Costs
$42,119
Identification of Repeat Findings
Repeated (Prior Finding No. 2022-001).
Recommendation
We recommend that CDF implement procedures to ensure all expenditure allocations are properly reviewed and approved and supporting documentation is maintained in accordance with federal regulations.
Views of Responsible Officials and Corrective Action Plan
CDF agrees with the finding and recommendation. See CDF’s Corrective Action Plan on pages 18-20.