Finding 1156309 (2024-001)

Finding 2024-001 - Significant Deficiency Criteria: Management is responsible for designing and maintaining internal controls that ensure transactions are recorded in accordance with Generally Accepted Accounting Principles (GAAP). This includes accurate recognition of payroll expenses and related liabilities in the proper accounting period. Effective internal controls should prevent and detect errors in payroll processing and ensure that employee compensation aligns with approved salary schedules. Condition: It was noted during single audit testing that certain employees tested were paid less than the amounts specified in the Board’s published salary schedule, thus resulting in underpayment. Cause: The underpayments occurred due to a lack of adequate internal controls to ensure payroll amounts were calculated in accordance with the approved salary schedule. Specifically, there was no documented review or verification process in place to confirm that employee pay amounts aligned with the published salary schedule, which allowed the discrepancies to go undetected. Effect: As a result of this control weakness, the Board’s financial records did not reflect accurate payroll expenses and related liabilities. This error represents a significant potential misstatement and indicates a systemic issue in payroll processing controls. Accordingly, this control deficiency is considered a significant deficiency in internal control over financial reporting. Recommendation: The Board should strengthen its internal control procedures over payroll processing by implementing a formal, documented review process to ensure all employee compensation is properly calculated in accordance with the published salary schedule prior to payment. Management should also perform periodic reconciliations of payroll amounts to approved salary schedules as part of ongoing monitoring procedures. Views of Responsible Officials: The Board agrees with the finding and acknowledges the payroll errors identified. Upon notification, the Board reviewed the payroll records of the certain employees with identified errors and confirmed the underpayments. Corrective action was taken on the identified employees and the Board issued checks to pay the difference owed. The Board is also implementing additional review procedures to ensure that future payroll is processed in accordance with approved salary schedules.