Finding Text
Finding 2023-007 – Payroll and Cash Management Deficiencies Agency: U.S. Department of Health and Human Services – Administration for Children and Families Federal program: Child Care and Development Block Grant (CCDBG) ALN: 93.575 Compliance requirement: Cash Management (2 CFR 200.305) Category: Material Weakness Questioned costs: None Repeat finding: No Condition: When federal cash balances were insufficient, payroll was temporarily paid from private funds. Upon receipt of federal reimbursements, Semillitas de Amor issued payroll checks from the federal account to the same employees, instructing them to return such funds to the private account. Some employees did not return the full amounts, resulting in receivables from employees in the private fund. No formal interfund entries or tracking logs were maintained. Criteria: 2 CFR 200.305 requires federal funds to be managed to minimize the time between drawdowns and disbursements, with adequate controls to ensure funds are used only for allowable costs and properly transferred. Cause: Management lacked adequate cash management controls and relied on informal repayments by employees. Effect: While no questioned costs were identified since payroll was allowable, the process distorted financial records and represents material weakness and noncompliance with cash management requirements. Importantly, the receivables that resulted from incomplete repayments were recorded entirely in the private (non-federal) fund. No amounts were misstated in the federal fund, and no federal expenditures, obligations, reimbursements, or SEFA amounts were affected. Because the underlying payroll costs were allowable, allocable, and properly chargeable to the federal program under 2 CFR 200 Subpart E, this condition did not result in questioned costs. The financial distortion and control impact were limited exclusively to the private fund. Recommendation: We recommend that management discontinue the practice of issuing duplicate payroll checks to employees. When federal cash is not available at the time payroll must be processed, management should transfer the exact amount of funds needed from the private account to the federal account prior to payroll. Payroll should then be processed directly from the federal account. Once the federal reimbursement is received, the private account should be reimbursed through a documented interfund transfer, supported by reconciliations and approved by management. This procedure ensures that employees are paid only once, that payroll is always disbursed from the correct account, and that interfund transactions are transparent and properly documented. Management should also establish written procedures for this process and maintain a detailed interfund log with dates, amounts, and approvals.