Finding Text
Finding 2024-004 (Significant Deficiency) AL# 14.218: CDBG - Entitlement Grants Cluster, U.S. Department of Housing and Urban Development, all open grants and years Condition: During testing of the PR26 - CDBG Financial Summary report, it was identified that one payroll cycle was reported twice, resulting in a duplication of payroll costs and an overstated reimbursement request. Criteria: 2 CFR 200.303(a) states that the City is required to 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. Questions Costs: $23,263 Context: During the year, the City converted ERP systems in the middle of March 2024. At conversion, the data from the old ERP system was converted into a project management database. The payroll cycle ending March 14, 2024, occurred at the time of the system conversion. This payroll cycle was included in the conversion data from the old ERP system and was also included in the project management system as data from the new ERP system. While the general ledger was accurate, the project management system duplicated this payroll. The sample size was determined based upon guidelines provided by the AICPA which is not a statistically valid sample. Cause: The ERP system conversion presented challenges to the City related to report development and in particular, accuracy of the project management system. Effect: The reimbursement request was overstated, resulting in an excess draw of funds. This creates a risk of noncompliance with the grant requirements and potential repayment of funds. Recommendation: We recommend the City work with the U.S. Department of Housing and Urban Development (HUD) to reimburse HUD for the duplicated payroll amount and evaluate the data used in submitting reimbursement requests to ensure the data agrees to general ledger activity. Views of Responsible Officials (Unaudited): The City concurs with the finding. During preparation of the PR26 - CDBG Financial Summary report, one payroll cycle was reported twice, resulting in an overstated reimbursement request. This duplication occurred during the City’s ERP system conversion in March 2024, when payroll data for the pay period ending March 14, 2024, was included in both the converted legacy system data and the new ERP system project management records. While the general ledger accurately reflected payroll costs, the duplication within the project management system was not identified prior to submission of the reimbursement request. The City acknowledges that this represents a deficiency in internal controls over grant reimbursement reporting. The City will coordinate with the U.S. Department of Housing and Urban Development (HUD) to resolve the duplicated payroll amount, including reimbursement or offset of the excess draw, in accordance with HUD guidance. Accounting Services Division, in coordination with the administering department and program management, will perform a reconciliation of payroll-related expenditures and reimbursement draws for all HUD grants for the period January 1, 2024, through June 30, 2024, to ensure amounts claimed agree to general ledger activity. In addition, the City will ensure that recordkeeping and reimbursement preparation practices related to payroll expenses included in grant draw requests are sufficient to support amounts claimed and agree to general ledger activity. The Accounting Services Division will review existing departmental documentation practices and communicate consistent documentation expectations and best practices to promote accurate, complete, and supportable payroll draw requests.