Finding Text
Finding 2025-004 – Significant Deficiency – Internal Controls Over Allowable Costs Identification of Federal Program: AL Number: 11.611 Manufacturing Extension Partnership Condition – During the year ended June 30, 2025, a severance payment was issued to an employee that worked on more than one federal program. The payment was an allowable cost, but was not allocated across the other federal programs based on time and effort per their policy. Criteria – Per allowable costs 2 CFR section 200.431(i)(1), severance pay is allowed to be charged to federal grants only to the extent that it is required by law, employer-employee agreement, established policy, or circumstances of the particular employment. Per 2 CFR 200.403(c), costs should be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient, therefore severance pay must be allocated based on the activities performed by the associated employee. Context and Cause – While internal controls and procedures have been established for payroll expenses, the procedures were bypassed when processing the severance payment. It should be noted that the employee spent the majority of their time on the program the severance was allocated to, and the transaction was isolated. Effect of Condition – The failure to allocate all payroll expenses may result in wrongful use of federal funds and non-compliance with federal awards. Questioned Cost – None. Recommendation – The Organization should follow established written policies for allocation. Views of Responsible Officials and Planned Corrective Actions – Management concurs with the finding and has developed a corrective action plan. We analyzed the funds the employee charged to and did not identify another federal funding source available to charge the severance to. As a result, we did not complete the standard payroll allocation spreadsheet, as the severance was determined to be appropriately charged to the one fund. In the future, we will include this payroll allocation documentation. The finding does not impact the Organization’s ability to manage federal funds. Regardless, we place the utmost importance on the summary of auditors’ results and will work to increase the strength of our internal controls over compliance.