Finding Text
2024-002 Payroll Costs Federal Program - U.S. Department of the Treasury – Coronavirus State and Local Fiscal Recovery Funds (ALN 21.027) Federal Award Number - SLFRP0136 Compliance Requirement - Allowable Costs/Cost Principles (2 CFR § 200.430) Repeat Finding - This is a repeat finding of 2023-002. Corrective action was not completed prior to or during the audit period due to the timing of audit completion and recommendations to management. Criteria - Under 2 CFR § 200.430(g), charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. Compensation for leave must be granted under established leave policies and must be allocable and reasonable for the services rendered. Costs for leave that is not earned or used, or that is forfeited, are generally not allowable under federal awards. Condition - The organization uses a calculated hourly rate to allocate payroll costs to programs. This rate includes a pro rata amount for vacation and sick time earned each pay period. However, the organization’s leave policy does not allow for carryover of unused vacation or sick time. As a result, some of the accrued leave may never be used or paid out but was still charged to federal programs through the calculated rate. Cause - The organization’s methodology for allocating payroll costs does not differentiate between earned and used leave and does not account for the forfeiture of unused time at year-end. Effect - Federal awards may have been charged for leave benefits that were never realized or paid to employees, resulting in an overstatement of payroll costs charged to the program. However, based on our analysis, the financial impact of this condition was not material to the federal award and the estimated questioned costs were below the $25,000 reporting threshold. Questioned Costs - $0. No questioned costs are reported as the estimated impact is below the reporting threshold and not material to the award. Recommendation - We recommend that the organization revise its payroll allocation methodology to ensure only used or vested leave is charged to federal awards. If estimates are used, they should be supported by documentation and periodically reconciled to actual costs. Non-vested leave that may be forfeited should not be included in federally funded rates. Views of Responsible Officials - We agree with the findings and determined it was due to outdated processes and a gap in technical expertise utilizing the payroll allocations within the accounting software.