Finding 1177945 (2025-003)

CRITERIA: Internal controls over federal programs are to be sufficient to prevent the overstatement of costs charged to federal programs. CONDITION: The Organization’s internal control over compliance failed to prevent the overstatement of workers' compensation expense charged to the Federal Head Start program in fiscal year 2024-25. CAUSE: The Organization experienced turnover in key program management and fiscal positions in fiscal year 2025, as well as staffing shortages. Accordingly, the performance of timely internal control procedures such as reviews over payroll processing, monitoring of payroll liability balances, and financial statement reviews suffered. EFFECT: The effect of this deficiency in internal controls over federal programs was the Organization’s failure to comply with the Allowable Costs requirements and identify overstatement of expense. RECOMMENDATION: We recommend that personnel responsible for Head Start Program compliance carefully review the financial statements each month to ensure expenses appear accurate. Further, we recommend that fiscal personnel implement reviews over bi-weekly payroll processing and monitor the balances in payroll liability accounts each month to ensure reasonableness. MANAGEMENT RESPONSE: In October 2025, the Organization contracted with an outside payroll processor for payroll services. By alleviating the processing of payroll, the Organization’s fiscal team will have more time to review and monitor payroll, including payroll liabilities, to ensure accuracy in the allocation of expenses to federal programs.