Finding Text
2024-004 – Allowable Costs/Cost Principles – Internal Control and Compliance over Payroll Expenditures Identification of the Federal Program: Assistance Listing Number: 14.218 Assistance Listing Title: CDBG - Entitlement/Special Purpose Grants Cluster Federal Agency: U.S. Department of Housing and Urban Development Pass-Through Entity: N/A Federal Award Identification Number: B-21-MC-06-0026, B-23-MC-06-0026, B-20-MW-06-0026, Program Income Assistance Listing Number: 14.231 Assistance Listing Title: Emergency Solutions Grant Program Federal Agency: U.S. Department of Housing and Urban Development Pass-Through Entity: N/A Federal Award Identification Number: E-23-MC-06-0026, E-20-MW-06-0026 Assistance Listing Number: 21.027 Assistance Listing Title: Coronavirus State and Local Fiscal Recovery Funds Federal Agency: U.S. Department of the Treasury Pass-Through Entity: N/A Federal Award Identification Number: N/A Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation): Total salaries charged to federal awards (including extra service pay) are subject to the Standards of Documentation as described by 2 CFR §200.430(i). Per this section, salaries and wages charged to Federal awards must be based on records that accurately reflect the work performed. These records must: Be incorporated into the organization’s official records; Reasonably reflect the total activity for which the employee is compensating across all grant related and non-grant related activities (100% effort); Support the distribution of employee salary across multiple activities or cost objectives (for example, effort spent on multiple federal awards, spent on general/or administrative activities, vacation, sick leave, leave without pay, etc.); and Utilize an "after-the-fact" review of the employee’s actual hours worked during the reporting period for identifying and correcting significant changes (as defined by the organization’s written policies). Condition: CDBG - Entitlement/Special Purpose Grants Cluster For two (2) out of forty (40) payroll samples tested, employees’ benefits and compensated leave were charged to the CDBG program for the pay periods selected even though the employees did not have any actual hours charged to the program. Emergency Solutions Grant Program (ESG) For two (2) employees out of the seven (7) tested with ESG and ESG-CV charges, payroll-related costs were charged to the ESG program even though these employees were not included on the official budget allocation file used to support the distribution of payroll costs. The exceptions consisted of benefits and compensated leave and occurred in five (5) of twenty-three (23) total payroll transactions tested. In addition, our review of the disbursement reports during fiscal year 2024 identified three (3) additional employees with ESG or ESG-CV payroll charges who were not included on the official budget allocation file, bringing the total to five (5) employees not included on the official budget allocation file. Coronavirus State and Local Fiscal Recovery Funds (ARPA) Our review of the distribution reports indicated that one (1) employee who did not work on ARPA during the pay period tested had benefit costs allocated to ARPA. In addition, for one (1) out of the forty (40) employees tested, certain benefit amounts were charged twice to the ARPA program, with duplicate lines posted to the same expense account as regular salaries. The City indicated that the duplicate charges were due to a system setup error. Cause: The condition appears to have occurred because the City did not perform sufficient review procedures over payroll allocations to federal programs. Payroll charges were allowed to post based on budget allocation files and system configurations that were not regularly validated to underlying timekeeping records. In addition, system setup issues that resulted in duplicate postings of certain benefits were not identified and corrected in a timely manner. Effect or Potential Effect: As a result of these conditions, payroll and related benefit costs charged to ESG, ARPA, and CDBG was not be fully supported or was allocated properly to the respective federal programs. Federal expenditures reported to the grantor may therefore be misstated, and there is an increased risk that the City could be required to reclassify or refund portions of the costs charged to these awards. Questioned Costs: None. Context: See condition above for the context of the finding. Identification as a Repeat Finding, If Applicable: Yes. See prior year finding 2023-003. Recommendation: We recommend that the City enhance its internal controls over payroll processes by implementing policies and procedures that ensure employee compensation charged to federal programs is supported by contemporaneous or after-the-fact documentation of actual time and effort spent on federal program activities. Views of Responsible Officials: Management concurs with the finding.