Finding Text
Finding 2025-001 – Allowable Costs / Principles & Activities Allowed or Unallowed Federal Agency: U.S. Department of Health and Human Services Federal Program: Block Grants for Substance Use Prevention, Treatment, and Recovery Services AL Number: 93.959 Award Number: B08TI087059 Award Year: 2025 Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria: Per 2 CFR 200.430(g)(1)(i) & (ii), “Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: Be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated and be incorporated into the official records of the recipient or subrecipient.” Condition: During our testing of allowable costs and activities, we identified deficiencies in the Organization’s internal controls over salaries and wages. While the Organization maintained original hiring documentation for employees, subsequent pay increases and the associated approvals were not formally documented or retained. In addition, we observed that the Organization did not have a standardized process for reviewing employee timesheets or for overseeing the payroll submission process in its entirety. It is important to note that these issues were limited to items selected from periods prior to the issuance of the prior-year audit report. Following that report, the Organization implemented enhanced payroll controls, including documented timesheet approvals and the use of approved employee status change forms. Context: There were 40 instances of employees’ salaries and wages tested. The sample consisted of 5 employees tested for eight pay periods, For each instance tested before the issuance of the prior year audit report, the deficiency in internal controls around payroll costs, as described in the Condition section, applied. Cause: The Organization did not maintain documentation of employee pay raises or the necessary approvals for those pay raises. The Organization’s internal control process around payroll costs does not include review of employee timesheets to ensure that reported time is reasonable and accurate. Effect: Lack of internal controls surrounding payroll costs could potentially lead to improper allocation of payroll costs to the Federal grant. Repeat finding: Not applicable. Recommendation: We recommend the Organization continue to maintain and monitor the enhanced payroll controls that were implemented during the year ended June 30, 2025. Management’s Response: See Corrective Action Plan.