Finding Text
Criteria: Federal regulations, in addition to the program’s operating contract, require recipients of federal funds to maintain documentation sufficient to support the allowability, allocability, and reasonableness of costs charged to federal programs. Under 2 CFR §200.302(b)(3), entities must maintain records that adequately identify the source and application of grant funds, and 2 CFR §200.403 provides that a cost is allowable only when it is adequately documented. Additionally, 2 CFR §200.333 establishes federal record retention requirements, obligating entities to retain financial records and supporting documentation for a prescribed period and to ensure such records are available for audit. In addition to the Uniform Guidance, the entity’s operating contract requires that all documentation related to expenditures and activities under the contract be retained for three years from the date of final payment under the contract. Collectively, these regulations require entities to maintain and retain supporting documentation for all expenditures charged to the federal program. Condition: During testing of non‑payroll disbursements, the entity was unable to provide invoices or other supporting documentation for 18 transactions. As a result, the auditor could not determine the nature, purpose, or allowability of the expenditures, nor could allowability testing be performed for any of these transactions. The unsupported disbursements resulted in total of $39,940 in actual and projected questioned costs. The entity was also unable to provide copies of checks for 15 disbursements to verify required dual signatures, and seven non‑payroll disbursements lacked documented approval or signature on the invoice. Additionally, personnel files could not be provided for 20 selected employees, and support for the amount or approval of three pay rates (one bonus and two regular paychecks) was not available, with available supporting documents reflecting amounts higher than the amounts actually paid. Although documentation for certain payroll files and pay‑rate approvals was missing, the auditor was able to verify the allowability of the payroll costs through alternative audit procedures. Cause: The underlying cause appears to be inadequate internal controls over the retention and organization of documentation supporting disbursements and payroll charged to the federal program. The entity does not have effective procedures to ensure that supporting documents—including invoices, approvals, check copies, personnel files, and pay‑rate authorizations—are consistently maintained, reviewed, and retained. Responsibilities for maintaining required records and ensuring compliance with retention requirements do not appear to be clearly assigned or enforced. As a result, the entity’s document retention processes were insufficient to ensure that required supporting documentation was preserved and available for audit. Effect: Failure to maintain accurate and complete financial information for review resulted in the auditor being unable to verify whether a portion of non-payroll disbursements were allowable, allocable, properly authorized, or reasonable under the Uniform Guidance, resulting in $39,940 in questioned costs. Although no questioned costs resulted from payroll testing, the documentation weaknesses related to payroll records indicate deficiencies in internal control that increase the risk of unsupported or unallowable costs being charged to the program in the future. Recommendation: The entity should enhance its internal control procedures to ensure all disbursements and payroll transactions charged to the federal program are supported by complete and properly approved documentation consistent with 2 CFR Part 200 and the operating contract. This includes retaining invoices, approvals, check copies, personnel files, and pay-rate authorizations. Management should assign clear responsibility for recordkeeping, implement periodic reviews for completeness, and provide staff training on documentation and retention expectations. Management’s Response: Management agrees with the findings and will ensure that all original supporting documents are maintained at the organization’s office in a secure location for a minimum of three years after an independent audit, and that every transaction is properly authorized and documented before expending monetary resources.