Finding Text
U.S. Department of Agriculture 2025-007 Weakness in Internal Controls Over Compliance of Allowable Costs/Cost Principles of Payroll Disbursements Federal Program: Child Nutrition Cluster — USDA Commodities (15.550), School Breakfast Program (10.553), National School Lunch Program (10.555), Summer Food Service Program for Children (10.559) Grant Period: Year Ended June 30, 2025; Pass-through Entity: Louisiana Department of Education Condition: During payroll disbursement control testing and Single Audit compliance procedures, the auditors identified weaknesses in internal controls over compliance of allowable costs/cost principles of payroll disbursements in the Child Nutrition Cluster. Specifically, controls were not sufficient to consistently prevent or detect AESOP schedule mismatches, unsupported payroll master file entries, and timekeeping system interface discrepancies. As a result, minor payroll errors were not identified or corrected on a timely basis and minor improper payments charged to the Child Nutrition Cluster occurred. Criteria: Uniform Guidance requires non‑Federal entities to establish and maintain effective internal control over Federal awards that provides reasonable assurance that the entity is managing Federal awards in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award (2 CFR § 200.303(a)). Effective internal controls over compliance of allowable costs/cost principles of payroll disbursements to Federal programs includes controls to ensure employee schedules, payroll master file changes, and time and attendance data are accurate, supported, and appropriately reviewed to prevent or detect improper payments. Cause of Condition: Control testing and Single Audit compliance procedures on payroll disbursements indicated that internal controls were not adequately designed or implemented to ensure compliance with requirements of allowable costs/cost principles that Federal award costs must be allowable, reasonable, and necessary for the performance of the Federal program. Potential Effect of Condition: As a result, the School Board did not have adequate internal controls over compliance related to allowable costs and cost principles for payroll disbursements charged to the Child Nutrition Cluster. Essentially controls were not properly designed and implemented to provide reasonable assurance that payroll expenditures were accurate, allowable, and adequately supported. The identified misstatements included $2.11 related to GAP pay errors and $116.96 of unsupported substitute pay. Although these amounts were individually immaterial, a per‑item projection of the identified errors to the full payroll population of approximately 974 transactions resulted in an estimated maximum projected exposure of approximately $2,800. While this projected amount was determined to be trivial and not expected to result in questioned costs, the control deficiencies increased the risk that improper payroll payments would not be prevented or detected on a timely basis and that unallowable payroll costs could remain charged to Federal programs. Recommendation: Management should design, implement, and maintain effective internal controls over compliance of allowable costs/cost principles of payroll disbursements to Federal programs to provide reasonable assurance that payroll expenditures comply with Uniform Guidance requirements. In addition, management should establish and enforce procedures to ensure employee schedules, payroll master file changes, and time and attendance records are accurate, supported, and appropriately reviewed prior to payroll processing, and that payroll costs charged to the Child Nutrition Cluster represent compensation for actual services performed. Review procedures should be formalized and consistently evidenced through signatures, initials, electronic timestamps, dates, checklists or system audit trails. Management’s Response: Management agrees with the finding and has reviewed the payroll items identified during the audit and has taken corrective action to address schedule discrepancies and unsupported payroll entries. Management has conducted a review of employee schedules within the timekeeping system to ensure alignment with payroll records and has corrected errors identified. Management plans to continue performing periodic reviews of payroll data to identify potential discrepancies and to take corrective action as needed. Management will also evaluate identified payroll discrepancies on a case‑by‑case basis to determine whether recovery or adjustment is appropriate.