Finding Text
2025-002 Internal Control and Compliance Finding Related to DFARS 252.242-7006(c)(1), Accounting System Administration, Sound Internal Control Environment a. Condition Our review of compliance and internal controls testing in accordance with OMB 2025 Compliance Supplement for Part A. Activities Allowed or Unallowed; and Part B. Allowable Cost/Cost Principles; identified an internal control deficiency relating to the timely replacement of interim timesheet signatures and approvals. The contractor’s policy does not establish a required timeframe for employees or supervisors to replace interim signatures made by payroll/accounting personnel, leading to significant delays in proper timesheet certification. In our analysis of FY2025 interim signature reports, we found that required signature replacements were outstanding for more than 30 days in 33 mid-year instances and 29 year-end instances. While the policy requires replacement, its failure to define "timely" leaves the process open-ended, which weakens the control over labor reporting. This condition occurred due to a lack of management review over timekeeping procedures and an oversight during the creation of the labor policy. Management failed to recognize that omitting a strict deadline for replacing interim signatures would leave the control process incomplete and unenforceable. As a result of this control deficiency, there is an increased risk to the Government of inaccurate labor distribution and unapproved time being billed to Government contracts. This creates a vulnerability for potential mischarging, which could result in unallowable costs being claimed. b. Criteria We examined DFARS 252.242-7006(c)(1), Accounting System Administration, which states the following requirements: “The contractor's accounting system shall provide for: (1) A sound internal control environment, accounting framework, and organizational structure.” Additionally, the contractor is failing to adequately define and enforce their own internal control processes. SRC’s Labor Recording Policy establishes the baseline requirement for these signatures but lacks the necessary timeframes to make the controls effective. The policy states: (1) For employees with interim signatures: “Upon return to the office, or when there is access to the timekeeping system via the internet, the employee must review the timesheet for accuracy; complete any changes; and re-sign. (2) For supervisors if accounting personnel provide an interim approval: “This is considered an interim approval that the 1st level or backup supervisor needs to re-approve.” c. Recommendation The auditee should revise its Labor Recording Policy to establish and enforce a specific timeframe for the replacement of all interim employee signatures and supervisory approvals. Furthermore, the auditee should strengthen its internal controls related to the interim signature replacement and the monitoring process. d. Contractor Response SRC concurs with our findings. SRC’s complete response is included in the Corrective Action Plan for Current Year Findings in Appendix 3.