Finding Text
Criteria: Uniform Guidance (2 CFR 200.403 and 2 CFR 200.430) requires that costs charged to federal awards be properly classified, allowable, and reflect the nature of the expenditure. Compensation for personal services must be accurately categorized and charged to appropriate cost objectives. Condition: During testing, it was identified that the Organization recorded $2,143 of employee compensation, paid through its payroll process as a bonus or stipend, to a travel and development line item rather than classifying the cost as payroll-related expense. Cause: This condition appears to result from inadequate controls over the classification and coding of expenditures, as well as a lack of review procedures to ensure payroll-related costs are recorded in the appropriate accounts. Effect: As a result, $2,143 compensation costs were misclassified in the accounting records and improperly charged to the federal program under an incorrect cost category. This increases the risk that financial reports submitted for federal awards may be inaccurate and that costs may not be evaluated appropriately for allowability. Recommendation: We recommend that the Organization implement procedures to ensure that all payroll-related costs, including bonuses and stipends, are properly classified within the accounting system. Management should also establish review controls over coding of expenditures to ensure consistency with Uniform Guidance and grant reporting requirements. Management’s Response: Management agrees with the finding and indicates that it will strengthen review procedures over expense classification and ensure that compensation costs are properly recorded within payroll-related accounts going forward.