Finding Text
2025-001 – Management Review and Approval Finding Type. Immaterial Noncompliance/Significant Deficiency in Internal Control over Compliance (Special Tests and Provisions) Program. Highway Planning and Construction; Passed through Michigan Department of Transportation; Assistance Listing Number 20.205; All Award Numbers. Criteria. Recipients of federal awards are required to adhere to their established internal policies as well as generally accepted accounting principles (GAAP). Internal control procedures should ensure that payroll disbursements are processed using approved and accurate pay rates and that timesheets are reviewed and approved with documented evidence, including independent review where appropriate. Condition. During our testing of payroll disbursements, we noted certain internal control processes were not consistently performed or documented. This included an instance identified during a payroll conversion in which an individual was compensated using an incorrect pay rate. In addition, timesheet review and approval procedures were informal in nature and not consistently documented, including instances where timesheets were approved through verbal communication and where there was no evidence of independent review for certain personnel. Condition. During our testing of payroll disbursements, we noted certain internal control processes were not consistently performed or documented. This included an instance identified during a payroll conversion in which an individual was compensated using an incorrect pay rate. In addition, timesheet review and approval procedures were informal in nature and not consistently documented, including instances where timesheets were approved through verbal communication and where there was no evidence of independent review for certain personnel. Cause. These conditions are attributable to insufficiently formalized procedures and documentation requirements governing payroll processing and timesheet review and approval. Effect. As a result, there is an increased risk that payroll transactions may be processed using inaccurate rates or unsupported hours and that errors or irregularities may not be detected in a timely manner. Additionally, the absence of documented review reduces accountability and transparency over payroll activities. Questioned Costs. No costs were required to be questioned as a result of this finding. Recommendation. We recommend that the Commission enhance formal procedures to ensure payroll reports are reviewed for accuracy of pay rates and hours prior to processing and that all timesheets are subject to documented review and approval, including independent review where appropriate. View of Responsible Officials. Management will develop and implement formal procedures to strengthen controls over payroll processing and timesheet approvals, including requiring documented evidence of review and ensuring independent oversight where appropriate.