Finding 1222846 (2025-001)

2025-001 – Payroll Costs Charged to Federal Awards Not Consistently Supported Type of Finding: (F) Significant Deficiency in Internal Control over Compliance (G) Instance of Noncompliance Related to Federal Awards Funding Agency: U.S. Small Business Administration Title: Microloan Program Assistance Listing #: 59.046 Award #s: SBAOCAML250818-01-00 and SBAOCAML240615-01-00 Award Periods: 7/1/2025-6/30/2026 and 7/1/2024-6/30/2025 Compliance Requirement: Allowable Costs/Cost Principles Known Questioned Costs: $15,401 Likely Questioned Costs: Approximately $25,940, inclusive of known and projected questioned costs Statement of Condition During our review of payroll disbursements charged to the Microloan Program, we identified inconsistencies between payroll charges recorded in the general ledger and the underlying support for those charges during two periods of the fiscal year. From January through April 2025, payroll was intended to be allocated based on actual hours recorded by employees in WebClock. Of 13 paychecks tested, 4 had hours recorded to the OFA grant in WebClock but were charged to the MBDA award in the general ledger, resulting in $1,819 misallocated away from OFA. An additional 3 paychecks included $333 charged to OFA for employees who had recorded no OFA hours in WebClock for those pay periods. WESST did not maintain documentation supporting the reason for or approval of these allocation changes. Beginning in May 2025, WESST adopted a fixed-percentage allocation method based on past time studies, grant budgets, and OFA approval. Of 15 paychecks tested from May through September 2025, none were allocated at the approved percentage. Seven paychecks had less charged to OFA than the approved amount, with a cumulative difference of $77, and 8 paychecks had more charged to OFA than the approved amount, with a cumulative difference of $15,068. No exceptions were noted for the 11 paychecks tested from October through December 2025. Criteria Federal award costs must be allowable, allocable, reasonable, consistently treated, and adequately documented in accordance with 2 CFR 200.403. Under 2 CFR 200.405, a cost allocable to one federal award may not be charged to another federal award to overcome funding deficiencies, avoid restrictions, or for other reasons of convenience. Payroll costs charged to federal awards must be supported by records that accurately reflect the work performed and by a system of internal control that provides reasonable assurance the charges are accurate, allowable, and properly allocated. Budget estimates or fixed percentages may be used for interim accounting only if they produce reasonable approximations and are subject to periodic after-the-fact review and necessary adjustment. Effect Known questioned costs charged to the Microloan Program totaled $15,401. This amount consists of $333 charged to OFA during January through April without supporting OFA time records and $15,068 charged to OFA during May through September in excess of the approved allocation percentage. Based on audit projection, total likely questioned costs are estimated at approximately $25,940, including projected questioned costs related to payroll costs charged above the approved allocation percentage during May through September. The condition increases the risk that payroll costs may be charged to incorrect federal awards, reimbursement requests may be inaccurate, and federal expenditures reported on the Schedule of Expenditures of Federal Awards may be misstated. Cause WESST did not have an effective review process in place to ensure payroll charges recorded in the general ledger agreed to employee time records or approved allocation percentages before costs were charged to federal awards. During January through April 2025, certain payroll allocations were changed without documentation of the reason for the change or formal approval. During May through September 2025, the fixed-percentage allocation method was implemented but was not applied correctly, and no reconciliation process was in place to identify and correct variances. Recommendation We recommend WESST strengthen its review procedures over payroll costs charged to federal awards. Specifically, WESST should implement a reconciliation of general ledger payroll charges to employee time records or approved allocation percentages before submitting reimbursement requests. Any changes to payroll allocations should be formally documented, reviewed, and approved, including the reason for the change and the federal award benefited. If fixed percentages are used for interim billing, WESST should establish a routine reconciliation to actual activity and make timely adjustments, as needed. WESST should also perform periodic reviews of payroll allocations to identify and correct errors on a timely basis.