Finding Text
2025-003 Internal Control over Payroll – (Significant Deficiency) - Repeated and Modified (Prior Year Finding 2024-003) Federal Program Information: Funding Agency Title Federal Assistance Listing Number(s) Award Year and Number U.S. Department of Interior Indian School Equalization Program 15.042 2024; A24AV00744 U.S. Department of Interior Indian Schools Student Transportation 15.044 2024; A24AV00744 U.S. Department of Interior Administrative Cost Grants for Indian Schools 15.046 2024; A24AV00744 U.S. Department of Interior Indian Education Facilities, Operations, and Maintenance 15.047 2024; A24AV00744 U.S. Department of Education Title I Grants to Local Educational Agencies 84.010 2024; A24AV00744 U.S. Department of Education Special Education Grants to States 84.027 2024; A24AV00744 U.S. Department of Education Education Stabilization Fund 84.425 2024; A24AV00744 Criteria or Specific Requirements: In accordance with 2 CFR § 200.302(b)(3) and § 200.430(i), recipients of federal funds must maintain documentation that supports the allowability and allocability of compensation costs. Personnel expenses must be supported by records that accurately reflect the work performed, and documentation must be maintained for each employee, including executed contracts, offer letters, pay rate approvals, timesheets, and separation documentation. Adequate support is necessary to demonstrate that federal funds were used in compliance with award conditions. Condition: During our review of internal controls over payroll processing, we selected 194 payroll transactions across seven major programs for testing. Exceptions were identified in 7 transactions. The School did not fully comply with its own adopted policies or applicable federal regulations concerning payroll documentation and processing. Cause: The deficiencies appear to be due to a lack of consistent personnel file maintenance and insufficient internal controls over payroll documentation, record retention, and post-hiring compliance reviews. Effect: The lack of complete personnel documentation increases the risk of charging unallowable or unsupported costs to federal awards. It also affects the ability to verify employee eligibility, compensation accuracy, and the proper use of federal funds, potentially resulting in questioned costs and potential repayment obligations to granting agencies. Auditor's Recommendation: We recommend that the School implement enhanced internal controls and standardized procedures to ensure complete and accurate personnel records are maintained. This should include routine documentation checks to ensure that all required items, such as offer letters, contracts, paystubs, pay rate verifications, timesheets, and termination letters, are present and properly filed. Management should also provide training to relevant staff on federal compliance requirements related to payroll and personnel documentation.