Finding Text
Condition: During our testing of direct expenditures and payroll charges to the major program, we identified that the Organization charged direct expenditures and payroll costs to the federal award based on budgeted estimates rather than actual costs and time spent on the federal program. Criteria: Per §200.400(d) and §200.430(g)(1) of the Code of Federal Regulations, charges to Federal awards for cost and salaries and wages must be based on records that accurately reflect the work performed. These records must support the expenditures and distribution of employees’ salary among specific activities or cost objectives and must not exceed the actual time worked. Cause: The Organization lacked adequate internal controls to reconcile budgeted direct cost and payroll estimates to actual direct expenditures and payroll cost incurred. Employees did not prepare time and effort documentation reflecting actual hours worked on the federal program activities, and there was no after-the-fact review or adjustment process in place to ensure accuracy. Effect: Federal expenditures on the Schedule of Federal Awards (SEFA) could be overstated resulting in noncompliance with federal cost principles and unallowable cost. Context: During our testing of payroll transactions charged to the federal program, we selected a sample of five out of 27 payroll periods to test. In all five payroll periods tested, the amount charged to the federal program were based on budgeted amounts rather than actual payroll cost incurred for time spent on program activities. During our testing of reporting, we selected a sample of two out of four quarterly financial reports to test. In one of the reports tested, the amount charged to the federal program within certain cost categories exceeded amounts incurred during the period. Total known questioned costs amounted to $7,113. This finding is a repeat finding of the immediate prior audit. Reference number includes 2023-005. Recommendation: We recommend the Organization implement written policies and procedures to ensure that direct expenditures and payroll charges to federal awards are based on actual costs incurred. Employees should prepare time and effort documentation reflecting actual hours worked on the federal program activities for each payroll period. There should be a process for reconciling estimated charges to actual invoices and payroll records and making timely adjustments. Management has noted that they have implemented procedures beginning in 2025 to address this finding. Views of Responsible Officials: Management agrees with the finding.