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Finding No. 2025-003: Activities Allowed or Unallowed and Allowable Costs/Cost Principles –Significant Deficiency in Internal Control over Compliance (Payroll) Federal Program Name: All Pass-through Entity: All Federal Assistance Listing Number: All Criteria In accordance with 2 CFR §200.430(i), charges to federal awards for salaries and wages are required to be based on records that accurately reflect the work performed. These records must support the distribution of the employee’s salary or wages among specific activities or cost objectives. Condition The Organization allocates employees’ payroll costs to grants based on an estimate. Although the payroll allocation is periodically reviewed and revised, differences from actual time and effort can result due to an estimate being used. Questioned Costs Unknown. Context The Organization allocated payroll costs to multiple funding sources based on estimates during the audit period and did not maintain formal documentation to support allocations based on actual time and effort. Effect The employee time and payroll costs that are charged to the grant could differ from the actual time and payroll costs expended in support of the grant activities. Cause The Organization does not have established procedures to ensure that salaries and wages charged to federal awards are supported by records that accurately reflect the work performed. Documentation of personnel expenses should support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one federal award; a federal award and non-federal award; an indirect cost activity and a direct cost activity; two or more indirect activities allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. Repeat Finding Yes Recommendation We recommend that management strengthen processes over payroll cost allocations to ensure amounts charged to funding sources are supported by documented actual time and effort. This may include implementing a formal methodology for allocating payroll costs, establishing procedures for employees to track or otherwise document time spent by program or funding source, and performing periodic reviews and adjustments based on actual activity. In addition, management should ensure that sufficient documentation is maintained to support how payroll costs are allocated and that such processes are consistently applied. Management’s Response/View of Responsible Officials Management agrees with this finding, see the Corrective Action Plan.