Finding Text
Finding 2020-009 Inadequate Payroll Authorization and Approval Controls Information on Federal Program: Criteria: Uniform Guidance (2 CFR §200.303) requires non-federal entities to establish and maintain effective internal control over federal awards that provides reasonable assurance that the entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Additionally, adequate documentation must be maintained to support payroll costs charged to federal programs. Conditions: During testing of payroll transactions, the following exceptions were noted: 1) For 4 of 8 employees selected for testing, the Center was unable to provide supporting documentation verifying the employee’s salary or hourly rate of pay, or evidence of approval of the employee’s salary or hourly rate of pay. 2) For all 5 payroll dates selected for testing, management indicated that payroll processing approvals are performed verbally. No written or electronic documentation evidencing review and approval of payroll processing was maintained. Cause: The Center does not have formalized procedures requiring documented approval of employee pay rates or documented approval of payroll processing. Management relies on verbal approvals rather than maintaining written or electronic evidence of authorization and review. Effect or Potential Effect: Without documented approval of employee pay rates and payroll processing, there is an increased risk that payroll costs charged to federal programs may be inaccurate, unauthorized, or not properly supported in accordance with federal requirements. Questioned Costs: None. Section III – Federal Awards Findings and Questioned Costs (Continued) A. Current Year Findings and Questioned Costs – Major Federal Award Program Audit (Continued) Finding 2020-009 Inadequate Payroll Authorization and Approval Controls (Continued) Recommendations: We recommend that the Center implement formal payroll controls that require: • Written or electronic documentation evidencing approval of employee salary or hourly rates prior to payroll processing; and • Documented review and approval of each payroll cycle, such as signed payroll registers or electronic approval logs. View of Responsible Officials: Management understands and agrees with the finding regarding inadequate documentation of payroll authorization and approval controls. Management acknowledges that while payroll processes were performed and reviewed, certain control activities—specifically the documentation of employee pay rate approvals and payroll processing approvals—were not formally documented, resulting in the exceptions identified. The Center believes that the conditions noted are primarily related to the lack of formalized documentation procedures rather than a breakdown in the underlying payroll processes. Payroll activities, including the establishment of employee compensation and review of payroll outputs, were performed; however, documentation evidencing these activities was not consistently retained in accordance with Uniform Guidance requirements. Management is committed to strengthening internal controls to ensure full compliance with 2 CFR §200.303 and related federal requirements. As part of these efforts, the Center has begun: 1. Implementing enhanced controls, including the formalization of procedures requiring documented approval of employee salary and hourly rates. 2. Establish documented review and approval of each payroll cycle. 3. Management will continue to monitor the effectiveness of these controls and ensure that appropriate supporting documentation is consistently maintained going forward.