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Finding 2023.003: Allowable Costs/Activities Allowed or Unallowed - Material Weakness Name of Federal Agency: U.S. Department of Health and Human Services Federal Program Names: Health Center Program Cluster Health Center Program (Community Health Centers, Migrant Health Centers, Health Care for the Homeless, and Public Housing Primary Care) COVID -19 Health Center Program (Community Health Centers, Migrant Health Centers, Health Care for the Homeless, and Public Housing Primary Care) Grants for New and Expanded Services under the Health Center Program COVID-19 Grants for New and Expanded Services under the Health Center Program Federal Assistance Listing Number: 93.224 and 93.527 Federal Award Identification Number and Year: H8026638 - 2022 and 2023, H8F40829 - 2021 and H8G48040-2023 Criteria In accordance with 2 CFR, Part 200.430I(i)(1), charges to Federal Awards for salaries and wages must be based on records that accurately reflect the actual work performed, which must, among other things: (i) be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) be incorporated into the official records of the non-federal entity; (iii) and reasonably reflect the total activity for which the employee is compensated by the non-Federal entity. Additionally, costs must be adequately documented, as per 2 CFR 200.403(g). Condition Charges to Federal Awards for salaries and wages were not supported by properly approved pay rates, and time sheets did not agree to payroll registers. Additionally, nonpayroll expenditures were not supported by proper approval. Cause The Center's internal controls over payroll were not consistently followed to ensure pay rates were approved and time sheets agreed to payroll registers. Additionally, the Center's internal controls over nonpayroll expenditures were not consistently followed to ensure that expenditures were approved. Effect or Potential Effect Failure to ensure accurate wage and allocation of employees' time across programs could result in non-compliance with the grant requirements or unallowable costs being charged. Additionally, failure to ensure accurate nonpayroll expenditures could result in non-compliance with the grant requirements or unallowable costs being charged. Questioned Costs None. Context We selected 25 payroll transactions charged to the federal program for testing. Out of the 25 transactions tested, we noted 16 instances where there was no formal approval of pay rates and where they were not appropriately reflected in the payroll registers; 25 instances where time cards were not appropriately reflected in the payroll registers; and all 25 labor reports showed no formal approval documented. Additionally, for nonpayroll allowable costs, out of 11 transactions tested, we noted 9 instances where there was no formal approval showing review that the cost was allowable under the program. Identification of Repeat Finding Yes, see finding 2022.003. Recommendation We recommend that the Center consistently enforce its internal controls over payroll to ensure that the times sheet and pay rates are reviewed and approved by the appropriate supervisor. Additionally, we recommend that the Center consistently reinforces its internal controls over nonpayroll expenditures to ensure all expenditures were approved by the appropriate supervisor. Views of Responsible Officials Management and the Board of Directors agree with the finding and will implement additional controls to ensure all expenditures have evidence of formal approval of review.