Finding Text
Federal Agency: U.S. Department of Health and Human Services Federal Programs: Refugee and Entrant Assistance State/Replacement Designee Administered Programs, Refugee and Entrant Assistance Discretionary Grants Federal Assistance Listing Numbers: 93.566; 93.576 Pass-Through Entity Name: Wisconsin Department of Children and Families Pass-Through Grantor's Numbers: 7056, 7060, 7062A, 7065, 7068, 7071, 7072 This is partial repeat of finding 2023-001 Criteria: In accordance with 2 CFR 200.430(g) salaries and wages must be based on records that accurately reflect the work performed. The records must be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Allocations should reasonably reflect the total activities performed by the employees and support the distribution of payroll costs among federal awards and other activities when employees work on multiple cost objectives. Statement of Condition: The Organization did not allocate payroll expenses to federal awards in accordance with federal requirements. Employees whose compensation was charged to multiple federal awards were not supported by an allocation methodology that accurately reflected the actual work performed. Specifically, payroll costs were allocated using budget estimates or other unsupported methodologies that were not periodically compared to actual activity and adjusted as necessary from July 2023 through October 2023. In addition, management did not maintain sufficient documentation demonstrating that payroll allocations accurately reflected employees' work performed during the reporting period. Cause: The Organization had not implemented effective internal controls over payroll cost allocation as it initially relied on budgeted allocations rather than actual employee activities. Effect: The Organization allocated costs and submitted and received reimbursement from federal awards for payroll costs that were allocated a budget and not based on actual costs or time incurred. Context: For the period from July 1, 2023 through October 31, 2023, payroll costs were allocated based on budgeted amounts. Payroll costs submitted and reimbursed during this period were $73,553 and $69,173 for ALN 93.566 and ALN 93.576, respectively. Starting in November 2023, the Organization allocated its payroll costs based on actual costs incurred. Questioned Costs: Payroll costs for ALN 93.566 of $73,553 were allocated based on budgeted amounts. Payroll costs for ALN 93.576 of $69,173 were allocated based on budgeted amounts. The questioned costs were not based on a statistical sample. Recommendation: We recommend that management strengthen internal controls over payroll allocation by establishing written policies and procedures for allocating payroll costs in accordance with federal requirements. Allocation policies should be based on records that accurately reflect the actual work performed rather than budget estimates or predetermined percentages. The Organization should periodically monitor and adjust payroll allocations to ensure continued compliance with federal requirements. Management Response: The Organization acknowledges the finding regarding the allocation of payroll expenses to federal awards during the period July 2023 through October 2023. Fiscal year 2024 was a significant transition period for the Organization. New payroll and financial systems were implemented during the transition period from June 2023 through January 2024, and management implemented significant corrective actions related to payroll allocation beginning in November 2023. These corrective actions included transitioning away from the prior budget-based payroll allocation methodology, strengthening timekeeping and payroll processes, implementing procedures designed to document actual employee activities, and enhancing supervisory review of payroll allocations. Although aspects of the prior-year condition affected the July through October 2023 period of fiscal year 2024, significant corrective measures were implemented during fiscal year 2024 beginning in November 2023. The Organization continued strengthening these processes throughout fiscal year 2024. Corrective actions implemented and ongoing include: • Implement and maintain written payroll allocation policies and procedures. • Utilize systematic timekeeping practices designed to document actual employee activities. • Allocate payroll costs based on actual work performed and appropriate supporting documentation. • Maintain supervisory review and approval procedures over employee time reporting and payroll allocations. • Maintain appropriate levels of management review and oversight to provide checks and balances over payroll reporting and allocation. • Periodically review payroll allocations for consistency with actual employee activity and make adjustments when necessary.