Finding Text
Finding 2025-004: Inadequate Supporting Documentation and Review Controls Over Federal Expenditures and Payroll - Material Weakness Federal Program: Substance Abuse and Mental Health Services Projects of Regional and National Significance Assistance Listing Number: 93.243 Federal Agency: U.S. Department of Health and Human Services Federal Award Identification Numbers: 5H79TI084239-04, 5H79TI084739-02, 5H79TI084739-03 5H79TI082707-05 Award Year: 2024 and 2025 Criteria: In accordance with 2 CFR Part 200 (Uniform Guidance), costs charged to Federal awards must be adequately documented, allowable, allocable, reasonable, and consistently treated. Additionally, internal controls should provide for appropriate review and approval of expenditures and payroll transactions to help ensure only allowable costs are charged to Federal awards. Condition: During testing of 40 expenditure transactions for compliance with the Allowable Costs/Cost Principles compliance requirement, the auditee was unable to provide supporting documentation for three transactions selected for testing. As a result, the allowability of these costs could not be determined, and there was no documentation to demonstrate that the transactions were incurred and recorded within the correct period of performance. In addition, multiple expenditure transactions lacked evidence of supervisory review and approval in accordance with the entity's established internal control procedures. During testing of 40 payroll transactions across four pay periods, auditors noted that individual payroll transactions demonstrated evidence of review by employees' direct supervisors and the Chief Financial Officer. However, the auditee's policy also requires the Chief Executive Officer to review and approve the payroll summary prior to payroll processing. Evidence of the CEO's review and approval was observed for only one of the four payroll summaries tested. The remaining three payroll summaries, representing 29 of the 40 payroll transactions tested, lacked documented evidence that the required final review and approval control had been performed. Cause: The auditee did not maintain adequate documentation to support all expenditures charged to the Federal award and did not consistently perform or document supervisory review and approval of expenditures and payroll transactions. Effect: Without adequate supporting documentation and documented review and approval procedures, the auditee cannot demonstrate that costs charged to the Federal award were allowable, reasonable, allocable, and properly authorized. This increases the risk that unallowable or unauthorized costs may be charged to Federal programs. Questioned Costs: None noted. Context: The auditors tested a nonstatistical sample of 40 expenditure transactions and 40 payroll transactions for compliance with the Allowable Costs/Cost Principles compliance requirement. Of the 40 expenditure transactions tested, the auditee was unable to provide supporting documentation for three transactions, and multiple expenditure transactions lacked documented supervisory review and approval. Payroll testing included 40 payroll transactions selected from four payroll periods. While all individual payroll transactions evidenced review by employees' direct supervisors and the Chief Financial Officer, only one of the four payroll summaries tested included documented evidence of the Chief Executive Officer's required review and approval. The remaining three payroll summaries, representing 29 of the 40 payroll transactions tested, lacked evidence that the required final-level review control had been performed. The transactions tested were selected using a nonstatistical sampling approach and were not intended to be statistically representative of the population. Recommendation: We recommend the auditee strengthen its internal controls over Federal expenditures by maintaining complete supporting documentation for all transactions charged to Federal awards and ensuring that all expenditure and payroll transactions receive documented supervisory review and approval prior to payment or inclusion in payroll processing. Management should periodically monitor compliance with these procedures to ensure they are consistently followed. Views of Responsible Officials: Management acknowledges this finding and will address remediation in management's corrective action plan.