Finding Text
Finding 2025-009: Activities Allowed/Unallowed and Allowable Costs – Significant Deficiency Federal Program: Health Center Program (Assistance Listing 93.224) and Grants to Provide Outpatient Early Intervention Services with Respect to HIV Disease (Assistance Listing 93.918) Criteria: Management should establish and maintain appropriate internal controls to ensure employee compensation is reviewed and approved by authorized personnel independent of payroll processing and accounting functions. Segregation of duties helps reduce the risk of unauthorized or inappropriate compensation changes. Condition: The organization's control documentation indicates that the Chief Executive Officer (CEO) is responsible for reviewing and approving employee pay rates. During testing, we noted that employee pay rate approvals were instead being performed by the CFO, who is also responsible for various accounting and payroll-related functions. Cause: The control was not operating as designed, as responsibility for pay rate approvals had been delegated to the accountant rather than the CEO. Effect: The lack of independent approval over employee pay rates increases the risk that unauthorized or inaccurate compensation changes could occur and remain undetected. No instances of unallowable payroll costs or noncompliance were identified during our testing. Questioned Costs: None. Context: This is a systemic problem. The deficiency relates to the organization's control over the review and approval of employee compensation rates charged to federal programs. Although management's documented control assigns responsibility for pay rate approval to the CEO, the control was not operating as designed because approvals were being performed by the CFO, who also has payroll and accounting responsibilities. Repeat Finding: This is not a repeat finding. Recommendation: Management should ensure that employee pay rates and subsequent compensation changes are reviewed and approved by an appropriate member of management, such as the CEO or another designated individual independent of payroll processing and accounting functions. Documentation of such approvals should be maintained. Management Response: Management concurs with the finding. The Organization acknowledges that employee compensation approvals were not consistently performed in accordance with documented procedures. To strengthen segregation of duties and oversight, responsibility for review and approval of employee compensation changes will be reassigned to appropriate executive leadership personnel independent of payroll processing responsibilities, consistent with the requirement under the Uniform Guidance (2 CFR 200.303) that the Organization establish and maintain effective internal control over federal awards. All pay raises will be initiated upon the recommendation of the respective department directors and must be approved by the Chief Executive Officer (CEO) or Chief Financial Officer (CFO) prior to processing. All compensation changes will be made in accordance with the Organization's Board-approved written compensation policies and will be reasonable and consistent with compensation paid for similar work, as required by the compensation standards for personal services under the Uniform Guidance (2 CFR 200.430). Human Resources will be responsible for ensuring that all pay raise documentation, including department director recommendations and CEO/CFO approvals, is properly completed and filed in the employee’s personnel record. Documentation of all compensation approvals will be maintained in accordance with the record retention requirements of the Uniform Guidance (2 CFR 200.334) and periodically reviewed to ensure compliance with established policies and procedures.