Finding Text
Payroll and Related Cost Allocations Repeat Finding: No Condition: The Organization did not maintain sufficient documentation to support the allocation of salaries for certain employees whose activities benefited both the Federal award and other activities of the Organization. Salary costs were generally charged to the Federal award using allocation percentages established as part of the grant budget. Management indicated that periodic evaluations of employee allocations were performed during the year; however, documentation of these evaluations was not maintained. The Organization's written financial policies provide for the use of timesheets to monitor and support employee cost allocations; however, timesheets were not utilized during the year and the Organization did not consistently adhere to its established payroll allocation policies. Certain employees performed activities benefiting multiple programs and grants. Sufficient records were not maintained to support the allocation of salary costs that should have been charged to the Federal award. Additionally, payroll taxes and employee benefits were not consistently allocated to the Federal award in a manner consistent with the allocation of the related salaries. Audit procedures identified $10,370 of payroll taxes and employee benefits charged to the Federal award in excess of the amounts supported by the allocation of the related salaries. Criteria: Under 2 CFR § 200.430, charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. Such records must be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Budget estimates or other distribution percentages determined before services are performed may be used for interim accounting purposes; however, the Organization's system of internal controls must include processes to review the interim charges after the fact and make adjustments as necessary so that final amounts charged to Federal awards accurately reflect the work performed. In addition, costs charged to Federal awards must be allocable in accordance with the relative benefits received. Payroll taxes and employee benefits associated with compensation should be allocated to Federal awards on a reasonable and consistent basis in relation to the underlying compensation costs. Cause: The Organization did not have sufficient controls in place to ensure that payroll allocations were adequately supported, that established payroll allocation policies were consistently followed, and that payroll taxes and employee benefits were allocated consistently with the related salary costs. Effect: The lack of sufficient documentation supporting employee salary allocations increases the risk that payroll costs charged to Federal awards may not accurately reflect the work performed. Additionally, the inconsistent allocation of payroll taxes and employee benefits resulted in $10,370 of costs being charged to the Federal award in excess of the amounts supported by the allocation of the related salaries. Questioned Costs: $10,370, related to payroll taxes and employee benefits that were not properly allocated based on the allocation of the related salaries. Questioned costs associated with salary allocations for employees working on multiple activities are undetermined due to the lack of sufficient records supporting the actual allocation of employee activity. Perspective Information: For certain employees whose compensation was allocated among multiple activities, salary costs were charged to the Federal award primarily using allocation percentages established as part of the grant budget. Although management indicated that employee allocations were periodically evaluated, documentation of those evaluations was not maintained. Accordingly, sufficient evidence was not available to determine whether the final salary allocations accurately reflected the work performed or to quantify any resulting questioned salary costs. Separately, audit procedures identified $10,370 of payroll taxes and employee benefits that were not allocated consistently with the related salaries and were determined to be questioned costs. Recommendation: We recommend that the Organization establish and consistently follow procedures to ensure that salaries, payroll taxes, and employee benefits charged to Federal awards are accurate, properly allocated, and adequately supported. As a best practice, the Organization should implement timesheets or similar personnel activity records for employees whose compensation is allocated among multiple Federal awards or other activities. Such records would provide contemporaneous documentation of employee activity and a direct basis for allocating compensation costs. While Uniform Guidance does not specifically require timesheets, a timekeeping system would strengthen the Organization's internal controls and would also bring its practices into conformity with its existing written financial policies. The Organization should also establish controls to ensure that payroll taxes and employee benefits are allocated consistently with the related salary costs and that payroll allocation calculations are periodically reviewed and documented by appropriate management personnel. Reporting Views of Responsible Officials: Management agrees and concurs with the recommendation. The Organization is process of engaging a consultant to assist in revising financial policies and procedures to include additional procedures to evaluate payroll to ensure allocations of payroll charged to the grant is reasonable.