2025-003 Habitat Conservation – Assistance Lising #11.463 - Material Weakness in Internal Control over Compliance and Noncompliance – Allowable Costs Recommendation: We recommend the Organization discontinue reliance on external workbooks as the primary record of Federal expenditures and record payroll allocations directly within the accounting system. Management should implement procedures to reconcile payroll expenditures charged to Federal awards to the general ledger and ensure that payroll allocations are supported by approved timesheets or equivalent documentation. Additionally, management should require and document supervisory review and approval of employee timesheets to strengthen internal controls over payroll costs charged to Federal awards. Explanation of disagreement with audit findings: there is no disagreement with the audit findings. Action taken in response to finding: In January 2026, JCWC implemented a new payroll and financial management process to strengthen the tracking, allocation, and documentation of payroll costs charged to Federal awards. Under the new process, Jitasa manages JCWC's payroll processing and payroll accounting, with QuickBooks serving as the organization's official accounting ledger. Employee time is allocated to the appropriate grant, contract, class, or organizational activity using approved timesheets. This process no longer relies on an external workbook as the primary accounting record for Federal payroll expenditures. JCWC also implemented a documented supervisory review process for payroll. Employee timesheets are reviewed for accuracy, completeness, and appropriate project allocations as part of the payroll process. Following preparation of payroll, payroll journals are reviewed and approved through DocuSign, providing a documented electronic approval trail prior to payroll processing. The Fiscal Policy Manual formalizes these procedures in Section 5.4, Payroll Authorization and Internal Controls. The policy requires employees to submit timesheets, requires management review of employee time allocations, requires payroll costs charged to grants to be supported by contemporaneous time records, and requires payroll registers to be reviewed after each payroll cycle. Payroll records are retained for a minimum of seven years. Action Plan: JCWC will continue the payroll and financial management procedures implemented in January 2026 and maintain these procedures through its formal fiscal policies and ongoing financial management practices. Jitasa will continue to manage payroll processing and payroll accounting, with JCWC management responsible for reviewing and approving payroll prior to processing and monitoring payroll allocations charged to Federal awards. Employee timesheets will continue to support payroll allocations to grants, contracts, classes, and organizational activities. Payroll journals will continue to be reviewed and approved through DocuSign, providing documented evidence of supervisory review and approval prior to payroll processing. The Finance & Grants Manager will work with Jitasa to ensure payroll expenditures charged to Federal awards are appropriately recorded and identifiable within the accounting system and reconciled to the general ledger. Name(s) of the contact people responsible for correction action: Jennifer Hamilton, Executive Director Noah Jenkins, Conservation Director Sean Connolly, Finance & Grants Manager Jitasa Plan completion date for corrective action plan: January 2026 for implementation of the new process; ongoing monitoring thereafter.