Finding 2101 (2022-001)

Material Weakness Repeat Finding
Requirement
AB
Questioned Costs
-
Year
2022
Accepted
2023-11-17
Audit: 3654
Organization: Lincoln Hall (NY)
Auditor: Bdo USA PC

AI Summary

  • Core Issue: Lincoln Hall is not allocating payroll and personnel costs correctly, leading to inaccurate financial statements.
  • Impacted Requirements: GAAP mandates that costs benefiting multiple programs must be allocated based on proportional benefit; this is not being met.
  • Recommended Follow-Up: Implement monthly cost allocations within the accounting system to ensure accurate financial reporting and compliance with funding requirements.

Finding Text

Cost Allocations – (Material Weakness) Information on Federal Program: U.S. Department of Health and Human Services Federal Assistance Listing Number (ALN) Number: 93.676 ALN Name: Unaccompanied Alien Children Program Contract Period: July 1, 2021 through June 30, 2022 Criteria: In accordance with GAAP, if costs benefit multiple programs, the costs should be allocated to the programs based on the proportional benefit. Additionally, direct costs are those costs that can be identified specifically or directly assigned to such activities relatively easily with a high degree of accuracy. Condition: During our audit, we noted that payroll and the related personnel costs are not being charged directly or allocated to the correct cost center in the Serenic Navigator accounting system on a monthly basis. The primary cause of this issue is the way in which the Paychex payroll system was set up, where bi-weekly payroll runs are not being allocated by the system itself. In January 2022, Lincoln Hall switched from Paychex to ADP which allows for employee cost centers to be mapped. While this improved the monthly allocation process, the finance team still performs manual calculations of all allocations in Excel at the end of the fiscal year to update the allocations. Questioned Costs: None noted. Context: This is a condition identified during the audit of Lincoln Hall’s June 30, 2022 financial statements. Effect or Potential Effect: We were able to observe and conclude that Lincoln Hall did not have formal cost allocations in place to properly allocate certain expenses throughout the year. As a result, certain expenses could not be properly allocated throughout the year.   Repeat Finding: This is a repeated finding from prior year. See Finding No. 2021-001 on the Summary Schedule of Prior Audit Findings. Cause: Certain other than personnel costs are dependent on the proper allocation of the personnel costs. The primary cause of this issue is the way in which the Paychex payroll system was set up, where bi-weekly payroll runs are not being allocated by the system itself. In January 2022, Lincoln Hall switched from Paychex to ADP which allows for employee cost centers to be mapped. While this improved the monthly allocation process, the finance team still performs manual calculations of all allocations in Excel at the end of the fiscal year to update the allocations. Recommendation: The inability to generate financial statements that incorporate the federal and state agency mandated cost allocations prevents Lincoln Hall from presenting functionally accurate interim financial statements. We recommend that these costs be properly allocated on a monthly basis and presented as recorded within Lincoln Hall’s general ledger system. Allocating these costs regularly will allow Lincoln Hall to submit accurate and substantiated interim financial data to its funding sources. Additionally, properly tracking and allocating costs on a monthly basis will prevent a material reallocation of costs by function at year-end. Views of Responsible Officials: Lincoln Hall agrees with the finding. Lincoln Hall continues to take steps to improve this process. See Lincoln Hall's further response to this finding as described in the accompanying management’s planned corrective actions, Appendix A.

Corrective Action Plan

For the year ended June 30, 2022 audit, the audit team noted that payroll and personnel costs were not being recorded in the payroll system correctly on a monthly basis. This issue resulted in errors in the amount charged to various programs during the year and resulted in the need for a material allocation adjustment after fiscal year-end. As payroll allocations were a major driver in other than personnel service (OTPS) expense allocations, OTPS costs also required material allocations adjustments at year end. Lincoln Hall has continued our remedial efforts for this audit findings. In 2017, we upgraded the Serenic Navigator accounting software from the 2007 version to the 2013 version, and from the 2013 version to the 2017 version in December 2019. The intent of these upgrades was to strengthen our controls and visibility into accounting records. Furthermore, we have been working on correcting the accounting process related to charging payroll and other applicable costs directly to the appropriate programs. Lincoln Hall began the process of reviewing its financial system and processes and implementing changes in fiscal year (FY) 2020 though these process changes took longer than originally expected due to delays as a result of the COVID-19 pandemic. Process changes have been implemented but we are currently still working to “de bug” certain parts of our allocation and direct charge processes; these are captured in the corrective action plan. For example, internal controls have been improved upon ensuring that employees are appropriately classified to programs within the Paychex system. Reviews are performed each pay period to verify employee’s allocability to programs.   We believe that these actions will make a significant impact in preventing the material reallocation of costs by function at year-end and provide us with accurate cost allocations on a monthly basis.

Categories

Allowable Costs / Cost Principles Material Weakness

Other Findings in this Audit

  • 2102 2022-002
    Material Weakness Repeat
  • 2103 2022-003
    Material Weakness Repeat
  • 2104 2022-004
    Material Weakness Repeat
  • 578543 2022-001
    Material Weakness Repeat
  • 578544 2022-002
    Material Weakness Repeat
  • 578545 2022-003
    Material Weakness Repeat
  • 578546 2022-004
    Material Weakness Repeat

Programs in Audit

ALN Program Name Expenditures
93.676 Unaccompanied Alien Children Program $11.29M
10.555 National School Lunch Program $187,417
10.553 School Breakfast Program $88,579