Finding Text
2023-004. FINDING (Inadequate Controls over Payroll Expenditures and Noncompliance with Allowable Cost & Cost Principles Requirements Applicable to the Head Start Cluster)
Federal Department: U.S. Department of Health and Human Services
Assistance Listing Number: 93.600
Cluster Name: Head Start Cluster
Program Name: Early Head Start
Award Numbers: 05CH011351-03-02, 05CH011351-04-03
Questioned Cost: Known ($37,377)
Program Expenditures: $985,732
Cluster Expenditures: $1,026,985
The Governors State University (University) did not have adequate controls over payroll expenditures and did not comply with the allowable cost and cost principles requirements applicable to the Head Start Cluster.
During our testing of Head Start Cluster payroll expenditures amounting to $555,569, we noted the following:
• There was no periodic reconciliation performed between the amount actually worked on the grant (i.e. certified time and effort reports) against payroll expenditures to ensure the amount charged to the grant was accurate. Payroll expenditures for five (5) of twelve (12) employees tested were charged to the Early Head Start program using incorrect time and effort rates. The actual amounts charged to the grant were less than computed payroll expenditures using the certified time and effort rates. These differences were not adjusted at year-end to ensure the accuracy of the accounting records and schedule of expenditures of federal awards. The questioned costs were ($37,377). The sample was not intended to be, and was not, a statistically valid sample.
• Our testing of payroll expenditures identified 12 instances out of 12 employees tested who worked on multiple federal awards and/or nonfederal awards lacked appropriate supporting documentation to account for 100% actual time and effort certification of the employees for each reporting period to provide a basis to reconcile with payroll distribution used in charging these awards. The University’s time and effort certification shows only the percentage of effort for each employee on a specific grant. As a result, we were unable to ascertain the accuracy of the payroll expenditure charged as a whole. The sample was not intended to be, and was not, a statistically valid sample.
The Code of Federal Regulations (Code) (2 CFR 200.303) requires the University establish and maintain effective internal control over the federal award that provides reasonable assurance the University is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Effective internal controls should include procedures to ensure that there is reconciliation between the compensation for personal services charged to the agreement and the amount actually worked on the agreement.
The Code (2 CFR 200.430) states charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed and must support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one federal award; a federal award and nonfederal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. These records must be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated.
The University’s effort reporting guidelines requires the University to have a periodic review of the salary distribution system to confirm the reasonableness of the charges to the federal projects. In addition, the University is required to review, update, and prepare salary reallocations, and if necessary, make appropriate changes to the effort reports and certify reports on a quarterly basis to ensure that the salaries charged to federally sponsored projects are reasonable and consistent with the portion of activity committed to projects. The effort report must represent, in percentages totaling 100%, a reasonable estimate of an employee’s University compensated effort for the period.
University officials stated the reconciliation process for time and effort reports is in place; however, staffing constraints resulted in some delays in the reconciliation process. The Early Head Start program is a calendar year grant that runs from January through December. The necessary adjustments to correct the differences noted for 2023 were made by the University after fiscal year end, but within the grant’s budget period. University officials stated 100% of work is captured on Human Resource and workflow records but not on the certification forms.
Failure to accurately charge sponsored agreements for the equitable distribution of employee compensation may result in federal expenditures being disallowed and could jeopardize future federal funding. (Finding Code No. 2023-004)
RECOMMENDATION
We recommend the University timely reconcile payroll and ensure employees certify 100% of time worked to allow for adequate application of allowable cost and cost principles requirements for the Head Start Cluster.
UNIVERSITY RESPONSE
The University agrees with this finding and accepts the recommendation. The University has updated its process to collect time and effort information on a semi-annual basis rather than quarterly, which relieves some burden from staff, but still complies with federal regulations. By collecting time and effort information on a semi-annual basis, staff will have more time to reconcile time and effort against actual payroll expenditures. The University has also redesigned the time and effort collection form to show the 100% distribution of work. Further, the University now has a full-time financial research administrator who will help ensure that payroll- related adjustments are done timely. The financial research administrator will work with the Early Head Start program management to ensure that the related payroll reports are reviewed and reconciled timely, in accordance with existing University procedures.