Finding Text
Finding Number: 2023‐004
Repeat Finding: No
Program Name/Assistance Listing Title: COVID‐19 Education Stabilization Fund
Assistance Listing Number: 84.425U
Federal Agency: U.S. Department of Education
Federal Award Number: A19AV00937
Pass‐Through Agency: Arizona Department of Education
Questioned Costs: N/A
Type of Finding: Noncompliance, Material Weakness
Compliance Requirement: Reporting
Criteria
The School is required to file Form 941, Employer’s Quarterly Federal Tax Returns, to report taxable
wages as prescribed by the Internal Revenue Service. Further, School management is responsible
for establishing and maintaining internal controls over payroll to ensure that all payroll
disbursements are properly processed and recorded in accordance with the Fair Labor Standards
Act (FLSA) and Internal Revenue Service (IRS) regulations.
Condition
The School did not have adequate internal controls over payroll processing and reporting.
Cause
The School’s internal controls over Form 941 reporting and payroll processing were not adequately
established and implemented.
Effect
Reported taxable wages on the School’s fiscal year 2022‐23 Form 941 were understated. The School
was not in compliance with Federal regulations and guidelines related to payroll.
Context
During our review of the School's Form 941 filed quarterly and the general ledger, it was
determined that the School had under‐reported approximately $170,000 of taxable wages
($116,900 paid from the federal grant). In addition, for one of 40 employees reviewed, the
employee was not paid for one hour of overtime. The sample was not intended to be, and was not,
a statistically valid sample.
Recommendation
The School should report all stipends paid on its Form 941. In addition, the School should process
payroll withholdings/deductions properly from all wages, including stipends. Finally, the School
should ensure that employees are paid for all time worked.
Views of Responsible Officials
See Corrective Action Plan.