Finding Text
2023 – 006: LSC Private Attorney Involvement (PAI) Cost Allocation and Documentation
Federal Agency: Legal Services Corporation (LSC)
Federal Program Name: LSC Grants
Assistance Listing Number: 09.706060
Federal Award Identification Number and Year: 09.706060 - 2023 Award Period: January 1, 2023 – December 31, 2023
Type of Finding:
Material Weakness in Internal Control over Compliance
Other Matters
Criteria or specific requirement: Federal regulations (45 CFR 1614.7) states that federal award recipients shall demonstrate compliance with the PAI requirement by utilizing financial systems and procedures and maintaining supporting documentation to identify and account separately for costs related to the PAI requirement. It also states that non-personnel costs shall be allocated on the basis of reasonable operating data and that all methods of allocating common costs shall be clearly documentation. In addition, it states that any direct or indirect time of staff attorneys or paralegals is allocated as a cost to PAI, such costs must be documented by time sheets accounting for the time those employees have spent on PAI activities.
Condition: During our testing, we noted that:
One salary allocation over allocated $289 of expenses to the PAI requirement due to a manual adjustment of the individual’s salary during the pay period,
We were unable to view evidence for one allocation of $260 of payroll tax expenses related to one month during the year,
Ten salary allocations were allocated using time records related to the various work periods throughout the year but the expense was allocated using the salaries of the employees at the end of the year. The resulting salary allocation was $401 higher than what the allocation would have been using salaries in effect during the allocable work periods.
As such, the costs mentioned above were allocated in an inconsistent manner to grant payroll costs and were not fully representative of the employees’ time and effort and compensation.
Questioned costs: $950 of allocated salary and payroll tax expense described above, which is related to Assistance Listing Number 09.706060.
Context: These instances were noting during testing of 19 payroll and payroll-related PAI requirement costs.
Cause: The Organization’s salary, wage and employee benefit cost allocation methodology is primarily based on time and effort records and a periodic calculation of grant hours versus general fund hours multiplied by period costs, but it often includes manual adjustments based on review of individual time records and expense data. Therefore, the methodology is challenging to apply consistently, document contemporaneously, and apply in accordance with federal regulations.
Effect: The inclusion of frequent manual adjustments in the Organization’s salaries, wages, and employee benefit cost allocation methodology could cause costs to be allocated to grants that are not reflective of the time and effort spent on grant activities nor compensation paid to employees during relevant work periods. It would also lead to challenges in maintaining sufficient supporting documentation of such cost allocations.
Repeat Finding: This is not a repeat finding.
Recommendation: We recommend that the Organization consider updating its salaries, wages, and employee benefit cost allocation methodology and process to reduce the frequency of manual adjustments based on review of individual time records and expense data and maximize the use of automated allocations based on employees’ time and effort records, effective compensation during work periods, and that are calculated in a consistent manner. We also recommend that the Organization maintain contemporaneous documentation supporting all cost allocations.
Views of responsible officials: There is no disagreement with the audit finding