Finding Text
Finding 2022-002: Allowable Costs/Cost Principles - Time and Effort Reporting (Repeat
Observation)
Federal program information: U.S. Department of Health and Human Services, CFDA Number
93.600, Head Start Program and Early Head Start Child Care Partnership/Babies Step Forward;
U.S. Department of Health and Human Services, CFDA Number 93.569/93.558, 477 Cluster;
U.S. Department of Health and Human Services, CFDA Number 93.568, Low-Income Energy
Assistance; U.S. Department of Health and Human Services, CFDA Number 93.575, CCDF
Cluster; U.S. Department of Energy, CFDA Number 81.042, Weatherization Services for Low-
Income Persons
Criteria: The Code of Federal Regulations Section 200.430 (2 CFR 200.430) requires that
charges to federal awards for salaries and wages must be based on records that accurately
reflect the work performed. Budget estimates determined prior to services being performed by
personnel may be used for interim accounting processes, but the organization’s internal controls
must include a process to review these charges after services have been performed to make
any necessary adjustments to ensure that final amounts charged to federal awards are
accurate, allowable and properly allocated. Budget estimates alone do not qualify as support for
charges to federal awards. Charges for salaries and wages must be supported by
documentation that is incorporated into the official records of the organization.
Condition: For the year ended July 31, 2022, WestCOP and Affiliates used status change forms
to document an estimation of the distribution of employees’ salaries and wages among specific
programs. Management’s process is to complete a status change form for an employee upon
hire and then modify the form when there is a significant change in an employee’s duties
impacting the allocation of time and effort among programs. The accounting department uses
the distribution documented in the status change form to determine how to charge an
employee’s compensation to programs and federal awards. While management has
communicated to the auditors that regular reviews of actual personnel time and effort were
performed during the year ended July 31, 2022, there is no formal documentation of this review
process.
Questioned Costs: Not determinable.
Context: For all major programs tested, management did not provide documentation of its
review of actual personnel time and effort after employee services were provided, such as
personnel time reports or any other documented analysis of how personnel actually spent their
time versus the estimates. Personnel costs represent a significant component of the total cost
charged to the three major programs for the year ended July 31, 2022. We tested 40 individual
charges of salaries and wages for each of the major federal award programs. We were able to
recalculate the charges based on the estimated distributions per employee status change forms.
Several selected employees for each program also spend 100% of their time on the programs,
so allocations are not applicable. Effect: WestCOP and Affiliates were unable to demonstrate that personnel costs charged to the
major federal award programs reflected actual time incurred on the programs that were properly
supported in compliance with the time and effort reporting requirements described in 2 CFR
200.430.
Cause: Management does not have a formal, documented process to review actual personnel
time and effort after employee services are performed to ensure that charges to federal awards
based on estimates are accurate. Charges to federal awards are based on estimates
documented in personnel status change forms prior to services being performed. While these
forms may be updated periodically to reflect changes in estimates of personnel time and effort,
the updates are not supported by any documented analysis of actual time and effort.
Recommendation: Management can continue using the estimates of the distribution of
employees’ time per status change forms for interim accounting processes. However, we
recommend that management formally document a process to periodically review the actual
distribution of employee time and effort among federally-funded programs. Management can
determine the frequency of this documentation, but we recommend that such review be formally
documented at least monthly. Documentation could be in the form of personnel time and effort
reports reflecting the distribution of actual time among programs prepared by employees and
reviewed by direct supervisors. Alternatively, management personnel familiar with employees’
activities, such as direct supervisors, could prepare periodic analyses of the distribution of
employee time and effort to support allocations and charges of salaries and wages to federal
awards.
Views of responsible officials and planned corrective actions: For employees who are paid in
full or in part with federal and other funds, management will increase the frequency of the time
and effort reporting to quarterly intervals. Specifically, employees will document their time and
effort based on funding sources for each payroll period; and at the end each quarter,
management will review and compare the actual time and effort percentages with the current
ADP Labor Distribution Report for reasonableness. The Management review report will be used
as a basis to effect changes to the labor distribution report using the employee status change
forms. The time and effort documentation will be available for audit. The implementation of the
Corrective Action Plan did not commence until FY23 because the auditor’s field work for fiscal
year 2021 ended after the close of fiscal year 2022.