Finding Text
#2023-006 – Major Federal Award Finding – Allowable Costs – Payroll
Nature of Finding: Compliance Finding – Allowable Costs and Material Weakness in Internal Controls Over Compliance
This is a repeat of prior year finding #2022-007.
Criteria/Condition: A non-federal entity may only charge allowable costs to federal programs. The Organization did not have controls in place to verify that costs were being charged to the award were based upon actual costs incurred and consistent with those provided in the grant budget.
Questioned Costs: Approximately $40,400
Identification of How Questioned Costs Were Computed: Payroll expenditures charged to the grant during the year were traced in total to the year-to-date payroll reports. Questioned costs represent the error identified in the testing of the population of payroll expenditures of the major program.
Cause/Context: There are not proper controls in place to review payroll costs monthly to ensure costs were charge to the grant appropriately. This resulted in three instances of noncompliance:
• Amounts were billed to the grant using estimated monthly wages rather than actual wages incurred.
• The employee portion of payroll taxes were billed to the grant twice – once as part of gross wages and again as fringe benefits and added to employer payroll tax costs.
• Costs were charged to the grant for one employee who was not listed in the grant budget as an allowable cost.
Effect: An overstatement of expenditures for the grant was reported and submitted for reimbursement.
Recommendation: We recommend that a full-range of controls over payroll and payroll related costs be implemented. The Organization should devote the resources necessary to ensure that such costs are of direct benefit to the program, are reviewed, approved, documented, and that the accounting and reporting process is accurate. Further, controls over grant billings should be established to ensure expenditures represent actual costs incurred. All control activities, including independent review should be documented and evidence of review and approval be maintained.
Views of Responsible Officials and Planned Corrective Actions: MARR will retain a CPA consultant to implement a full-range of control over costs charged to federal programs. MARR’s primary decision-making authority regarding such controls shall be placed with the MARR’s president. MARR’s protocol shall ensure that such costs are the direct benefit to the program, are reviewed, approved, documented and ensure the accounting and reporting process be accurate. Further, controls over grant billings will be established to ensure expenditures represent actual costs incurred. All control activities, including independent review, should be documented and evidence of review and approval will be maintained.