Finding Text
2022-005 – Delayed Approval of Compensation Rates (SD)
Federal Program Title: Section 8 Housing Choice Vouchers
Assistance Listing Number: 14.871
Federal Agency: U.S. Department of Housing and Urban Development
Category of Finding: Allowable Costs and Cost Principles
Criteria: Per 2 CFR §200.430 of the Uniform Guidance, compensation for personnel services, including any adjustments, must be based on documented and approved procedures in accordance with the organization’s established policies. All changes to compensation must be approved and documented in a timely manner to ensure compliance with both federal and non-federal funding requirements. The City uses personnel action forms (PAF) to document changes to compensation. The PAF must be approved by authorized personnel in advance.
Condition: During the review of personnel costs, it was observed that changes in the compensation rates for employees charged to the federally funded project were not approved in a timely manner. Documentation showed delays in the authorization of salary adjustments, with compensation changes becoming effective before formal approval by the City.
Cause: The City’s internal control processes for reviewing and approving compensation changes were not followed promptly. There was a lack of procedures ensuring that salary adjustments were approved prior to the effective date.
Effect or Potential Effect: Untimely approval of compensation changes increases the risk of inaccurate or unallowable personnel costs being charged to the federal award. This may result in questioned costs, non-compliance with federal regulations, and potential audit findings.
Questioned Cost: None.
Context: We selected five employees who worked on the program and in all cases, the PAF were authorized much later than the effective date of the compensation change.
Statistical Sampling Validity: More than 50% of employees who work on the program were selected.
Repeat of a Prior-Year Finding: No.
Recommendation: The City should reinforce internal controls to ensure that all compensation changes are reviewed and approved promptly. This should include:
• Establishing a timeline for the approval of compensation adjustments.
• Implementing procedures that prevent compensation changes from being applied until formal approval is obtained.
• Ensuring proper documentation of all approved salary changes is maintained.
Management Response and Corrective Action Plan
City's Response: The City concurs with the recommendation.
Corrective Action Plan: The HR and payroll policies will be updated to incorporate the above recommendations.
Planned Implementation Date: March 2025
Responsible Person(s): City Manager