Finding Text
Finding 2023-010 – Salaries and Wages (Allowable Costs)
Information on Federal Programs:
Environmental Finance Center Grants – Assistance Listing No. 66.203
U.S. Environmental Protection Agency
Grant No. 539001D, Grant period July 1, 2022 - September 30, 2023
Grant No. 5127620, Grant period October 1, 2022 - September 30, 2023
Grant No. 5126607, Grant period July 1, 2022 - September 30, 2023
Criteria or Specific Requirements: According to 2 CFR Section 200.430(g), charges to Federal grants for salaries and wages must be based on records that accurately reflect the work performed and the records must:
a. Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated;
b. Be incorporated into the official records of the non-Federal entity;
c. Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100 percent of compensated activities;
d. Encompass federally assisted and all other activities compensated by the non-Federal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-Federal entity's written policy;
e. Comply with the established accounting policies and practices of the non-Federal entity;
f. Support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities, which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity; and
g. Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards.
Condition: For the period from October 2022 through May 2023, U.S. Water Alliance did not have a timekeeping system in place. A timekeeping system was implemented in June of 2023, that provides for employees to record hours worked for specific cost objectives, including Federal grants. There are limitations to the timekeeping system’s capabilities. One is no availability to run timesheet reports for closed grants after the grant period ends. Second is the need to manually adjust hours transferred from the timekeeping system to the payroll processing system due to semi-monthly payroll processing and the need to have total number of hours equal to 86.67 for salaried employees. For these three awards, budget estimates or relative level of effort by percent of full-time employees and active projects were used throughout the entire grant period, even after the timekeeping system was put in place. No reconciliation between the budget estimates or relative level of effort by percent of full-time employees and active projects and the hours recorded in the timekeeping system was completed even for the period in which the timekeeping system was in place.
Cause: A timekeeping system was not implemented until June 2023.
Effect: Salary expenditures that are not charged in accordance with the standards referenced above may be questioned or disallowed by the Federal agency.
Perspective: Qualitative reports on activities on these three awards indicate there was work performed; however, due to lack of quantitative support for hours charged to the grant, it is unable to be determined whether the number of hours and ultimately dollars charged for personnel costs for these three awards are the actual hours spent on activities for these three awards. Questioned Costs: Undetermined.
Repeat Finding: Not applicable.
Recommendation: U.S. Water Alliance should utilize the timekeeping system data for reporting personnel costs for all Federal awards. U.S. Water Alliance should also revisit its procedures for transferring data from the timekeeping system to the payroll processing system and ultimately the general ledger, and should implement proper internal controls to ensure that the amount of hours and salary expenditures charged to grants in the general ledger reconcile to the hours reported by the timekeeping system and amounts reported by the payroll processing system.
Views of Responsible Officials and Planned Corrective Actions: A new timekeeping system was implemented in June 2023 to allocate work hours specific to cost objectives, including Federal Grants. While there are limitations to the system, the allocations are transferred from the timekeeping system upon supervisor approval to the Prism (HRIS) Portal and used to prepare payment vouchers. From the HRIS system, we can produce labor allocation reports reflecting how the time was originally allocated in the timekeeping system.
The US Water Alliance indeed operates on a semi-monthly payroll period. It has allowed the Alliance to have fixed pay dates though they may not fall on the same day of the week each month. If the pay date falls on a weekend or holiday, the pay date is typically the business day prior. Because all months are not the same length, the size of the paycheck could vary in that the first paycheck could cover 13-14 days and the second paycheck could cover 15-16 days. To eliminate the variation in the size of the paycheck, specifically for salaried employees, the total yearly salary is evenly divided between 24 payments resulting in the same paycheck amount each time. This division results in 86.67 hours paid in each paycheck and will at times require our payroll partner to adjust the hours allocated downward or upward to equal 86.67. In the rare case that work hours are adjusted upward, the work hours are allocated to the primary funding source for the position. The process has worked traditionally as the Alliance has no hourly employees. Specifically for the three awards referenced, reconciliation between the budget estimates, relative level of effort by percent of full-time employees and active projects, and the hours recorded in the timekeeping system were completed. Staff opted to continue reporting on relative level of effort by percent of full-time employees as opposed to shifting as the timekeeping system was very new and staff experienced a significant learning curve. Additionally, there were only two months left in the grant period. Relative level of effort was carefully documented internally via calendars, Monday.com project management software, and Excel spreadsheets.
Since its implementation, staff have been better trained in the use of the timekeeping system. We are also transitioning to a new timekeeping system in December 2024 with enhanced reporting and ease of use. The Alliance will also shift to a bi-weekly payroll period effectively reducing the need to adjust work hour allocations upward or downward to equal 86.67 hours.