Finding Text
2024-002 Internal Control over Compliance with Activities Allowed or Unallowed and Allowable Costs/Cost Principles – Payroll Activities
Identification of the Federal Program:
Federal Agency: United States Housing & Urban Development
Program Name: Community Development Block Grant - Disaster Recovery Whole Community Resilience Planning Program
Assistance Listing Number: 14.228
Award Number: B-17-DM-72-0001
Passthrough Entity: Government of Puerto Rico Department of Housing
Pass-Through Entity Identifying Number: FFNMUBT6WCM1
Sub-award Period: 1/30/2023-9/30/2024
Criteria - The Code of Federal Regulations 2 CFR 200.303, Internal Control, requires the non-federal entity to establish and maintain effective internal control over Federal awards that provides reasonable assurance that the non-federal entity is managing Federal awards in compliance with Federal statutes, regulations, and other terms and conditions.
Per 2 CFR Section 200.430 Compensation – Personal Services:
“Costs of compensation are allowable to the extent that they satisfy the specific requirements of this part, and that the total compensation for individual employees:
(1) Is reasonable for the services rendered and conforms to the establish written policy of the non-Federal entity consistently applied to both Federal and non-Federal activities;
(2) Follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies and meets the requirements of Federal statute, where applicable; and
(3) Is determined and supported as provided in paragraph (i) of this section, Standards for Documentation of Personnel Expenses, when applicable.”
2 CFR Section 200.430(i):
“Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must:
(i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated;
(ii) Be incorporated into the official records of the non-Federal entity;
(iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities;
(iv) Encompass both 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;
(v) Comply with the established accounting policies and practices of the non-Federal entity;
(vi) [Reserved]
(vii) 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.
(viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards.”
Condition – During the audit, we noted that the Trust has a system of internal control in whichemployees who charge time to the Federal programs, are required to complete a timeslip and have their Timeslips reports reviewed and approved by the employees’ supervisors on a monthly basis. During our testing, we noted that five out of seven employees selected for testing charged time to the Federal program between July 1, 2023 and April 30, 2024, but the timeslips reports were not reviewed and approved by their supervisors until June 2024. There was a lack of timely approval of hours charged to the federal program by the supervisors. However, we validated that the employees who charged time to the federal awards as part of our sample selection were included in the budgets for the federal programs.
Cause – The Trust did not follow its documented policies and procedures in place to ensure compliance with the requirements regarding activities allowed or unallowed and allowable costs/cost principles – payroll activities.
Effect or Potential Effect - Without timely approvals that the personnel costs charged are accurate, the Trust is not able to demonstrate that key elements in a system of internal control over the recording of time exists.
Questioned Costs - None.
Context - This is a condition identified based upon our review of the Trust’s compliance with specified requirements. The sample was selected based on a non-statistical basis. The prevalence of these findings is detailed in the condition section above.
Repeat finding - This is not a repeat finding.
Recommendation - We recommend that the Trust strengthen its current policies and procedures to ensure that payroll costs charged to federal awards are supported by a system of internal controls that allows for timely employee preparation, certification, and supervisory approval of time charged to the federal awards.
Views of Responsible Officials – Time charged to this program had to be captured both as part of the billing process to the Federal funder, United States Housing and Urban Development (HUD) and through Timeslips system as required by internal policy. Time entries were downloaded from the Timeslips system and formatted for approvals using a time certification form template as required and approved by HUD. Billing to HUD occurs monthly. However, there were significant delays by HUD in reviewing and approving monthly invoices along with frequent changes to the requested documentation needed to substantiate costs. Although internal Timeslips reports were available for review and approval on a monthly basis, the program manager’s approvals were only documented on the time certification form as required by HUD. As a result, evidence of timely approvals on a monthly basis were not available as internal policy states. Procedures will be enforced to ensure that program managers are documenting approvals for hours charged to all federal awards according to both federal and internal policies as required on a monthly basis.