Finding 547919 (2024-002)

Allocation of Program Payroll Costs (Significant Deficiency) and Compliance Federal Agency: U.S. Department of Health and Human Services Program Title: Temporary Assistance for Needy Families Assistance Listing Number: 93.558 Federal Award Source: Pass-through funding Pass-Through Entity: Arizona Department of Economic Security Pass-Through Identifying Number: CTR 066191 Criteria – Section §200.405 of the Uniform Guidance states that a cost is allocable to a Federal award or other cost objective if the cost is assignable to that Federal award or other cost objective in accordance with the relative benefits received and this standard is considered to be met if the cost (a) is incurred specifically for the Federal award; (b) benefits both the Federal award and other work of the recipient or subrecipient and can be distributed in proportions that may be approximated using reasonable methods; or (c) is necessary to the overall operation of the recipient or subrecipient and is assignable in part to the Federal award in accordance with the Uniform Guidance cost principles. Condition and Context – During our audit of allowable costs as it pertained to payroll costs, we noted the Organization could not provide adequate documentation to support the percentage of employee payroll costs allocated to the Federal program for 4 employees. This resulted in an unsupported allocation of payroll costs for 9 samples out of a total of 19 samples selected for testing, and $5,383 in payroll costs out of $14,585 total payroll costs selected for testing. Our sample was a statistically valid sample. Cause and Effect - Due to a transition in the billing structure of the program, which was previously fee for service in nature, to being cost reimbursement in nature, the Organization did not consistently maintain adequate supporting documentation for the allocation of payroll costs to the Federal program for all employees. It is possible the allocations used were not reflective of the actual or approximate time spent by the employees on the Federal program. Questioned Costs – Undetermined. We were unable to determine whether the allocations used were appropriate or not. Recommendation – We recommend that the Organization improve its internal controls over the allocation of payroll costs to the Federal program and ensure any allocations are updated timely, and appropriately reviewed and approved by supervisory personnel. View of Responsible Officials - We agree with the finding. We have implemented procedures to ensure secondary reviews of all billings. See our Corrective Action Plan for the fiscal year ended June 30, 2024 for additional detail.