Finding 553783 (2024-002)

Material Weakness Repeat Finding
Requirement
AB
Questioned Costs
-
Year
2024
Accepted
2025-04-01
Audit: 352373
Organization: Legal Aid Soceity of Hawaii (HI)
Auditor: N&k CPAS INC

AI Summary

  • Core Issue: Salaries and wages were misallocated to the LSC grant due to discrepancies between time entry and accounting records.
  • Impacted Requirements: Non-compliance with 45 CFR 1630(a)(3) and 45 CFR 1630.5(c)(3) regarding proper cost allocation and accounting systems.
  • Recommended Follow-Up: Implement stronger internal controls to ensure payroll data is accurately reviewed and validated before import.

Finding Text

Criteria: 45 CFR 1630(a)(3) provides that expenditures are allowable under a Legal Services Corporation (LSC) grant or contract only if the recipient can demonstrate that the cost was allocable to the grant or contract. Further, 45 CFR 1630.5(c)(3) requires that recipients maintain accounting systems sufficient to demonstrate the proper allocation of costs to each of their funding sources. Condition: During our audit, we noted that salaries and wages were incorrectly allocated and charged to the Legal Services Corporation grant. Of the twenty-five (25) payroll samples selected for testing, there was one instance in which the employee records in the Society’s time entry system did not match the employee records in the accounting system. This resulted in salaries and wages being allocated based on an outdated default calculation determined by the system. There were no questioned costs as the Society subsequently recorded correcting entries to revise the allocations. Cause: Data entered into the accounting system was not properly reviewed and validated prior to being imported. Effect: The lack of effective internal controls over the preparation of payroll data resulted in salaries and wages for time spent by employees on non-LSC grants or contracts being charged to the LSC grant.

Corrective Action Plan

LASH disagrees that this finding rises to the level of a "material weakness," but will proceed to address this finding through manual corrections and Legal Server improvements. From the prior fiscal year, significant progress was made to ensure the accuracy of the allocation of LSC work hours. This FY23 finding is related to an automatic allocation in Legal Server that occurs during a pay period when an exempt employee works more than the requisite hours and has charged a portion of time to LSC. The Legal Server system then automatically reallocates the time among the grants worked such that LSC may end up being charged a nominally less percentage of the total salary expense than it otherwise would have been These reallocations are deminimus, and result in less time, not more, being allocated to LSC. Therefore, LASH disagress that this finding is a "material weakness." LASH is committed to improving its performance in this area. In FY24, LASH employed a temporary Accountant who worked with staff to develop a process to indentify these misallcations and to correct them. While this manual process corrected the misallocation of LSC expenses, it did not correct the problem of employee numbers not matching up. There was one incident of employee numbers not matching in the sample of FY24. In FY25, LASH will continue to utilize the process it has proven will fix the misallocation of expenses for periods that have closed but will also attempt to move the process from after the distribution process to before and thus solve the problem up front. This move will not only identify any excess hours that triggers the problem and allow for fixing the allocations up front, but will identify mismatches in employee numbers and solve the problem identified in FY24.

Categories

Allowable Costs / Cost Principles

Other Findings in this Audit

  • 1130225 2024-002
    Material Weakness Repeat

Programs in Audit

ALN Program Name Expenditures
09.U01 Basic Field - General $1.91M
14.408 Fair Housing Initiatives Program $529,226
09.U02 Lsc - Native American $308,935
94.006 Americorps State and National 94.006 $285,365
93.332 Cooperative Agreement to Support Navigators in Federally-Facilitated Exchanges $220,211
93.044 Special Programs for the Aging, Title Iii, Part B, Grants for Supportive Services and Senior Centers $148,231
93.558 Temporary Assistance for Needy Families $135,025
09.U06 Lsc - Tig Legal Aid Society of Hawaii Nav $70,614
09.U04 Lsc - Tig Pbif $15,541
93.591 Family Violence Prevention and Services/state Domestic Violence Coalitions $8,381
09.U05 Lsc - Tig Intake $8,173
09.U03 Lsc - Languages $2,725