Finding Text
Criteria or Specific Requirement: Federal regulations (45 CFR 1614.7) states that federal award recipients shall demonstrate compliance with the PAI requirement by utilizing financial systems and procedures and maintaining supporting documentation to identify and account separately for costs related to the PAI requirement. It also states that non-personnel costs shall be allocated on the basis of reasonable operating data and that all methods of allocating common costs shall be clearly documented. In addition, it states that any direct or indirect time of staff attorneys or paralegals is allocated as a cost to PAI, such costs must be documented by time sheets accounting for the time those employees have spent on PAI activities.
Condition: During our testing, we noted that: Eight instances where a salary different from the employee's approved salary was used to allocate the employee's pay to PAI, resulting in an under allocation of employee salaries to PAI totaling $36,049.
Seven instances where estimated benefit costs per employee were used to allocate employee benefits to PAI rather than actual benefit costs per employee, resulting in net errors under-allocating expense by $8,356 (absolute value errors totaling $11,774).
Three general expense cost allocations where an unsupported allocation percentage was used to allocate general costs to PAI - typically, costs are allocated to LSC and two other private grants using a base of total specific grant hours for the period divided by total hours coded to the Organization’s general fund. This resulted in an overallocation of costs of $19.As such, the costs mentioned above were allocated in an inconsistent manner to other grant payroll, fringe benefit, and general expense costs and were not fully representative of the employees’ time and effort and compensation, or direct costs incurred in support of the grant.
Questioned Costs: None. The original variances represent a net under-allocation of costs. Management elected to correct the allocation during audit fieldwork.
Context: These instances were noting during testing of 60 payroll, employee fringe benefit, and general PAI requirement costs.
Cause: The Organization’s salary, wage and employee benefit and general expense cost allocation methodology is primarily based on time and effort records and a periodic calculation of grant hours versus general fund hours multiplied by period costs, but it often includes manual adjustments based on review of individual time records and expense data. Therefore, the methodology is challenging to apply consistently, document contemporaneously, and apply in accordance with federal regulations. Effect: The inclusion of frequent manual adjustments in the Organization’s salaries, wages, employee benefit, and general expense cost allocation methodology could cause costs to be allocated to grants that are not reflective of the time and effort spent on grant activities nor compensation paid to employees during relevant work periods. It would also lead to challenges in maintaining sufficient supporting documentation of such cost allocations.
Repeat Finding: The finding is a repeat of a finding in the immediately prior year. Prior year finding number was 2023-006.
Recommendation: We recommend that the Organization consider updating its salaries, wages, employee benefit, and general expense cost allocation methodology and process to reduce the frequency of manual adjustments based on review of individual time records and expense data and maximize the use of automated allocations based on employees’ time and effort records, effective compensation during work periods, and that are calculated in a consistent manner. We also recommend that the Organization maintain contemporaneous documentation supporting all cost allocations.
Views of responsible officials: Management partially agrees with this finding. CLS recognizes manual miscalculations due to human errors but considers that the allocation methodology is correct. CLS is undertaking improvements oriented toward automatization of the process while recognizing that complete automatization is not possible without an expensive and complete overhaul of our systems.
Auditor’s Concluding Remarks: Management’s response did not persuade the auditor to revise the finding. Federal regulations (45 CFR 1614.7) states that federal award recipients shall demonstrate compliance with the PAI requirement by utilizing financial systems and procedures and maintaining supporting documentation to identify and account separately for costs related to the PAI requirement.