Finding 573255 (2023-002)

Significant Deficiency
Requirement
AB
Questioned Costs
-
Year
2023
Accepted
2025-08-11

AI Summary

  • Core Issue: Payroll costs charged to federal awards included unused leave, violating cost principles under 2 CFR § 200.430.
  • Impacted Requirements: Compliance with federal regulations requires accurate records for salaries and wages, specifically regarding earned and used leave.
  • Recommended Follow-Up: Revise payroll allocation methods to charge only for used or vested leave, ensuring estimates are documented and reconciled with actual costs.

Finding Text

2023-002 Payroll Costs Federal Program - U.S. Department of the Treasury – Coronavirus State and Local Fiscal Recovery Funds (ALN 21.027) Federal Award Number - SLFRP0136 Compliance Requirement - Allowable Costs/Cost Principles (2 CFR § 200.430) Criteria - Under 2 CFR § 200.430(g), charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. Compensation for leave must be granted under established leave policies and must be allocable and reasonable for the services rendered. Costs for leave that is not earned or used, or that is forfeited, are generally not allowable under federal awards. Condition - The organization uses a calculated hourly rate to allocate payroll costs to programs. This rate includes a pro rata amount for vacation and sick time earned each pay period. However, the organization’s leave policy does not allow for carryover of unused vacation or sick time. As a result, some of the accrued leave may never be used or paid out but was still charged to federal programs through the calculated rate. Cause - The organization’s methodology for allocating payroll costs does not differentiate between earned and used leave and does not account for the forfeiture of unused time at year-end. Effect - Federal awards may have been charged for leave benefits that were never realized or paid to employees, resulting in an overstatement of payroll costs charged to the program. However, based on our analysis, the financial impact of this condition was not material to the federal award and the estimated questioned costs were below the $25,000 reporting threshold. Questioned Costs - $0. No questioned costs are reported as the estimated impact is below the reporting threshold and not material to the award. Recommendation - We recommend that the organization revise its payroll allocation methodology to ensure only used or vested leave is charged to federal awards. If estimates are used, they should be supported by documentation and periodically reconciled to actual costs. Non-vested leave that may be forfeited should not be included in federally funded rates. Views of Responsible Officials - We agree with the findings and determined it was due to outdated processes and a gap in technical expertise utilizing the payroll allocations within the accounting software.

Corrective Action Plan

2023-002 Payroll Costs Contact Person – Erin Metcalf, Finance Director Description of Corrective Action – Training has been provided and currently the payroll allocations are matched to weekly payroll reports from outside payroll company. Allocations of vacation and sick time are done according to actual payroll reports and entered into accounting software based on true numbers instead of tracked on a spreadsheet. Completion Date – June 30, 2025 Root Cause – Outdated procedures in place.

Categories

Allowable Costs / Cost Principles

Other Findings in this Audit

  • 573254 2023-001
    Significant Deficiency
  • 573256 2023-003
    Significant Deficiency
  • 1149696 2023-001
    Significant Deficiency
  • 1149697 2023-002
    Significant Deficiency
  • 1149698 2023-003
    Significant Deficiency

Programs in Audit

ALN Program Name Expenditures
21.027 Coronavirus State and Local Fiscal Recovery Funds $399,488
21.023 Emergency Rental Assistance Program $143,915
97.024 Emergency Food and Shelter National Board Program $141,500
93.667 Social Services Block Grant $69,000
14.267 Continuum of Care Program $64,565
14.228 Community Development Block Grants/state's Program and Non-Entitlement Grants in Hawaii $27,256