Finding Text
Cost Allocations – (Material Weakness)
Information on Federal Program:
U.S. Department of Health and Human Services
Federal Assistance Listing Number (ALN) Number: 93.676
ALN Name: Unaccompanied Alien Children Program
Contract Period: July 1, 2021 through June 30, 2022
Criteria:
In accordance with GAAP, if costs benefit multiple programs, the costs should be allocated to the programs based on the proportional benefit. Additionally, direct costs are those costs that can be identified specifically or directly assigned to such activities relatively easily with a high degree of accuracy.
Condition:
During our audit, we noted that payroll and the related personnel costs are not being charged directly or allocated to the correct cost center in the Serenic Navigator accounting system on a monthly basis. The primary cause of this issue is the way in which the Paychex payroll system was set up, where bi-weekly payroll runs are not being allocated by the system itself. In January 2022, Lincoln Hall switched from Paychex to ADP which allows for employee cost centers to be mapped. While this improved the monthly allocation process, the finance team still performs manual calculations of all allocations in Excel at the end of the fiscal year to update the allocations.
Questioned Costs:
None noted.
Context:
This is a condition identified during the audit of Lincoln Hall’s June 30, 2022 financial statements.
Effect or Potential Effect:
We were able to observe and conclude that Lincoln Hall did not have formal cost allocations in place to properly allocate certain expenses throughout the year. As a result, certain expenses could not be properly allocated throughout the year.
Repeat Finding:
This is a repeated finding from prior year. See Finding No. 2021-001 on the Summary Schedule of Prior Audit Findings.
Cause:
Certain other than personnel costs are dependent on the proper allocation of the personnel costs. The primary cause of this issue is the way in which the Paychex payroll system was set up, where bi-weekly payroll runs are not being allocated by the system itself. In January 2022, Lincoln Hall switched from Paychex to ADP which allows for employee cost centers to be mapped. While this improved the monthly allocation process, the finance team still performs manual calculations of all allocations in Excel at the end of the fiscal year to update the allocations.
Recommendation:
The inability to generate financial statements that incorporate the federal and state agency mandated cost allocations prevents Lincoln Hall from presenting functionally accurate interim financial statements. We recommend that these costs be properly allocated on a monthly basis and presented as recorded within Lincoln Hall’s general ledger system.
Allocating these costs regularly will allow Lincoln Hall to submit accurate and substantiated interim financial data to its funding sources. Additionally, properly tracking and allocating costs on a monthly basis will prevent a material reallocation of costs by function at year-end.
Views of Responsible Officials:
Lincoln Hall agrees with the finding. Lincoln Hall continues to take steps to improve this process. See Lincoln Hall's further response to this finding as described in the accompanying management’s planned corrective actions, Appendix A.