Finding Text
Finding number: 2022-002 – Significant Deficiency in Internal Control over Compliance
Assistance Listing Number – 93.323
Program Title – COVID-19 Epidemiology and Laboratory Capacity for Infectious Diseases
Federal award identification number and year – PH-004537, PH-004631, and PH-004855; 2021 and 2022
Name of federal agency – U.S. Department of Health and Human Services
Name of pass-through entity – County of Los Angeles Department of Public Health
Repeat finding – Yes, of finding number 2021-002
Criteria – Under the Uniform Guidance, specifically 2 CFR 200.430, charges to federal awards for compensation must be supported by a system of internal controls which provides reasonable assurance that costs are allocated appropriately and accurately. Organizations are permitted to use budget estimates when the system for developing the estimates provide reasonable approximations of the allocable costs and the internal controls include an after-the-fact review of charges, with adjustments entered as necessary.
Condition/context – There was no written documentation to support the review of payroll costs allocated to federal programs. We selected 25 employees out of 39 whose time and effort was charged to the program.
Cause – The management team of the organization is relatively small and conducted its reviews in meetings, without utilizing a formal documentation process.
Possible effect – Due to lack of controls, disallowed costs could be charged to the program and go undetected.
Questioned cost – N/A
Recommendation – Management should review the requirements of CFR 200.430 and implement a system that efficiently and effectively allows for allocation and documentation of compensation costs. The system could be transaction-based (i.e., a change in software that allows for approval of allocations each pay period) or estimate and review based (subsequent modification based on review of budgeted estimates).
Views of responsible officials – Agree with the finding. While allocations and allocation methodologies were reviewed by executive and senior management of Rising Communities, these reviews were not adequately documented. Rising Communities has/will take steps to address this finding. First, Rising Communities’ new financial system requires that all journal entries, including journal entries for the recording and allocation of payroll, be approved by a manager.
This control has been in place since the beginning of the third quarter of 2022. Second, Rising Communities will implement a process where the appropriate member of the executive management team reviews allocation methodologies and specific allocation percentages for staff. When a change to either the methodology or percentages need to be made, the appropriate executive management team member will approve before implementation. Third, Rising Communities will utilize systems to back test allocation methodologies and allocation percentages. Rising Communities has recently implemented a new payroll system that will allow the tracking of employee time by program. Rising Communities is developing a plan and process to roll this functionality out to all employees during the first quarter of 2023. Rising Communities also utilizes a project management system which executive management reviews on a continual basis, providing them with qualitative information on where Rising Communities resources are being allocated. Finally, Rising Communities, with its new financial system, is implementing reporting to program managers that will allow them to have significantly greater insight into the spending on their respective programs.