Finding Text
Federal Agency: U.S. Department of Health and Human Services Federal
Program Name: Head Start Cluster
Assistance Listing Number: 93.600
Pass‐through Agency: N/A
Contract numbers: 10CH01029405C3 10CH01029406
10CH01204401
10HE00135801C5
10HE00135801C6
Contract periods: 01/2020‐06/2021 01/2021‐06/2021
07/2021‐12/2021
07/2021‐06/2023
07/2021‐06/2023
Type of Finding: Significant Deficiency in Internal Control Over Compliance ‐ Allowable Costs and
Cost Principles
Criteria: The Association’s procedures for processing expenditures, and primarily
allocating expenditures to programs, should include controls that ensure expenditures are
properly charged to program and allocated in accordance with the federal grant requirements.
The objective of the Assistance Listing 93.600 Head Start program (including Early Head
Start and Early Head Start Partnerships) is to promote school readiness of low‐income
children (including American Indians, Alaska Natives and migrant and seasonal farm workers)
by enhancing children’s cognitive, social and emotional development. During the fiscal year
ending December 31, 2021, the Association expended $4,720,185 in federal funding.
Federal regulations require award recipients to establish and follow internal controls
that ensure compliance with program requirements. These controls include understanding
program requirements and monitoring the effectiveness of established controls.
Federal regulations require the Association to have adequate time‐and‐effort documentation
to support all payroll costs charged to the Head Start awards. 2 CFR 200.430, Compensation –
personal services, states, in part:
“(i) Standards for Documentation of Personnel Expenses
(1) Charges to Federal awards for salaries and wages must be based on records that accurately
reflect the work performed. These records must:
(ii) Be supported by a system of internal control which provides reasonable assurance that the
charges
are accurate, allowable, and properly allocated…” Depending on the number and types of activities employees perform,
time and effort documentation can be in the form of semi‐annual certification or monthly
personnel activity reports, such as a timesheet.
Condition: The Association’s controls were not effective to ensure it maintained
adequate time and effort documentation, as required by federal regulations and the grantor.
During review of payroll costs for the year ended December 31, 2021, the following was noted:
• Payroll costs were charged according to budgeted time rather than reconciling to actual hours
worked.
• Two payroll disbursements were not allocated in compliance with the Associations
approved cost allocation plan.
This internal control deficiency is considered to be a significant deficiency.
Questioned Costs: None.
Context: Procedures included examining payroll charges for 40 randomly selected employees
for January through December 2021.
Cause: The Association changed the software used for payroll processing from QuickBooks to MIP in
July 2020. They then changed their fiscal accounting software from QuickBooks to MIP in January
2021. The new software implementation was fraught with many challenges, one of which being
implementing electronic processes that met the time and effort requirements outlined in the
Association’s policy manual.
Effect: By not keeping proper time‐and‐effort records, the Association cannot demonstrate
compliance with grantor’s requirements that require support for payroll costs charged to the
federal program.
The Association provided alternate documentation that demonstrated the payroll costs charged to the
program were allowable. Therefore, we are not questioning costs.
Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample.
Recommendation: The Association follow its own documented controls to ensure it prepares
adequate time‐ and‐effort documentation to support payroll costs charged to the federal grant.
View of Responsible Officials: There is no disagreement with this audit finding.