Federal Agencies: Department of Housing and Urban Development and Department of Health and Human Services
Federal Assistance Listing Numbers: 14.218, 14.231, 93.224 & 93.527
Program: CDBG-Entitlement Grants Cluster, Emergency Solutions Grants Program, COVID-19 Emergency Solutions Grants Program, Health Center Program Cluster, COVID-19 Health Center Program Cluster
Award/Pass-Through Entity Identifying Numbers: HHI-21-03, HHI-22-21, NCIP-FY20-010, HHI-21-35, HHI-20-21, 563770, 19H80CS10606, 21H8FCS40355C6
Criteria: The Uniform Guidance in 2 CFR §200.303 requires that non-Federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statues, regulations, and the terms and conditions of the Federal award.
Per 2 CFR §200.430 Compensation – Personal Services:
“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:
(i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated;
(ii) Be incorporated into the official records of the non-Federal entity;
(iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities;
(iv) Encompass federally-assisted and all other activities compensated by the non-Federal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-Federal entity’s written policy;
(v) Comply with the established accounting policies and practices of the non-Federal entity; and
(vi) [Reserved]
(vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity.
(viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards, but may be used for interim accounting purposes, provided that:
(A) The system for establishing the estimates produces reasonable approximations of the activity actually performed;
(B) Significant changes in the corresponding work activity (as defined by the non-Federal entity’s written policies) are identified and entered into the records in a timely manner. Short-term (such as one or two months) fluctuation between workload categories need not be considered as long as the distribution of salaries and wages is reasonable over the longer term; and
(C) The non-Federal entity’s system of internal controls includes processes to review after-the-fact interim charges made to a Federal award based on budget estimates. All necessary adjustment must be made such that the final amount charged to the Federal award is accurate, allowable, and properly allocated.”
Condition: We noted that the Village allocated payroll expenditures to the CDBG-Entitlement Grants Cluster, Emergency Solutions Grants Program, and the Health Center Program Cluster during 2022 based on budget allocation rates or employees’ schedules. For the CDBG-Entitlement Grants Cluster, Emergency Solutions Grants Program, and the Health Center Program Cluster, the majority of employees did not track actual time and effort for comparison to budget allocations or employees’ schedules. There was no procedure in place to determine if a true-up was necessary from allocated costs. 180 timesheets were tested during the audit (60 for each program). All 60 were charged based on employee schedules for Health Center Program Cluster. 59 timesheets of the 60 tested were charged based on budgets for the CDBG-Entitlement Grants Cluster. Lastly, 45 timesheets of the 60 tested were based on budgets for the Emergency Solutions Grants Program.
Cause: The Village did not have policies and procedures in place to review and reconcile the estimated amounts of payroll expenditures charged to the CDBG-Entitlement Grants Cluster, Emergency Solutions Grants Program, and the Health Center Program Cluster to the actual expenditures incurred.
Effect or Potential Effect: Without adequate controls in place to ensure costs based on budgeted allocations are reasonable and reconcile to the actual time spent on the program, the Village could incorrectly charge expenditures to the federal program, or not request appropriate reimbursement the Village is entitled to under the terms of the grant.
Questioned Costs:
Known CDBG-Entitlement Grants Cluster: $16,765 Likely CDBG-Entitlement Grants Cluster: $842,671 Known Emergency Solutions Grants Program: $9,453 Likely Emergency Solutions Grants Program: $1,646,760 Known Health Center Cluster Program: $27,601
Likely Health Center Cluster Program: $2,133,947
Context: This is a condition identified per review of the Village’s compliance with specified requirements not using a statistically valid sample. Payroll costs including fringe benefits for the CDBG-Entitlement Grants Cluster in 2022 were $848,919. Payroll costs including fringe benefits for the Emergency Solutions Grants Program in 2022 were $2,052,649. Payroll costs including fringe benefits for the Health Center Program Cluster in 2022 were $2,133,947. Any payroll costs not adequately support by time and effort reports are considered questioned costs.
Identification as a Repeat Finding: 2021-007.
Recommendation: We recommend that the Village implement policies and procedures to review for any necessary budget to actual adjustments, and we recommend that sufficient documentation be maintained to support any adjustments made as required by 2 CFR §200.430.
Views of Responsible Officials: Management agrees with the finding. Management is updating their written procedures to ensure that allowable costs and cost principles comply with §200.430 as well as enhancements to the time entry system and allocation procedures.