Finding Text
FINDING 2022-004 - ALLOWABLE PAYROLL COSTS AND CONTROLS OVER PAYROLL (REPEAT) - HEAD START CLUSTER, FEDERAL ASSISTANCE LISTING NUMBER 93.600 Criteria: Charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. These charges must be supported by a system of internal control, which provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Records must support the distribution of the employee?s salary or wages among the specific activities or cost objectives, if the employee works on more than one federal award. 2 CFR 200.430(i) Standards for Documentation of Personnel Expenses. Condition: The Organization?s payroll records did not accurately reflect the actual hours worked by employees whose salaries and wages were charged to the various direct and indirect cost centers for fiscal year 2022. We tested five pay periods and identified a lack of time studies performed in each pay period to support the budgeted percentages used to allocate an employee?s payroll to more than one cost center. Questioned Costs: $80,277 - Payroll and payroll tax expenses totaling $445,531 and $32,971, respectively, were charged to the Early Head Start federal award during fiscal year 2022 and subject to sampling. Our testing identified $74,862 and $5,415 of payroll and payroll tax expenses, respectively, of questioned costs. Our sample was a statistically valid sample. Effect: The current methodology of allocating payroll amongst the various programs and supporting cost centers could result in over allocating payroll costs to certain awards and other cost centers and allocating too little payroll costs to others. Cause: The Organization allocates payroll based on budgeted percentages, however, budget estimates alone do not qualify as support for charges to federal awards. Recommendation: The Organization should establish policies and procedures to support a system of internal controls, which provides a reasonable assurance that the charges to federal awards for salaries and other payroll related costs are accurate, allowable, and properly allocated. Documentation of all employees? approved pay rates, hours worked, and support for the allocation percentages (or actual hours worked) should be maintained. Management's Response: The Organization terminated our professional relationship with our financial services provider in FY23, Quatrro BSS. We established a financial services contract with Metropolitan Family Services (MFS) that began July 1, 2022. MFS manages over 130 million dollars in revenue each year and the current finance team has over 50+ years of combined experience managing government and private contracts. MFS is a Professional Employer Organization (PEO) for five organizations averaging four million dollars in annual revenue and has established back-office and finance service contracts with those organizations. MFS has policies and procedures to support a system of internal controls which provides a reasonable assurance that charges to federal awards for payroll related costs are accurate, allowable, and properly allocated. Budget estimates are used for interim accounting purposes provided the estimates produce reasonable approximations of activity performed. The MFS finance team and the Organization's executive team review payroll allocations each quarter. Allocations are supported by an after-the-fact accounting of employee time and effort in a Personal Activity Report (PAR), significant changes in work activity are identified and entered into the record, and the after-the-fact review is completed to make all necessary adjustments to the final amount charged to the Organization's federal awards to help ensure charges are accurate, allowable, and properly allocated.