Finding 7824 (2022-002)

Material Weakness
Requirement
B
Questioned Costs
-
Year
2022
Accepted
2024-01-08
Audit: 10152
Organization: Mobility International, USA (OR)
Auditor: Jones & Roth PC

AI Summary

  • Core Issue: There is a material weakness in internal controls over compliance, specifically related to the allocation of payroll costs to federal programs.
  • Impacted Requirements: The organization failed to comply with the Uniform Guidance on allowable costs, leading to improper payroll cost allocations across federal awards.
  • Recommended Follow-Up: Management should revert to the previous method of allocating payroll costs based on actual time worked by employees on specific activities.

Finding Text

Federal Award Programs: U.S. Department of State Professional and Cultural Exchange Program – Citizen Exchanges (Assistance Listing # 19.415) and U.S. Agency for International Development (USAID) Foreign Assistance for Programs Overseas (Assistance Listing # 98.001) Type of Finding: Material weakness in internal control over compliance and instance of immaterial noncompliance. Compliance Requirement: Allowable costs Criteria: The Uniform Guidance (2 CFR §200.430) states that the salaries or wages of employees must be distributed 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 activity. The Organization’s written policies rely on the use of time sheets and activity reports which document actual hours worked by program/grant. Condition: During the course of our audit testing, we noted the Organization changed the process for recording payroll costs to grants and programs for 2022. Rather than charging individual employee payroll costs to grants and programs, the Organization began aggregating total employee hours by grant/program activity. The aggregated hours for each activity were then divided by total hours for each pay period in order to obtain percentages for each respective activity, which were then multiplied by total employee earnings for the pay period as a basis for allocating the payroll costs to activities. The process using aggregated hours for each activity resulted in an improper allocation of payroll costs due to the differing pay rates of employees included in the allocation. Effect and Context: The condition resulted in incorrect amounts of costs and/or unallowable costs charged to the federal programs. All federal programs were impacted by the improper allocation of payroll costs due to the Organization’s aggregation of total employee hours by activity as a basis for allocating total payroll costs for each pay period. As a result, major programs U.S. Department of State Professional and Cultural Exchange Program – Citizen Exchanges (Assistance Listing # 19.415) was undercharged by approximately $18,683 and U.S. Agency for International Development (USAID) Foreign Assistance for Programs Overseas (Assistance Listing # 98.001) was undercharged by approximately $2,864. Our sample size was 40 payroll transactions and was not a statistically valid sample as it was selected haphazardly. We noted all selections in our sample used the improper allocation methodology and all payroll costs for 2022 were improperly allocated among activities benefited. Questioned Costs: None Repeat finding: No Auditor’s recommendation: We recommend management return to the previous process for recording payroll costs to grants and programs by which individual employee salaries and wages are allocated based on actual time spent on various activities and are directly charged to the respective activity cost centers benefited. Management’s response: Management is in agreement with the auditor’s finding and have implemented changes – see MIUSA’s attached corrective action plan.

Corrective Action Plan

Finding Reference # 2022-002, Material Weakness in internal control over compliance and instance of immaterial noncompliance. Compliance Requirement: Allowable Costs Auditor’s Recommendation: We recommend management return to the previous process for recording payroll costs to grants and programs by which individual employee salaries and wages are allocated based on actual time spent on various activities and are directly charged to the respective activity cost centers benefited. Corrective Action: In 2022, we began outsourcing our payroll processing to Paychex, Inc. During that transition, we changed our process for entering payroll into our accounting software and began using aggregation of total employee hours. Management will return to the practice of allocating payroll per employee instead of using aggregate totals, effective immediately. Management will also contact grantors to resolve any errors in cost reimbursements resulting from 2022 payroll allocation corrections.

Categories

Allowable Costs / Cost Principles

Other Findings in this Audit

  • 7825 2022-002
    Material Weakness
  • 7826 2022-002
    Material Weakness
  • 584266 2022-002
    Material Weakness
  • 584267 2022-002
    Material Weakness
  • 584268 2022-002
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
19.011 Academic Exchange Programs - Special Academic Exchange Programs $516,876
19.415 Professional and Cultural Exchange Programs - Citizen Exchanges $404,856
98.001 Usaid Foreign Assistance for Programs Overseas $70,768
19.022 Educational and Cultural Exchange Programs Appropriation Overseas Grants $18,586
19.345 International Programs to Support Democracy, Human Rights and Labor $16,507
19.900 Aeeca/esf Pd Programs $12,672