Finding Text
2023-002 - Allowable Costs/Cost Principles – Internal Control and Compliance over Payroll Expenditures (Significant Deficiency)
Information on the Federal Program(s):
Assistance Listing Number: 14.218
Federal Program Name: Community Development Block Grants-Entitlement Grants Cluster
Federal Agency: Department of Housing and Urban Development
Pass-Through Entity: N/A
Federal Award Number(s) and Award Year: B-21-MC-06-0554
B-20-MW-06-0554
Assistance Listing Number: 14.871
Federal Program Name: Housing Voucher Cluster
Federal Agency: Department of Housing and Urban Development
Pass-Through Entity: N/A
Federal Award Number(s) and Award Year: CA120
Criteria or Specific Requirement (Including Statutory, Regulatory, or Other Citation):
Total salaries charged to Federal awards (including extra service pay) are subject to the Standards of Documentation as described by 2 CFR §200.430(i). Per this section, salaries and wages charged to Federal awards must be based on records that accurately reflect the work performed. These records must:
• Be incorporated into the organization’s official records;
• Reasonably reflect the total activity for which the employee is compensating across all grant related and non-grant related activities (100% effort);
• Support the distribution of employee salary across multiple activities or cost objectives (for example, effort spent on multiple federal awards, spent on general/or administrative activities, vacation, sick leave, leave without pay, etc.); and
Utilize an "after-the-fact" review of the employee’s actual hours worked during the reporting period for identifying and correcting significant changes (as defined by the organization’s written policies).
Condition:
Community Development Block Grants-Entitlement Grants Cluster
We determined the City did not comply with federal requirements for direct payroll charges. Payroll costs for all eight employees tested were allocated to programs based on percentages provided by management. These allocations were not supported by approved time samples or updated cost allocation methods/plan, nor were they reconciled to actual time spent on the various programs. Employee timesheets did not record the actual labor efforts expended on these grants. In April 2023, the City has required all Housing Department staff to retrospectively fill out timesheets pertaining to actual hours worked on the program during fiscal year 2023, The City performed reconciliation on Housing Department staff payroll charges to reflect actual hours worked. However, for the admin supporting staff did not use the same method due to the low percentage of the payroll charges to the grant.
Housing Voucher Cluster
We determined the City did not comply with federal requirements for direct payroll charges. Payroll costs for all five employees tested were allocated to programs based on percentages provided by management. These allocations were not supported by approved time samples or updated cost allocation methods/plan, nor were they reconciled to actual time spent on the various programs. Employee timesheets did not record the actual labor efforts expended on these grants. In April 2023, the City has required all Housing Department staff to retrospectively fill out timesheets pertaining to actual hours worked on the program during fiscal year 2023, The City performed reconciliation on Housing Department staff payroll charges to reflect actual hours worked. However, for the admin supporting staff did not use the same method due to the low percentage of the payroll charges to the grant.
Cause:
The City did not follow its adopted policies and procedures for ensuring employees’ compensation charged to federal programs was supported by contemporaneous time record or an after-the-fact distribution of employees’ actual time and effort expended on federal program activities.
The City’s attempt in addressing prior year finding was not deemed sufficient due to lack of reconciliation for actual hours worked for payroll charges from Administrative, Finance, and Other Departments.
Effect or Potential Effect:
The City did not comply with the program’s requirements for allowable costs. There is an increased risk that employees’ compensation charged to the program may not have represented an actual time and effort expended on the program’s activities.
Questioned Costs:
Community Development Block Grants-Entitlement Grants Cluster
$41,821
Housing Voucher Cluster
$15,986
Context:
See condition above for the context of the finding.
Identification as a Repeat Finding, If Applicable:
Yes. See prior year finding 2022-003.
Recommendation:
We recommend the City comply with federal regulation requiring that any employee funded by federal grant document the actual time they spend working on the grant’s objectives. Documentation must reflect “actual” time spent by employees on awards being charged. The City should develop and implement policies and procedures that ensure that employees’ compensation charged to federal programs reflect a contemporaneous or after-the-fact distribution of employees’ actual time and effort expended on federal programs. We also recommend the City enhance its internal controls over the payroll processes.
Views of Responsible Officials:
Management concurs the finding.