Finding Text
2023-002 Material Weakness in Internal Control and Compliance over Allowable Costs and Activities Related to Payroll Expenditures
Federal Agency: U.S. Department of Health and Human Services
Federal Program: 93.558, Temporary Assistance for Needy Families Cluster
Criteria or Specific Requirement - OMB Circular A-122, Costs Principles for Non-Profit Organizations requires specific compliance with the provisions of allowable costs and activities. The Organization is responsible for having internal controls designed to ensure compliance with this provision. Additionally, the Organization may only charge to the federal award, allowable costs incurred during the period of performance. Condition - During our testing of payroll expenditures, we identified expenditures that were incurred outside of the award contract period of performance and included in reimbursement requests submitted to the pass-through agency.
Cause - The Organization did not maintain proper adherence to internal controls over the federal program as it relates to tracking and allocating the expenditures of federal awards. This includes allocating costs incurred outside of the contract period to the federal program and requesting reimbursement from the agency. The pass-through agency allows the Organization to report expenditures on both a cash and accrual basis, if reimbursement requests of those expenditures are not duplicated. This could lead to confusion when requesting reimbursements for expenditures that may fall outside of the period of performance covered by the award contract.
Effect - Noncompliance with the allowable costs and activities of the federal award as described in both the award contract and OMB Circular A-122, Cost Principles for Non-Profit Organizations, could result in reimbursement denials and ultimately lead to the payback of costs or loss of future funding.
Questioned Costs - Immaterial amount.
Context - As part of our audit procedures, we sampled two months of expense reimbursement requests which included payroll expenditures incurred to test internal controls over compliance and compliance with the allowable costs and activities of federal awards.
During our testing of payroll expenditures, we noted the following deviations:
- For three of seven payroll selections from our statistically valid sample, costs included amounts incurred outside of the period of performance covered by the award contract for the period from July 2022 through September 2022.
o Upon further examination, we identified that all 27 employees at the Solis-Cohen site, included four days’ worth of payroll expenditures incurred prior to the award contract period beginning July 2022, but were submitted for reimbursement under that contract.
Repeat Finding - This is a repeat finding from the prior year. See prior year finding 2022-003. Recommendation - We strongly recommend the Organization choose one basis of reporting (cash or accrual) and apply consistently to expenditures submitted for reimbursement. Additionally, procedures should be implemented by the Organization to track and report expenditures eligible for reimbursement based on when it is incurred and retain all related supporting documentation.
Views of Responsible Officials and Planned Corrective Actions - The questioned costs were immaterial and relate to a pay period that was split across the fiscal year (6/27/22 to 7/8/22, with a pay date of 7/15/22). Reports to the funder for the year ending 6/30/22 were due on 7/10/22, before all payroll information and supporting documentation for this pay period was available. Therefore, the full pay period was included in the July reimbursement report. This practice was approved by the funder.
Moving forward, the Organization will be more cognizant of accrual dates for payroll reporting and submit a true-up as needed to ensure that payroll costs are correctly allocated at the end of the fiscal year. Additionally, in May 2024, the Organization will be implementing a new electronic payroll system that will allow us to obtain this information more quickly at the close of each fiscal year to complete billing reports.