Finding Text
Finding number: 2023-002
AL number: 21.027
AL title: Coronavirus State and Local Recovery Funds
Name of federal agency: U.S. Department of the Treasury
Name of pass-through entity: State Bar of California, Legal Aid Foundation of Los Angeles, and Bet Tzedek
Legal Services Repeat finding: No
Criteria: The Uniform Guidance Cost principles require consistency in treatment of costs
and, specifically, that compensation costs be consistent. In addition, the Uniform
Guidance requires that there be a system of internal control which provides
reasonable assurance that the charges are accurate, allowable and properly
allocated and conform to the established accounting policies and practices of the
Organization.
Condition: For at least a portion of the fiscal year, costs allocated to Federal grants were
calculated by multiplying the hourly rate times the number of hours worked on
the Federal grant. This methodology is effective for hourly employees, but can
result in a variance in amounts charged to Federal programs when salaried
employees work more or less than the base hours. Additionally, in part as a result
of transition to a new system, approvals were not consistently recorded for time
entered.
Cause: The underlying method for allocation did not take into account the fact that
salaried employees might work more than the base amount. In addition, the
allocation journal entries were prepared on a grant-by-grant basis after the total
compensation expense was posted to a cost pool. Re-allocation of one funding
source at a time obscured that fact that costs were not being allocated on a fully
pro rata basis. In addition, changes to the Organization’s software and procedures
occurred during the year, resulting in some inconsistency in application of
controls.
Possible effect: Minor discrepancies were found in the amounts allocated to Federal programs,
though analysis indicated that a material impact was unlikely. Management was
not able to provide documentation for certain allocation approvals.
Context: We tested 40 allocations of compensation expense to the Federal programs,
noting nine items for which pay rate documentation differed from the amount
paid, and 20 items for which time allocation approval was unavailable.
Recommendation: Management should ensure that new processes reflect all compliance
requirements, including the ability to produce evidence of the execution of
relevant controls.
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