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Item 2020-001 ? Significant Deficiency ? Employee?s Salary Rate Used in Calculating Payroll Costs CFDA 98.xxx USAID Save the Children Cooperative agreement no. 72048618CA00002 Award year ended December 31, 2020 Criteria or specific requirement: 2 CFR section 200.303 requires that non-federal entities receiving federal awards establish and maintain effective internal control over the federal awards that provides reasonable assurance that the non-federal entity is managing the federal awards in compliance with federal statues, regulations, and the terms and conditions of the federal awards. Based on the nature of the award tested as the major program, payroll costs form a significant part of the award?s budget. The Organization uses Nexonia to keep track of employees? efforts, expressed in terms of hours, towards various grants and awards. An employee?s salary rate effective as of the date the hours were incurred is used to apply to the number of hours worked to arrive at the payroll cost that will be charged to the award. Conditions: During our audit of a sample of 40 monthly payroll costs for allowability of payroll costs charged to the grant, we noted 4 monthly payroll costs for 2 employees that were calculated using inaccurate salary rates. For one of the employees, the salary rate used was not the rate effective for the month sampled due to a retroactive increase that was not reflected in the employee?s salary. For the other employee, the salary rate used for the 3 months sampled incorporated a spot award that should have been considered a fringe benefit change, instead. Internal controls were not designed effectively to capture all compensation changes in the Nexonia software used to capture employee efforts and compute federal award billings using pay rates in place at the time of billing. With respect to fringe benefits, the Organization does have a control procedure which takes place the following year to ?true-up? fringe benefits for the past year but that procedure had not yet been performed at the time of the audit to uncover and correct the impact of the erroneous rate used for the salary charge. Context: For the retroactive salary increase that was not reflected in the employee?s salary, the award was undercharged by $157 for payroll cost. For the spot award erroneously included as salary instead of a fringe benefit, the award was overcharged by $766. To determine whether inaccurate salary rates were used for other employees, management reviewed the salary rates used to calculate payroll costs for all other employees that charged to the award and compared these rates to the salary rates used in Workday, the Organization?s payroll system. After management?s review, it was determined that the salary rates used for all other employees were correct, except for one where the foreign currency set up in Nexonia was incorrect. Cause: The monthly process to sync and review salary information between Workday and Nexonia failed to identify salary rate with a retroactive effective date. Moreover, pay metric was not clearly defined in Workday to determine amounts that should be included in fringe benefits instead of salary. Effect: Inaccurate salary rates used to calculate payroll costs resulted in incorrect payroll costs charged to the award, with a net overcharging to the award. Questioned cost: $609 Recommendation: We recommend that a more thorough review of salary rate changes be implemented, especially for salary rate changes that are retroactive. Moreover, the review should include the capture of proper salary information and that other benefits paid to the employee are properly categorized. Views of responsible officials (unaudited): Management concurs.

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