PROTEUS INCNon-Profit

2025-005 – Single Audit Payroll Allocations (Significant Deficiency) Condition: During the audit, we identified deficiencies in the Organization’s procedures for recording and allocating payroll expenses to federal grants. Specifically, payroll allocations recorded in the general ledger for certain employees did not agree to the employees’ supporting timesheets or documented time allocations. In several instances, payroll expenses charged to programs and funding sources differed from the actual time reflected on employee timesheets or supporting personnel activity records. Criteria: Management is responsible for establishing and maintaining effective internal controls over payroll processing and financial reporting. Payroll costs allocated to grants should be supported by accurate and contemporaneous timekeeping records and reconciled to amounts recorded in the general ledger. In addition, payroll allocations charged to federally funded programs should comply with applicable Uniform Guidance requirements related to allowability and documentation of personnel costs. Cause: The deficiencies appear to be the result of inadequate review and reconciliation procedures between payroll records, timekeeping documentation, and the general ledger. Additionally, formalized processes were not consistently in place to verify that payroll allocations accurately reflected employee time and effort. Effect: As a result of these deficiencies, there is an increased risk that payroll expenses may be improperly allocated among programs and grants, resulting in inaccurate financial reporting and noncompliance with grant requirements. Improper payroll allocations may also result in questioned costs, inaccurate grant reporting, and misstatements in the Schedule of Expenditures of Federal Awards (SEFA). Recommendation: We recommend the Organization strengthen its controls over payroll allocations and timekeeping procedures by requiring payroll allocations recorded in the general ledger to be supported by approved employee timesheets or personnel activity records, perform periodic reconciliations between payroll allocation reports, timesheets, and the general ledger, and establish supervisory review procedures to verify payroll expenses are allocated consistently with documented employee activity. Implementation of these procedures would improve the accuracy of payroll allocations, strengthen compliance with grant requirements, and enhance the reliability of financial reporting. Management’s Response: See Corrective Action Plan.