Legal Aid Society of HawaiiNon-Profit

Criteria: 45 CFR 1630(a)(3) provides that expenditures are allowable under a Legal Services Corporation (LSC) grant or contract only if the recipient can demonstrate that the cost was allocable to the grant or contract. Further, 45 CFR 1630.5(c)(3) requires that recipients maintain accounting systems sufficient to demonstrate the proper allocation of costs to each of their funding sources. Condition: During our audit, we noted that salaries and wages were incorrectly allocated and charged to the Legal Services Corporation grant. Of the twenty-five (25) payroll samples selected for testing, there was one instance in which the employee records in the Society’s time entry system did not match the employee records in the accounting system. This resulted in salaries and wages being allocated based on an outdated default calculation determined by the system. There were no questioned costs as the Society subsequently recorded correcting entries to revise the allocations. Cause: Data entered into the accounting system was not properly reviewed and validated prior to being imported. Effect: The lack of effective internal controls over the preparation of payroll data resulted in salaries and wages for time spent by employees on non-LSC grants or contracts being charged to the LSC grant.

Criteria: 45 CFR 1630(a)(3) provides that expenditures are allowable under a Legal Services Corporation (LSC) grant or contract only if the recipient can demonstrate that the cost was allocable to the grant or contract. Further, 45 CFR 1630.5(c)(3) requires that recipients maintain accounting systems sufficient to demonstrate the proper allocation of costs to each of their funding sources. Condition: During our audit, we noted that salaries and wages were incorrectly allocated and charged to the Legal Services Corporation grant. Of the twenty-five (25) payroll samples selected for testing, there were nine (9) instances in which salaries and wages were overcharged to LSC. There were four (4) instances in which the Organization’s accounting system allocated salaries and wages based on an improper calculation. For three (3) instances the employee records in the Organization’s time entry system did not match the employee records in the accounting system. This resulted in salaries and wages being allocated based on an outdated default calculation determined by the system. For two (2) instances, time entries prepared by employees were not properly reviewed prior to being recorded in the accounting system to ensure that valid time codes were used. There were no questioned costs as the organization subsequently recorded correcting entries to revise the allocations. Cause: The Organization’s accounting system is not properly configured to allocate time charged by personnel based on actual hours spent on each of the grants or contracts. In addition, data entered into the accounting system was not properly reviewed and validated prior to being imported. Effect: The lack of effective internal controls over the preparation of payroll data and a properly configured accounting system resulted in salaries and wages for time spent by employees on non-LSC grants or contracts being charged to the LSC grant. Identification as a Repeat Fidning, if applicable: Not applicable. Recommendation: that modifications are made to properly allocate time charged by employees to the various funding sources based on actual time spent. Management should also evaluate internal controls over the payroll transaction cycle to ensure that entries prepared by employees are accurate. Views of Responsible Officials and Planned Corrective Action: Management agrees with the finding and the recommendation. See Part V Corrective Action Plan.