One of the commonly discussed areas of change as a result of the Uniform Guidance is the requirements surrounding tracking and reporting of payroll related costs. Located in section 2 CFR 200.430, and commonly referred to as time and effort reporting, the language in the regulation went through various modifications before the final guidance was issued. The previous requirements were different among the state and local government, not-for-profit, and higher education industries, so the final guidance is considered by many to be a compromise of all of the different rules with a focus on reducing the administrative burden that often accompanied meeting the previous requirements.
The primary focus of the revised time and effort requirements is that strong internal controls must exist for the reporting of salaries and wages to ensure that the payroll charged to various grants match were actual time is spent. While the previous standards were more prescriptive in the documentation requirements (for example, the use of semi-annual certifications for those employees working full-time in a program or personnel activity reports for those employees working under multiple grants), the new standards provide more flexibility in the process, with the focus being on controls to ensure that time is charged to grants appropriately.
The Uniform Guidance requires that time distribution records must be maintained for all employees whose salary is paid in whole or in part with federal funds or is used to meet a match or cost-share requirement for a grant. Payroll allocations among grant awards cannot be based on budgeted distributions alone. Rather, allocations of salaries and wages among grant programs need to be supported by actual hours worked. If budgeted numbers are used to allocate salaries and wages among grant programs, the entity’s system of internal controls should include an after-the-fact review of the grant programs. If actual time worked differs from the budgeted allocations, adjustments should be made such that the final amount charged to each grant is accurate, allowable, and appropriately allocated.
Another requirement of the Uniform Guidance as it relates to time and effort reporting is that all time worked for the organization should be included in order to calculate what portion relates to federal awards. Nonexempt employees must prepare records indicating the total number of hours worked each day.
Each entity also needs to consider internal controls over the existence of employees and the reasonableness of compensation. For employees whose salary is paid by federal awards, it is considered reasonable if it is consistent with compensation for similar work in other areas of the entity.
Many organizations previously had, and continue to have, strong systems of internal control surrounding the time end effort reporting that met the requirements of the previous OMB circulars. Those systems may continue to be appropriate to meet the new requirements. In other words, don’t fix what’s not broken! However, if you’ve had previous internal control weaknesses in this area, or if your current process is unnecessarily complex or inefficient, now is a good time to take a fresh look at these requirements.
All recipients of federal awards should familiarize themselves with the changes in the Uniform Guidance. Baker Tilly created a webpage dedicated to resources to help you with your implementation, including links to federal register and frequently asked questions documents, recordings of our webinars, and tools to aid your implementation.
For more information on this topic, or to learn how Baker Tilly state and local government specialists can help, contact our team.