The Office of Inspector General (OIG) conducted an Agreed-Upon Procedures audit of the Federal Election Commission's (FEC) Payroll System. The audit covered the Fiscal Year ending September 30, 1994.
Financial audits include financial statement and financial related audits. As described in the General Accounting Office (GAO) Government Auditing Standards Revised Edition 1994, financial statement audits are designed to provide reasonable assurance about whether the financial statements of an audited entity present fairly the financial position, results of operations, and cash flows in conformity with generally accepted accounting principles as set forth by the American Institute of Certified Public Accountants (AICPA) and Government Accounting Standards Board (GASB). The audit is performed in accordance with Generally Accepted Government Auditing Standards (GAGAS).
Financial related audits focus on an element(s), segment(s), or account(s) of a financial statement. This type of audit focuses on determining whether (1) financial presentation is presented in accordance with established, or stated criteria, (2) the entity has adhered to specific financial compliance requirements, or (3) the entity's internal control structure over financial reporting and/or safeguarding assets is suitably designed and implemented to achieve control objectives.
The Agreed-Upon procedures audit is a type of financial related audit (not a financial statement audit), performed in accordance with GAO's Government Auditing Standards. Standard testing procedures were agreed-upon and used to audit the Statement of Financial Position accounts of payroll expense and related liabilities. Our procedures also included an internal control review of risk areas associated with the payroll disbursements cycle. Specific procedures used to perform the audit are included as part of the report. We did not perform a financial statement audit. We applied procedures to accounts of the agency's financial statements. The specific type of report, used generally for federal agencies, is an agreed-upon procedures report. We did not apply all the procedures required for a financial statement audit as required by the GAO Government Auditing Standards. While we followed applicable AICPA standards and performed the audit in accordance with GAGAS standards, we did not attest to the financial statements taken as a whole, and therefore cannot provide an opinion.
The objectives of the audit were:
1) To determine that payroll disbursements were made for work authorized and performed;
2) To verify that payroll, including withholdings and deductions, is computed using rates and other factors in accordance with Federal salary schedules and applicable laws;
3) To ensure that payroll expense and related liabilities are recorded correctly as to amount, period and disclosures are adequate.
We conducted an internal control review of the payroll system to identify the risks associated with payroll and assess the control procedures established by the FEC Payroll and Accounting Office (PAO) to detect or prevent risks. Major risks include unauthorized and/or inaccurate payroll disbursements and deductions, time and attendance and unreliable financial information. Procedures used during this phase included inquiries of personnel, observation of control procedures, inspection of payroll documents and re-performance of PAO procedures. The results of the internal control review are presented in Appendix I.
We performed substantive testing of 64 payroll folders to evaluate the adequacy and effectiveness of the controls in reducing risk. The payroll folders contain all time and attendance reports, and amendments, and payroll related data and information, including documentation to support withholdings, deductions and changes to these items for every employee.
Procedures included tests of payroll disbursements, time and attendance, and authorized deductions. Additionally, our procedures included the testing of payroll reconciliations to general ledger balances, verification of the money value of ending annual leave balances and other analytical procedures. Our random sample was selected from all active employees as of September 30, 1994.
Based on our review of internal controls, we determined that, overall, the PAO has established adequate, effective control procedures. The following is a summary of the results of our substantive review of 64 employee payroll records and audit of payroll financial data:
Time and Attendance
Hours reported for overtime, credit, compensatory time and donated leave were properly supported, approved, and accurately recorded in the payroll system. Annual, sick, advanced annual and advanced sick hours were properly calculated and recorded in the payroll system.
Payroll disbursements, including cash awards and overtime (if applicable), were adequately supported and accurately recorded in the payroll system for all 64 employees. Our audit showed that for all 64 employees, the annual salaries and rates were adequately supported and recorded in the payroll system.
Employee withholding documentation
All 64 employee withholdings tested for federal/state taxes, social security, health, retirement (CSRS/FERS), savings bond, life insurance, union dues, Thrift Savings Plan, and other allotments, were adequately documented, properly authorized and accurately recorded in the payroll system.
Money Value of Annual Leave
The Accrued Unfunded Annual Leave balance reported in the FEC Combined Statement of Financial Position reflects the unfunded annual leave liability of the federal government as of the end of the fiscal year. The liability is the product of the hourly rate and annual leave balance as of the end of the fiscal year (Money Value of Annual Leave).
Our audit of ending annual leave balances for the 64 employees agreed to both the payroll system's Leave Balance Report and the timekeepers Annual Attendance Records for the end of the fiscal year. The ending leave hours and the pay rate applied to those hours agreed to the Money Value of Annual Leave Report for the same period. Based on our review of 64 of 317 employee ending leave balances as of September 30, 1994, the Unfunded Annual Leave liability reported in the Combined Statement of Financial Position is fairly stated [General Ledger (G/L) 2220].
Payroll and Accounting System Reconciliation
GAO Title VI "Pay, Leave and Allowances" requires that agency payroll systems provide accurate, timely and complete financial data to the general ledger in order to provide information to prepare, transmit and analyze various agency financial reports. We reconciled the personnel compensation (excluding benefits) expense reported by the payroll system to the general ledger (adjusted to a fiscal year basis) and to the internal Budget Execution Report as of September 30, 1994.
We reviewed the journal voucher which recorded to the general
ledger payroll expense earned but not paid as of September 30,
1994. Based on our review of supporting subsidiary records, the
ending balance reported for Accrued Funded Payroll and Benefits
(G/L account 2210) are fairly stated.
Determinations and Suggestions
The results of our procedures did not disclose any significant control weaknesses or instances of non-compliance with federal laws and regulations or FEC policy. However, we are presenting the following suggestions for changes to strengthen the existing controls over management of time and attendance and Treasury checks.
As required on the Annual Attendance Record, not all supervisors documented the semi-annual review by signing and dating in the blocks provided.
The FEC Time and Attendance Procedures Manual requires a review but does not clarify that this record is supposed to be signed twice a year ( May and November ), or the disposition of the record at the end of the fiscal year.
Federal Election Commission Time and Attendance Manual, dated
1989 and 1995.
FEC Form 10-3 Annual Attendance Record (bottom right of record).
Supervision of time and attendance is weakened. A certified independent verification of leave balances is provided for, but not used.
The current Time and Attendance Procedures Manual should be amended to require the signature of supervisors and to clarify the reasons why this is an important procedure. Our testing showed that, without exception, all 64 annual leave records were completed and had accurate ending balances for the fiscal year ending September 30, 1994. The timekeepers are to be commended and the supervisors should, at a minimum, acknowledge their work with signatures.
The record serves as an independent verification of regular hours worked, compensatory time, credit hours, donated hours received and donated, and annual and sick leave balances. While processing controls are in place for advanced annual and sick leave, the system is designed to automatically advance leave. The review of this record will alert the supervisor that an employee's balance is low, or in a negative status, requiring proper prior approval.
Equally important, the annual leave record also serves as an independent audit for lump sum annual leave payments to terminated employees and supports annual and sick leave balances forward for those employees transferring to other federal agencies. Limited testing of terminated employee files found that the annual leave record was not being used to verify the payroll system's balance.
The annual attendance record should be maintained on file with the timekeeper for six (6) years and forwarded to payroll when an employee terminates or transfers to another agency.
Internal control over (non-Travel) Treasury checks could be strengthened.
Procedures are not established. The majority of checks were disbursed to supervisors/division heads for performance and cash awards.
GAO Title VII Fiscal Guidance, Chapter 6 Disbursements requires that "Agency controls should ensure that amounts paid by disbursing officers were in accordance with the payment information certified to them on vouchers or voucher schedules. Such controls should also include procedures for ensuring the proper custody, signing, and delivery of checks."
Lack of control may result in inability to account for lost, stolen or misplaced checks.
Due to the large amounts, and in some cases large volume of award checks, have the person picking up the checks sign for receipt of the checks.