Audit 351246

2024-001 Noncompliance with Allowable Uses of School Food Service Funds and Improper Monitoring of Notes Receivable Criteria: Entities are required to ensure compliance with the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR Part 200, "Uniform Guidance"), which mandate that School Food Service (SFS) funds be used exclusively for the operation and improvement of the nonprofit school food service. Additionally, financial transactions, including notes receivable and related interest, must be monitored and recorded accurately and timely to comply with Generally Accepted Accounting Principles (GAAP). Proper monitoring and reporting ensure transparency, compliance with federal regulations, and alignment with loan agreements, particularly regarding amortization schedules. Condition: During 2024, it was discovered that certain loans appeared to have originated from School Food Service (SFS) funds. Because the loans were commingled with SFS resources, School Food potentially violated federal requirements governing the use of SFS funds. In addition, interest receivable related to the loans was not recorded, causing an understatement of both income and receivable balances. Lastly, two notes receivable were executed with amortization schedules that may not accurately reflect School Food’s rights under the agreements. Effect: The loans potentially violated federal requirements, which could risk program funding and undermines compliance with grant agreements. These deficiencies additionally led to financial misstatements, reducing the reliability of School Food’s financial statements and potentially impacting users’ ability to make informed decisions. Furthermore, these issues might violate the terms of any corrective action plans or other agreements with regulators. Questioned Costs: $3,500,000 of food service funds loaned to related entities. Cause: The noncompliance occurred due to inadequate internal controls and oversight mechanisms. School Food lacked processes to ensure that SFS funds were used exclusively for allowable purposes under federal regulations, and School Food lacked appropriate oversight and internal controls to ensure the accurate recording of interest and proper structuring of amortization schedules. Recommendation: The entity should implement the following corrective measures: Establish and enforce policies prohibiting the use of SFS funds for loans or any purposes outside of the nonprofit school food service account. Implement a loan repayment agreement with clear terms, including interest as per the original agreement. Train staff on the allowable uses of restricted funds and implement a monitoring system to review all transactions involving SFS funds. Establish a policy requiring periodic reconciliation and review of notes receivable to ensure accurate and timely recording of interest income. Use financial software or consult accounting professionals to verify the accuracy of amortization schedules before executing notes receivable. Views of Responsible Officials: Management acknowledges the finding and agrees to implement corrective actions. See the Management Corrective Action Plan for further details.

2024-001 Noncompliance with Allowable Uses of School Food Service Funds and Improper Monitoring of Notes Receivable Criteria: Entities are required to ensure compliance with the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR Part 200, "Uniform Guidance"), which mandate that School Food Service (SFS) funds be used exclusively for the operation and improvement of the nonprofit school food service. Additionally, financial transactions, including notes receivable and related interest, must be monitored and recorded accurately and timely to comply with Generally Accepted Accounting Principles (GAAP). Proper monitoring and reporting ensure transparency, compliance with federal regulations, and alignment with loan agreements, particularly regarding amortization schedules. Condition: During 2024, it was discovered that certain loans appeared to have originated from School Food Service (SFS) funds. Because the loans were commingled with SFS resources, School Food potentially violated federal requirements governing the use of SFS funds. In addition, interest receivable related to the loans was not recorded, causing an understatement of both income and receivable balances. Lastly, two notes receivable were executed with amortization schedules that may not accurately reflect School Food’s rights under the agreements. Effect: The loans potentially violated federal requirements, which could risk program funding and undermines compliance with grant agreements. These deficiencies additionally led to financial misstatements, reducing the reliability of School Food’s financial statements and potentially impacting users’ ability to make informed decisions. Furthermore, these issues might violate the terms of any corrective action plans or other agreements with regulators. Questioned Costs: $3,500,000 of food service funds loaned to related entities. Cause: The noncompliance occurred due to inadequate internal controls and oversight mechanisms. School Food lacked processes to ensure that SFS funds were used exclusively for allowable purposes under federal regulations, and School Food lacked appropriate oversight and internal controls to ensure the accurate recording of interest and proper structuring of amortization schedules. Recommendation: The entity should implement the following corrective measures: Establish and enforce policies prohibiting the use of SFS funds for loans or any purposes outside of the nonprofit school food service account. Implement a loan repayment agreement with clear terms, including interest as per the original agreement. Train staff on the allowable uses of restricted funds and implement a monitoring system to review all transactions involving SFS funds. Establish a policy requiring periodic reconciliation and review of notes receivable to ensure accurate and timely recording of interest income. Use financial software or consult accounting professionals to verify the accuracy of amortization schedules before executing notes receivable. Views of Responsible Officials: Management acknowledges the finding and agrees to implement corrective actions. See the Management Corrective Action Plan for further details.