Finding 2024-003: Reportable finding considered a significant deficiency - Inaccurate and Incomplete Schedule of Expenditures of Federal Awards (SEFA)
Program name: Child and Adult Care Food Program Assistance Listing: 10.558
Federal awarding agency: U.S. Department of Agriculture (USDA)
Pass-through Entity: Maryland State Department of Education, District of Columbia Education Office
Criteria: In accordance with 2 CFR 200.510(b), the auditee must prepare a complete and accurate Schedule of Expenditures of Federal Awards (SEFA) that includes the total federal awards expended for each federal program, the assistance listing number (ALN), the name of the federal agency, and the pass-through entity identifying number. Accurate SEFA reporting is essential to support the auditor’s responsibility under 2 CFR 200.518 major program determination and for federal oversight.
Condition: The Organization failed to include two federal pass-through awards received from state and local governmental entities in prior years’ SEFAs. These awards were only identified as federal during the current audit year. Furthermore, when the awards were initially included in the current year’s SEFA, they were incorrectly classified under ALN 10.555 (National School Lunch Program). After additional inquiry and evaluation, they were determined to fall under ALN 10.558 (Child and Adult Care Food Program). The Organization was unable to locate specific subaward agreements; only a master service agreement from the state government was available.
Cause: There were deficiencies in the Organization’s internal controls over SEFA preparation, specifically in identifying, classifying, and documenting pass-through federal awards. The absence of award documentation and misclassification of the assistance listing number further indicate inadequate review and verification procedures.
Effect: Incomplete and inaccurate SEFA reporting may lead to noncompliance with Uniform Guidance requirements and increases the risk of omitted or misclassified programs subject to audit. Misreporting ALNs may also hinder proper audit coverage and oversight by federal and pass-through entities.
Repeat finding: This is not a repeat finding.
Questioned costs: There are no questioned costs associated with this finding.
Perspective: This issue affected two federal awards and represents a systemic control issue over SEFA preparation. There is a reasonable possibility that similar issues could recur if not addressed.
Recommendation: We recommend that the Organization:
• Implement procedures to require written documentation (e.g., subaward agreements) for all federal pass-through funding received.
• Enhance internal controls over the SEFA preparation process to ensure federal programs are accurately identified, classified, and reported, including verification of ALNs and funding sources.
• Designate responsibility within the finance team for verifying the federal nature of all awards and ensure ongoing training on SEFA and Uniform Guidance requirements.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-004: Reportable finding considered a significant deficiency - Noncompliance with Internal Procurement Authorization Controls
Program name: Child and Adult Care Food Program Assistance Listing: 10.558
Federal awarding agency: U.S. Department of Agriculture (USDA)
Pass-through Entity: Maryland State Department of Education, District of Columbia Education Office
Criteria: Under 2 CFR 200.318(a), non-federal entities must establish and maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders. As required under 2 CFR Subpart D (§§200.317–200.327), organizations must follow written procurement procedures that reflect applicable state, local, and tribal laws and regulations, provided that the procurements conform to applicable federal law and the standards in the Uniform Guidance. The Organization’s internal procurement policy includes specific thresholds for contract approvals and designates levels of review and signature authority based on the contract value. Adherence to these internal controls is essential to ensure compliance with federal procurement requirements and appropriate stewardship of federal funds.
Condition: During our testing of procurement activity, we noted that a procurement contract was executed by an individual who did not have the delegated authority to approve or sign the agreement, as required by the Organization’s internal procurement policy. The contract amount exceeded the individual’s approval threshold. The policy’s required internal approval levels were not followed prior to execution.
Cause: This issue appears to have resulted from a breakdown in adherence to established internal control procedures, possibly due to a lack of training or oversight. The Organization’s procurement policy was in place and compliant with 2 CFR requirements, but it was not enforced in practice.
Effect: Noncompliance with internal procurement approval controls increases the risk of unauthorized or inappropriate spending, lack of transparency, and potential ineligibility of costs charged to federal programs. While the transaction itself may ultimately be allowable, failure to follow established approval protocols constitutes a significant deficiency in internal control over compliance.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified, as the expenditure appeared otherwise allowable. However, the control deficiency presents a risk for future noncompliance.
Perspective: We selected two procurement transactions from a population of four procurement transactions from this program. The issue reflects a control failure affecting procurement activity across federally funded programs and may result in future questioned costs if not corrected.
Recommendation: We recommend that the Organization follow up with the relevant parties to ensure proper reporting requirements are met on a timely basis.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool
Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All
Federal awarding agency: All
Pass-through Entity: All
Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses.
Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process.
Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs.
Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness.
Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate.
Recommendation: We recommend that the Organization:
• Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation.
• Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance.
• Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool
Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All
Federal awarding agency: All
Pass-through Entity: All
Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses.
Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process.
Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs.
Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness.
Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate.
Recommendation: We recommend that the Organization:
• Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation.
• Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance.
• Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool
Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All
Federal awarding agency: All
Pass-through Entity: All
Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses.
Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process.
Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs.
Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness.
Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate.
Recommendation: We recommend that the Organization:
• Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation.
• Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance.
• Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool
Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All
Federal awarding agency: All
Pass-through Entity: All
Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses.
Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process.
Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs.
Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness.
Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate.
Recommendation: We recommend that the Organization:
• Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation.
• Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance.
• Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-003: Reportable finding considered a significant deficiency - Inaccurate and Incomplete Schedule of Expenditures of Federal Awards (SEFA)
Program name: Child and Adult Care Food Program Assistance Listing: 10.558
Federal awarding agency: U.S. Department of Agriculture (USDA)
Pass-through Entity: Maryland State Department of Education, District of Columbia Education Office
Criteria: In accordance with 2 CFR 200.510(b), the auditee must prepare a complete and accurate Schedule of Expenditures of Federal Awards (SEFA) that includes the total federal awards expended for each federal program, the assistance listing number (ALN), the name of the federal agency, and the pass-through entity identifying number. Accurate SEFA reporting is essential to support the auditor’s responsibility under 2 CFR 200.518 major program determination and for federal oversight.
Condition: The Organization failed to include two federal pass-through awards received from state and local governmental entities in prior years’ SEFAs. These awards were only identified as federal during the current audit year. Furthermore, when the awards were initially included in the current year’s SEFA, they were incorrectly classified under ALN 10.555 (National School Lunch Program). After additional inquiry and evaluation, they were determined to fall under ALN 10.558 (Child and Adult Care Food Program). The Organization was unable to locate specific subaward agreements; only a master service agreement from the state government was available.
Cause: There were deficiencies in the Organization’s internal controls over SEFA preparation, specifically in identifying, classifying, and documenting pass-through federal awards. The absence of award documentation and misclassification of the assistance listing number further indicate inadequate review and verification procedures.
Effect: Incomplete and inaccurate SEFA reporting may lead to noncompliance with Uniform Guidance requirements and increases the risk of omitted or misclassified programs subject to audit. Misreporting ALNs may also hinder proper audit coverage and oversight by federal and pass-through entities.
Repeat finding: This is not a repeat finding.
Questioned costs: There are no questioned costs associated with this finding.
Perspective: This issue affected two federal awards and represents a systemic control issue over SEFA preparation. There is a reasonable possibility that similar issues could recur if not addressed.
Recommendation: We recommend that the Organization:
• Implement procedures to require written documentation (e.g., subaward agreements) for all federal pass-through funding received.
• Enhance internal controls over the SEFA preparation process to ensure federal programs are accurately identified, classified, and reported, including verification of ALNs and funding sources.
• Designate responsibility within the finance team for verifying the federal nature of all awards and ensure ongoing training on SEFA and Uniform Guidance requirements.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-004: Reportable finding considered a significant deficiency - Noncompliance with Internal Procurement Authorization Controls
Program name: Child and Adult Care Food Program Assistance Listing: 10.558
Federal awarding agency: U.S. Department of Agriculture (USDA)
Pass-through Entity: Maryland State Department of Education, District of Columbia Education Office
Criteria: Under 2 CFR 200.318(a), non-federal entities must establish and maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders. As required under 2 CFR Subpart D (§§200.317–200.327), organizations must follow written procurement procedures that reflect applicable state, local, and tribal laws and regulations, provided that the procurements conform to applicable federal law and the standards in the Uniform Guidance. The Organization’s internal procurement policy includes specific thresholds for contract approvals and designates levels of review and signature authority based on the contract value. Adherence to these internal controls is essential to ensure compliance with federal procurement requirements and appropriate stewardship of federal funds.
Condition: During our testing of procurement activity, we noted that a procurement contract was executed by an individual who did not have the delegated authority to approve or sign the agreement, as required by the Organization’s internal procurement policy. The contract amount exceeded the individual’s approval threshold. The policy’s required internal approval levels were not followed prior to execution.
Cause: This issue appears to have resulted from a breakdown in adherence to established internal control procedures, possibly due to a lack of training or oversight. The Organization’s procurement policy was in place and compliant with 2 CFR requirements, but it was not enforced in practice.
Effect: Noncompliance with internal procurement approval controls increases the risk of unauthorized or inappropriate spending, lack of transparency, and potential ineligibility of costs charged to federal programs. While the transaction itself may ultimately be allowable, failure to follow established approval protocols constitutes a significant deficiency in internal control over compliance.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified, as the expenditure appeared otherwise allowable. However, the control deficiency presents a risk for future noncompliance.
Perspective: We selected two procurement transactions from a population of four procurement transactions from this program. The issue reflects a control failure affecting procurement activity across federally funded programs and may result in future questioned costs if not corrected.
Recommendation: We recommend that the Organization follow up with the relevant parties to ensure proper reporting requirements are met on a timely basis.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool
Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All
Federal awarding agency: All
Pass-through Entity: All
Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses.
Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process.
Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs.
Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness.
Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate.
Recommendation: We recommend that the Organization:
• Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation.
• Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance.
• Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-003: Reportable finding considered a significant deficiency - Inaccurate and Incomplete Schedule of Expenditures of Federal Awards (SEFA)
Program name: Child and Adult Care Food Program Assistance Listing: 10.558
Federal awarding agency: U.S. Department of Agriculture (USDA)
Pass-through Entity: Maryland State Department of Education, District of Columbia Education Office
Criteria: In accordance with 2 CFR 200.510(b), the auditee must prepare a complete and accurate Schedule of Expenditures of Federal Awards (SEFA) that includes the total federal awards expended for each federal program, the assistance listing number (ALN), the name of the federal agency, and the pass-through entity identifying number. Accurate SEFA reporting is essential to support the auditor’s responsibility under 2 CFR 200.518 major program determination and for federal oversight.
Condition: The Organization failed to include two federal pass-through awards received from state and local governmental entities in prior years’ SEFAs. These awards were only identified as federal during the current audit year. Furthermore, when the awards were initially included in the current year’s SEFA, they were incorrectly classified under ALN 10.555 (National School Lunch Program). After additional inquiry and evaluation, they were determined to fall under ALN 10.558 (Child and Adult Care Food Program). The Organization was unable to locate specific subaward agreements; only a master service agreement from the state government was available.
Cause: There were deficiencies in the Organization’s internal controls over SEFA preparation, specifically in identifying, classifying, and documenting pass-through federal awards. The absence of award documentation and misclassification of the assistance listing number further indicate inadequate review and verification procedures.
Effect: Incomplete and inaccurate SEFA reporting may lead to noncompliance with Uniform Guidance requirements and increases the risk of omitted or misclassified programs subject to audit. Misreporting ALNs may also hinder proper audit coverage and oversight by federal and pass-through entities.
Repeat finding: This is not a repeat finding.
Questioned costs: There are no questioned costs associated with this finding.
Perspective: This issue affected two federal awards and represents a systemic control issue over SEFA preparation. There is a reasonable possibility that similar issues could recur if not addressed.
Recommendation: We recommend that the Organization:
• Implement procedures to require written documentation (e.g., subaward agreements) for all federal pass-through funding received.
• Enhance internal controls over the SEFA preparation process to ensure federal programs are accurately identified, classified, and reported, including verification of ALNs and funding sources.
• Designate responsibility within the finance team for verifying the federal nature of all awards and ensure ongoing training on SEFA and Uniform Guidance requirements.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-004: Reportable finding considered a significant deficiency - Noncompliance with Internal Procurement Authorization Controls
Program name: Child and Adult Care Food Program Assistance Listing: 10.558
Federal awarding agency: U.S. Department of Agriculture (USDA)
Pass-through Entity: Maryland State Department of Education, District of Columbia Education Office
Criteria: Under 2 CFR 200.318(a), non-federal entities must establish and maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders. As required under 2 CFR Subpart D (§§200.317–200.327), organizations must follow written procurement procedures that reflect applicable state, local, and tribal laws and regulations, provided that the procurements conform to applicable federal law and the standards in the Uniform Guidance. The Organization’s internal procurement policy includes specific thresholds for contract approvals and designates levels of review and signature authority based on the contract value. Adherence to these internal controls is essential to ensure compliance with federal procurement requirements and appropriate stewardship of federal funds.
Condition: During our testing of procurement activity, we noted that a procurement contract was executed by an individual who did not have the delegated authority to approve or sign the agreement, as required by the Organization’s internal procurement policy. The contract amount exceeded the individual’s approval threshold. The policy’s required internal approval levels were not followed prior to execution.
Cause: This issue appears to have resulted from a breakdown in adherence to established internal control procedures, possibly due to a lack of training or oversight. The Organization’s procurement policy was in place and compliant with 2 CFR requirements, but it was not enforced in practice.
Effect: Noncompliance with internal procurement approval controls increases the risk of unauthorized or inappropriate spending, lack of transparency, and potential ineligibility of costs charged to federal programs. While the transaction itself may ultimately be allowable, failure to follow established approval protocols constitutes a significant deficiency in internal control over compliance.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified, as the expenditure appeared otherwise allowable. However, the control deficiency presents a risk for future noncompliance.
Perspective: We selected two procurement transactions from a population of four procurement transactions from this program. The issue reflects a control failure affecting procurement activity across federally funded programs and may result in future questioned costs if not corrected.
Recommendation: We recommend that the Organization follow up with the relevant parties to ensure proper reporting requirements are met on a timely basis.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool
Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All
Federal awarding agency: All
Pass-through Entity: All
Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses.
Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process.
Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs.
Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness.
Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate.
Recommendation: We recommend that the Organization:
• Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation.
• Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance.
• Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool
Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All
Federal awarding agency: All
Pass-through Entity: All
Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses.
Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process.
Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs.
Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness.
Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate.
Recommendation: We recommend that the Organization:
• Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation.
• Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance.
• Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool
Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All
Federal awarding agency: All
Pass-through Entity: All
Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses.
Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process.
Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs.
Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness.
Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate.
Recommendation: We recommend that the Organization:
• Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation.
• Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance.
• Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool
Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All
Federal awarding agency: All
Pass-through Entity: All
Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses.
Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process.
Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs.
Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness.
Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate.
Recommendation: We recommend that the Organization:
• Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation.
• Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance.
• Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-003: Reportable finding considered a significant deficiency - Inaccurate and Incomplete Schedule of Expenditures of Federal Awards (SEFA)
Program name: Child and Adult Care Food Program Assistance Listing: 10.558
Federal awarding agency: U.S. Department of Agriculture (USDA)
Pass-through Entity: Maryland State Department of Education, District of Columbia Education Office
Criteria: In accordance with 2 CFR 200.510(b), the auditee must prepare a complete and accurate Schedule of Expenditures of Federal Awards (SEFA) that includes the total federal awards expended for each federal program, the assistance listing number (ALN), the name of the federal agency, and the pass-through entity identifying number. Accurate SEFA reporting is essential to support the auditor’s responsibility under 2 CFR 200.518 major program determination and for federal oversight.
Condition: The Organization failed to include two federal pass-through awards received from state and local governmental entities in prior years’ SEFAs. These awards were only identified as federal during the current audit year. Furthermore, when the awards were initially included in the current year’s SEFA, they were incorrectly classified under ALN 10.555 (National School Lunch Program). After additional inquiry and evaluation, they were determined to fall under ALN 10.558 (Child and Adult Care Food Program). The Organization was unable to locate specific subaward agreements; only a master service agreement from the state government was available.
Cause: There were deficiencies in the Organization’s internal controls over SEFA preparation, specifically in identifying, classifying, and documenting pass-through federal awards. The absence of award documentation and misclassification of the assistance listing number further indicate inadequate review and verification procedures.
Effect: Incomplete and inaccurate SEFA reporting may lead to noncompliance with Uniform Guidance requirements and increases the risk of omitted or misclassified programs subject to audit. Misreporting ALNs may also hinder proper audit coverage and oversight by federal and pass-through entities.
Repeat finding: This is not a repeat finding.
Questioned costs: There are no questioned costs associated with this finding.
Perspective: This issue affected two federal awards and represents a systemic control issue over SEFA preparation. There is a reasonable possibility that similar issues could recur if not addressed.
Recommendation: We recommend that the Organization:
• Implement procedures to require written documentation (e.g., subaward agreements) for all federal pass-through funding received.
• Enhance internal controls over the SEFA preparation process to ensure federal programs are accurately identified, classified, and reported, including verification of ALNs and funding sources.
• Designate responsibility within the finance team for verifying the federal nature of all awards and ensure ongoing training on SEFA and Uniform Guidance requirements.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-004: Reportable finding considered a significant deficiency - Noncompliance with Internal Procurement Authorization Controls
Program name: Child and Adult Care Food Program Assistance Listing: 10.558
Federal awarding agency: U.S. Department of Agriculture (USDA)
Pass-through Entity: Maryland State Department of Education, District of Columbia Education Office
Criteria: Under 2 CFR 200.318(a), non-federal entities must establish and maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders. As required under 2 CFR Subpart D (§§200.317–200.327), organizations must follow written procurement procedures that reflect applicable state, local, and tribal laws and regulations, provided that the procurements conform to applicable federal law and the standards in the Uniform Guidance. The Organization’s internal procurement policy includes specific thresholds for contract approvals and designates levels of review and signature authority based on the contract value. Adherence to these internal controls is essential to ensure compliance with federal procurement requirements and appropriate stewardship of federal funds.
Condition: During our testing of procurement activity, we noted that a procurement contract was executed by an individual who did not have the delegated authority to approve or sign the agreement, as required by the Organization’s internal procurement policy. The contract amount exceeded the individual’s approval threshold. The policy’s required internal approval levels were not followed prior to execution.
Cause: This issue appears to have resulted from a breakdown in adherence to established internal control procedures, possibly due to a lack of training or oversight. The Organization’s procurement policy was in place and compliant with 2 CFR requirements, but it was not enforced in practice.
Effect: Noncompliance with internal procurement approval controls increases the risk of unauthorized or inappropriate spending, lack of transparency, and potential ineligibility of costs charged to federal programs. While the transaction itself may ultimately be allowable, failure to follow established approval protocols constitutes a significant deficiency in internal control over compliance.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified, as the expenditure appeared otherwise allowable. However, the control deficiency presents a risk for future noncompliance.
Perspective: We selected two procurement transactions from a population of four procurement transactions from this program. The issue reflects a control failure affecting procurement activity across federally funded programs and may result in future questioned costs if not corrected.
Recommendation: We recommend that the Organization follow up with the relevant parties to ensure proper reporting requirements are met on a timely basis.
Management’s response and corrective action plan (unaudited): See corrective action plan.
Finding 2024-005: Reportable finding considered a significant deficiency - Inadequate Controls over Identification of Unallowable Costs in the Indirect Cost Pool
Program name: Applies to all federal program utilizing indirect cost rates Assistance Listing: All
Federal awarding agency: All
Pass-through Entity: All
Criteria: In accordance with 2 CFR 200.403 and 2 CFR 200.412–415, costs charged to federal awards, whether direct or indirect, must be allowable under the cost principles of Subpart E. Organizations must have adequate internal controls to identify, segregate, and exclude unallowable costs from charges to federal programs. In particular, indirect cost pools used to calculate rates billed to federal awards must not include unallowable costs such as fundraising, entertainment, or other expressly unallowable expenses.
Condition: During our audit procedures, we noted that the Organization does not identify or code unallowable costs (e.g., fundraising event expenses) within its accounting system at the time of transaction entry. As part of our review of the General and Administrative (G&A) cost pool used for indirect cost rate calculations, we identified unallowable costs included in the detailed listing. Per discussion with management, these costs are not intended to be charged to federal awards. Management explained that federal drawdowns are based on a provisional rate and unallowable costs are manually excluded during the closing and cost submission process.
Cause: The Organization lacks system-based controls and procedures to flag or segregate unallowable costs during transaction coding. The current process relies heavily on manual review and adjustments at year-end, which increases the risk of unallowable costs being inadvertently included in rates charged to federal programs.
Effect: Including unallowable costs in the indirect cost pool—whether or not ultimately billed—represents a significant deficiency in internal control over compliance. Although management asserts that such costs are removed prior to federal reimbursement claims, the absence of preventive controls increases the risk of noncompliance, incorrect cost submissions, and potential disallowed costs during future oversight or audits.
Repeat finding: This is not a repeat finding.
Questioned costs: None identified as costs were reportedly removed prior to billing; however, the issue represents a control weakness.
Perspective: This control deficiency affects the Organization’s system-wide treatment of indirect costs across all federal programs using the provisional rate.
Recommendation: We recommend that the Organization:
• Implement accounting system enhancements or protocols to flag unallowable costs at the point of entry to ensure proper coding and segregation.
• Establish written procedures and staff training to reinforce cost allowability standards under Uniform Guidance.
• Consider performing interim reviews of indirect cost pool activity to ensure early identification and removal of unallowable expenses.
Management’s response and corrective action plan (unaudited): See corrective action plan.