Audit 382496

Finding Number: 2025‐001 Repeat Finding: No Program Name/Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.559, 10.582 Federal Agency: U.S. Department of Agriculture Federal Award Number: 7AZ300AZ3, 7AZ310AZ1 Pass‐Through Agency: Arizona Department of Education Questioned Costs: $189,745 Type of Finding: Noncompliance, Significant Deficiency Compliance Requirement: Allowable Costs/Cost Principles Criteria According to the Memo SP60‐2016, Indirect Costs Guidance for State Agencies and School Food Authorities, issued by the United States Department of Agriculture (USDA), a District may recover indirect costs of services rendered to school food service at a rate not to exceed the unrestricted indirect cost rate approved by the Arizona Department of Education (ADE). Condition Indirect Cost Guidance for the Child Nutrition Program was not followed correctly. Cause The District was unaware that payments to its food service management company exceeding $50,000 must be excluded from the indirect cost calculation. Effect Indirect costs of $189,745 were overcharged to the Child Nutrition Program. Context When calculating indirect costs, the District did not exclude specific costs prohibited in the indirect cost calculation. As a result, the indirect cost rate was applied to a net food service expenditure amount that was greater than it should have been. Therefore, the District overcharged $189,745 to the Child Nutrition Cluster program as reported in the Food Service Fund. The sample was not intended to be, and was not, a statistically valid sample. Recommendation The District should ensure indirect costs are calculated in accordance with the formula set forth in the guidance issued by USDA and ADE. Views of Responsible Officials See Corrective Action Plan.