FINDING # 2025-001 Grantor: United States Department of Agriculture Federal Program Name: Child Nutrition Cluster Pass-through Entity: State of Connecticut Department of Education Federal Grant Program AL Number: 10.553; 10.555; 10.559 Type of Finding: • Significant Deficiency in Internal Control over Compliance Criteria Indirect overhead is calculated using a specified rate and applied to a defined expense base. Condition The Indirect overhead rate that was being used was incorrect and also being applied to base expenses that included food costs which are unallowable. Questioned Cost An adjustment of $41,868 was made to correct this issue prior to year end. Context The State Funding Agency audited the program and found that the school food authority (SFA) was charged an indirect cost rate less than provided for in the indirect cost rate agreement and there was no document explaining how the difference would be handled with the nonprofit school food service account. They also identified that food expenses were included in the direct cost base. Food is considered a distorted fund and is not to be included in the direct cost base. Effect The program was being charged incorrectly, but is now corrected. Cause Lack of documentation explaining the handling of the rate discrepancy. Recommendation The Organization has implemented procedures outlining how discrepancies will be managed. These procedures will be shared with relevant personnel, and training sessions will be conducted to ensure full compliance. Additionally, they have recalculated the indirect costs for FY24-25, excluding food expenses from the direct cost base. This recalculated amount was reflected in the revised financial reporting. Management’s Response/Views of Responsible Officials The Organization has implemented procedures outlining how discrepancies will be managed. These procedures will be shared with relevant personnel, and training sessions will be conducted to ensure full compliance. Additionally, they have recalculated the indirect costs for FY24-25, excluding food expenses from the direct cost base. This recalculated amount was reflected in the revised financial reporting.