FINDING 2025-002 Subject: Child Nutrition Cluster - Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): FY2024, FY2025 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Other Matters Condition and Context An effective internal control system was not in place at the School Corporation to ensure compliance with the Allowable Costs/Cost Principles compliance requirement. Form 9 Expenditures The School Corporation submits a Form 9 to the Indiana Department of Education (IDOE) every six months. The expenditures reported on the Form 9 are used by the IDOE to calculate the School Corporation's indirect cost rate. The rate represents the percentage of indirect costs (overhead, administration) that can be recovered from federal grant funds, derived from the cost incurred in a previous fiscal year. As such, the amounts submitted to the IDOE in fiscal year 2022-2023 are to be used in the indirect costs computation for 2024-2025 and are tested to ensure they were recorded properly in the School Corporation's records as to the account or object codes. A test of 53 disbursement line items were sampled from the IDOE Form 9 submitted for 2022-2023 totaling $935,432 and 3 line items were not properly supported by the School Corporation's records. The School Corporation's ledger was filtered for the fund, account, and object code reported on the Form 9, and we determined 3 line item expense variances as follows: INDIANA STATE BOARD OF ACCOUNTS 17 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) There were 2 expense line items under reported on the Form 9 by a total of $1,604. There was 1 expense line item over reported on the Form 9 by $8. The lack of internal controls and noncompliance over the Form 9 expenditures was isolated to 2024-2025. School Corporation Expenditures - Indirect Cost Rate In a test of 50 School Corporation expenditures, we were unable to determine if 9 expenditures totaling $29,948.32 were posted to the proper account and object codes within the accounting records to ensure the underlying data used by the IDOE to calculate the indirect cost rate was accurate. Records to support these 9 expenditures could not be located for audit. The lack of internal controls and noncompliance over the School Corporation expenditures were a systemic issue throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: . . . (g) Be adequately documented. . . ." 2 CFR 200.208(b) states in part: "The Federal awarding agency or pass-through entity may adjust specific Federal award conditions as needed . . ." Cause The School Corporation's management had not developed a system of internal controls that would have ensured compliance. The School Corporation did not ensure that supporting documentation was maintained and made available for audit, as related to the Allowable Costs/Cost Principles compliance requirement. Effect Without the proper implementation of an effectively designed system of internal controls, the School Corporation cannot ensure compliance with the Allowable Costs/Cost Principles compliance requirement. As a result, amounts reported to the oversight agency were not accurately reported. INDIANA STATE BOARD OF ACCOUNTS 18 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish a proper system of internal controls and develop policies and procedures to ensure the data submitted on the Form 9's and underlying expenditures are properly documented and retained for audit. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2025-003 Subject: Special Education Cluster (IDEA) - Level of Effort/Maintenance of Effort Federal Agency: Department of Education Federal Program: Special Education Grants to States Assistance Listings Number: 84.027 Federal Award Number and Year (or Other Identifying Number): 24611-036-PN01 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Matching, Level of Effort, Earmarking Audit Findings: Material Weakness, Other Matters Condition and Context An effective internal control system was not designed or implemented at the School Corporation to ensure compliance with requirements related to the grant agreement and the Matching, Level of Effort, Earmarking compliance requirement. Level of Effort - Maintenance of Effort Maintenance of Effort (MOE) is a district-level test that determines whether the School Corporation is providing a consistent level of financial support to public schools from year to year. This rule ensures that the School Corporation does not use special education funds to shore up reductions in state and local support for public education. The Indiana Department of Education (IDOE) performs the maintenance of effort calculation utilizing Form 9 information provided by the School Corporation from the prior year. As such, the amounts submitted to the IDOE in the prior year to be used in the computation are tested to ensure they were recorded properly in the School Corporation's records as to the account or object code. A test of 53 disbursement line items were sampled from the IDOE Form 9 submitted for fiscal year 2022-2023 totaling $935,432, and 3 line items were not properly supported by the School Corporation's records. The School Corporation's ledger was filtered for the fund, account, and object code reported on the Form 9, and we determined the 3 line item expense variances as follows: There were 2 expense line items under reported on the Form 9 by a total of $1,604. There was 1 expense line item over reported on the Form 9 by $8. INDIANA STATE BOARD OF ACCOUNTS 19 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The ineffective internal controls and noncompliance were isolated to the 2022-2023 Form 9 information used to calculate the MOE for the 2023-2024 grant award. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: . . . (g) Be adequately documented. . . ." 2 CFR 200.208(b) states in part: "The Federal awarding agency or pass-through entity may adjust specific Federal award conditions as needed . . ." Cause The School Corporation's management had not developed a system of internal controls that would have ensured compliance. The School Corporation did not ensure that supporting documentation was maintained and made available for audit, as related to the Matching, Level of Effort, Earmarking compliance requirement. Effect Without the proper implementation of an effectively designed system of internal controls, the School Corporation cannot ensure compliance with the Matching, Level of Effort, Earmarking compliance requirement. As a result, amounts reported to the oversight agency were not accurately reported. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish a proper system of internal controls and develop policies and procedures to ensure the data submitted on the Form 9's and underlying expenditures are properly documented. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2025-004 Subject: Title I Grants to Local Educational Agencies - Special Tests and Provisions - Annual Report Card, High School Graduation Rate Federal Agency: Department of Education Federal Program: Title I Grants to Local Educational Agencies Assistance Listings Number: 84.010 Federal Award Numbers and Years (or Other Identifying Numbers): S010A220014, S010A230014, S010A240014 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Special Tests and Provisions - Annual Report Card, High School Graduation Rate Audit Findings: Material Weakness, Other Matters Condition and Context An effective internal control system was not in place at the School Corporation in order to ensure compliance with requirements related to the grant agreement and the Special Tests and Provisions - Annual Report Card, High School Graduation Rate compliance requirement. The School Corporation must report graduation rate data for all public high schools within the School Corporation using the four-year adjusted cohort rate. To remove a student from the cohort, the School Corporation must confirm the reason for removal in writing. Additionally, required documentation for each removal type must be retained by the School Corporation. The School Corporation did not ensure that there was written documentation retained from the receiving school for students removed from the cohort for mobility reasons. Of the 20 students tested, 3 did not have the required supporting documentation to substantiate removal from the cohort for mobility reasons. Of those, 2 students were foreign exchange students, and the School Corporation did not retain a school acceptance form or formal agreement with the exchange organization. Another student was incarcerated, and the School Corporation did not have a court order or documentation from the Indiana Department of Corrections. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." INDIANA STATE BOARD OF ACCOUNTS 21 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 20 USC 7801(23)(B) states: "To remove a student from a cohort, a school or local educational agency shall require documentation, or obtain documentation from the State educational agency, to confirm that the student has transferred out, emigrated to another country, or transferred to a prison or juvenile facility, or is deceased." Cause The School Corporation did not have effective internal controls to ensure required documentation to support the reason for a student's removal from the high school graduation cohort for mobility reasons was prepared and retained. Effect Noncompliance with the grant agreement and the compliance requirement could result in the repayment of federal funds. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management evaluate the internal control policies and procedures to ensure the proper documentation is maintained for students that are removed from the cohort. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2025-005 Subject: COVID-19 - Education Stabilization Fund - Allowable Costs/Cost Principles Federal Agency: Department of Education Federal Program: COVID-19 - Education Stabilization Fund Assistance Listings Numbers: 84.425D, 84.425U Federal Award Numbers and Years (or Other Identifying Numbers): S425D210013, S425U210013 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Other Matters Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-005. INDIANA STATE BOARD OF ACCOUNTS 22 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context The COVID-19 - Education Stabilization Fund (ESF) grant was established by the Coronavirus Aid, Relief and Economic Security (CARES) Act to respond to the Coronavirus outbreak and assist schools in creating healthy learning environments, return students to classrooms, and address local needs. The ESF grant was further funded by the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act and the American Rescue Plan (ARP) Act. The School Corporation did not have effective internal controls in place over the Allowable Costs/Cost Principles compliance requirement. A sample of 13 payroll claims paid from the School Corporation's ESF grant were selected for testing. Of the sample, 6 employee pay rates could not be verified to a School Board-approved, allowable hourly pay rate for a high dosage tutor position. High dosage tutors were paid anywhere from $20 to $77 an hour. The School Corporation was unable to provide documentation that the School Board approved a pay rate for the high dosage tutor positions during the audit period. The total amount paid to high dosage tutors during the audit period was $472,354, which were considered questioned costs. In addition, the School Corporation paid a consulting firm to provide general support to the finance department. The expenditures were deemed unallowable as there was no documentation available that the consultants were assisting the School Corporation in preventing, preparing for, and responding to COVID-19. The total amount expended to the consultant during the audit period was $514,156, which were considered questioned costs. The lack of internal controls and noncompliance were isolated to the costs noted above for the ESSER II and ESSER III grants. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.334 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for the Federal awards that are renewed quarterly or annual, from the date of submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." INDIANA STATE BOARD OF ACCOUNTS 23 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. For example, a cost must not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally-financed program in either the current or a prior period. See § 200.306(b). (g) Be adequately documented. See §§ 200.300 through 200.309. (h) Administrative closeout costs may be incurred until the due date of the final report(s). If incurred, these costs must be liquidated prior to the due date of the final report(s) and charged to the final budget period of the award unless otherwise specified by the Federal agency. All other costs must be incurred during the approved budget period. At its discretion, the Federal agency is authorized to waive prior written approvals to carry forward unobligated balances to subsequent budget periods. See § 200.308(g)(3). 2 CFR 200.430(i)(1) states in part: "Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE's definition of IBS); . . . (vii) Support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. . . ." INDIANA STATE BOARD OF ACCOUNTS 24 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 2 CFR 200.404 states: "A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. The question of reasonableness is particularly important when the non- Federal entity is predominantly federally-funded. In determining reasonableness of a given cost, consideration must be given to: (a) Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the non-Federal entity or the proper and efficient performance of the Federal award. (b) The restraints or requirements imposed by such factors as: sound business practices; arm's-length bargaining; Federal, state, local, tribal, and other laws and regulations; and terms and conditions of the Federal award. (c) Market prices for comparable goods or services for the geographic area. (d) Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-Federal entity, its employees, where applicable its students or membership, the public at large, and the Federal Government. (e) Whether the non-Federal entity significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award's cost." 34 CFR 76.731 states: "A State and a subgrantee shall keep records to show its compliance with program requirements." Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, 134 Stat. 1924 (2020) states in part: "For an additional amount for "Education Stabilization Fund".to remain available through September 30, 2022, to prevent, prepare for, and respond to coronavirus, domestically, or internationally . . ." Cause Payroll records were incomplete as the School Corporation was unable to provide documentation that all rates of pay were approved by the School Board. The School Corporation did not include the consultants above in the budget submitted as part of the grant application, and so the School Corporation did not get the required prior approval for the purchases. Effect Without proper documentation, the allowability of the ESF grant expenditures cannot be substantiated, creating a risk that unallowable costs may be charged to the federal grant. Additionally, we could not determine how the expenditures met the purpose of the program. Questioned Costs We identified $986,510 in known questioned costs as described above in the Condition and Context. INDIANA STATE BOARD OF ACCOUNTS 25 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommend that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure rates of pay are approved by the School Board and adequately documented and that costs are allowable. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2025-006 Subject: COVID-19 - Education Stabilization Fund - Equipment and Real Property Management Federal Agency: Department of Education Federal Program: COVID-19 - Education Stabilization Fund Assistance Listings Numbers: 84.425D, 84.425U Federal Award Numbers and Years (or Other Identifying Numbers): S425D210013, S425U210013 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Equipment and Real Property Management Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-006. Condition and Context The School Corporation had not properly designed a system of internal controls to ensure compliance with requirements related to the grant agreement and the Equipment and Real Property Management compliance requirement. The School Corporation did not have any policies or procedures in place to ensure a detailed capital asset listing was completed for the audit period and that the listing contained all the required information. During the audit period, the School Corporation purchased equipment totaling $11,495,065 with COVID-19 - Education Stabilization Fund funds. However, the purchased equipment was not included on a capital asset listing or physical inventory. Due to the lack of a detailed capital asset listing, the equipment was not adequately safeguarded or maintained. The School Corporation should include the following required information in the detailed capital asset listing for each capital asset purchased with federal funds: a description of the property, a serial number or other identification number, the source of funding for the property (including the federal award identification number (FAIN)), who holds title, the acquisition date, cost of the property, percentage of federal participation in the project costs for the federal award under which the property was acquired, the location, and use and condition of the property. A capital asset listing is to be maintained for assets purchased that exceed the School Corporation's capitalization threshold. The lack of internal controls and noncompliance were systemic issues throughout the audit period for the ESSER II and ESSER III grants. INDIANA STATE BOARD OF ACCOUNTS 26 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.313(d) states in part: "Management requirements. Procedures for managing equipment (including replacement equipment), whether acquired in whole or in part under a Federal award, until disposition takes place will, as a minimum, meet the following requirements: (1) Property records must be maintained that include a description of the property, a serial number or other identification number, the source of funding for the property (including the FAIN), who holds title, the acquisition date, and cost of the property, percentage of Federal participation in the project costs for the Federal award under which the property was acquired, the location, use and condition of the property, and any ultimate disposition data including the date of disposal and sale price of the property. (2) A physical inventory of the property must be taken and the results reconciled with the property records at least once every two years. (3) A control system must be developed to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft must be investigated. (4) Adequate maintenance procedures must be developed to keep the property in good condition. . . ." Cause The School Corporation did not have policies or procedures in place to complete an inventory or maintain a fixed asset detail report. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, not all assets purchased with federal dollars were added to a capital asset listing. Questioned Costs There were no questioned costs identified. INDIANA STATE BOARD OF ACCOUNTS 27 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure asset records include all the necessary information, new assets are properly added, and any discrepancies are reconciled. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.