U.S. DEPARTMENT OF EDUCATION PASSED THROUGH ARKANSAS DEPARTMENT OF EDUCATION TITLE I GRANTS TO LOCAL EDUCATIONAL AGENCIES- AL NUMBER 84.010A PASS-THROUGH NUMBER 4702 AUDIT PERIOD - YEAR ENDED JUNE 30, 2024 U.S. DEPARTMENT OF EDUCATION PASSED THROUGH ARKANSAS DEPARTMENT OF EDUCATION SPECIAL EDUCATION CLUSTER- AL NUMBERS 84.027A AND 84.173A PASS-THROUGH NUMBER 4702 AUDIT PERIOD - YEAR ENDED JUNE 30, 2024 The internal control deficiencies identified in Finding 2024-001 noted in Section II above also apply to these major federal programs. Financial statement finding 2024-001 detail below: 2024-001. Internal Control Criteria: Internal control is a process consisting of five interrelated components - control environment, risk assessment, information and communication, control activities, and monitoring. Management is responsible for adopting sound accounting policies and for establishing and maintaining internal control that will, among other things, initiate, authorize, record, process, and report transactions (as well as events and conditions) consistent with management's assertions embodied in the financial statements, and management should maintain supporting documentation for all transactions. The control environment sets the tone of an organization, which influences control consciousness of its employees, and is the foundation for all other components of internal control, providing discipline and structure. Additionally, Ark. Code Ann. § 6-13-701(e)(1)(B) requires a school district to have on hand approved invoices, payrolls that conform with written contracts, and other appropriate documentation that indicates an authority for disbursement. Ark. Code Ann. § 6-17-1205 requires a record of sick leave used and accumulated be established and maintained by each school district. Condition: Adequate supporting documentation could not be provided for the following: Payroll expenditures Employee leave balances. Additional pay for 13 of 19 employees tested totaling $26,446. Non-payroll expenditures 23 of 63 non-payroll transactions tested totaling $93,354. Credit card transactions totaling $93,017. Amazon business account transactions totaling $108,636. Journal entries 6 of 15 journal entries tested. 13 of the 15 journal entries lacked approval. Additionally, various contracts were executed by the Superintendent in excess of the limit of $21,604 permitted for the purchase of commodities, pursuant to Rule 7.5 of the School Board Policy, without obtaining prior approval from the Board." Cause: Management did not properly oversee internal control activities of the District. Additionally, the District experienced significant employee turnover in key positions. Effect or potential effect: Material misstatements of the financial statements or fraud would not be detected and corrected on a timely basis. Recommendation: The District should establish and maintain internal controls that will initiate, authorize, record, process, and report transactions consistent with management's assertions embodied in the financial statements and that will safeguard the District's assets. Additionally, adequate supporting documentation should be maintained for all expenditures. Views of responsible officials: The District acknowledges this finding. The breadth of documentation deficiencies identified reflects a period of significant employee turnover in key financial positions that disrupted established internal control procedures. The District is committed to the following corrective actions, several of which are already underway: 1. Supporting Documentation Policy • The District has adopted a revised Written Documentation Policy requiring that all expenditures, including payroll, non-payroll, credit card, and Amazon business account transactions, be supported by approved invoices, receipts, or equivalent documentation prior to payment processing. • A documentation checklist has been developed for accounts payable staff to use when processing each payment, ensuring consistent review before transactions are posted to the general ledger. 2. Additional Pay Authorization • All extra-duty pay, stipends, and additional compensation must now be supported by a resolution approved by Board of Directors prior to payroll processing. Payroll staff will reject any additional pay request without this documentation. • AMS Impact Group will conduct a secondary review of each payroll run to verify that all additional pay items have complete supporting authorization on file. 3. Credit Card and Amazon Business Account Controls • All credit card and Amazon business account purchases now require pre-approval by the applicable department head and submission of itemized receipts within five (5) business days of purchase. Transactions with missing receipts will be flagged, and repeat noncompliance will result in revocation of purchasing privileges. • Monthly credit card account statements will be reconciled to receipts and reviewed by the Finance Director before charges are posted. 4. Journal Entry Controls • Effective immediately, all journal entries must include written documentation of the purpose, supporting calculations or backup, and an authorized approval signature prior to posting. No journal entry will be recorded in the general ledger without documented approval. • AMS Impact Group will review and approve all journal entries. 5. Procurement Authority and Contract Compliance • The District has reinforced compliance with School Board Policy Rule 7.5. All contracts or commitments exceeding the $26,500 commodity threshold must receive Board approval before execution. A procurement review workflow has been established requiring the Finance Director to review all proposed contracts for threshold compliance before the Superintendent signs. • Contracts requiring Board approval will be placed on the next available Board agenda. Staff with purchasing authority have been notified of these requirements, and training will be provided. 6. Management Oversight and Staffing • The District has filled or is actively recruiting for key financial positions vacated during the audit period. AMS Impact Group and Finance Director will conduct quarterly reviews of internal control procedures to verify compliance and identify emerging gaps. • AMS Impact Group has been engaged to provide ongoing monitoring support and to assist with training of newly hired financial staff.
U.S. DEPARTMENT OF EDUCATION PASSED THROUGH ARKANSAS DEPARTMENT OF EDUCATION TITLE I GRANTS TO LOCAL EDUCATIONAL AGENCIES- AL NUMBER 84.010A PASS-THROUGH NUMBER 4702 AUDIT PERIOD - YEAR ENDED JUNE 30, 2024 2024-002. Activities Allowed or Unallowed and Allowable Costs/Cost Principles Criteria or specific requirement: Office of Management and Budget (OMB) 2 CFR part 200, subpart D - Establish, document, and maintain effective internal controls over the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal Award. Such controls are necessary and reasonable for the performance of the Federal Award. Condition: During our test of 21 Title I program expenditures, we identified 7 expenditures totaling $15,471 that lacked supporting documentation. Additionally, the District claimed $6,867 of indirect costs in excess of the allowable amount. Cause: Management did not properly oversee internal control activities of the District. Additionally, the District experienced significant employee turnover in key positions. Effect: The District was unable to provide supporting documentation resulting in questioned costs. Questioned costs: $22,338. Context: Of the 21 expenditures tested totaling $69,047, 7 expenditures totaling $15,471 lacked supporting documentation. Indirect costs of $6,867 claimed in excess of the total allowable amount of $47,739. Identification as a repeat finding: Yes Recommendation: The District should establish and maintain internal controls that will initiate, authorize, record, process, and report transactions in compliance with federal awards. Additionally, adequate supporting documentation should be maintained for all expenditures. Views of responsible officials: The District acknowledges this finding and agrees with the recommendation. The following corrective actions have been taken or are underway to address both the documentation deficiencies and the excess indirect cost claim: 1. Title I Expenditure Documentation • The District has implemented a dedicated pre-payment checklist for all Title I and federal program expenditures. Before any disbursement is processed, staff must attach an approved purchase order, vendor invoice, or equivalent documentation confirming allowability and amount. • The Title I program coordinator will review and sign off on all Title I expenditure documentation before payment is submitted to the Finance Director for final approval. • The Finance Director will conduct a monthly review of Title I expenditures to verify that all transactions are documented, allowable, and properly classified under 2 CFR Part 200. 2. Indirect Cost Rate Compliance • The District will review the approved indirect cost rate at the beginning of each grant year and establish an internal cap to prevent claiming in excess of the allowable amount. • Indirect cost claims will be reconciled against the approved rate quarterly. If an overage is identified during the year, it will be corrected in the same grant year. • The District will work with the Arkansas Department of Education to resolve the $6,867 in questioned indirect costs, including any required repayment or reallocation. 3. Federal Award Compliance Training • All staff involved in administering federal awards will receive training on 2 CFR Part 200 requirements, including allowable costs, documentation standards, and indirect cost limitations, prior to the start of each grant year. Training attendance will be documented.