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, 2025 The internal control deficiencies identified in Finding 2025-001 noted in the Financial Statement Findings also apply to this major federal program. 2025-001. 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 7 of 17 employees tested totaling $13,737. Unused vacation leave payout of $13,362. Non-payroll expenditures 13 of 63 non-payroll transactions tested totaling $129,795. Receipts Multiple receipts and revenue items. 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 and agrees with the auditors' recommendation. The following corrective actions have been taken or are underway: 1. Leave Balance Documentation and Vacation Payout Controls • All leave payout requests, including unused vacation at separation or year-end, must be supported by a complete leave history report from the District's leave tracking system, showing accrual, usage, and available balance. No payout will be processed without this documentation on file. • The Human Resources department will reconcile all employee leave balances monthly. Year-end balances will be certified by the Finance Director before any separation payout is calculated. 2. Additional Pay Authorization • All extra-duty pay, stipends, and additional compensation require an approved board resolution before payroll is processed. Payroll staff are instructed to reject any additional pay without complete documentation. • AMS Impact Group will perform a line-by-line review of each payroll run to verify every additional pay item has an approved authorization on file prior to disbursement. 3. Non-Payroll Expenditure Documentation • A pre-payment documentation checklist has been implemented for all non-payroll transactions. Payments will not be processed without an approved purchase order, vendor invoice, and receiving confirmation attached. • The Finance Director will conduct monthly spot-check reviews of non-payroll transactions to verify documentation completeness. Any gaps identified will be corrected within 30 days. 4. Receipt and Revenue Documentation • The District is establishing a standardized receipting procedure for all cash and check receipts. All incoming revenue will be recorded on a pre-numbered receipt, reconciled to deposit records, and reviewed by the Finance Director on a monthly basis. 5. Accountability and Oversight • AMS Impact Group will perform periodic internal reviews of financial documentation to identify gaps before year-end and provide corrective guidance to District 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, 2025 2025-002. 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 Title I program payroll and nonpayroll expenditures, we identified five expenditures totaling $6,419 that lacked supporting documentation. Additionally, we identified one employee who was overpaid $884 and one employee who received a $5,000 stipend plus fringe benefits of $1,132 without documented approval by the District. 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: $13,435 Context: Sample of 16 nonpayroll expenditures totaling $33,908 from a population of 154 totaling $407,730. Sample of 4 employees' gross payroll expenditures totaling $74,302 from a population of 31 employees totaling $763,065. Our sample was not a statistically valid sample. 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 the documentation deficiencies. 1. Title I Expenditure Documentation • All Title I payroll and non-payroll expenditures must be supported by complete documentation, including approved purchase orders, invoices, time-and-effort records, or equivalent, before any payment is processed. The Title I program coordinator will sign off on each transaction before submission to the Finance Director. • The Finance Director will conduct a monthly review of all Title I expenditures to verify allowability and documentation completeness under 2 CFR Part 200. 2. Stipend and Additional Compensation Approval • Any stipend, bonus, or additional compensation charged to a federal program must be approved by board resolution and reviewed for allowability under the applicable federal award before payment by the Federal Programs Coordinator. 3. Overpayment Recovery and Prevention • Payroll staff will verify active employment status for all Title I-funded employees at the start of each pay period. Any separation, leave of absence, or status change will be immediately reported to the payroll processor to prevent overpayments. 4. Federal Award Compliance Training • All staff involved in administering Title I and other federal programs will receive annual training on 2 CFR Part 200 requirements, including allowable costs, documentation standards, and approval procedures, before the start of each grant year. Attendance will be documented.