Audit 408984

Criteria – Under the Uniform Guidance, non-Federal entities are responsible for establishing and maintaining effective internal control over federal awards and ensuring expenditures charged to federal programs are allowable, reasonable, necessary, and properly documented. Controls should be designed to prevent or detect unallowable expenditures, including expenditures resulting from fraud or misuse of federal funds. Management is responsible for monitoring expenditures charged to federal awards to ensure compliance with federal requirements. Condition – The District identified fraudulent purchasing card transactions charged to a federal program. An employee used District purchasing cards to purchase items for personal use rather than for program purposes. Although the transactions were subject to the District's purchasing card review process, the improper expenditures were not identified through existing monitoring and approval procedures. As a result, approximately $7,000 of unallowable expenditures were charged to the federal program during the year ended June 30, 2025. The improper expenditures resulted from fraudulent activity by a District employee and were not detected through the District's established review procedures. Cause – Controls over the review and monitoring of federal program expenditures were not adequately designed or operating effectively to identify unallowable expenditures and purchases that were not made for an authorized program purpose. Review procedures did not sufficiently evaluate supporting documentation or the appropriateness of purchases charged to the federal award. Effect – The control deficiency resulted in unallowable expenditures being charged to a federal program and allowed fraudulent activity involving federal funds to occur and remain undetected. Consequently, the District was not in compliance with federal requirements related to allowable costs and internal control over compliance. The condition increases the risk that additional questioned costs or instances of noncompliance could occur and not be detected timely. Questioned Costs – Known questioned costs totaling $7,318 were identified related to personal purchases improperly charged to the federal program during the year ended June 30, 2025. Context / Sampling – The finding resulted from the District’s investigation, a forensic engagement with a consultant, and our audit procedures over federal program expenditures charged to the Twenty-First Century Community Learning Centers funding. Repeat Finding from Prior Year(s) – No Recommendation – We recommend the District strengthen controls over federal program expenditures by implementing enhanced review procedures for purchasing card transactions charged to federal awards. Reviews should include verification that expenditures are supported, allowable under the applicable federal program, properly documented, and incurred for a legitimate program purpose. Management should also provide additional training to employees and reviewers regarding federal allowability requirements and periodically monitor purchasing card activity for unusual or potentially unauthorized transactions. Views of Responsible Officials – There is no disagreement with the audit finding. The District has taken corrective action regarding the fraudulent activity and is pursuing recovery of improperly expended federal funds. Management will implement additional review and monitoring procedures over federal program expenditures to ensure compliance with federal requirements and reduce the risk of future misuse of federal funds.