(2024-030) Title: Internal control over CNC eligibility needs improvement Prior Year Findings: None State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Eligibility Type of Finding: Material weakness Material noncompliance Questioned costs Known Questioned Costs: ALN 10.559 $628,924 Likely Questioned Costs: Undeterminable; there is insufficient information on the application to identify programs that may be operating under an incorrect classification. Criteria: 2 CFR 200.303; 7 CFR 210.7 and .9; 7 CFR 225.6, .14, and .16; 7 CFR 245.12 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. 7 CFR 210 outlines the application requirements for participation in the National School Lunch Program (NSLP), and specifies that applications shall provide the State agency with sufficient information to determine eligibility. 7 CFR 225 requirements include: • the type of information that must be required in sponsor applications for participation; • sites that serve an area in which poor economic conditions exist or is approved for reimbursement only for meals served free to enrolled children who meet the program's income standards; • the proposed site is not or will not be served in whole or in part by another site; • State agency requirements related to the approval of applications and determinations of eligibility; and • the process and requirements for claims for reimbursement (CFRs). 7 CFR 245 describes the action taken by State agencies related to the eligibility determination of individuals and special eligibility determinations of schools including Provision II and Community Eligible Provision (CEP) schools. These regulations outline how the School Food Authority (SFA) and State agency should collect and report eligibility information in the schools, and how that information should be used in establishing rates and percentages in CFRs. Condition: The Child Nutrition Cluster (CNC) includes the School Breakfast Program, NSLP, Special Milk Program for Children, Summer Food Service Program (SFSP) and the Fresh Fruit and Vegetable Program. The objectives of the programs are to provide nutritious meals to eligible children in schools, residential childcare institutions, and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage the consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE provides benefits to each SFA or sponsor on a reimbursement basis. SFAs and sponsors must submit applications for participation in CNC programs and DOE is required to review every application and site information sheet to ensure that only eligible SFAs or sponsors participate in the programs. The Office of the State Auditor (OSA) tested 48 applications and found instances that did not align with program regulations for NSLP and SFSP, as follows: National School Lunch Program Applications to participate in child nutrition programs must include attestations and written agreement to the regulations set forth in 7 CFR 210 and 7 CFR 245. Agreements must be signed and returned to Child Nutrition Services (CNS) prior to meal service and the submission of a CFR by the SFA. OSA tested 32 applications from SFAs and sponsors for participation in NSLP and identified six applications that were not complete or were approved prior to participation in the program, as follows: • Three applications were approved for participation with missing information, including: o one application missing an agreement for participation in CEP; o one application not indicating the year of operation; and o one application missing the signature of the SFA superintendent. • Two applications were submitted after participation in the program had begun. • One application was missing the meal pattern agreement attestation that made them eligible for the eight-cent performance-based reimbursement for every lunch served and was also submitted after participation in the program had begun. OSA selected a non-statistical random sample. Summer Food Service Program While SFAs may operate SFSP, residential and non-residential day camps, units of local, municipal, county or State governments, and private nonprofit organizations may also participate in the program; these providers are called sponsors. Sponsors must submit a written application to CNS by June 15 to participate in the program. Sponsors operate individual sites, and sponsor applications must include site sheets for each site. OSA tested 16 applications from sponsors for participation in SFSP and found: • four applications were revised and the revisions were erroneously applied to prior months, resulting in questioned costs totaling $1,767 for meals served prior to approved revisions; and • eleven applications, including two with more than one error, that were approved with sites that did not meet the eligibility criteria, as follows: o Four sponsors had sites where CNS incorrectly categorized non-residential day camps as open sites, which allowed the site to use the area eligibility determination instead of using individual eligibility determinations, resulting in questioned costs totaling $68,342 for meals served without eligibility information provided. o Two sponsors of camps did not provide the number of eligible children for each session at their sites prior to submitting a CFR, resulting in questioned costs totaling $63,493 for meals served without eligibility information provided. o Three sponsors had four sites that used incorrect school or census data to demonstrate eligibility, resulting in one site that was ineligible for participation, and questioned costs totaling $33,682 for the operation of an ineligible site. o One application was approved with a breakfast time of 11:30 a.m.; there was no documentation to support that this meal was served near the site’s opening time as required by regulations, resulting in questioned costs totaling $8,635 for meals that do meet meal time requirements. o Three applications were approved for non-congregate sites that did not include procedures to ensure duplicate meals would not be distributed. One sponsor had seven open sites with overlapping meal times within a quarter-mile radius. OSA selected a non-statistical random sample. In addition, OSA performed analytical procedures over SFSP site classifications and found: • 58 sites from 32 sponsors did not apply eligibility criteria for camp participation, as follows: o 29 sites were classified as open sites or closed enrolled sites when additional information on the application or publicly available information indicated that the program met the definition of camps provided at 7 CFR 225; these sites used area eligibility to claim reimbursement for all meals served instead of only the meals served to eligible children, resulting in questioned costs totaling $208,142. o 9 sites indicated they were camps; however, they were classified as open sites or closed enrolled sites that used area eligibility to claim reimbursement for all meals served instead of only the meals served to eligible children, resulting in questioned costs totaling $100,379. o 13 sites indicated they were camps; however, their applications were not revised to include actual eligibility counts for each session prior to submission of CFRs, resulting in questioned costs totaling $82,567. o 7 sites described camp activities in their description of operations, but classified themselves as open sites or closed enrolled sites that used area eligibility to claim reimbursement for all meals served instead of only the meals served to eligible campers, resulting in questioned costs totaling $48,224. • 16 sponsors had site revisions approved by CNS that added operating days, increased capacities, changed meal types, added meals, or added non-congregate operations to a prior month. CNS permitted sponsors to include those revisions in the prior month’s CFR which were not in accordance with the agreement in place at the time of service, resulting in questioned costs totaling $13,693. Context: CNS processed $55.8 million in CFRs for NSLP, and $2.8 million in CFRs for SFSP in fiscal year 2024. Cause: • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: • CNC participation by ineligible SFAs or sponsors • Known questioned costs • Potential future questioned costs and disallowances • Noncompliance with Federal regulations Recommendation: We recommend that CNS revise policies and procedures to ensure: • SFSP site information sheet revisions prohibit the sponsor from using the revised information in a claim for a prior month; • site classifications appropriately identify camps, consistent with Federal regulations; and • site information sheets contain non-congregate plans that include required information. Additionally, we recommend that CNS enhance oversight to ensure: • all required documents for applications are complete and signed prior to meal service; • session-specific eligibility information is available on the site information sheets for camps; and • the eligibility of the locations of non-congregate sites is properly supported. Corrective Action Plan: See F-15 Management’s Response: The Department agrees with this finding. Procedures for “Application Approvals” will be delineated regarding application and claim revisions, Site classification, non-congregate plan requirements, Eligibility criteria and back up documentation, and all requirement documents will be adequately reviewed. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-05)
(2024-030) Title: Internal control over CNC eligibility needs improvement Prior Year Findings: None State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Eligibility Type of Finding: Material weakness Material noncompliance Questioned costs Known Questioned Costs: ALN 10.559 $628,924 Likely Questioned Costs: Undeterminable; there is insufficient information on the application to identify programs that may be operating under an incorrect classification. Criteria: 2 CFR 200.303; 7 CFR 210.7 and .9; 7 CFR 225.6, .14, and .16; 7 CFR 245.12 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. 7 CFR 210 outlines the application requirements for participation in the National School Lunch Program (NSLP), and specifies that applications shall provide the State agency with sufficient information to determine eligibility. 7 CFR 225 requirements include: • the type of information that must be required in sponsor applications for participation; • sites that serve an area in which poor economic conditions exist or is approved for reimbursement only for meals served free to enrolled children who meet the program's income standards; • the proposed site is not or will not be served in whole or in part by another site; • State agency requirements related to the approval of applications and determinations of eligibility; and • the process and requirements for claims for reimbursement (CFRs). 7 CFR 245 describes the action taken by State agencies related to the eligibility determination of individuals and special eligibility determinations of schools including Provision II and Community Eligible Provision (CEP) schools. These regulations outline how the School Food Authority (SFA) and State agency should collect and report eligibility information in the schools, and how that information should be used in establishing rates and percentages in CFRs. Condition: The Child Nutrition Cluster (CNC) includes the School Breakfast Program, NSLP, Special Milk Program for Children, Summer Food Service Program (SFSP) and the Fresh Fruit and Vegetable Program. The objectives of the programs are to provide nutritious meals to eligible children in schools, residential childcare institutions, and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage the consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE provides benefits to each SFA or sponsor on a reimbursement basis. SFAs and sponsors must submit applications for participation in CNC programs and DOE is required to review every application and site information sheet to ensure that only eligible SFAs or sponsors participate in the programs. The Office of the State Auditor (OSA) tested 48 applications and found instances that did not align with program regulations for NSLP and SFSP, as follows: National School Lunch Program Applications to participate in child nutrition programs must include attestations and written agreement to the regulations set forth in 7 CFR 210 and 7 CFR 245. Agreements must be signed and returned to Child Nutrition Services (CNS) prior to meal service and the submission of a CFR by the SFA. OSA tested 32 applications from SFAs and sponsors for participation in NSLP and identified six applications that were not complete or were approved prior to participation in the program, as follows: • Three applications were approved for participation with missing information, including: o one application missing an agreement for participation in CEP; o one application not indicating the year of operation; and o one application missing the signature of the SFA superintendent. • Two applications were submitted after participation in the program had begun. • One application was missing the meal pattern agreement attestation that made them eligible for the eight-cent performance-based reimbursement for every lunch served and was also submitted after participation in the program had begun. OSA selected a non-statistical random sample. Summer Food Service Program While SFAs may operate SFSP, residential and non-residential day camps, units of local, municipal, county or State governments, and private nonprofit organizations may also participate in the program; these providers are called sponsors. Sponsors must submit a written application to CNS by June 15 to participate in the program. Sponsors operate individual sites, and sponsor applications must include site sheets for each site. OSA tested 16 applications from sponsors for participation in SFSP and found: • four applications were revised and the revisions were erroneously applied to prior months, resulting in questioned costs totaling $1,767 for meals served prior to approved revisions; and • eleven applications, including two with more than one error, that were approved with sites that did not meet the eligibility criteria, as follows: o Four sponsors had sites where CNS incorrectly categorized non-residential day camps as open sites, which allowed the site to use the area eligibility determination instead of using individual eligibility determinations, resulting in questioned costs totaling $68,342 for meals served without eligibility information provided. o Two sponsors of camps did not provide the number of eligible children for each session at their sites prior to submitting a CFR, resulting in questioned costs totaling $63,493 for meals served without eligibility information provided. o Three sponsors had four sites that used incorrect school or census data to demonstrate eligibility, resulting in one site that was ineligible for participation, and questioned costs totaling $33,682 for the operation of an ineligible site. o One application was approved with a breakfast time of 11:30 a.m.; there was no documentation to support that this meal was served near the site’s opening time as required by regulations, resulting in questioned costs totaling $8,635 for meals that do meet meal time requirements. o Three applications were approved for non-congregate sites that did not include procedures to ensure duplicate meals would not be distributed. One sponsor had seven open sites with overlapping meal times within a quarter-mile radius. OSA selected a non-statistical random sample. In addition, OSA performed analytical procedures over SFSP site classifications and found: • 58 sites from 32 sponsors did not apply eligibility criteria for camp participation, as follows: o 29 sites were classified as open sites or closed enrolled sites when additional information on the application or publicly available information indicated that the program met the definition of camps provided at 7 CFR 225; these sites used area eligibility to claim reimbursement for all meals served instead of only the meals served to eligible children, resulting in questioned costs totaling $208,142. o 9 sites indicated they were camps; however, they were classified as open sites or closed enrolled sites that used area eligibility to claim reimbursement for all meals served instead of only the meals served to eligible children, resulting in questioned costs totaling $100,379. o 13 sites indicated they were camps; however, their applications were not revised to include actual eligibility counts for each session prior to submission of CFRs, resulting in questioned costs totaling $82,567. o 7 sites described camp activities in their description of operations, but classified themselves as open sites or closed enrolled sites that used area eligibility to claim reimbursement for all meals served instead of only the meals served to eligible campers, resulting in questioned costs totaling $48,224. • 16 sponsors had site revisions approved by CNS that added operating days, increased capacities, changed meal types, added meals, or added non-congregate operations to a prior month. CNS permitted sponsors to include those revisions in the prior month’s CFR which were not in accordance with the agreement in place at the time of service, resulting in questioned costs totaling $13,693. Context: CNS processed $55.8 million in CFRs for NSLP, and $2.8 million in CFRs for SFSP in fiscal year 2024. Cause: • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: • CNC participation by ineligible SFAs or sponsors • Known questioned costs • Potential future questioned costs and disallowances • Noncompliance with Federal regulations Recommendation: We recommend that CNS revise policies and procedures to ensure: • SFSP site information sheet revisions prohibit the sponsor from using the revised information in a claim for a prior month; • site classifications appropriately identify camps, consistent with Federal regulations; and • site information sheets contain non-congregate plans that include required information. Additionally, we recommend that CNS enhance oversight to ensure: • all required documents for applications are complete and signed prior to meal service; • session-specific eligibility information is available on the site information sheets for camps; and • the eligibility of the locations of non-congregate sites is properly supported. Corrective Action Plan: See F-15 Management’s Response: The Department agrees with this finding. Procedures for “Application Approvals” will be delineated regarding application and claim revisions, Site classification, non-congregate plan requirements, Eligibility criteria and back up documentation, and all requirement documents will be adequately reviewed. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-05)
(2024-030) Title: Internal control over CNC eligibility needs improvement Prior Year Findings: None State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Eligibility Type of Finding: Material weakness Material noncompliance Questioned costs Known Questioned Costs: ALN 10.559 $628,924 Likely Questioned Costs: Undeterminable; there is insufficient information on the application to identify programs that may be operating under an incorrect classification. Criteria: 2 CFR 200.303; 7 CFR 210.7 and .9; 7 CFR 225.6, .14, and .16; 7 CFR 245.12 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. 7 CFR 210 outlines the application requirements for participation in the National School Lunch Program (NSLP), and specifies that applications shall provide the State agency with sufficient information to determine eligibility. 7 CFR 225 requirements include: • the type of information that must be required in sponsor applications for participation; • sites that serve an area in which poor economic conditions exist or is approved for reimbursement only for meals served free to enrolled children who meet the program's income standards; • the proposed site is not or will not be served in whole or in part by another site; • State agency requirements related to the approval of applications and determinations of eligibility; and • the process and requirements for claims for reimbursement (CFRs). 7 CFR 245 describes the action taken by State agencies related to the eligibility determination of individuals and special eligibility determinations of schools including Provision II and Community Eligible Provision (CEP) schools. These regulations outline how the School Food Authority (SFA) and State agency should collect and report eligibility information in the schools, and how that information should be used in establishing rates and percentages in CFRs. Condition: The Child Nutrition Cluster (CNC) includes the School Breakfast Program, NSLP, Special Milk Program for Children, Summer Food Service Program (SFSP) and the Fresh Fruit and Vegetable Program. The objectives of the programs are to provide nutritious meals to eligible children in schools, residential childcare institutions, and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage the consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE provides benefits to each SFA or sponsor on a reimbursement basis. SFAs and sponsors must submit applications for participation in CNC programs and DOE is required to review every application and site information sheet to ensure that only eligible SFAs or sponsors participate in the programs. The Office of the State Auditor (OSA) tested 48 applications and found instances that did not align with program regulations for NSLP and SFSP, as follows: National School Lunch Program Applications to participate in child nutrition programs must include attestations and written agreement to the regulations set forth in 7 CFR 210 and 7 CFR 245. Agreements must be signed and returned to Child Nutrition Services (CNS) prior to meal service and the submission of a CFR by the SFA. OSA tested 32 applications from SFAs and sponsors for participation in NSLP and identified six applications that were not complete or were approved prior to participation in the program, as follows: • Three applications were approved for participation with missing information, including: o one application missing an agreement for participation in CEP; o one application not indicating the year of operation; and o one application missing the signature of the SFA superintendent. • Two applications were submitted after participation in the program had begun. • One application was missing the meal pattern agreement attestation that made them eligible for the eight-cent performance-based reimbursement for every lunch served and was also submitted after participation in the program had begun. OSA selected a non-statistical random sample. Summer Food Service Program While SFAs may operate SFSP, residential and non-residential day camps, units of local, municipal, county or State governments, and private nonprofit organizations may also participate in the program; these providers are called sponsors. Sponsors must submit a written application to CNS by June 15 to participate in the program. Sponsors operate individual sites, and sponsor applications must include site sheets for each site. OSA tested 16 applications from sponsors for participation in SFSP and found: • four applications were revised and the revisions were erroneously applied to prior months, resulting in questioned costs totaling $1,767 for meals served prior to approved revisions; and • eleven applications, including two with more than one error, that were approved with sites that did not meet the eligibility criteria, as follows: o Four sponsors had sites where CNS incorrectly categorized non-residential day camps as open sites, which allowed the site to use the area eligibility determination instead of using individual eligibility determinations, resulting in questioned costs totaling $68,342 for meals served without eligibility information provided. o Two sponsors of camps did not provide the number of eligible children for each session at their sites prior to submitting a CFR, resulting in questioned costs totaling $63,493 for meals served without eligibility information provided. o Three sponsors had four sites that used incorrect school or census data to demonstrate eligibility, resulting in one site that was ineligible for participation, and questioned costs totaling $33,682 for the operation of an ineligible site. o One application was approved with a breakfast time of 11:30 a.m.; there was no documentation to support that this meal was served near the site’s opening time as required by regulations, resulting in questioned costs totaling $8,635 for meals that do meet meal time requirements. o Three applications were approved for non-congregate sites that did not include procedures to ensure duplicate meals would not be distributed. One sponsor had seven open sites with overlapping meal times within a quarter-mile radius. OSA selected a non-statistical random sample. In addition, OSA performed analytical procedures over SFSP site classifications and found: • 58 sites from 32 sponsors did not apply eligibility criteria for camp participation, as follows: o 29 sites were classified as open sites or closed enrolled sites when additional information on the application or publicly available information indicated that the program met the definition of camps provided at 7 CFR 225; these sites used area eligibility to claim reimbursement for all meals served instead of only the meals served to eligible children, resulting in questioned costs totaling $208,142. o 9 sites indicated they were camps; however, they were classified as open sites or closed enrolled sites that used area eligibility to claim reimbursement for all meals served instead of only the meals served to eligible children, resulting in questioned costs totaling $100,379. o 13 sites indicated they were camps; however, their applications were not revised to include actual eligibility counts for each session prior to submission of CFRs, resulting in questioned costs totaling $82,567. o 7 sites described camp activities in their description of operations, but classified themselves as open sites or closed enrolled sites that used area eligibility to claim reimbursement for all meals served instead of only the meals served to eligible campers, resulting in questioned costs totaling $48,224. • 16 sponsors had site revisions approved by CNS that added operating days, increased capacities, changed meal types, added meals, or added non-congregate operations to a prior month. CNS permitted sponsors to include those revisions in the prior month’s CFR which were not in accordance with the agreement in place at the time of service, resulting in questioned costs totaling $13,693. Context: CNS processed $55.8 million in CFRs for NSLP, and $2.8 million in CFRs for SFSP in fiscal year 2024. Cause: • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: • CNC participation by ineligible SFAs or sponsors • Known questioned costs • Potential future questioned costs and disallowances • Noncompliance with Federal regulations Recommendation: We recommend that CNS revise policies and procedures to ensure: • SFSP site information sheet revisions prohibit the sponsor from using the revised information in a claim for a prior month; • site classifications appropriately identify camps, consistent with Federal regulations; and • site information sheets contain non-congregate plans that include required information. Additionally, we recommend that CNS enhance oversight to ensure: • all required documents for applications are complete and signed prior to meal service; • session-specific eligibility information is available on the site information sheets for camps; and • the eligibility of the locations of non-congregate sites is properly supported. Corrective Action Plan: See F-15 Management’s Response: The Department agrees with this finding. Procedures for “Application Approvals” will be delineated regarding application and claim revisions, Site classification, non-congregate plan requirements, Eligibility criteria and back up documentation, and all requirement documents will be adequately reviewed. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-05)
(2024-031) Title: Internal control over CNC claim reimbursements needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Reporting Type of Finding: Material weakness Material noncompliance Questioned costs Known Questioned Costs: ALN 10.555 $1,605 ALN 10.582 $9,535 ALN 10.559 $117,259 Likely Questioned Costs: Undeterminable; due to the variety of site types in the test population and varied meal claim counts, an error rate cannot be applied to the population and a projection of questioned costs cannot be reasonably estimated. Criteria: 2 CFR 200.303; 2 CFR 200.403; 7 CFR 210.7 and .8; 7 CFR 225.6, .9, and .16; Richard B. Russell National School Lunch Act, Section 19; U.S. Department of Agriculture Fresh Fruit and Vegetable Handbook The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. To be allowable under Federal awards, costs must be necessary and reasonable for the performance of the Federal award and be adequately documented. 7 CFR 210.7 National School Lunch Program (NSLP) claims for reimbursement (CFRs) must be based on lunch counts taken daily at the point of service (POS), which correctly identify the number of free, reduced price, and paid lunches served to eligible children. 7 CFR 210.8 (NSLP) on a monthly basis, the State agency shall, at a minimum, compare the number of free and reduced price lunches claimed to the number of children approved for free and reduced price lunches enrolled in the School Food Authority (SFA) for the month of October, and multiply that number by the days of operation and the attendance factor employed by the SFA. At its discretion, the State agency may conduct this comparison against data which reflects the number of children approved for free and reduced price lunches for a more current month(s). 7 CFR 225.6 Summer Food Service Program (SFSP) required information must be on a site information sheet that the State agency must provide to the sponsor for approval by the State agency prior to participation in SFSP, including estimated meal counts, types of meals, meal service times, and procedures to ensure duplicate meals are not distributed at non-congregate sites. In order to approve a site, the area where the site proposes to serve is not or will not be served in whole or in part by another site. 7 CFR 225.9 (SFSP) outlines that payments to a sponsor must equal the amount derived by multiplying the number of eligible meals, by type, actually served under the sponsor's program to eligible children by the current applicable reimbursement rate for each meal type. Sponsors must be eligible to receive additional reimbursement for each meal served to participating children at rural or self-preparation sites. 7 CFR 225.16 (SFSP) meals served outside of the meal time listed on the sponsor’s application are not eligible for reimbursement. Sponsors agree in writing to claim reimbursement only for the types of meals specified in the agreement that are served. Section 19 of the Richard B. Russell National School Lunch Act (NSLA) states that the per-pupil grant provided to a school under the Fresh Fruit and Vegetable Program (FFVP) shall be not less than $50, nor more than $75. U.S. Department of Agriculture’s (USDA) FFVP Handbook, referenced as guidance in Policy Memo SP 17-2023, states that all nonfood costs must be carefully reviewed and deemed reasonable. Condition: The Child Nutrition Cluster (CNC) includes the School Breakfast Program, NSLP, Special Milk Program for Children, SFSP and FFVP. The objectives of the programs are to provide nutritious meals to eligible children in schools, residential childcare institutions and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage the consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE provides benefits to each SFA or sponsor on a reimbursement basis. SFAs and sponsors must submit claims for reimbursement based on actual meals served for the month and permissible fresh fruits and vegetables utilizing the Child Nutrition Program (CNPWeb) system. The Department is required to review each SFA’s or sponsor’s CFR to ensure that monthly claims are limited to the number of meals served to eligible children and that the cost of the fresh fruits and vegetables are allowable. Once the claims are approved, claims are reimbursed based on the rates that are programmed in the CNPWeb system. The Office of the State Auditor (OSA) tested CFRs for the CNC and found instances that did not align with program regulations for NSLP, FFVP, and SFSP, as follows: National School Lunch Program CNS must perform procedures as outlined in Federal regulations, including a review of CFRs on a monthly basis through analysis utilizing a product of the enrollment information from the month of October multiplied by the days of operation and the attendance factor employed by the SFA. OSA procedures identified that CNS did not review or perform analysis on CFRs on a monthly basis as required. OSA tested 60 CFRs and identified nine CFRs from five SFAs where eligibility information entered on the CFR varied significantly from the information provided and verified by the SFA in October 2023. In order to verify the allowability of the claims identified, OSA requested supporting documentation from those five SFAs. OSA compared the eligibility counts from the CFR, the SFA’s POS reports, the SFA’s October data provided to CNS, and the SFA’s master list of eligible students for the month of the CFR and found: • five POS reports with eligibility counts that conflicted with the master eligibility list provided by the SFA for that month, and with the number of eligible children reported on the CFR, resulting in questioned costs totaling $897; • one POS report from October with eligibility counts that matched the site CFR, but did not match the master eligibility list provided by the SFA, or the data reported to CNS by the SFA for the same month, resulting in questioned costs totaling $708; and • documentation for three CFRs could not be provided. OSA selected a non-statistical random sample. Fresh Fruit and Vegetable Program CNS ensures compliance with Federal regulations through the annual administrative review process. OSA tested 17 FFVP CFRs from the nine SFAs who had an administrative review in fiscal year 2024 and found: • nine claims from five SFAs had sites with nonfood costs that were not reviewed during the administrative review process. • for six of the nine SFAs, portions of the administrative review process were erroneously omitted; therefore, CNS did not review or examine the allowability for any FFVP CFRs for those six SFAs. OSA selected a non-statistical random sample. The FFVP fiscal year is October 1 to September 30; therefore, though schools may begin the school year with unspent funds from the prior school year, these funds must be spent by September 30. OSA tested 19 FFVP SFAs that participated in both fiscal year 2023 and 2024 and found that three SFAs exceeded their fiscal year 2023 allocation in September 2023. CNS did not detect or correct this allocation issue until OSA inquired in September 2024. OSA selected a non-statistical random sample. Section 19 of the Richard B. Russell NSLA requires that FFVP allocations made by CNS result in a per-pupil grant not less than $50, nor more than $75 to participating SFAs. OSA tested 19 SFAs that participated in FFVP in fiscal year 2024 and found that 14 SFAs had manual allocation adjustments which resulted in ten per-pupil allocations that were not between $50 and $75 per pupil, ranging from $24 per pupil to $109 per pupil. The allocation of funds over $75 per pupil resulted in questioned costs of $9,535. OSA selected a non-statistical random sample. Summer Food Service Program CNS requires applications from sponsors that include individual site sheets. The information on the sheet must include the estimated number of meals, types of meals to be served, and meal service times. Meal service times must align with the approved application at the time the meals are served. Non-congregate sites must provide enough detail to ensure the area where the site proposes to serve meets certain criteria, including verification that the site: • is rural; • is not or will not be served in whole or in part by another site; • serves an area in which poor economic conditions exist or is approved for reimbursement only for meals served free to enrolled children who meet income standards; and • has procedures to ensure that duplicate meals are not served to any child. Residential and non-residential camps must include in their site sheets the number of children enrolled in each session who meet income standards prior to filing the camp’s CFR for each session. OSA tested 39 SFSP CFRs and found: • nine residential or non-residential camp CFRs that did not include the number of children enrolled in each session who met income standards prior to filing their CFR, resulting in questioned costs totaling $95,902. • two CFRs to non-congregate sites not located in an area where poor economic conditions exist per USDA data. The ineligible sites resulted in questioned costs totaling $15,536. • four CFRs included revised information from the site sheet that did not reflect the conditions at the time the meals were served. The revisions submitted between the meal service and submission of the CFR included an increase in capacity, an addition of meal types, and an addition of operating days, resulting in questioned costs totaling $5,821. • five CFRs to non-congregate sites that did not have documented procedures to prevent duplicate meal service on the site sheet. OSA selected a non-statistical random sample. Additionally, SFSP has two tiers of administrative rates for reimbursement, self-prep and vended. Sites classified as rural are all reimbursed at the highest rate, but sites classified as urban can either be reimbursed at the higher rate if they serve self-prep meals, or at the lower rate if their meals are vended. CNS previously determined that the field on the application for the sponsor to select whether the meal served is vended or self-prep is not required in the CNPWeb system. At that time, CNS submitted a ticket to request a change to the CNPWeb system to require the sponsor to select a meal type in that field on future applications; however, because that information was not required previously, CNS does not have assurance that urban sites that did not select self-prep or vended are being reimbursed at the correct rate. Furthermore, for each month of operation, CNS must report the number of meals served by meal type and sponsor type to USDA Food Nutrition Services (FNS) on the FNS-418 report. CNS does not have assurance that their default classification of urban sites as self-prep when the field was left blank is accurate for FNS-418 reporting. Context: In fiscal year 2024, CNS processed CFRs totaling: • $55.8 million under NSLP; • $2.8 million under FFVP; and • $2.8 million under SFSP. Cause: • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: • Noncompliance with Federal regulations • Known questioned costs • Potential future questioned costs and disallowances • Potential incorrect rates of reimbursement paid to SFAs and sponsors • Inaccurate FNS-418 reports submitted to FNS Recommendation: We recommend that CNS enhance policies and procedures to: • require a review of CFRs on a monthly basis in accordance with Federal regulations; • ensure all required information is included in the applications and approved prior to participation; • review and approve area eligibility for non-congregate sites; • require inclusion of self-prep or vended meal types and non-congregate plans on site information sheets that document procedures to prevent duplicate meal service; • ensure session-specific eligibility information is received prior to claim approval for camp sites; and • ensure that site information sheet revisions prohibit the sponsor from using the revised information in a claim for the prior month. In addition, we recommend that CNS enhance oversight over FFVP to ensure: • claims with nonfood costs are reasonable; • allocation amounts remain within $50 to $75 per pupil; and • administrative reviews conducted by CNS include FFVP allowability reviews. Corrective Action Plan: See F-16 Management’s Response: The Department partially agrees with this finding. These findings come from various programs and are correctly outlined in the Condition. However, the Department disagrees with the first bullet in the Recommendation regarding the review of CFRs monthly and has contacted the Northeast Regional Office of the USDA for clarification. Additionally, we disagree with the first bullet point regarding non-food costs in the FFVP program, as it’s addressed in the Administrative Review process. The Department has developed a corrective action plan to address the remaining recommendations. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 Auditor’s Concluding Remarks: 7 CFR 210.8(b)(2) provides detailed requirements outlining the minimum CFR monthly claim review procedures that CNS must perform. CNS has not implemented required procedures, and erroneous CFRs are not detected or corrected, resulting in questioned costs and potential disallowances. In addition, CNS asserts that FFVP nonfood costs are addressed as part of the Administrative Review process; however, OSA identified a material weakness and material noncompliance as issued in finding 2024-032 Internal control over CNC subrecipient monitoring procedures needs improvement. The finding reports that six of the nine Administrative Reviews tested for FFVP inappropriately omitted Federally required steps and that a cost analysis over nonfood costs was not performed. The finding remains as stated. (State Number: 24-1203-02)
(2024-031) Title: Internal control over CNC claim reimbursements needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Reporting Type of Finding: Material weakness Material noncompliance Questioned costs Known Questioned Costs: ALN 10.555 $1,605 ALN 10.582 $9,535 ALN 10.559 $117,259 Likely Questioned Costs: Undeterminable; due to the variety of site types in the test population and varied meal claim counts, an error rate cannot be applied to the population and a projection of questioned costs cannot be reasonably estimated. Criteria: 2 CFR 200.303; 2 CFR 200.403; 7 CFR 210.7 and .8; 7 CFR 225.6, .9, and .16; Richard B. Russell National School Lunch Act, Section 19; U.S. Department of Agriculture Fresh Fruit and Vegetable Handbook The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. To be allowable under Federal awards, costs must be necessary and reasonable for the performance of the Federal award and be adequately documented. 7 CFR 210.7 National School Lunch Program (NSLP) claims for reimbursement (CFRs) must be based on lunch counts taken daily at the point of service (POS), which correctly identify the number of free, reduced price, and paid lunches served to eligible children. 7 CFR 210.8 (NSLP) on a monthly basis, the State agency shall, at a minimum, compare the number of free and reduced price lunches claimed to the number of children approved for free and reduced price lunches enrolled in the School Food Authority (SFA) for the month of October, and multiply that number by the days of operation and the attendance factor employed by the SFA. At its discretion, the State agency may conduct this comparison against data which reflects the number of children approved for free and reduced price lunches for a more current month(s). 7 CFR 225.6 Summer Food Service Program (SFSP) required information must be on a site information sheet that the State agency must provide to the sponsor for approval by the State agency prior to participation in SFSP, including estimated meal counts, types of meals, meal service times, and procedures to ensure duplicate meals are not distributed at non-congregate sites. In order to approve a site, the area where the site proposes to serve is not or will not be served in whole or in part by another site. 7 CFR 225.9 (SFSP) outlines that payments to a sponsor must equal the amount derived by multiplying the number of eligible meals, by type, actually served under the sponsor's program to eligible children by the current applicable reimbursement rate for each meal type. Sponsors must be eligible to receive additional reimbursement for each meal served to participating children at rural or self-preparation sites. 7 CFR 225.16 (SFSP) meals served outside of the meal time listed on the sponsor’s application are not eligible for reimbursement. Sponsors agree in writing to claim reimbursement only for the types of meals specified in the agreement that are served. Section 19 of the Richard B. Russell National School Lunch Act (NSLA) states that the per-pupil grant provided to a school under the Fresh Fruit and Vegetable Program (FFVP) shall be not less than $50, nor more than $75. U.S. Department of Agriculture’s (USDA) FFVP Handbook, referenced as guidance in Policy Memo SP 17-2023, states that all nonfood costs must be carefully reviewed and deemed reasonable. Condition: The Child Nutrition Cluster (CNC) includes the School Breakfast Program, NSLP, Special Milk Program for Children, SFSP and FFVP. The objectives of the programs are to provide nutritious meals to eligible children in schools, residential childcare institutions and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage the consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE provides benefits to each SFA or sponsor on a reimbursement basis. SFAs and sponsors must submit claims for reimbursement based on actual meals served for the month and permissible fresh fruits and vegetables utilizing the Child Nutrition Program (CNPWeb) system. The Department is required to review each SFA’s or sponsor’s CFR to ensure that monthly claims are limited to the number of meals served to eligible children and that the cost of the fresh fruits and vegetables are allowable. Once the claims are approved, claims are reimbursed based on the rates that are programmed in the CNPWeb system. The Office of the State Auditor (OSA) tested CFRs for the CNC and found instances that did not align with program regulations for NSLP, FFVP, and SFSP, as follows: National School Lunch Program CNS must perform procedures as outlined in Federal regulations, including a review of CFRs on a monthly basis through analysis utilizing a product of the enrollment information from the month of October multiplied by the days of operation and the attendance factor employed by the SFA. OSA procedures identified that CNS did not review or perform analysis on CFRs on a monthly basis as required. OSA tested 60 CFRs and identified nine CFRs from five SFAs where eligibility information entered on the CFR varied significantly from the information provided and verified by the SFA in October 2023. In order to verify the allowability of the claims identified, OSA requested supporting documentation from those five SFAs. OSA compared the eligibility counts from the CFR, the SFA’s POS reports, the SFA’s October data provided to CNS, and the SFA’s master list of eligible students for the month of the CFR and found: • five POS reports with eligibility counts that conflicted with the master eligibility list provided by the SFA for that month, and with the number of eligible children reported on the CFR, resulting in questioned costs totaling $897; • one POS report from October with eligibility counts that matched the site CFR, but did not match the master eligibility list provided by the SFA, or the data reported to CNS by the SFA for the same month, resulting in questioned costs totaling $708; and • documentation for three CFRs could not be provided. OSA selected a non-statistical random sample. Fresh Fruit and Vegetable Program CNS ensures compliance with Federal regulations through the annual administrative review process. OSA tested 17 FFVP CFRs from the nine SFAs who had an administrative review in fiscal year 2024 and found: • nine claims from five SFAs had sites with nonfood costs that were not reviewed during the administrative review process. • for six of the nine SFAs, portions of the administrative review process were erroneously omitted; therefore, CNS did not review or examine the allowability for any FFVP CFRs for those six SFAs. OSA selected a non-statistical random sample. The FFVP fiscal year is October 1 to September 30; therefore, though schools may begin the school year with unspent funds from the prior school year, these funds must be spent by September 30. OSA tested 19 FFVP SFAs that participated in both fiscal year 2023 and 2024 and found that three SFAs exceeded their fiscal year 2023 allocation in September 2023. CNS did not detect or correct this allocation issue until OSA inquired in September 2024. OSA selected a non-statistical random sample. Section 19 of the Richard B. Russell NSLA requires that FFVP allocations made by CNS result in a per-pupil grant not less than $50, nor more than $75 to participating SFAs. OSA tested 19 SFAs that participated in FFVP in fiscal year 2024 and found that 14 SFAs had manual allocation adjustments which resulted in ten per-pupil allocations that were not between $50 and $75 per pupil, ranging from $24 per pupil to $109 per pupil. The allocation of funds over $75 per pupil resulted in questioned costs of $9,535. OSA selected a non-statistical random sample. Summer Food Service Program CNS requires applications from sponsors that include individual site sheets. The information on the sheet must include the estimated number of meals, types of meals to be served, and meal service times. Meal service times must align with the approved application at the time the meals are served. Non-congregate sites must provide enough detail to ensure the area where the site proposes to serve meets certain criteria, including verification that the site: • is rural; • is not or will not be served in whole or in part by another site; • serves an area in which poor economic conditions exist or is approved for reimbursement only for meals served free to enrolled children who meet income standards; and • has procedures to ensure that duplicate meals are not served to any child. Residential and non-residential camps must include in their site sheets the number of children enrolled in each session who meet income standards prior to filing the camp’s CFR for each session. OSA tested 39 SFSP CFRs and found: • nine residential or non-residential camp CFRs that did not include the number of children enrolled in each session who met income standards prior to filing their CFR, resulting in questioned costs totaling $95,902. • two CFRs to non-congregate sites not located in an area where poor economic conditions exist per USDA data. The ineligible sites resulted in questioned costs totaling $15,536. • four CFRs included revised information from the site sheet that did not reflect the conditions at the time the meals were served. The revisions submitted between the meal service and submission of the CFR included an increase in capacity, an addition of meal types, and an addition of operating days, resulting in questioned costs totaling $5,821. • five CFRs to non-congregate sites that did not have documented procedures to prevent duplicate meal service on the site sheet. OSA selected a non-statistical random sample. Additionally, SFSP has two tiers of administrative rates for reimbursement, self-prep and vended. Sites classified as rural are all reimbursed at the highest rate, but sites classified as urban can either be reimbursed at the higher rate if they serve self-prep meals, or at the lower rate if their meals are vended. CNS previously determined that the field on the application for the sponsor to select whether the meal served is vended or self-prep is not required in the CNPWeb system. At that time, CNS submitted a ticket to request a change to the CNPWeb system to require the sponsor to select a meal type in that field on future applications; however, because that information was not required previously, CNS does not have assurance that urban sites that did not select self-prep or vended are being reimbursed at the correct rate. Furthermore, for each month of operation, CNS must report the number of meals served by meal type and sponsor type to USDA Food Nutrition Services (FNS) on the FNS-418 report. CNS does not have assurance that their default classification of urban sites as self-prep when the field was left blank is accurate for FNS-418 reporting. Context: In fiscal year 2024, CNS processed CFRs totaling: • $55.8 million under NSLP; • $2.8 million under FFVP; and • $2.8 million under SFSP. Cause: • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: • Noncompliance with Federal regulations • Known questioned costs • Potential future questioned costs and disallowances • Potential incorrect rates of reimbursement paid to SFAs and sponsors • Inaccurate FNS-418 reports submitted to FNS Recommendation: We recommend that CNS enhance policies and procedures to: • require a review of CFRs on a monthly basis in accordance with Federal regulations; • ensure all required information is included in the applications and approved prior to participation; • review and approve area eligibility for non-congregate sites; • require inclusion of self-prep or vended meal types and non-congregate plans on site information sheets that document procedures to prevent duplicate meal service; • ensure session-specific eligibility information is received prior to claim approval for camp sites; and • ensure that site information sheet revisions prohibit the sponsor from using the revised information in a claim for the prior month. In addition, we recommend that CNS enhance oversight over FFVP to ensure: • claims with nonfood costs are reasonable; • allocation amounts remain within $50 to $75 per pupil; and • administrative reviews conducted by CNS include FFVP allowability reviews. Corrective Action Plan: See F-16 Management’s Response: The Department partially agrees with this finding. These findings come from various programs and are correctly outlined in the Condition. However, the Department disagrees with the first bullet in the Recommendation regarding the review of CFRs monthly and has contacted the Northeast Regional Office of the USDA for clarification. Additionally, we disagree with the first bullet point regarding non-food costs in the FFVP program, as it’s addressed in the Administrative Review process. The Department has developed a corrective action plan to address the remaining recommendations. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 Auditor’s Concluding Remarks: 7 CFR 210.8(b)(2) provides detailed requirements outlining the minimum CFR monthly claim review procedures that CNS must perform. CNS has not implemented required procedures, and erroneous CFRs are not detected or corrected, resulting in questioned costs and potential disallowances. In addition, CNS asserts that FFVP nonfood costs are addressed as part of the Administrative Review process; however, OSA identified a material weakness and material noncompliance as issued in finding 2024-032 Internal control over CNC subrecipient monitoring procedures needs improvement. The finding reports that six of the nine Administrative Reviews tested for FFVP inappropriately omitted Federally required steps and that a cost analysis over nonfood costs was not performed. The finding remains as stated. (State Number: 24-1203-02)
(2024-031) Title: Internal control over CNC claim reimbursements needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Reporting Type of Finding: Material weakness Material noncompliance Questioned costs Known Questioned Costs: ALN 10.555 $1,605 ALN 10.582 $9,535 ALN 10.559 $117,259 Likely Questioned Costs: Undeterminable; due to the variety of site types in the test population and varied meal claim counts, an error rate cannot be applied to the population and a projection of questioned costs cannot be reasonably estimated. Criteria: 2 CFR 200.303; 2 CFR 200.403; 7 CFR 210.7 and .8; 7 CFR 225.6, .9, and .16; Richard B. Russell National School Lunch Act, Section 19; U.S. Department of Agriculture Fresh Fruit and Vegetable Handbook The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. To be allowable under Federal awards, costs must be necessary and reasonable for the performance of the Federal award and be adequately documented. 7 CFR 210.7 National School Lunch Program (NSLP) claims for reimbursement (CFRs) must be based on lunch counts taken daily at the point of service (POS), which correctly identify the number of free, reduced price, and paid lunches served to eligible children. 7 CFR 210.8 (NSLP) on a monthly basis, the State agency shall, at a minimum, compare the number of free and reduced price lunches claimed to the number of children approved for free and reduced price lunches enrolled in the School Food Authority (SFA) for the month of October, and multiply that number by the days of operation and the attendance factor employed by the SFA. At its discretion, the State agency may conduct this comparison against data which reflects the number of children approved for free and reduced price lunches for a more current month(s). 7 CFR 225.6 Summer Food Service Program (SFSP) required information must be on a site information sheet that the State agency must provide to the sponsor for approval by the State agency prior to participation in SFSP, including estimated meal counts, types of meals, meal service times, and procedures to ensure duplicate meals are not distributed at non-congregate sites. In order to approve a site, the area where the site proposes to serve is not or will not be served in whole or in part by another site. 7 CFR 225.9 (SFSP) outlines that payments to a sponsor must equal the amount derived by multiplying the number of eligible meals, by type, actually served under the sponsor's program to eligible children by the current applicable reimbursement rate for each meal type. Sponsors must be eligible to receive additional reimbursement for each meal served to participating children at rural or self-preparation sites. 7 CFR 225.16 (SFSP) meals served outside of the meal time listed on the sponsor’s application are not eligible for reimbursement. Sponsors agree in writing to claim reimbursement only for the types of meals specified in the agreement that are served. Section 19 of the Richard B. Russell National School Lunch Act (NSLA) states that the per-pupil grant provided to a school under the Fresh Fruit and Vegetable Program (FFVP) shall be not less than $50, nor more than $75. U.S. Department of Agriculture’s (USDA) FFVP Handbook, referenced as guidance in Policy Memo SP 17-2023, states that all nonfood costs must be carefully reviewed and deemed reasonable. Condition: The Child Nutrition Cluster (CNC) includes the School Breakfast Program, NSLP, Special Milk Program for Children, SFSP and FFVP. The objectives of the programs are to provide nutritious meals to eligible children in schools, residential childcare institutions and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage the consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE provides benefits to each SFA or sponsor on a reimbursement basis. SFAs and sponsors must submit claims for reimbursement based on actual meals served for the month and permissible fresh fruits and vegetables utilizing the Child Nutrition Program (CNPWeb) system. The Department is required to review each SFA’s or sponsor’s CFR to ensure that monthly claims are limited to the number of meals served to eligible children and that the cost of the fresh fruits and vegetables are allowable. Once the claims are approved, claims are reimbursed based on the rates that are programmed in the CNPWeb system. The Office of the State Auditor (OSA) tested CFRs for the CNC and found instances that did not align with program regulations for NSLP, FFVP, and SFSP, as follows: National School Lunch Program CNS must perform procedures as outlined in Federal regulations, including a review of CFRs on a monthly basis through analysis utilizing a product of the enrollment information from the month of October multiplied by the days of operation and the attendance factor employed by the SFA. OSA procedures identified that CNS did not review or perform analysis on CFRs on a monthly basis as required. OSA tested 60 CFRs and identified nine CFRs from five SFAs where eligibility information entered on the CFR varied significantly from the information provided and verified by the SFA in October 2023. In order to verify the allowability of the claims identified, OSA requested supporting documentation from those five SFAs. OSA compared the eligibility counts from the CFR, the SFA’s POS reports, the SFA’s October data provided to CNS, and the SFA’s master list of eligible students for the month of the CFR and found: • five POS reports with eligibility counts that conflicted with the master eligibility list provided by the SFA for that month, and with the number of eligible children reported on the CFR, resulting in questioned costs totaling $897; • one POS report from October with eligibility counts that matched the site CFR, but did not match the master eligibility list provided by the SFA, or the data reported to CNS by the SFA for the same month, resulting in questioned costs totaling $708; and • documentation for three CFRs could not be provided. OSA selected a non-statistical random sample. Fresh Fruit and Vegetable Program CNS ensures compliance with Federal regulations through the annual administrative review process. OSA tested 17 FFVP CFRs from the nine SFAs who had an administrative review in fiscal year 2024 and found: • nine claims from five SFAs had sites with nonfood costs that were not reviewed during the administrative review process. • for six of the nine SFAs, portions of the administrative review process were erroneously omitted; therefore, CNS did not review or examine the allowability for any FFVP CFRs for those six SFAs. OSA selected a non-statistical random sample. The FFVP fiscal year is October 1 to September 30; therefore, though schools may begin the school year with unspent funds from the prior school year, these funds must be spent by September 30. OSA tested 19 FFVP SFAs that participated in both fiscal year 2023 and 2024 and found that three SFAs exceeded their fiscal year 2023 allocation in September 2023. CNS did not detect or correct this allocation issue until OSA inquired in September 2024. OSA selected a non-statistical random sample. Section 19 of the Richard B. Russell NSLA requires that FFVP allocations made by CNS result in a per-pupil grant not less than $50, nor more than $75 to participating SFAs. OSA tested 19 SFAs that participated in FFVP in fiscal year 2024 and found that 14 SFAs had manual allocation adjustments which resulted in ten per-pupil allocations that were not between $50 and $75 per pupil, ranging from $24 per pupil to $109 per pupil. The allocation of funds over $75 per pupil resulted in questioned costs of $9,535. OSA selected a non-statistical random sample. Summer Food Service Program CNS requires applications from sponsors that include individual site sheets. The information on the sheet must include the estimated number of meals, types of meals to be served, and meal service times. Meal service times must align with the approved application at the time the meals are served. Non-congregate sites must provide enough detail to ensure the area where the site proposes to serve meets certain criteria, including verification that the site: • is rural; • is not or will not be served in whole or in part by another site; • serves an area in which poor economic conditions exist or is approved for reimbursement only for meals served free to enrolled children who meet income standards; and • has procedures to ensure that duplicate meals are not served to any child. Residential and non-residential camps must include in their site sheets the number of children enrolled in each session who meet income standards prior to filing the camp’s CFR for each session. OSA tested 39 SFSP CFRs and found: • nine residential or non-residential camp CFRs that did not include the number of children enrolled in each session who met income standards prior to filing their CFR, resulting in questioned costs totaling $95,902. • two CFRs to non-congregate sites not located in an area where poor economic conditions exist per USDA data. The ineligible sites resulted in questioned costs totaling $15,536. • four CFRs included revised information from the site sheet that did not reflect the conditions at the time the meals were served. The revisions submitted between the meal service and submission of the CFR included an increase in capacity, an addition of meal types, and an addition of operating days, resulting in questioned costs totaling $5,821. • five CFRs to non-congregate sites that did not have documented procedures to prevent duplicate meal service on the site sheet. OSA selected a non-statistical random sample. Additionally, SFSP has two tiers of administrative rates for reimbursement, self-prep and vended. Sites classified as rural are all reimbursed at the highest rate, but sites classified as urban can either be reimbursed at the higher rate if they serve self-prep meals, or at the lower rate if their meals are vended. CNS previously determined that the field on the application for the sponsor to select whether the meal served is vended or self-prep is not required in the CNPWeb system. At that time, CNS submitted a ticket to request a change to the CNPWeb system to require the sponsor to select a meal type in that field on future applications; however, because that information was not required previously, CNS does not have assurance that urban sites that did not select self-prep or vended are being reimbursed at the correct rate. Furthermore, for each month of operation, CNS must report the number of meals served by meal type and sponsor type to USDA Food Nutrition Services (FNS) on the FNS-418 report. CNS does not have assurance that their default classification of urban sites as self-prep when the field was left blank is accurate for FNS-418 reporting. Context: In fiscal year 2024, CNS processed CFRs totaling: • $55.8 million under NSLP; • $2.8 million under FFVP; and • $2.8 million under SFSP. Cause: • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: • Noncompliance with Federal regulations • Known questioned costs • Potential future questioned costs and disallowances • Potential incorrect rates of reimbursement paid to SFAs and sponsors • Inaccurate FNS-418 reports submitted to FNS Recommendation: We recommend that CNS enhance policies and procedures to: • require a review of CFRs on a monthly basis in accordance with Federal regulations; • ensure all required information is included in the applications and approved prior to participation; • review and approve area eligibility for non-congregate sites; • require inclusion of self-prep or vended meal types and non-congregate plans on site information sheets that document procedures to prevent duplicate meal service; • ensure session-specific eligibility information is received prior to claim approval for camp sites; and • ensure that site information sheet revisions prohibit the sponsor from using the revised information in a claim for the prior month. In addition, we recommend that CNS enhance oversight over FFVP to ensure: • claims with nonfood costs are reasonable; • allocation amounts remain within $50 to $75 per pupil; and • administrative reviews conducted by CNS include FFVP allowability reviews. Corrective Action Plan: See F-16 Management’s Response: The Department partially agrees with this finding. These findings come from various programs and are correctly outlined in the Condition. However, the Department disagrees with the first bullet in the Recommendation regarding the review of CFRs monthly and has contacted the Northeast Regional Office of the USDA for clarification. Additionally, we disagree with the first bullet point regarding non-food costs in the FFVP program, as it’s addressed in the Administrative Review process. The Department has developed a corrective action plan to address the remaining recommendations. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 Auditor’s Concluding Remarks: 7 CFR 210.8(b)(2) provides detailed requirements outlining the minimum CFR monthly claim review procedures that CNS must perform. CNS has not implemented required procedures, and erroneous CFRs are not detected or corrected, resulting in questioned costs and potential disallowances. In addition, CNS asserts that FFVP nonfood costs are addressed as part of the Administrative Review process; however, OSA identified a material weakness and material noncompliance as issued in finding 2024-032 Internal control over CNC subrecipient monitoring procedures needs improvement. The finding reports that six of the nine Administrative Reviews tested for FFVP inappropriately omitted Federally required steps and that a cost analysis over nonfood costs was not performed. The finding remains as stated. (State Number: 24-1203-02)
(2024-031) Title: Internal control over CNC claim reimbursements needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Reporting Type of Finding: Material weakness Material noncompliance Questioned costs Known Questioned Costs: ALN 10.555 $1,605 ALN 10.582 $9,535 ALN 10.559 $117,259 Likely Questioned Costs: Undeterminable; due to the variety of site types in the test population and varied meal claim counts, an error rate cannot be applied to the population and a projection of questioned costs cannot be reasonably estimated. Criteria: 2 CFR 200.303; 2 CFR 200.403; 7 CFR 210.7 and .8; 7 CFR 225.6, .9, and .16; Richard B. Russell National School Lunch Act, Section 19; U.S. Department of Agriculture Fresh Fruit and Vegetable Handbook The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. To be allowable under Federal awards, costs must be necessary and reasonable for the performance of the Federal award and be adequately documented. 7 CFR 210.7 National School Lunch Program (NSLP) claims for reimbursement (CFRs) must be based on lunch counts taken daily at the point of service (POS), which correctly identify the number of free, reduced price, and paid lunches served to eligible children. 7 CFR 210.8 (NSLP) on a monthly basis, the State agency shall, at a minimum, compare the number of free and reduced price lunches claimed to the number of children approved for free and reduced price lunches enrolled in the School Food Authority (SFA) for the month of October, and multiply that number by the days of operation and the attendance factor employed by the SFA. At its discretion, the State agency may conduct this comparison against data which reflects the number of children approved for free and reduced price lunches for a more current month(s). 7 CFR 225.6 Summer Food Service Program (SFSP) required information must be on a site information sheet that the State agency must provide to the sponsor for approval by the State agency prior to participation in SFSP, including estimated meal counts, types of meals, meal service times, and procedures to ensure duplicate meals are not distributed at non-congregate sites. In order to approve a site, the area where the site proposes to serve is not or will not be served in whole or in part by another site. 7 CFR 225.9 (SFSP) outlines that payments to a sponsor must equal the amount derived by multiplying the number of eligible meals, by type, actually served under the sponsor's program to eligible children by the current applicable reimbursement rate for each meal type. Sponsors must be eligible to receive additional reimbursement for each meal served to participating children at rural or self-preparation sites. 7 CFR 225.16 (SFSP) meals served outside of the meal time listed on the sponsor’s application are not eligible for reimbursement. Sponsors agree in writing to claim reimbursement only for the types of meals specified in the agreement that are served. Section 19 of the Richard B. Russell National School Lunch Act (NSLA) states that the per-pupil grant provided to a school under the Fresh Fruit and Vegetable Program (FFVP) shall be not less than $50, nor more than $75. U.S. Department of Agriculture’s (USDA) FFVP Handbook, referenced as guidance in Policy Memo SP 17-2023, states that all nonfood costs must be carefully reviewed and deemed reasonable. Condition: The Child Nutrition Cluster (CNC) includes the School Breakfast Program, NSLP, Special Milk Program for Children, SFSP and FFVP. The objectives of the programs are to provide nutritious meals to eligible children in schools, residential childcare institutions and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage the consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE provides benefits to each SFA or sponsor on a reimbursement basis. SFAs and sponsors must submit claims for reimbursement based on actual meals served for the month and permissible fresh fruits and vegetables utilizing the Child Nutrition Program (CNPWeb) system. The Department is required to review each SFA’s or sponsor’s CFR to ensure that monthly claims are limited to the number of meals served to eligible children and that the cost of the fresh fruits and vegetables are allowable. Once the claims are approved, claims are reimbursed based on the rates that are programmed in the CNPWeb system. The Office of the State Auditor (OSA) tested CFRs for the CNC and found instances that did not align with program regulations for NSLP, FFVP, and SFSP, as follows: National School Lunch Program CNS must perform procedures as outlined in Federal regulations, including a review of CFRs on a monthly basis through analysis utilizing a product of the enrollment information from the month of October multiplied by the days of operation and the attendance factor employed by the SFA. OSA procedures identified that CNS did not review or perform analysis on CFRs on a monthly basis as required. OSA tested 60 CFRs and identified nine CFRs from five SFAs where eligibility information entered on the CFR varied significantly from the information provided and verified by the SFA in October 2023. In order to verify the allowability of the claims identified, OSA requested supporting documentation from those five SFAs. OSA compared the eligibility counts from the CFR, the SFA’s POS reports, the SFA’s October data provided to CNS, and the SFA’s master list of eligible students for the month of the CFR and found: • five POS reports with eligibility counts that conflicted with the master eligibility list provided by the SFA for that month, and with the number of eligible children reported on the CFR, resulting in questioned costs totaling $897; • one POS report from October with eligibility counts that matched the site CFR, but did not match the master eligibility list provided by the SFA, or the data reported to CNS by the SFA for the same month, resulting in questioned costs totaling $708; and • documentation for three CFRs could not be provided. OSA selected a non-statistical random sample. Fresh Fruit and Vegetable Program CNS ensures compliance with Federal regulations through the annual administrative review process. OSA tested 17 FFVP CFRs from the nine SFAs who had an administrative review in fiscal year 2024 and found: • nine claims from five SFAs had sites with nonfood costs that were not reviewed during the administrative review process. • for six of the nine SFAs, portions of the administrative review process were erroneously omitted; therefore, CNS did not review or examine the allowability for any FFVP CFRs for those six SFAs. OSA selected a non-statistical random sample. The FFVP fiscal year is October 1 to September 30; therefore, though schools may begin the school year with unspent funds from the prior school year, these funds must be spent by September 30. OSA tested 19 FFVP SFAs that participated in both fiscal year 2023 and 2024 and found that three SFAs exceeded their fiscal year 2023 allocation in September 2023. CNS did not detect or correct this allocation issue until OSA inquired in September 2024. OSA selected a non-statistical random sample. Section 19 of the Richard B. Russell NSLA requires that FFVP allocations made by CNS result in a per-pupil grant not less than $50, nor more than $75 to participating SFAs. OSA tested 19 SFAs that participated in FFVP in fiscal year 2024 and found that 14 SFAs had manual allocation adjustments which resulted in ten per-pupil allocations that were not between $50 and $75 per pupil, ranging from $24 per pupil to $109 per pupil. The allocation of funds over $75 per pupil resulted in questioned costs of $9,535. OSA selected a non-statistical random sample. Summer Food Service Program CNS requires applications from sponsors that include individual site sheets. The information on the sheet must include the estimated number of meals, types of meals to be served, and meal service times. Meal service times must align with the approved application at the time the meals are served. Non-congregate sites must provide enough detail to ensure the area where the site proposes to serve meets certain criteria, including verification that the site: • is rural; • is not or will not be served in whole or in part by another site; • serves an area in which poor economic conditions exist or is approved for reimbursement only for meals served free to enrolled children who meet income standards; and • has procedures to ensure that duplicate meals are not served to any child. Residential and non-residential camps must include in their site sheets the number of children enrolled in each session who meet income standards prior to filing the camp’s CFR for each session. OSA tested 39 SFSP CFRs and found: • nine residential or non-residential camp CFRs that did not include the number of children enrolled in each session who met income standards prior to filing their CFR, resulting in questioned costs totaling $95,902. • two CFRs to non-congregate sites not located in an area where poor economic conditions exist per USDA data. The ineligible sites resulted in questioned costs totaling $15,536. • four CFRs included revised information from the site sheet that did not reflect the conditions at the time the meals were served. The revisions submitted between the meal service and submission of the CFR included an increase in capacity, an addition of meal types, and an addition of operating days, resulting in questioned costs totaling $5,821. • five CFRs to non-congregate sites that did not have documented procedures to prevent duplicate meal service on the site sheet. OSA selected a non-statistical random sample. Additionally, SFSP has two tiers of administrative rates for reimbursement, self-prep and vended. Sites classified as rural are all reimbursed at the highest rate, but sites classified as urban can either be reimbursed at the higher rate if they serve self-prep meals, or at the lower rate if their meals are vended. CNS previously determined that the field on the application for the sponsor to select whether the meal served is vended or self-prep is not required in the CNPWeb system. At that time, CNS submitted a ticket to request a change to the CNPWeb system to require the sponsor to select a meal type in that field on future applications; however, because that information was not required previously, CNS does not have assurance that urban sites that did not select self-prep or vended are being reimbursed at the correct rate. Furthermore, for each month of operation, CNS must report the number of meals served by meal type and sponsor type to USDA Food Nutrition Services (FNS) on the FNS-418 report. CNS does not have assurance that their default classification of urban sites as self-prep when the field was left blank is accurate for FNS-418 reporting. Context: In fiscal year 2024, CNS processed CFRs totaling: • $55.8 million under NSLP; • $2.8 million under FFVP; and • $2.8 million under SFSP. Cause: • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: • Noncompliance with Federal regulations • Known questioned costs • Potential future questioned costs and disallowances • Potential incorrect rates of reimbursement paid to SFAs and sponsors • Inaccurate FNS-418 reports submitted to FNS Recommendation: We recommend that CNS enhance policies and procedures to: • require a review of CFRs on a monthly basis in accordance with Federal regulations; • ensure all required information is included in the applications and approved prior to participation; • review and approve area eligibility for non-congregate sites; • require inclusion of self-prep or vended meal types and non-congregate plans on site information sheets that document procedures to prevent duplicate meal service; • ensure session-specific eligibility information is received prior to claim approval for camp sites; and • ensure that site information sheet revisions prohibit the sponsor from using the revised information in a claim for the prior month. In addition, we recommend that CNS enhance oversight over FFVP to ensure: • claims with nonfood costs are reasonable; • allocation amounts remain within $50 to $75 per pupil; and • administrative reviews conducted by CNS include FFVP allowability reviews. Corrective Action Plan: See F-16 Management’s Response: The Department partially agrees with this finding. These findings come from various programs and are correctly outlined in the Condition. However, the Department disagrees with the first bullet in the Recommendation regarding the review of CFRs monthly and has contacted the Northeast Regional Office of the USDA for clarification. Additionally, we disagree with the first bullet point regarding non-food costs in the FFVP program, as it’s addressed in the Administrative Review process. The Department has developed a corrective action plan to address the remaining recommendations. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 Auditor’s Concluding Remarks: 7 CFR 210.8(b)(2) provides detailed requirements outlining the minimum CFR monthly claim review procedures that CNS must perform. CNS has not implemented required procedures, and erroneous CFRs are not detected or corrected, resulting in questioned costs and potential disallowances. In addition, CNS asserts that FFVP nonfood costs are addressed as part of the Administrative Review process; however, OSA identified a material weakness and material noncompliance as issued in finding 2024-032 Internal control over CNC subrecipient monitoring procedures needs improvement. The finding reports that six of the nine Administrative Reviews tested for FFVP inappropriately omitted Federally required steps and that a cost analysis over nonfood costs was not performed. The finding remains as stated. (State Number: 24-1203-02)
(2024-031) Title: Internal control over CNC claim reimbursements needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Reporting Type of Finding: Material weakness Material noncompliance Questioned costs Known Questioned Costs: ALN 10.555 $1,605 ALN 10.582 $9,535 ALN 10.559 $117,259 Likely Questioned Costs: Undeterminable; due to the variety of site types in the test population and varied meal claim counts, an error rate cannot be applied to the population and a projection of questioned costs cannot be reasonably estimated. Criteria: 2 CFR 200.303; 2 CFR 200.403; 7 CFR 210.7 and .8; 7 CFR 225.6, .9, and .16; Richard B. Russell National School Lunch Act, Section 19; U.S. Department of Agriculture Fresh Fruit and Vegetable Handbook The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. To be allowable under Federal awards, costs must be necessary and reasonable for the performance of the Federal award and be adequately documented. 7 CFR 210.7 National School Lunch Program (NSLP) claims for reimbursement (CFRs) must be based on lunch counts taken daily at the point of service (POS), which correctly identify the number of free, reduced price, and paid lunches served to eligible children. 7 CFR 210.8 (NSLP) on a monthly basis, the State agency shall, at a minimum, compare the number of free and reduced price lunches claimed to the number of children approved for free and reduced price lunches enrolled in the School Food Authority (SFA) for the month of October, and multiply that number by the days of operation and the attendance factor employed by the SFA. At its discretion, the State agency may conduct this comparison against data which reflects the number of children approved for free and reduced price lunches for a more current month(s). 7 CFR 225.6 Summer Food Service Program (SFSP) required information must be on a site information sheet that the State agency must provide to the sponsor for approval by the State agency prior to participation in SFSP, including estimated meal counts, types of meals, meal service times, and procedures to ensure duplicate meals are not distributed at non-congregate sites. In order to approve a site, the area where the site proposes to serve is not or will not be served in whole or in part by another site. 7 CFR 225.9 (SFSP) outlines that payments to a sponsor must equal the amount derived by multiplying the number of eligible meals, by type, actually served under the sponsor's program to eligible children by the current applicable reimbursement rate for each meal type. Sponsors must be eligible to receive additional reimbursement for each meal served to participating children at rural or self-preparation sites. 7 CFR 225.16 (SFSP) meals served outside of the meal time listed on the sponsor’s application are not eligible for reimbursement. Sponsors agree in writing to claim reimbursement only for the types of meals specified in the agreement that are served. Section 19 of the Richard B. Russell National School Lunch Act (NSLA) states that the per-pupil grant provided to a school under the Fresh Fruit and Vegetable Program (FFVP) shall be not less than $50, nor more than $75. U.S. Department of Agriculture’s (USDA) FFVP Handbook, referenced as guidance in Policy Memo SP 17-2023, states that all nonfood costs must be carefully reviewed and deemed reasonable. Condition: The Child Nutrition Cluster (CNC) includes the School Breakfast Program, NSLP, Special Milk Program for Children, SFSP and FFVP. The objectives of the programs are to provide nutritious meals to eligible children in schools, residential childcare institutions and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage the consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE provides benefits to each SFA or sponsor on a reimbursement basis. SFAs and sponsors must submit claims for reimbursement based on actual meals served for the month and permissible fresh fruits and vegetables utilizing the Child Nutrition Program (CNPWeb) system. The Department is required to review each SFA’s or sponsor’s CFR to ensure that monthly claims are limited to the number of meals served to eligible children and that the cost of the fresh fruits and vegetables are allowable. Once the claims are approved, claims are reimbursed based on the rates that are programmed in the CNPWeb system. The Office of the State Auditor (OSA) tested CFRs for the CNC and found instances that did not align with program regulations for NSLP, FFVP, and SFSP, as follows: National School Lunch Program CNS must perform procedures as outlined in Federal regulations, including a review of CFRs on a monthly basis through analysis utilizing a product of the enrollment information from the month of October multiplied by the days of operation and the attendance factor employed by the SFA. OSA procedures identified that CNS did not review or perform analysis on CFRs on a monthly basis as required. OSA tested 60 CFRs and identified nine CFRs from five SFAs where eligibility information entered on the CFR varied significantly from the information provided and verified by the SFA in October 2023. In order to verify the allowability of the claims identified, OSA requested supporting documentation from those five SFAs. OSA compared the eligibility counts from the CFR, the SFA’s POS reports, the SFA’s October data provided to CNS, and the SFA’s master list of eligible students for the month of the CFR and found: • five POS reports with eligibility counts that conflicted with the master eligibility list provided by the SFA for that month, and with the number of eligible children reported on the CFR, resulting in questioned costs totaling $897; • one POS report from October with eligibility counts that matched the site CFR, but did not match the master eligibility list provided by the SFA, or the data reported to CNS by the SFA for the same month, resulting in questioned costs totaling $708; and • documentation for three CFRs could not be provided. OSA selected a non-statistical random sample. Fresh Fruit and Vegetable Program CNS ensures compliance with Federal regulations through the annual administrative review process. OSA tested 17 FFVP CFRs from the nine SFAs who had an administrative review in fiscal year 2024 and found: • nine claims from five SFAs had sites with nonfood costs that were not reviewed during the administrative review process. • for six of the nine SFAs, portions of the administrative review process were erroneously omitted; therefore, CNS did not review or examine the allowability for any FFVP CFRs for those six SFAs. OSA selected a non-statistical random sample. The FFVP fiscal year is October 1 to September 30; therefore, though schools may begin the school year with unspent funds from the prior school year, these funds must be spent by September 30. OSA tested 19 FFVP SFAs that participated in both fiscal year 2023 and 2024 and found that three SFAs exceeded their fiscal year 2023 allocation in September 2023. CNS did not detect or correct this allocation issue until OSA inquired in September 2024. OSA selected a non-statistical random sample. Section 19 of the Richard B. Russell NSLA requires that FFVP allocations made by CNS result in a per-pupil grant not less than $50, nor more than $75 to participating SFAs. OSA tested 19 SFAs that participated in FFVP in fiscal year 2024 and found that 14 SFAs had manual allocation adjustments which resulted in ten per-pupil allocations that were not between $50 and $75 per pupil, ranging from $24 per pupil to $109 per pupil. The allocation of funds over $75 per pupil resulted in questioned costs of $9,535. OSA selected a non-statistical random sample. Summer Food Service Program CNS requires applications from sponsors that include individual site sheets. The information on the sheet must include the estimated number of meals, types of meals to be served, and meal service times. Meal service times must align with the approved application at the time the meals are served. Non-congregate sites must provide enough detail to ensure the area where the site proposes to serve meets certain criteria, including verification that the site: • is rural; • is not or will not be served in whole or in part by another site; • serves an area in which poor economic conditions exist or is approved for reimbursement only for meals served free to enrolled children who meet income standards; and • has procedures to ensure that duplicate meals are not served to any child. Residential and non-residential camps must include in their site sheets the number of children enrolled in each session who meet income standards prior to filing the camp’s CFR for each session. OSA tested 39 SFSP CFRs and found: • nine residential or non-residential camp CFRs that did not include the number of children enrolled in each session who met income standards prior to filing their CFR, resulting in questioned costs totaling $95,902. • two CFRs to non-congregate sites not located in an area where poor economic conditions exist per USDA data. The ineligible sites resulted in questioned costs totaling $15,536. • four CFRs included revised information from the site sheet that did not reflect the conditions at the time the meals were served. The revisions submitted between the meal service and submission of the CFR included an increase in capacity, an addition of meal types, and an addition of operating days, resulting in questioned costs totaling $5,821. • five CFRs to non-congregate sites that did not have documented procedures to prevent duplicate meal service on the site sheet. OSA selected a non-statistical random sample. Additionally, SFSP has two tiers of administrative rates for reimbursement, self-prep and vended. Sites classified as rural are all reimbursed at the highest rate, but sites classified as urban can either be reimbursed at the higher rate if they serve self-prep meals, or at the lower rate if their meals are vended. CNS previously determined that the field on the application for the sponsor to select whether the meal served is vended or self-prep is not required in the CNPWeb system. At that time, CNS submitted a ticket to request a change to the CNPWeb system to require the sponsor to select a meal type in that field on future applications; however, because that information was not required previously, CNS does not have assurance that urban sites that did not select self-prep or vended are being reimbursed at the correct rate. Furthermore, for each month of operation, CNS must report the number of meals served by meal type and sponsor type to USDA Food Nutrition Services (FNS) on the FNS-418 report. CNS does not have assurance that their default classification of urban sites as self-prep when the field was left blank is accurate for FNS-418 reporting. Context: In fiscal year 2024, CNS processed CFRs totaling: • $55.8 million under NSLP; • $2.8 million under FFVP; and • $2.8 million under SFSP. Cause: • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: • Noncompliance with Federal regulations • Known questioned costs • Potential future questioned costs and disallowances • Potential incorrect rates of reimbursement paid to SFAs and sponsors • Inaccurate FNS-418 reports submitted to FNS Recommendation: We recommend that CNS enhance policies and procedures to: • require a review of CFRs on a monthly basis in accordance with Federal regulations; • ensure all required information is included in the applications and approved prior to participation; • review and approve area eligibility for non-congregate sites; • require inclusion of self-prep or vended meal types and non-congregate plans on site information sheets that document procedures to prevent duplicate meal service; • ensure session-specific eligibility information is received prior to claim approval for camp sites; and • ensure that site information sheet revisions prohibit the sponsor from using the revised information in a claim for the prior month. In addition, we recommend that CNS enhance oversight over FFVP to ensure: • claims with nonfood costs are reasonable; • allocation amounts remain within $50 to $75 per pupil; and • administrative reviews conducted by CNS include FFVP allowability reviews. Corrective Action Plan: See F-16 Management’s Response: The Department partially agrees with this finding. These findings come from various programs and are correctly outlined in the Condition. However, the Department disagrees with the first bullet in the Recommendation regarding the review of CFRs monthly and has contacted the Northeast Regional Office of the USDA for clarification. Additionally, we disagree with the first bullet point regarding non-food costs in the FFVP program, as it’s addressed in the Administrative Review process. The Department has developed a corrective action plan to address the remaining recommendations. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 Auditor’s Concluding Remarks: 7 CFR 210.8(b)(2) provides detailed requirements outlining the minimum CFR monthly claim review procedures that CNS must perform. CNS has not implemented required procedures, and erroneous CFRs are not detected or corrected, resulting in questioned costs and potential disallowances. In addition, CNS asserts that FFVP nonfood costs are addressed as part of the Administrative Review process; however, OSA identified a material weakness and material noncompliance as issued in finding 2024-032 Internal control over CNC subrecipient monitoring procedures needs improvement. The finding reports that six of the nine Administrative Reviews tested for FFVP inappropriately omitted Federally required steps and that a cost analysis over nonfood costs was not performed. The finding remains as stated. (State Number: 24-1203-02)
(2024-032) Title: Internal control over CNC subrecipient monitoring procedures needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Subrecipient monitoring Type of Finding: Material weakness Material noncompliance Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.332; 7 CFR 210.18; 7 CFR 225.7; U.S. Department of Agriculture Policy Memo SP 46-2015 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. The Department must conduct administrative reviews of School Food Authorities (SFAs) participating in the National School Lunch Program (NSLP) and the School Breakfast Program (SBP). These procedures must also be followed, as applicable, to conduct administrative reviews of the afterschool snacks, Special Milk Program (SMP) and the Fresh Fruit and Vegetable Program (FFVP). Documented corrective action is required for any degree of violation of general or critical areas identified in an administrative review. Corrective action may be provided at the time of the review; however, it must be postmarked or submitted to the State agency electronically no later than 30 days from the deadline for completion of each required corrective action. The State agency must maintain any documented corrective action on file for review by the Food and Nutrition Service (FNS). The Department must withhold all program payments to a SFA if: • documented corrective action for critical area violations is not provided with deadlines specified; or • corrective action for critical area violations was not completed. FNS may suspend or withhold program payments, in whole or in part, to those states failing to withhold payments in accordance with regulations and may withhold administrative funds. The Department must review sponsors to ensure compliance with Summer Food Service Program (SFSP) regulations. The Department is required to conduct a review of base year certification and benefit issuance documentation for any SFA requesting approval to participate in NSLP or SBP using U.S. Department of Agriculture (USDA) Special Provision 2, which is a provision established to reduce application burdens and simplify claim procedures. The review must occur at some point during the base year. If errors are identified as a result of the review, the Department must adjust all of the SFA’s closed claims that occurred in the current school year. Condition: The Child Nutrition Cluster (CNC) includes the NSLP, SBP, SMP, SFSP, and FFVP. The objectives of the programs are to provide nutritious meals to eligible children in schools and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE partners with local SFAs and sponsors to provide benefits to school-aged children. DOE has assigned subrecipient monitoring responsibilities, which include administrative reviews and other reviews as needed, to the Child Nutrition Services (CNS) division. Administrative reviews of all SFAs are required at least once every five years; however, regulations also specify that high-risk SFAs must receive targeted follow-up within two years. CNS utilizes a spreadsheet to track and facilitate the reviews, and a USDA questionnaire to document the completion of the review. CNS does not have a mechanism to centrally track the high-risk SFAs to ensure follow-up occurs. CNS is required to retain documentation to support all elements of the administrative reviews and to demonstrate the SFA’s compliance with the program, even if corrective action occurs onsite during the review. The Office of the State Auditor (OSA) tested 29 administrative reviews completed by CNS and found: • Performance Standard 1 findings, deemed critical findings by USDA, were identified in four reviews, but were not tracked for follow-up. In addition, corrective action was not provided within 30 days for one review. • Performance Standard 2 findings, also deemed critical by USDA, were identified in three reviews, but were not tracked for follow-up. In addition, corrective action was not provided within 30 days for two reviews. • corrective action completed onsite was indicated in five reviews; however, CNS could not provide documentation to support the corrective action. • corrective action for three reviews did not fully address the deficiencies noted. • corrective action for two reviews was received more than 30 days late. • 12 reviews were closed; however, corrective action remained outstanding. • one sponsor submitted corrective action in October 2023, but as of audit testing in March 2025, CNS had not notified the sponsor of the approval and had not closed the sponsor’s review. • corrective action submitted from two SFAs was not approved, and the SFAs were not notified until nine months after their submission. • the review tracking spreadsheet was not fully completed or conflicted with information obtained from the administrative review for 16 reviews. • questionnaires were not fully completed for seven reviews. • USDA questionnaire sections related to FFVP and SMP were erroneously excluded for eight reviews. • the date for required corrective action to be provided was omitted for seven reviews. • one review was erroneously excluded from the review tracking spreadsheet. In addition to administrative reviews, CNS must perform base year reviews for all SFAs that have applied to participate in USDA Special Provision 2. These base year reviews provide the required information necessary to determine the level of claims the SFA may submit in the subsequent three years. After completion of the base year review, a letter detailing the results, including any adjustments to previously submitted claims, is provided to the SFA. The SFA is required to adjust claims and enrollment data through the claim revision process and CNS is responsible for verifying that the appropriate revisions have been completed. In fiscal year 2024, CNS identified 17 SFAs that required a base year review. OSA tested four base year reviews and identified three SFAs that did not properly revise claims and enrollment data, and CNS did not verify the accuracy of the revisions completed by the SFAs. In addition, one SFA had an eligibility determination that was not supported by the application. The income amount included in the application exceeded income requirements for reduced-price eligibility, but the SFA categorized the applicant as eligible for reduced-price meals. In the base year review, the application was not recategorized by CNS, and claims were not revised to match the eligibility determination. OSA cannot determine if unallowable costs exist through the audit of subrecipient monitoring activities, as required information was not collected. OSA has questioned costs through the audit of allowable costs/costs principles and eligibility, see findings 2024-031 Internal control over CNC reimbursements needs improvement and 2024-030 Internal control over CNC eligibility needs improvement, respectively. OSA selected non-statistical random samples. Context: In fiscal year 2024, CNC expenditures totaled approximately $68 million, of which $67.6 million was provided to 241 SFAs and sponsors. Cause: • Lack of policies and procedures • Lack of supervisory oversight Effect: • Noncompliance with Federal regulations • Subrecipients may not be complying with Federal statutes, regulations, or the terms and conditions of the subaward. • Potential questioned costs and disallowances. Base year reviews provide authorization for the level of allowable claims the SFA can claim in subsequent periods. Without a base year review and necessary revisions, SFAs could be underclaiming or overclaiming costs. Recommendation: We recommend that the Department implement policies and procedures and increase oversight to ensure that: • reviews are completed as required and supporting documentation is retained; • high-risk SFAs are tracked and considered in planning follow-up reviews; • SFAs revise claims appropriately after a base year review; and • CNS verifies that claim adjustments occur as necessary. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. The Department will improve tracking and create procedures to evaluate the Administrative Review Processes for the team. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-06)
(2024-032) Title: Internal control over CNC subrecipient monitoring procedures needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Subrecipient monitoring Type of Finding: Material weakness Material noncompliance Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.332; 7 CFR 210.18; 7 CFR 225.7; U.S. Department of Agriculture Policy Memo SP 46-2015 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. The Department must conduct administrative reviews of School Food Authorities (SFAs) participating in the National School Lunch Program (NSLP) and the School Breakfast Program (SBP). These procedures must also be followed, as applicable, to conduct administrative reviews of the afterschool snacks, Special Milk Program (SMP) and the Fresh Fruit and Vegetable Program (FFVP). Documented corrective action is required for any degree of violation of general or critical areas identified in an administrative review. Corrective action may be provided at the time of the review; however, it must be postmarked or submitted to the State agency electronically no later than 30 days from the deadline for completion of each required corrective action. The State agency must maintain any documented corrective action on file for review by the Food and Nutrition Service (FNS). The Department must withhold all program payments to a SFA if: • documented corrective action for critical area violations is not provided with deadlines specified; or • corrective action for critical area violations was not completed. FNS may suspend or withhold program payments, in whole or in part, to those states failing to withhold payments in accordance with regulations and may withhold administrative funds. The Department must review sponsors to ensure compliance with Summer Food Service Program (SFSP) regulations. The Department is required to conduct a review of base year certification and benefit issuance documentation for any SFA requesting approval to participate in NSLP or SBP using U.S. Department of Agriculture (USDA) Special Provision 2, which is a provision established to reduce application burdens and simplify claim procedures. The review must occur at some point during the base year. If errors are identified as a result of the review, the Department must adjust all of the SFA’s closed claims that occurred in the current school year. Condition: The Child Nutrition Cluster (CNC) includes the NSLP, SBP, SMP, SFSP, and FFVP. The objectives of the programs are to provide nutritious meals to eligible children in schools and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE partners with local SFAs and sponsors to provide benefits to school-aged children. DOE has assigned subrecipient monitoring responsibilities, which include administrative reviews and other reviews as needed, to the Child Nutrition Services (CNS) division. Administrative reviews of all SFAs are required at least once every five years; however, regulations also specify that high-risk SFAs must receive targeted follow-up within two years. CNS utilizes a spreadsheet to track and facilitate the reviews, and a USDA questionnaire to document the completion of the review. CNS does not have a mechanism to centrally track the high-risk SFAs to ensure follow-up occurs. CNS is required to retain documentation to support all elements of the administrative reviews and to demonstrate the SFA’s compliance with the program, even if corrective action occurs onsite during the review. The Office of the State Auditor (OSA) tested 29 administrative reviews completed by CNS and found: • Performance Standard 1 findings, deemed critical findings by USDA, were identified in four reviews, but were not tracked for follow-up. In addition, corrective action was not provided within 30 days for one review. • Performance Standard 2 findings, also deemed critical by USDA, were identified in three reviews, but were not tracked for follow-up. In addition, corrective action was not provided within 30 days for two reviews. • corrective action completed onsite was indicated in five reviews; however, CNS could not provide documentation to support the corrective action. • corrective action for three reviews did not fully address the deficiencies noted. • corrective action for two reviews was received more than 30 days late. • 12 reviews were closed; however, corrective action remained outstanding. • one sponsor submitted corrective action in October 2023, but as of audit testing in March 2025, CNS had not notified the sponsor of the approval and had not closed the sponsor’s review. • corrective action submitted from two SFAs was not approved, and the SFAs were not notified until nine months after their submission. • the review tracking spreadsheet was not fully completed or conflicted with information obtained from the administrative review for 16 reviews. • questionnaires were not fully completed for seven reviews. • USDA questionnaire sections related to FFVP and SMP were erroneously excluded for eight reviews. • the date for required corrective action to be provided was omitted for seven reviews. • one review was erroneously excluded from the review tracking spreadsheet. In addition to administrative reviews, CNS must perform base year reviews for all SFAs that have applied to participate in USDA Special Provision 2. These base year reviews provide the required information necessary to determine the level of claims the SFA may submit in the subsequent three years. After completion of the base year review, a letter detailing the results, including any adjustments to previously submitted claims, is provided to the SFA. The SFA is required to adjust claims and enrollment data through the claim revision process and CNS is responsible for verifying that the appropriate revisions have been completed. In fiscal year 2024, CNS identified 17 SFAs that required a base year review. OSA tested four base year reviews and identified three SFAs that did not properly revise claims and enrollment data, and CNS did not verify the accuracy of the revisions completed by the SFAs. In addition, one SFA had an eligibility determination that was not supported by the application. The income amount included in the application exceeded income requirements for reduced-price eligibility, but the SFA categorized the applicant as eligible for reduced-price meals. In the base year review, the application was not recategorized by CNS, and claims were not revised to match the eligibility determination. OSA cannot determine if unallowable costs exist through the audit of subrecipient monitoring activities, as required information was not collected. OSA has questioned costs through the audit of allowable costs/costs principles and eligibility, see findings 2024-031 Internal control over CNC reimbursements needs improvement and 2024-030 Internal control over CNC eligibility needs improvement, respectively. OSA selected non-statistical random samples. Context: In fiscal year 2024, CNC expenditures totaled approximately $68 million, of which $67.6 million was provided to 241 SFAs and sponsors. Cause: • Lack of policies and procedures • Lack of supervisory oversight Effect: • Noncompliance with Federal regulations • Subrecipients may not be complying with Federal statutes, regulations, or the terms and conditions of the subaward. • Potential questioned costs and disallowances. Base year reviews provide authorization for the level of allowable claims the SFA can claim in subsequent periods. Without a base year review and necessary revisions, SFAs could be underclaiming or overclaiming costs. Recommendation: We recommend that the Department implement policies and procedures and increase oversight to ensure that: • reviews are completed as required and supporting documentation is retained; • high-risk SFAs are tracked and considered in planning follow-up reviews; • SFAs revise claims appropriately after a base year review; and • CNS verifies that claim adjustments occur as necessary. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. The Department will improve tracking and create procedures to evaluate the Administrative Review Processes for the team. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-06)
(2024-032) Title: Internal control over CNC subrecipient monitoring procedures needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Subrecipient monitoring Type of Finding: Material weakness Material noncompliance Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.332; 7 CFR 210.18; 7 CFR 225.7; U.S. Department of Agriculture Policy Memo SP 46-2015 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. The Department must conduct administrative reviews of School Food Authorities (SFAs) participating in the National School Lunch Program (NSLP) and the School Breakfast Program (SBP). These procedures must also be followed, as applicable, to conduct administrative reviews of the afterschool snacks, Special Milk Program (SMP) and the Fresh Fruit and Vegetable Program (FFVP). Documented corrective action is required for any degree of violation of general or critical areas identified in an administrative review. Corrective action may be provided at the time of the review; however, it must be postmarked or submitted to the State agency electronically no later than 30 days from the deadline for completion of each required corrective action. The State agency must maintain any documented corrective action on file for review by the Food and Nutrition Service (FNS). The Department must withhold all program payments to a SFA if: • documented corrective action for critical area violations is not provided with deadlines specified; or • corrective action for critical area violations was not completed. FNS may suspend or withhold program payments, in whole or in part, to those states failing to withhold payments in accordance with regulations and may withhold administrative funds. The Department must review sponsors to ensure compliance with Summer Food Service Program (SFSP) regulations. The Department is required to conduct a review of base year certification and benefit issuance documentation for any SFA requesting approval to participate in NSLP or SBP using U.S. Department of Agriculture (USDA) Special Provision 2, which is a provision established to reduce application burdens and simplify claim procedures. The review must occur at some point during the base year. If errors are identified as a result of the review, the Department must adjust all of the SFA’s closed claims that occurred in the current school year. Condition: The Child Nutrition Cluster (CNC) includes the NSLP, SBP, SMP, SFSP, and FFVP. The objectives of the programs are to provide nutritious meals to eligible children in schools and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE partners with local SFAs and sponsors to provide benefits to school-aged children. DOE has assigned subrecipient monitoring responsibilities, which include administrative reviews and other reviews as needed, to the Child Nutrition Services (CNS) division. Administrative reviews of all SFAs are required at least once every five years; however, regulations also specify that high-risk SFAs must receive targeted follow-up within two years. CNS utilizes a spreadsheet to track and facilitate the reviews, and a USDA questionnaire to document the completion of the review. CNS does not have a mechanism to centrally track the high-risk SFAs to ensure follow-up occurs. CNS is required to retain documentation to support all elements of the administrative reviews and to demonstrate the SFA’s compliance with the program, even if corrective action occurs onsite during the review. The Office of the State Auditor (OSA) tested 29 administrative reviews completed by CNS and found: • Performance Standard 1 findings, deemed critical findings by USDA, were identified in four reviews, but were not tracked for follow-up. In addition, corrective action was not provided within 30 days for one review. • Performance Standard 2 findings, also deemed critical by USDA, were identified in three reviews, but were not tracked for follow-up. In addition, corrective action was not provided within 30 days for two reviews. • corrective action completed onsite was indicated in five reviews; however, CNS could not provide documentation to support the corrective action. • corrective action for three reviews did not fully address the deficiencies noted. • corrective action for two reviews was received more than 30 days late. • 12 reviews were closed; however, corrective action remained outstanding. • one sponsor submitted corrective action in October 2023, but as of audit testing in March 2025, CNS had not notified the sponsor of the approval and had not closed the sponsor’s review. • corrective action submitted from two SFAs was not approved, and the SFAs were not notified until nine months after their submission. • the review tracking spreadsheet was not fully completed or conflicted with information obtained from the administrative review for 16 reviews. • questionnaires were not fully completed for seven reviews. • USDA questionnaire sections related to FFVP and SMP were erroneously excluded for eight reviews. • the date for required corrective action to be provided was omitted for seven reviews. • one review was erroneously excluded from the review tracking spreadsheet. In addition to administrative reviews, CNS must perform base year reviews for all SFAs that have applied to participate in USDA Special Provision 2. These base year reviews provide the required information necessary to determine the level of claims the SFA may submit in the subsequent three years. After completion of the base year review, a letter detailing the results, including any adjustments to previously submitted claims, is provided to the SFA. The SFA is required to adjust claims and enrollment data through the claim revision process and CNS is responsible for verifying that the appropriate revisions have been completed. In fiscal year 2024, CNS identified 17 SFAs that required a base year review. OSA tested four base year reviews and identified three SFAs that did not properly revise claims and enrollment data, and CNS did not verify the accuracy of the revisions completed by the SFAs. In addition, one SFA had an eligibility determination that was not supported by the application. The income amount included in the application exceeded income requirements for reduced-price eligibility, but the SFA categorized the applicant as eligible for reduced-price meals. In the base year review, the application was not recategorized by CNS, and claims were not revised to match the eligibility determination. OSA cannot determine if unallowable costs exist through the audit of subrecipient monitoring activities, as required information was not collected. OSA has questioned costs through the audit of allowable costs/costs principles and eligibility, see findings 2024-031 Internal control over CNC reimbursements needs improvement and 2024-030 Internal control over CNC eligibility needs improvement, respectively. OSA selected non-statistical random samples. Context: In fiscal year 2024, CNC expenditures totaled approximately $68 million, of which $67.6 million was provided to 241 SFAs and sponsors. Cause: • Lack of policies and procedures • Lack of supervisory oversight Effect: • Noncompliance with Federal regulations • Subrecipients may not be complying with Federal statutes, regulations, or the terms and conditions of the subaward. • Potential questioned costs and disallowances. Base year reviews provide authorization for the level of allowable claims the SFA can claim in subsequent periods. Without a base year review and necessary revisions, SFAs could be underclaiming or overclaiming costs. Recommendation: We recommend that the Department implement policies and procedures and increase oversight to ensure that: • reviews are completed as required and supporting documentation is retained; • high-risk SFAs are tracked and considered in planning follow-up reviews; • SFAs revise claims appropriately after a base year review; and • CNS verifies that claim adjustments occur as necessary. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. The Department will improve tracking and create procedures to evaluate the Administrative Review Processes for the team. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-06)
(2024-032) Title: Internal control over CNC subrecipient monitoring procedures needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Subrecipient monitoring Type of Finding: Material weakness Material noncompliance Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.332; 7 CFR 210.18; 7 CFR 225.7; U.S. Department of Agriculture Policy Memo SP 46-2015 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. The Department must conduct administrative reviews of School Food Authorities (SFAs) participating in the National School Lunch Program (NSLP) and the School Breakfast Program (SBP). These procedures must also be followed, as applicable, to conduct administrative reviews of the afterschool snacks, Special Milk Program (SMP) and the Fresh Fruit and Vegetable Program (FFVP). Documented corrective action is required for any degree of violation of general or critical areas identified in an administrative review. Corrective action may be provided at the time of the review; however, it must be postmarked or submitted to the State agency electronically no later than 30 days from the deadline for completion of each required corrective action. The State agency must maintain any documented corrective action on file for review by the Food and Nutrition Service (FNS). The Department must withhold all program payments to a SFA if: • documented corrective action for critical area violations is not provided with deadlines specified; or • corrective action for critical area violations was not completed. FNS may suspend or withhold program payments, in whole or in part, to those states failing to withhold payments in accordance with regulations and may withhold administrative funds. The Department must review sponsors to ensure compliance with Summer Food Service Program (SFSP) regulations. The Department is required to conduct a review of base year certification and benefit issuance documentation for any SFA requesting approval to participate in NSLP or SBP using U.S. Department of Agriculture (USDA) Special Provision 2, which is a provision established to reduce application burdens and simplify claim procedures. The review must occur at some point during the base year. If errors are identified as a result of the review, the Department must adjust all of the SFA’s closed claims that occurred in the current school year. Condition: The Child Nutrition Cluster (CNC) includes the NSLP, SBP, SMP, SFSP, and FFVP. The objectives of the programs are to provide nutritious meals to eligible children in schools and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE partners with local SFAs and sponsors to provide benefits to school-aged children. DOE has assigned subrecipient monitoring responsibilities, which include administrative reviews and other reviews as needed, to the Child Nutrition Services (CNS) division. Administrative reviews of all SFAs are required at least once every five years; however, regulations also specify that high-risk SFAs must receive targeted follow-up within two years. CNS utilizes a spreadsheet to track and facilitate the reviews, and a USDA questionnaire to document the completion of the review. CNS does not have a mechanism to centrally track the high-risk SFAs to ensure follow-up occurs. CNS is required to retain documentation to support all elements of the administrative reviews and to demonstrate the SFA’s compliance with the program, even if corrective action occurs onsite during the review. The Office of the State Auditor (OSA) tested 29 administrative reviews completed by CNS and found: • Performance Standard 1 findings, deemed critical findings by USDA, were identified in four reviews, but were not tracked for follow-up. In addition, corrective action was not provided within 30 days for one review. • Performance Standard 2 findings, also deemed critical by USDA, were identified in three reviews, but were not tracked for follow-up. In addition, corrective action was not provided within 30 days for two reviews. • corrective action completed onsite was indicated in five reviews; however, CNS could not provide documentation to support the corrective action. • corrective action for three reviews did not fully address the deficiencies noted. • corrective action for two reviews was received more than 30 days late. • 12 reviews were closed; however, corrective action remained outstanding. • one sponsor submitted corrective action in October 2023, but as of audit testing in March 2025, CNS had not notified the sponsor of the approval and had not closed the sponsor’s review. • corrective action submitted from two SFAs was not approved, and the SFAs were not notified until nine months after their submission. • the review tracking spreadsheet was not fully completed or conflicted with information obtained from the administrative review for 16 reviews. • questionnaires were not fully completed for seven reviews. • USDA questionnaire sections related to FFVP and SMP were erroneously excluded for eight reviews. • the date for required corrective action to be provided was omitted for seven reviews. • one review was erroneously excluded from the review tracking spreadsheet. In addition to administrative reviews, CNS must perform base year reviews for all SFAs that have applied to participate in USDA Special Provision 2. These base year reviews provide the required information necessary to determine the level of claims the SFA may submit in the subsequent three years. After completion of the base year review, a letter detailing the results, including any adjustments to previously submitted claims, is provided to the SFA. The SFA is required to adjust claims and enrollment data through the claim revision process and CNS is responsible for verifying that the appropriate revisions have been completed. In fiscal year 2024, CNS identified 17 SFAs that required a base year review. OSA tested four base year reviews and identified three SFAs that did not properly revise claims and enrollment data, and CNS did not verify the accuracy of the revisions completed by the SFAs. In addition, one SFA had an eligibility determination that was not supported by the application. The income amount included in the application exceeded income requirements for reduced-price eligibility, but the SFA categorized the applicant as eligible for reduced-price meals. In the base year review, the application was not recategorized by CNS, and claims were not revised to match the eligibility determination. OSA cannot determine if unallowable costs exist through the audit of subrecipient monitoring activities, as required information was not collected. OSA has questioned costs through the audit of allowable costs/costs principles and eligibility, see findings 2024-031 Internal control over CNC reimbursements needs improvement and 2024-030 Internal control over CNC eligibility needs improvement, respectively. OSA selected non-statistical random samples. Context: In fiscal year 2024, CNC expenditures totaled approximately $68 million, of which $67.6 million was provided to 241 SFAs and sponsors. Cause: • Lack of policies and procedures • Lack of supervisory oversight Effect: • Noncompliance with Federal regulations • Subrecipients may not be complying with Federal statutes, regulations, or the terms and conditions of the subaward. • Potential questioned costs and disallowances. Base year reviews provide authorization for the level of allowable claims the SFA can claim in subsequent periods. Without a base year review and necessary revisions, SFAs could be underclaiming or overclaiming costs. Recommendation: We recommend that the Department implement policies and procedures and increase oversight to ensure that: • reviews are completed as required and supporting documentation is retained; • high-risk SFAs are tracked and considered in planning follow-up reviews; • SFAs revise claims appropriately after a base year review; and • CNS verifies that claim adjustments occur as necessary. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. The Department will improve tracking and create procedures to evaluate the Administrative Review Processes for the team. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-06)
(2024-032) Title: Internal control over CNC subrecipient monitoring procedures needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Subrecipient monitoring Type of Finding: Material weakness Material noncompliance Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.332; 7 CFR 210.18; 7 CFR 225.7; U.S. Department of Agriculture Policy Memo SP 46-2015 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. The Department must conduct administrative reviews of School Food Authorities (SFAs) participating in the National School Lunch Program (NSLP) and the School Breakfast Program (SBP). These procedures must also be followed, as applicable, to conduct administrative reviews of the afterschool snacks, Special Milk Program (SMP) and the Fresh Fruit and Vegetable Program (FFVP). Documented corrective action is required for any degree of violation of general or critical areas identified in an administrative review. Corrective action may be provided at the time of the review; however, it must be postmarked or submitted to the State agency electronically no later than 30 days from the deadline for completion of each required corrective action. The State agency must maintain any documented corrective action on file for review by the Food and Nutrition Service (FNS). The Department must withhold all program payments to a SFA if: • documented corrective action for critical area violations is not provided with deadlines specified; or • corrective action for critical area violations was not completed. FNS may suspend or withhold program payments, in whole or in part, to those states failing to withhold payments in accordance with regulations and may withhold administrative funds. The Department must review sponsors to ensure compliance with Summer Food Service Program (SFSP) regulations. The Department is required to conduct a review of base year certification and benefit issuance documentation for any SFA requesting approval to participate in NSLP or SBP using U.S. Department of Agriculture (USDA) Special Provision 2, which is a provision established to reduce application burdens and simplify claim procedures. The review must occur at some point during the base year. If errors are identified as a result of the review, the Department must adjust all of the SFA’s closed claims that occurred in the current school year. Condition: The Child Nutrition Cluster (CNC) includes the NSLP, SBP, SMP, SFSP, and FFVP. The objectives of the programs are to provide nutritious meals to eligible children in schools and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of child nutrition programs for the State. DOE partners with local SFAs and sponsors to provide benefits to school-aged children. DOE has assigned subrecipient monitoring responsibilities, which include administrative reviews and other reviews as needed, to the Child Nutrition Services (CNS) division. Administrative reviews of all SFAs are required at least once every five years; however, regulations also specify that high-risk SFAs must receive targeted follow-up within two years. CNS utilizes a spreadsheet to track and facilitate the reviews, and a USDA questionnaire to document the completion of the review. CNS does not have a mechanism to centrally track the high-risk SFAs to ensure follow-up occurs. CNS is required to retain documentation to support all elements of the administrative reviews and to demonstrate the SFA’s compliance with the program, even if corrective action occurs onsite during the review. The Office of the State Auditor (OSA) tested 29 administrative reviews completed by CNS and found: • Performance Standard 1 findings, deemed critical findings by USDA, were identified in four reviews, but were not tracked for follow-up. In addition, corrective action was not provided within 30 days for one review. • Performance Standard 2 findings, also deemed critical by USDA, were identified in three reviews, but were not tracked for follow-up. In addition, corrective action was not provided within 30 days for two reviews. • corrective action completed onsite was indicated in five reviews; however, CNS could not provide documentation to support the corrective action. • corrective action for three reviews did not fully address the deficiencies noted. • corrective action for two reviews was received more than 30 days late. • 12 reviews were closed; however, corrective action remained outstanding. • one sponsor submitted corrective action in October 2023, but as of audit testing in March 2025, CNS had not notified the sponsor of the approval and had not closed the sponsor’s review. • corrective action submitted from two SFAs was not approved, and the SFAs were not notified until nine months after their submission. • the review tracking spreadsheet was not fully completed or conflicted with information obtained from the administrative review for 16 reviews. • questionnaires were not fully completed for seven reviews. • USDA questionnaire sections related to FFVP and SMP were erroneously excluded for eight reviews. • the date for required corrective action to be provided was omitted for seven reviews. • one review was erroneously excluded from the review tracking spreadsheet. In addition to administrative reviews, CNS must perform base year reviews for all SFAs that have applied to participate in USDA Special Provision 2. These base year reviews provide the required information necessary to determine the level of claims the SFA may submit in the subsequent three years. After completion of the base year review, a letter detailing the results, including any adjustments to previously submitted claims, is provided to the SFA. The SFA is required to adjust claims and enrollment data through the claim revision process and CNS is responsible for verifying that the appropriate revisions have been completed. In fiscal year 2024, CNS identified 17 SFAs that required a base year review. OSA tested four base year reviews and identified three SFAs that did not properly revise claims and enrollment data, and CNS did not verify the accuracy of the revisions completed by the SFAs. In addition, one SFA had an eligibility determination that was not supported by the application. The income amount included in the application exceeded income requirements for reduced-price eligibility, but the SFA categorized the applicant as eligible for reduced-price meals. In the base year review, the application was not recategorized by CNS, and claims were not revised to match the eligibility determination. OSA cannot determine if unallowable costs exist through the audit of subrecipient monitoring activities, as required information was not collected. OSA has questioned costs through the audit of allowable costs/costs principles and eligibility, see findings 2024-031 Internal control over CNC reimbursements needs improvement and 2024-030 Internal control over CNC eligibility needs improvement, respectively. OSA selected non-statistical random samples. Context: In fiscal year 2024, CNC expenditures totaled approximately $68 million, of which $67.6 million was provided to 241 SFAs and sponsors. Cause: • Lack of policies and procedures • Lack of supervisory oversight Effect: • Noncompliance with Federal regulations • Subrecipients may not be complying with Federal statutes, regulations, or the terms and conditions of the subaward. • Potential questioned costs and disallowances. Base year reviews provide authorization for the level of allowable claims the SFA can claim in subsequent periods. Without a base year review and necessary revisions, SFAs could be underclaiming or overclaiming costs. Recommendation: We recommend that the Department implement policies and procedures and increase oversight to ensure that: • reviews are completed as required and supporting documentation is retained; • high-risk SFAs are tracked and considered in planning follow-up reviews; • SFAs revise claims appropriately after a base year review; and • CNS verifies that claim adjustments occur as necessary. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. The Department will improve tracking and create procedures to evaluate the Administrative Review Processes for the team. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-06)
(2024-034) Title: Internal control over the submission of CNC Schedule of Expenditures of Federal Awards information needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Reporting Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.502 and .510; 7 CFR 250.58(e); U.S. Department of Agriculture Policy No. FD-104 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must prepare a Schedule of Expenditures of Federal Awards (SEFA) for the period covered by the State’s financial statements which must include the total Federal awards expended, including distribution or use of food commodities. Federal non-cash assistance, such as food commodities, must be valued at fair market value at the time of receipt or the assessed value provided by the Federal Agency. For a cluster of programs, the SEFA must list individual Federal programs within the cluster. In meeting the commodity offer value of donated foods for the school food authority, the distributing agency must use the cost-per-pound donated food price posted annually by the U.S. Department of Agriculture (USDA), the most recently published cost-per-pound price in the USDA donated foods catalog, and/or a rolling average of the USDA prices. Each distributing or recipient agency must choose a method of valuing USDA donated foods for audit purposes. In most cases, it is recommended that a distributing or recipient agency use one of the options listed in 7 CFR 250.58(e). Once a method of assigning value to USDA donated foods is selected, it must be used consistently in all its audit activities and the State must maintain a record of the means of valuing donated foods for such purposes. Condition: The Department must complete and submit exhibits and related schedules to the Office of the State Controller (OSC) at the close of each fiscal year to report Federal award information for the Child Nutrition Cluster (CNC) for inclusion on the State’s SEFA. OSC is responsible for compiling this information on behalf of the State. The Department submitted exhibits to OSC that: • incorrectly excluded $1.2 million of fresh food distributed to subrecipients and additional commodity items received. • incorrectly reported $4,481 of non-cash food assistance under ALN 10.555 National School Lunch Program that should have been reported under ALN 10.559 Summer Food Service Program. • incorrectly excluded $256 of expenditures under ALN 10.556 Special Milk Program. • incorrectly categorized $98,963 in expenditures related to the State’s juvenile correctional facility as subrecipient expenditures instead of direct expenditures. Context: In fiscal year 2024: • CNC expenditures totaled approximately $68 million. • noncash assistance totaling $1.2 million was not reported to OSC by the Department for inclusion on the SEFA. Noncash assistance for CNC totaled $6.2 million. Cause: • Lack of policies and procedures relating to Department SEFA submissions to OSC • Lack of supervisory oversight Effect: Inaccurate reporting of expenditure amounts on the SEFA, which is submitted to the Federal government, may result in incorrect information used for programmatic, policy, or statistical purposes. Recommendation: We recommend that the Department implement policies and procedures that require a comprehensive review of SEFA schedules prior to submission to OSC. In addition, we recommend enhanced oversight of policies and procedures to ensure they are consistently applied and the SEFA is accurate and complete. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. The SEFA Review Procedure has been updated to include more specific information regarding the calculation of amounts reported for the Special Milk Program and noncash assistance and the classification of payments made to a school as direct payments rather than subrecipient expenditures. Contact: Nicole Denis, Director of Finance, DOE, 207-530-2161 (State Number: 24-1203-01)
(2024-034) Title: Internal control over the submission of CNC Schedule of Expenditures of Federal Awards information needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Reporting Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.502 and .510; 7 CFR 250.58(e); U.S. Department of Agriculture Policy No. FD-104 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must prepare a Schedule of Expenditures of Federal Awards (SEFA) for the period covered by the State’s financial statements which must include the total Federal awards expended, including distribution or use of food commodities. Federal non-cash assistance, such as food commodities, must be valued at fair market value at the time of receipt or the assessed value provided by the Federal Agency. For a cluster of programs, the SEFA must list individual Federal programs within the cluster. In meeting the commodity offer value of donated foods for the school food authority, the distributing agency must use the cost-per-pound donated food price posted annually by the U.S. Department of Agriculture (USDA), the most recently published cost-per-pound price in the USDA donated foods catalog, and/or a rolling average of the USDA prices. Each distributing or recipient agency must choose a method of valuing USDA donated foods for audit purposes. In most cases, it is recommended that a distributing or recipient agency use one of the options listed in 7 CFR 250.58(e). Once a method of assigning value to USDA donated foods is selected, it must be used consistently in all its audit activities and the State must maintain a record of the means of valuing donated foods for such purposes. Condition: The Department must complete and submit exhibits and related schedules to the Office of the State Controller (OSC) at the close of each fiscal year to report Federal award information for the Child Nutrition Cluster (CNC) for inclusion on the State’s SEFA. OSC is responsible for compiling this information on behalf of the State. The Department submitted exhibits to OSC that: • incorrectly excluded $1.2 million of fresh food distributed to subrecipients and additional commodity items received. • incorrectly reported $4,481 of non-cash food assistance under ALN 10.555 National School Lunch Program that should have been reported under ALN 10.559 Summer Food Service Program. • incorrectly excluded $256 of expenditures under ALN 10.556 Special Milk Program. • incorrectly categorized $98,963 in expenditures related to the State’s juvenile correctional facility as subrecipient expenditures instead of direct expenditures. Context: In fiscal year 2024: • CNC expenditures totaled approximately $68 million. • noncash assistance totaling $1.2 million was not reported to OSC by the Department for inclusion on the SEFA. Noncash assistance for CNC totaled $6.2 million. Cause: • Lack of policies and procedures relating to Department SEFA submissions to OSC • Lack of supervisory oversight Effect: Inaccurate reporting of expenditure amounts on the SEFA, which is submitted to the Federal government, may result in incorrect information used for programmatic, policy, or statistical purposes. Recommendation: We recommend that the Department implement policies and procedures that require a comprehensive review of SEFA schedules prior to submission to OSC. In addition, we recommend enhanced oversight of policies and procedures to ensure they are consistently applied and the SEFA is accurate and complete. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. The SEFA Review Procedure has been updated to include more specific information regarding the calculation of amounts reported for the Special Milk Program and noncash assistance and the classification of payments made to a school as direct payments rather than subrecipient expenditures. Contact: Nicole Denis, Director of Finance, DOE, 207-530-2161 (State Number: 24-1203-01)
(2024-034) Title: Internal control over the submission of CNC Schedule of Expenditures of Federal Awards information needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Reporting Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.502 and .510; 7 CFR 250.58(e); U.S. Department of Agriculture Policy No. FD-104 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must prepare a Schedule of Expenditures of Federal Awards (SEFA) for the period covered by the State’s financial statements which must include the total Federal awards expended, including distribution or use of food commodities. Federal non-cash assistance, such as food commodities, must be valued at fair market value at the time of receipt or the assessed value provided by the Federal Agency. For a cluster of programs, the SEFA must list individual Federal programs within the cluster. In meeting the commodity offer value of donated foods for the school food authority, the distributing agency must use the cost-per-pound donated food price posted annually by the U.S. Department of Agriculture (USDA), the most recently published cost-per-pound price in the USDA donated foods catalog, and/or a rolling average of the USDA prices. Each distributing or recipient agency must choose a method of valuing USDA donated foods for audit purposes. In most cases, it is recommended that a distributing or recipient agency use one of the options listed in 7 CFR 250.58(e). Once a method of assigning value to USDA donated foods is selected, it must be used consistently in all its audit activities and the State must maintain a record of the means of valuing donated foods for such purposes. Condition: The Department must complete and submit exhibits and related schedules to the Office of the State Controller (OSC) at the close of each fiscal year to report Federal award information for the Child Nutrition Cluster (CNC) for inclusion on the State’s SEFA. OSC is responsible for compiling this information on behalf of the State. The Department submitted exhibits to OSC that: • incorrectly excluded $1.2 million of fresh food distributed to subrecipients and additional commodity items received. • incorrectly reported $4,481 of non-cash food assistance under ALN 10.555 National School Lunch Program that should have been reported under ALN 10.559 Summer Food Service Program. • incorrectly excluded $256 of expenditures under ALN 10.556 Special Milk Program. • incorrectly categorized $98,963 in expenditures related to the State’s juvenile correctional facility as subrecipient expenditures instead of direct expenditures. Context: In fiscal year 2024: • CNC expenditures totaled approximately $68 million. • noncash assistance totaling $1.2 million was not reported to OSC by the Department for inclusion on the SEFA. Noncash assistance for CNC totaled $6.2 million. Cause: • Lack of policies and procedures relating to Department SEFA submissions to OSC • Lack of supervisory oversight Effect: Inaccurate reporting of expenditure amounts on the SEFA, which is submitted to the Federal government, may result in incorrect information used for programmatic, policy, or statistical purposes. Recommendation: We recommend that the Department implement policies and procedures that require a comprehensive review of SEFA schedules prior to submission to OSC. In addition, we recommend enhanced oversight of policies and procedures to ensure they are consistently applied and the SEFA is accurate and complete. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. The SEFA Review Procedure has been updated to include more specific information regarding the calculation of amounts reported for the Special Milk Program and noncash assistance and the classification of payments made to a school as direct payments rather than subrecipient expenditures. Contact: Nicole Denis, Director of Finance, DOE, 207-530-2161 (State Number: 24-1203-01)
(2024-034) Title: Internal control over the submission of CNC Schedule of Expenditures of Federal Awards information needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Reporting Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.502 and .510; 7 CFR 250.58(e); U.S. Department of Agriculture Policy No. FD-104 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must prepare a Schedule of Expenditures of Federal Awards (SEFA) for the period covered by the State’s financial statements which must include the total Federal awards expended, including distribution or use of food commodities. Federal non-cash assistance, such as food commodities, must be valued at fair market value at the time of receipt or the assessed value provided by the Federal Agency. For a cluster of programs, the SEFA must list individual Federal programs within the cluster. In meeting the commodity offer value of donated foods for the school food authority, the distributing agency must use the cost-per-pound donated food price posted annually by the U.S. Department of Agriculture (USDA), the most recently published cost-per-pound price in the USDA donated foods catalog, and/or a rolling average of the USDA prices. Each distributing or recipient agency must choose a method of valuing USDA donated foods for audit purposes. In most cases, it is recommended that a distributing or recipient agency use one of the options listed in 7 CFR 250.58(e). Once a method of assigning value to USDA donated foods is selected, it must be used consistently in all its audit activities and the State must maintain a record of the means of valuing donated foods for such purposes. Condition: The Department must complete and submit exhibits and related schedules to the Office of the State Controller (OSC) at the close of each fiscal year to report Federal award information for the Child Nutrition Cluster (CNC) for inclusion on the State’s SEFA. OSC is responsible for compiling this information on behalf of the State. The Department submitted exhibits to OSC that: • incorrectly excluded $1.2 million of fresh food distributed to subrecipients and additional commodity items received. • incorrectly reported $4,481 of non-cash food assistance under ALN 10.555 National School Lunch Program that should have been reported under ALN 10.559 Summer Food Service Program. • incorrectly excluded $256 of expenditures under ALN 10.556 Special Milk Program. • incorrectly categorized $98,963 in expenditures related to the State’s juvenile correctional facility as subrecipient expenditures instead of direct expenditures. Context: In fiscal year 2024: • CNC expenditures totaled approximately $68 million. • noncash assistance totaling $1.2 million was not reported to OSC by the Department for inclusion on the SEFA. Noncash assistance for CNC totaled $6.2 million. Cause: • Lack of policies and procedures relating to Department SEFA submissions to OSC • Lack of supervisory oversight Effect: Inaccurate reporting of expenditure amounts on the SEFA, which is submitted to the Federal government, may result in incorrect information used for programmatic, policy, or statistical purposes. Recommendation: We recommend that the Department implement policies and procedures that require a comprehensive review of SEFA schedules prior to submission to OSC. In addition, we recommend enhanced oversight of policies and procedures to ensure they are consistently applied and the SEFA is accurate and complete. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. The SEFA Review Procedure has been updated to include more specific information regarding the calculation of amounts reported for the Special Milk Program and noncash assistance and the classification of payments made to a school as direct payments rather than subrecipient expenditures. Contact: Nicole Denis, Director of Finance, DOE, 207-530-2161 (State Number: 24-1203-01)
(2024-034) Title: Internal control over the submission of CNC Schedule of Expenditures of Federal Awards information needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Reporting Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.502 and .510; 7 CFR 250.58(e); U.S. Department of Agriculture Policy No. FD-104 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must prepare a Schedule of Expenditures of Federal Awards (SEFA) for the period covered by the State’s financial statements which must include the total Federal awards expended, including distribution or use of food commodities. Federal non-cash assistance, such as food commodities, must be valued at fair market value at the time of receipt or the assessed value provided by the Federal Agency. For a cluster of programs, the SEFA must list individual Federal programs within the cluster. In meeting the commodity offer value of donated foods for the school food authority, the distributing agency must use the cost-per-pound donated food price posted annually by the U.S. Department of Agriculture (USDA), the most recently published cost-per-pound price in the USDA donated foods catalog, and/or a rolling average of the USDA prices. Each distributing or recipient agency must choose a method of valuing USDA donated foods for audit purposes. In most cases, it is recommended that a distributing or recipient agency use one of the options listed in 7 CFR 250.58(e). Once a method of assigning value to USDA donated foods is selected, it must be used consistently in all its audit activities and the State must maintain a record of the means of valuing donated foods for such purposes. Condition: The Department must complete and submit exhibits and related schedules to the Office of the State Controller (OSC) at the close of each fiscal year to report Federal award information for the Child Nutrition Cluster (CNC) for inclusion on the State’s SEFA. OSC is responsible for compiling this information on behalf of the State. The Department submitted exhibits to OSC that: • incorrectly excluded $1.2 million of fresh food distributed to subrecipients and additional commodity items received. • incorrectly reported $4,481 of non-cash food assistance under ALN 10.555 National School Lunch Program that should have been reported under ALN 10.559 Summer Food Service Program. • incorrectly excluded $256 of expenditures under ALN 10.556 Special Milk Program. • incorrectly categorized $98,963 in expenditures related to the State’s juvenile correctional facility as subrecipient expenditures instead of direct expenditures. Context: In fiscal year 2024: • CNC expenditures totaled approximately $68 million. • noncash assistance totaling $1.2 million was not reported to OSC by the Department for inclusion on the SEFA. Noncash assistance for CNC totaled $6.2 million. Cause: • Lack of policies and procedures relating to Department SEFA submissions to OSC • Lack of supervisory oversight Effect: Inaccurate reporting of expenditure amounts on the SEFA, which is submitted to the Federal government, may result in incorrect information used for programmatic, policy, or statistical purposes. Recommendation: We recommend that the Department implement policies and procedures that require a comprehensive review of SEFA schedules prior to submission to OSC. In addition, we recommend enhanced oversight of policies and procedures to ensure they are consistently applied and the SEFA is accurate and complete. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. The SEFA Review Procedure has been updated to include more specific information regarding the calculation of amounts reported for the Special Milk Program and noncash assistance and the classification of payments made to a school as direct payments rather than subrecipient expenditures. Contact: Nicole Denis, Director of Finance, DOE, 207-530-2161 (State Number: 24-1203-01)
(2024-035) Title: Internal control over CNC donated food inventory needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Special tests and provisions Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 7 CFR 250.12 and .19 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. On an annual basis, the distributing agency must conduct a physical review of donated food inventories at all storage facilities used by the distributing agency and must reconcile physical and book inventories of donated foods. The distributing agency must ensure that a separate inventory record of donated foods is maintained. The distributing agency’s system of inventory management must ensure that donated foods are distributed in a timely manner and in optimal condition. Condition: The Child Nutrition Cluster includes the School Breakfast Program, National School Lunch Program, Special Milk Program for Children, Summer Food Service Program, and the Fresh Fruits and Vegetable Program. The objectives of the programs are to provide nutritious meals to eligible children in schools and summer food programs, to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools, and to encourage consumption of nutritious agriculture commodities. The Department receives donated foods from the U.S. Department of Agriculture (USDA) for distribution to School Food Authorities (SFAs) and sponsors participating in the National School Lunch Program or the Summer Food Service Program. In fiscal year 2022, the Department implemented a new inventory system for tracking donated foods. In March 2024, the Department identified that inventory tracking within the Child Nutrition Program system (CNPWeb) was not functioning correctly and order quantities were duplicated. As a result, accurate inventory records were not maintained during fiscal year 2024. The Department submitted a ticket to remediate the system error, and the USDA Food Coordinator manually adjusted inventory records to reflect the duplicated items. The Office of the State Auditor (OSA) tested 11 donated food items to ensure that the Department had properly tracked the items. OSA reviewed the manually-adjusted USDA food requests, inventory receipts, and distributions made to SFAs and sponsors and to verify that the documentation corresponded to information in the inventory system and physical inventory counts, and found four instances where the adjusted records did not agree, as follows: • Manually-adjusted system inventory records for: o one food item identified 26 cases less than OSA calculated, and the physical inventory count indicated 27 cases less than the manually-adjusted system inventory records. o one food item requested through CNPWeb exceeded the number of cases available due to the system edit check for ordering in excess of items available was not implemented. o one food item identified three cases less than OSA calculated, and the physical inventory documentation indicated one less case than the manually-adjusted system inventory records. • Physical inventory documentation for one food item identified two cases more than OSA calculated and two cases more than manually-adjusted system inventory records. OSA selected a non-statistical random sample. OSA performed a physical inventory inspection and identified that discrepancies existed between the manually-adjusted system inventory items and the physical items on hand for 36 of the 41 food items tested. The Department did not document justification for the inventory discrepancies. Context: In fiscal year 2024, the Department distributed $6.3 million of USDA donated foods to SFAs and sponsors. Cause: Lack of oversight to ensure that: • the newly implemented inventory tracking system is properly configured; and • review, remediation and justification of inventory discrepancies is documented. Effect: • Noncompliance with Federal regulations • Inaccurate reporting of noncash Federal awards on the Schedule of Expenditures of Federal Awards • Theft, loss, or damage of inventory may go undetected. Recommendation: We recommend that the Department: • review the configuration of the inventory tracking system to remediate variances; • regularly reconcile system inventory records to physical inventory counts; and • document the justification of any inventory discrepancies. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. CNPWeb is still not working correctly, and there were too many errors during the physical inventory. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-03)
(2024-035) Title: Internal control over CNC donated food inventory needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Special tests and provisions Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 7 CFR 250.12 and .19 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. On an annual basis, the distributing agency must conduct a physical review of donated food inventories at all storage facilities used by the distributing agency and must reconcile physical and book inventories of donated foods. The distributing agency must ensure that a separate inventory record of donated foods is maintained. The distributing agency’s system of inventory management must ensure that donated foods are distributed in a timely manner and in optimal condition. Condition: The Child Nutrition Cluster includes the School Breakfast Program, National School Lunch Program, Special Milk Program for Children, Summer Food Service Program, and the Fresh Fruits and Vegetable Program. The objectives of the programs are to provide nutritious meals to eligible children in schools and summer food programs, to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools, and to encourage consumption of nutritious agriculture commodities. The Department receives donated foods from the U.S. Department of Agriculture (USDA) for distribution to School Food Authorities (SFAs) and sponsors participating in the National School Lunch Program or the Summer Food Service Program. In fiscal year 2022, the Department implemented a new inventory system for tracking donated foods. In March 2024, the Department identified that inventory tracking within the Child Nutrition Program system (CNPWeb) was not functioning correctly and order quantities were duplicated. As a result, accurate inventory records were not maintained during fiscal year 2024. The Department submitted a ticket to remediate the system error, and the USDA Food Coordinator manually adjusted inventory records to reflect the duplicated items. The Office of the State Auditor (OSA) tested 11 donated food items to ensure that the Department had properly tracked the items. OSA reviewed the manually-adjusted USDA food requests, inventory receipts, and distributions made to SFAs and sponsors and to verify that the documentation corresponded to information in the inventory system and physical inventory counts, and found four instances where the adjusted records did not agree, as follows: • Manually-adjusted system inventory records for: o one food item identified 26 cases less than OSA calculated, and the physical inventory count indicated 27 cases less than the manually-adjusted system inventory records. o one food item requested through CNPWeb exceeded the number of cases available due to the system edit check for ordering in excess of items available was not implemented. o one food item identified three cases less than OSA calculated, and the physical inventory documentation indicated one less case than the manually-adjusted system inventory records. • Physical inventory documentation for one food item identified two cases more than OSA calculated and two cases more than manually-adjusted system inventory records. OSA selected a non-statistical random sample. OSA performed a physical inventory inspection and identified that discrepancies existed between the manually-adjusted system inventory items and the physical items on hand for 36 of the 41 food items tested. The Department did not document justification for the inventory discrepancies. Context: In fiscal year 2024, the Department distributed $6.3 million of USDA donated foods to SFAs and sponsors. Cause: Lack of oversight to ensure that: • the newly implemented inventory tracking system is properly configured; and • review, remediation and justification of inventory discrepancies is documented. Effect: • Noncompliance with Federal regulations • Inaccurate reporting of noncash Federal awards on the Schedule of Expenditures of Federal Awards • Theft, loss, or damage of inventory may go undetected. Recommendation: We recommend that the Department: • review the configuration of the inventory tracking system to remediate variances; • regularly reconcile system inventory records to physical inventory counts; and • document the justification of any inventory discrepancies. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. CNPWeb is still not working correctly, and there were too many errors during the physical inventory. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-03)
(2024-035) Title: Internal control over CNC donated food inventory needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Special tests and provisions Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 7 CFR 250.12 and .19 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. On an annual basis, the distributing agency must conduct a physical review of donated food inventories at all storage facilities used by the distributing agency and must reconcile physical and book inventories of donated foods. The distributing agency must ensure that a separate inventory record of donated foods is maintained. The distributing agency’s system of inventory management must ensure that donated foods are distributed in a timely manner and in optimal condition. Condition: The Child Nutrition Cluster includes the School Breakfast Program, National School Lunch Program, Special Milk Program for Children, Summer Food Service Program, and the Fresh Fruits and Vegetable Program. The objectives of the programs are to provide nutritious meals to eligible children in schools and summer food programs, to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools, and to encourage consumption of nutritious agriculture commodities. The Department receives donated foods from the U.S. Department of Agriculture (USDA) for distribution to School Food Authorities (SFAs) and sponsors participating in the National School Lunch Program or the Summer Food Service Program. In fiscal year 2022, the Department implemented a new inventory system for tracking donated foods. In March 2024, the Department identified that inventory tracking within the Child Nutrition Program system (CNPWeb) was not functioning correctly and order quantities were duplicated. As a result, accurate inventory records were not maintained during fiscal year 2024. The Department submitted a ticket to remediate the system error, and the USDA Food Coordinator manually adjusted inventory records to reflect the duplicated items. The Office of the State Auditor (OSA) tested 11 donated food items to ensure that the Department had properly tracked the items. OSA reviewed the manually-adjusted USDA food requests, inventory receipts, and distributions made to SFAs and sponsors and to verify that the documentation corresponded to information in the inventory system and physical inventory counts, and found four instances where the adjusted records did not agree, as follows: • Manually-adjusted system inventory records for: o one food item identified 26 cases less than OSA calculated, and the physical inventory count indicated 27 cases less than the manually-adjusted system inventory records. o one food item requested through CNPWeb exceeded the number of cases available due to the system edit check for ordering in excess of items available was not implemented. o one food item identified three cases less than OSA calculated, and the physical inventory documentation indicated one less case than the manually-adjusted system inventory records. • Physical inventory documentation for one food item identified two cases more than OSA calculated and two cases more than manually-adjusted system inventory records. OSA selected a non-statistical random sample. OSA performed a physical inventory inspection and identified that discrepancies existed between the manually-adjusted system inventory items and the physical items on hand for 36 of the 41 food items tested. The Department did not document justification for the inventory discrepancies. Context: In fiscal year 2024, the Department distributed $6.3 million of USDA donated foods to SFAs and sponsors. Cause: Lack of oversight to ensure that: • the newly implemented inventory tracking system is properly configured; and • review, remediation and justification of inventory discrepancies is documented. Effect: • Noncompliance with Federal regulations • Inaccurate reporting of noncash Federal awards on the Schedule of Expenditures of Federal Awards • Theft, loss, or damage of inventory may go undetected. Recommendation: We recommend that the Department: • review the configuration of the inventory tracking system to remediate variances; • regularly reconcile system inventory records to physical inventory counts; and • document the justification of any inventory discrepancies. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. CNPWeb is still not working correctly, and there were too many errors during the physical inventory. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-03)
(2024-035) Title: Internal control over CNC donated food inventory needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Special tests and provisions Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 7 CFR 250.12 and .19 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. On an annual basis, the distributing agency must conduct a physical review of donated food inventories at all storage facilities used by the distributing agency and must reconcile physical and book inventories of donated foods. The distributing agency must ensure that a separate inventory record of donated foods is maintained. The distributing agency’s system of inventory management must ensure that donated foods are distributed in a timely manner and in optimal condition. Condition: The Child Nutrition Cluster includes the School Breakfast Program, National School Lunch Program, Special Milk Program for Children, Summer Food Service Program, and the Fresh Fruits and Vegetable Program. The objectives of the programs are to provide nutritious meals to eligible children in schools and summer food programs, to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools, and to encourage consumption of nutritious agriculture commodities. The Department receives donated foods from the U.S. Department of Agriculture (USDA) for distribution to School Food Authorities (SFAs) and sponsors participating in the National School Lunch Program or the Summer Food Service Program. In fiscal year 2022, the Department implemented a new inventory system for tracking donated foods. In March 2024, the Department identified that inventory tracking within the Child Nutrition Program system (CNPWeb) was not functioning correctly and order quantities were duplicated. As a result, accurate inventory records were not maintained during fiscal year 2024. The Department submitted a ticket to remediate the system error, and the USDA Food Coordinator manually adjusted inventory records to reflect the duplicated items. The Office of the State Auditor (OSA) tested 11 donated food items to ensure that the Department had properly tracked the items. OSA reviewed the manually-adjusted USDA food requests, inventory receipts, and distributions made to SFAs and sponsors and to verify that the documentation corresponded to information in the inventory system and physical inventory counts, and found four instances where the adjusted records did not agree, as follows: • Manually-adjusted system inventory records for: o one food item identified 26 cases less than OSA calculated, and the physical inventory count indicated 27 cases less than the manually-adjusted system inventory records. o one food item requested through CNPWeb exceeded the number of cases available due to the system edit check for ordering in excess of items available was not implemented. o one food item identified three cases less than OSA calculated, and the physical inventory documentation indicated one less case than the manually-adjusted system inventory records. • Physical inventory documentation for one food item identified two cases more than OSA calculated and two cases more than manually-adjusted system inventory records. OSA selected a non-statistical random sample. OSA performed a physical inventory inspection and identified that discrepancies existed between the manually-adjusted system inventory items and the physical items on hand for 36 of the 41 food items tested. The Department did not document justification for the inventory discrepancies. Context: In fiscal year 2024, the Department distributed $6.3 million of USDA donated foods to SFAs and sponsors. Cause: Lack of oversight to ensure that: • the newly implemented inventory tracking system is properly configured; and • review, remediation and justification of inventory discrepancies is documented. Effect: • Noncompliance with Federal regulations • Inaccurate reporting of noncash Federal awards on the Schedule of Expenditures of Federal Awards • Theft, loss, or damage of inventory may go undetected. Recommendation: We recommend that the Department: • review the configuration of the inventory tracking system to remediate variances; • regularly reconcile system inventory records to physical inventory counts; and • document the justification of any inventory discrepancies. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. CNPWeb is still not working correctly, and there were too many errors during the physical inventory. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-03)
(2024-035) Title: Internal control over CNC donated food inventory needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Special tests and provisions Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 7 CFR 250.12 and .19 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. On an annual basis, the distributing agency must conduct a physical review of donated food inventories at all storage facilities used by the distributing agency and must reconcile physical and book inventories of donated foods. The distributing agency must ensure that a separate inventory record of donated foods is maintained. The distributing agency’s system of inventory management must ensure that donated foods are distributed in a timely manner and in optimal condition. Condition: The Child Nutrition Cluster includes the School Breakfast Program, National School Lunch Program, Special Milk Program for Children, Summer Food Service Program, and the Fresh Fruits and Vegetable Program. The objectives of the programs are to provide nutritious meals to eligible children in schools and summer food programs, to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools, and to encourage consumption of nutritious agriculture commodities. The Department receives donated foods from the U.S. Department of Agriculture (USDA) for distribution to School Food Authorities (SFAs) and sponsors participating in the National School Lunch Program or the Summer Food Service Program. In fiscal year 2022, the Department implemented a new inventory system for tracking donated foods. In March 2024, the Department identified that inventory tracking within the Child Nutrition Program system (CNPWeb) was not functioning correctly and order quantities were duplicated. As a result, accurate inventory records were not maintained during fiscal year 2024. The Department submitted a ticket to remediate the system error, and the USDA Food Coordinator manually adjusted inventory records to reflect the duplicated items. The Office of the State Auditor (OSA) tested 11 donated food items to ensure that the Department had properly tracked the items. OSA reviewed the manually-adjusted USDA food requests, inventory receipts, and distributions made to SFAs and sponsors and to verify that the documentation corresponded to information in the inventory system and physical inventory counts, and found four instances where the adjusted records did not agree, as follows: • Manually-adjusted system inventory records for: o one food item identified 26 cases less than OSA calculated, and the physical inventory count indicated 27 cases less than the manually-adjusted system inventory records. o one food item requested through CNPWeb exceeded the number of cases available due to the system edit check for ordering in excess of items available was not implemented. o one food item identified three cases less than OSA calculated, and the physical inventory documentation indicated one less case than the manually-adjusted system inventory records. • Physical inventory documentation for one food item identified two cases more than OSA calculated and two cases more than manually-adjusted system inventory records. OSA selected a non-statistical random sample. OSA performed a physical inventory inspection and identified that discrepancies existed between the manually-adjusted system inventory items and the physical items on hand for 36 of the 41 food items tested. The Department did not document justification for the inventory discrepancies. Context: In fiscal year 2024, the Department distributed $6.3 million of USDA donated foods to SFAs and sponsors. Cause: Lack of oversight to ensure that: • the newly implemented inventory tracking system is properly configured; and • review, remediation and justification of inventory discrepancies is documented. Effect: • Noncompliance with Federal regulations • Inaccurate reporting of noncash Federal awards on the Schedule of Expenditures of Federal Awards • Theft, loss, or damage of inventory may go undetected. Recommendation: We recommend that the Department: • review the configuration of the inventory tracking system to remediate variances; • regularly reconcile system inventory records to physical inventory counts; and • document the justification of any inventory discrepancies. Corrective Action Plan: See F-17 Management’s Response: The Department agrees with this finding. CNPWeb is still not working correctly, and there were too many errors during the physical inventory. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 (State Number: 24-1203-03)
(2024-036) Title: Internal control over CNC cash management needs improvement Prior Year Findings: None State Department: Education Administrative and Financial Services State Bureau: Child Nutrition Services General Government Service Center Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Cash management Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 31 CFR 205.33; State Administrative and Accounting Manual (SAAM) Section 50.40.80 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must minimize the time between the drawdown of Federal funds and the disbursement of these funds for Federal program purposes. The timing and amount of fund transfers must be as close as administratively feasible to the Department’s actual cash outlay for program costs. Section 50.40.80 of the SAAM has defined administratively feasible as no more than seven business days. Condition: Child Nutrition Services (CNS) is responsible for approving monthly Claims For Reimbursement (CFRs) submitted by School Food Authorities (SFAs). The Department of Administrative and Financial Services’ General Government Service Center (GGSC) is responsible for the drawdown of Federal funds to pay for Child Nutrition Cluster (CNC) program expenditures. GGSC utilizes a batch report of CFR amounts approved through the Child Nutrition Program system (CNPWeb) for the drawdown. The Office of the State Auditor (OSA) performed analytical procedures over CFRs and identified two reimbursements that exceeded average CFRs. Further procedures found: • one payment was the result of the SFA erroneously claiming all meals served as free meals, and therefore, paid entirely with Federal funds. The SFA subsequently modified the CFR and claimed only 16 percent of meals served as free, resulting in an overpayment of approximately $113,000. To recover the overpayment, CNS subtracted a portion from subsequent monthly claims with the final recoupment occurring in April 2024. As a result, the SFA had excess cash on hand from November 2023 through April 2024. • the other payment was the result of a rejected payment. The November 2023 payment intended for September and October CFRs was rejected by the State’s accounting system. As a result, the December payment to the SFA included CFRs from September through November. The drawdown of Federal funds for the September and October CFRs occurred in November; however, the SFA was not paid until December. GGSC and CNS did not have controls in place to monitor and ensure that batch payments were processed timely. As a result, the State had excess cash on hand for one month. Context: CNS processed $61.8 million in CFRs in fiscal year 2024. Cause: • Lack of supervisory oversight • Lack of adequate policies and procedures • A revision to a CFR within 60 days that does not increase total reimbursement does not trigger an edit check in the CNPWeb system for manual review. The edit check function is designed to only check overall increases or decreases in the total CFR; therefore, the overpayment of Federal funds went undetected because CNS supplements the Federal meal reimbursement with State funds. Effect: • The Federal government may impose more stringent program-specific cash management requirements based on noncompliance. • Noncompliance with Federal regulations Recommendation: We recommend that CNS: • continue to work with GGSC to ensure that batch payments approved for processing are paid timely; and • adjust edit checks in the CNPWeb system to identify changes in Federal and State funding rather than using the total claim amount in order to prevent overpayments. Corrective Action Plan: See F-18 Management’s Response: The Department partially agrees with this finding. The Department acknowledges that improvements could be made over the controls to ensure the timely processing of batch payments. As a result, new procedures have been developed and implemented to confirm that batch payments are processed without delay. However, the Department disagrees with the characterization of noncompliance with cash management requirement regarding the overpayment recoupment and believes the current controls effectively addressed the issue. The CNPWeb system already includes edit checks that track, offset, and reconcile adjustments between state and federal payments within the federal fiscal year, ensuring compliance with both 7 CFR 210.9 and 2 CFR 200.302. The $113,000 overpayment was fully recouped within the same fiscal year through systematic monthly offsets. These offsets occurred within the fund account (school lunch), and the balance was fully corrected through the current claims without any risk of misallocation. All actions were taken within CNPWeb, with no need for intervention outside of the system. 7 CFR 210.9 provides guidance on maintaining appropriate balances for school-level accounts and is not intended to govern isolated errors that were promptly detected and resolved through established program procedures. The Department does not believe that a three-month excess threshold applies in this case, as the error was corrected in accordance with program requirements, and the funds were reconciled in a timely manner. The Department maintains that the existing internal controls, along with the newly implemented procedures, adequately address the identified issues. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 Auditor’s Concluding Remarks: The Department’s Management Response incorrectly cites 7 CFR 210.9 which outlines requirements for the SFA, not the State. The applicable criteria for the compliance exceptions is 31 CFR 205.33 which is referenced in the finding Criteria. The Department did not return excess funds to the Federal government, nor gain approval to retain the funds when the overpayment was identified. This resulted in excess cash on hand at the Department level and thus, noncompliance with 31 CFR 205.33. The Department is misinterpreting that the return of Federal funds at the State level is only required when the funds are returned to the Department from the SFA. Therefore, the Department does not have adequate controls over cash management requirements. The finding remains as stated. (State Number: 24-1203-07)
(2024-036) Title: Internal control over CNC cash management needs improvement Prior Year Findings: None State Department: Education Administrative and Financial Services State Bureau: Child Nutrition Services General Government Service Center Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Cash management Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 31 CFR 205.33; State Administrative and Accounting Manual (SAAM) Section 50.40.80 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must minimize the time between the drawdown of Federal funds and the disbursement of these funds for Federal program purposes. The timing and amount of fund transfers must be as close as administratively feasible to the Department’s actual cash outlay for program costs. Section 50.40.80 of the SAAM has defined administratively feasible as no more than seven business days. Condition: Child Nutrition Services (CNS) is responsible for approving monthly Claims For Reimbursement (CFRs) submitted by School Food Authorities (SFAs). The Department of Administrative and Financial Services’ General Government Service Center (GGSC) is responsible for the drawdown of Federal funds to pay for Child Nutrition Cluster (CNC) program expenditures. GGSC utilizes a batch report of CFR amounts approved through the Child Nutrition Program system (CNPWeb) for the drawdown. The Office of the State Auditor (OSA) performed analytical procedures over CFRs and identified two reimbursements that exceeded average CFRs. Further procedures found: • one payment was the result of the SFA erroneously claiming all meals served as free meals, and therefore, paid entirely with Federal funds. The SFA subsequently modified the CFR and claimed only 16 percent of meals served as free, resulting in an overpayment of approximately $113,000. To recover the overpayment, CNS subtracted a portion from subsequent monthly claims with the final recoupment occurring in April 2024. As a result, the SFA had excess cash on hand from November 2023 through April 2024. • the other payment was the result of a rejected payment. The November 2023 payment intended for September and October CFRs was rejected by the State’s accounting system. As a result, the December payment to the SFA included CFRs from September through November. The drawdown of Federal funds for the September and October CFRs occurred in November; however, the SFA was not paid until December. GGSC and CNS did not have controls in place to monitor and ensure that batch payments were processed timely. As a result, the State had excess cash on hand for one month. Context: CNS processed $61.8 million in CFRs in fiscal year 2024. Cause: • Lack of supervisory oversight • Lack of adequate policies and procedures • A revision to a CFR within 60 days that does not increase total reimbursement does not trigger an edit check in the CNPWeb system for manual review. The edit check function is designed to only check overall increases or decreases in the total CFR; therefore, the overpayment of Federal funds went undetected because CNS supplements the Federal meal reimbursement with State funds. Effect: • The Federal government may impose more stringent program-specific cash management requirements based on noncompliance. • Noncompliance with Federal regulations Recommendation: We recommend that CNS: • continue to work with GGSC to ensure that batch payments approved for processing are paid timely; and • adjust edit checks in the CNPWeb system to identify changes in Federal and State funding rather than using the total claim amount in order to prevent overpayments. Corrective Action Plan: See F-18 Management’s Response: The Department partially agrees with this finding. The Department acknowledges that improvements could be made over the controls to ensure the timely processing of batch payments. As a result, new procedures have been developed and implemented to confirm that batch payments are processed without delay. However, the Department disagrees with the characterization of noncompliance with cash management requirement regarding the overpayment recoupment and believes the current controls effectively addressed the issue. The CNPWeb system already includes edit checks that track, offset, and reconcile adjustments between state and federal payments within the federal fiscal year, ensuring compliance with both 7 CFR 210.9 and 2 CFR 200.302. The $113,000 overpayment was fully recouped within the same fiscal year through systematic monthly offsets. These offsets occurred within the fund account (school lunch), and the balance was fully corrected through the current claims without any risk of misallocation. All actions were taken within CNPWeb, with no need for intervention outside of the system. 7 CFR 210.9 provides guidance on maintaining appropriate balances for school-level accounts and is not intended to govern isolated errors that were promptly detected and resolved through established program procedures. The Department does not believe that a three-month excess threshold applies in this case, as the error was corrected in accordance with program requirements, and the funds were reconciled in a timely manner. The Department maintains that the existing internal controls, along with the newly implemented procedures, adequately address the identified issues. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 Auditor’s Concluding Remarks: The Department’s Management Response incorrectly cites 7 CFR 210.9 which outlines requirements for the SFA, not the State. The applicable criteria for the compliance exceptions is 31 CFR 205.33 which is referenced in the finding Criteria. The Department did not return excess funds to the Federal government, nor gain approval to retain the funds when the overpayment was identified. This resulted in excess cash on hand at the Department level and thus, noncompliance with 31 CFR 205.33. The Department is misinterpreting that the return of Federal funds at the State level is only required when the funds are returned to the Department from the SFA. Therefore, the Department does not have adequate controls over cash management requirements. The finding remains as stated. (State Number: 24-1203-07)
(2024-036) Title: Internal control over CNC cash management needs improvement Prior Year Findings: None State Department: Education Administrative and Financial Services State Bureau: Child Nutrition Services General Government Service Center Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Cash management Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 31 CFR 205.33; State Administrative and Accounting Manual (SAAM) Section 50.40.80 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must minimize the time between the drawdown of Federal funds and the disbursement of these funds for Federal program purposes. The timing and amount of fund transfers must be as close as administratively feasible to the Department’s actual cash outlay for program costs. Section 50.40.80 of the SAAM has defined administratively feasible as no more than seven business days. Condition: Child Nutrition Services (CNS) is responsible for approving monthly Claims For Reimbursement (CFRs) submitted by School Food Authorities (SFAs). The Department of Administrative and Financial Services’ General Government Service Center (GGSC) is responsible for the drawdown of Federal funds to pay for Child Nutrition Cluster (CNC) program expenditures. GGSC utilizes a batch report of CFR amounts approved through the Child Nutrition Program system (CNPWeb) for the drawdown. The Office of the State Auditor (OSA) performed analytical procedures over CFRs and identified two reimbursements that exceeded average CFRs. Further procedures found: • one payment was the result of the SFA erroneously claiming all meals served as free meals, and therefore, paid entirely with Federal funds. The SFA subsequently modified the CFR and claimed only 16 percent of meals served as free, resulting in an overpayment of approximately $113,000. To recover the overpayment, CNS subtracted a portion from subsequent monthly claims with the final recoupment occurring in April 2024. As a result, the SFA had excess cash on hand from November 2023 through April 2024. • the other payment was the result of a rejected payment. The November 2023 payment intended for September and October CFRs was rejected by the State’s accounting system. As a result, the December payment to the SFA included CFRs from September through November. The drawdown of Federal funds for the September and October CFRs occurred in November; however, the SFA was not paid until December. GGSC and CNS did not have controls in place to monitor and ensure that batch payments were processed timely. As a result, the State had excess cash on hand for one month. Context: CNS processed $61.8 million in CFRs in fiscal year 2024. Cause: • Lack of supervisory oversight • Lack of adequate policies and procedures • A revision to a CFR within 60 days that does not increase total reimbursement does not trigger an edit check in the CNPWeb system for manual review. The edit check function is designed to only check overall increases or decreases in the total CFR; therefore, the overpayment of Federal funds went undetected because CNS supplements the Federal meal reimbursement with State funds. Effect: • The Federal government may impose more stringent program-specific cash management requirements based on noncompliance. • Noncompliance with Federal regulations Recommendation: We recommend that CNS: • continue to work with GGSC to ensure that batch payments approved for processing are paid timely; and • adjust edit checks in the CNPWeb system to identify changes in Federal and State funding rather than using the total claim amount in order to prevent overpayments. Corrective Action Plan: See F-18 Management’s Response: The Department partially agrees with this finding. The Department acknowledges that improvements could be made over the controls to ensure the timely processing of batch payments. As a result, new procedures have been developed and implemented to confirm that batch payments are processed without delay. However, the Department disagrees with the characterization of noncompliance with cash management requirement regarding the overpayment recoupment and believes the current controls effectively addressed the issue. The CNPWeb system already includes edit checks that track, offset, and reconcile adjustments between state and federal payments within the federal fiscal year, ensuring compliance with both 7 CFR 210.9 and 2 CFR 200.302. The $113,000 overpayment was fully recouped within the same fiscal year through systematic monthly offsets. These offsets occurred within the fund account (school lunch), and the balance was fully corrected through the current claims without any risk of misallocation. All actions were taken within CNPWeb, with no need for intervention outside of the system. 7 CFR 210.9 provides guidance on maintaining appropriate balances for school-level accounts and is not intended to govern isolated errors that were promptly detected and resolved through established program procedures. The Department does not believe that a three-month excess threshold applies in this case, as the error was corrected in accordance with program requirements, and the funds were reconciled in a timely manner. The Department maintains that the existing internal controls, along with the newly implemented procedures, adequately address the identified issues. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 Auditor’s Concluding Remarks: The Department’s Management Response incorrectly cites 7 CFR 210.9 which outlines requirements for the SFA, not the State. The applicable criteria for the compliance exceptions is 31 CFR 205.33 which is referenced in the finding Criteria. The Department did not return excess funds to the Federal government, nor gain approval to retain the funds when the overpayment was identified. This resulted in excess cash on hand at the Department level and thus, noncompliance with 31 CFR 205.33. The Department is misinterpreting that the return of Federal funds at the State level is only required when the funds are returned to the Department from the SFA. Therefore, the Department does not have adequate controls over cash management requirements. The finding remains as stated. (State Number: 24-1203-07)
(2024-036) Title: Internal control over CNC cash management needs improvement Prior Year Findings: None State Department: Education Administrative and Financial Services State Bureau: Child Nutrition Services General Government Service Center Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Cash management Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 31 CFR 205.33; State Administrative and Accounting Manual (SAAM) Section 50.40.80 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must minimize the time between the drawdown of Federal funds and the disbursement of these funds for Federal program purposes. The timing and amount of fund transfers must be as close as administratively feasible to the Department’s actual cash outlay for program costs. Section 50.40.80 of the SAAM has defined administratively feasible as no more than seven business days. Condition: Child Nutrition Services (CNS) is responsible for approving monthly Claims For Reimbursement (CFRs) submitted by School Food Authorities (SFAs). The Department of Administrative and Financial Services’ General Government Service Center (GGSC) is responsible for the drawdown of Federal funds to pay for Child Nutrition Cluster (CNC) program expenditures. GGSC utilizes a batch report of CFR amounts approved through the Child Nutrition Program system (CNPWeb) for the drawdown. The Office of the State Auditor (OSA) performed analytical procedures over CFRs and identified two reimbursements that exceeded average CFRs. Further procedures found: • one payment was the result of the SFA erroneously claiming all meals served as free meals, and therefore, paid entirely with Federal funds. The SFA subsequently modified the CFR and claimed only 16 percent of meals served as free, resulting in an overpayment of approximately $113,000. To recover the overpayment, CNS subtracted a portion from subsequent monthly claims with the final recoupment occurring in April 2024. As a result, the SFA had excess cash on hand from November 2023 through April 2024. • the other payment was the result of a rejected payment. The November 2023 payment intended for September and October CFRs was rejected by the State’s accounting system. As a result, the December payment to the SFA included CFRs from September through November. The drawdown of Federal funds for the September and October CFRs occurred in November; however, the SFA was not paid until December. GGSC and CNS did not have controls in place to monitor and ensure that batch payments were processed timely. As a result, the State had excess cash on hand for one month. Context: CNS processed $61.8 million in CFRs in fiscal year 2024. Cause: • Lack of supervisory oversight • Lack of adequate policies and procedures • A revision to a CFR within 60 days that does not increase total reimbursement does not trigger an edit check in the CNPWeb system for manual review. The edit check function is designed to only check overall increases or decreases in the total CFR; therefore, the overpayment of Federal funds went undetected because CNS supplements the Federal meal reimbursement with State funds. Effect: • The Federal government may impose more stringent program-specific cash management requirements based on noncompliance. • Noncompliance with Federal regulations Recommendation: We recommend that CNS: • continue to work with GGSC to ensure that batch payments approved for processing are paid timely; and • adjust edit checks in the CNPWeb system to identify changes in Federal and State funding rather than using the total claim amount in order to prevent overpayments. Corrective Action Plan: See F-18 Management’s Response: The Department partially agrees with this finding. The Department acknowledges that improvements could be made over the controls to ensure the timely processing of batch payments. As a result, new procedures have been developed and implemented to confirm that batch payments are processed without delay. However, the Department disagrees with the characterization of noncompliance with cash management requirement regarding the overpayment recoupment and believes the current controls effectively addressed the issue. The CNPWeb system already includes edit checks that track, offset, and reconcile adjustments between state and federal payments within the federal fiscal year, ensuring compliance with both 7 CFR 210.9 and 2 CFR 200.302. The $113,000 overpayment was fully recouped within the same fiscal year through systematic monthly offsets. These offsets occurred within the fund account (school lunch), and the balance was fully corrected through the current claims without any risk of misallocation. All actions were taken within CNPWeb, with no need for intervention outside of the system. 7 CFR 210.9 provides guidance on maintaining appropriate balances for school-level accounts and is not intended to govern isolated errors that were promptly detected and resolved through established program procedures. The Department does not believe that a three-month excess threshold applies in this case, as the error was corrected in accordance with program requirements, and the funds were reconciled in a timely manner. The Department maintains that the existing internal controls, along with the newly implemented procedures, adequately address the identified issues. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 Auditor’s Concluding Remarks: The Department’s Management Response incorrectly cites 7 CFR 210.9 which outlines requirements for the SFA, not the State. The applicable criteria for the compliance exceptions is 31 CFR 205.33 which is referenced in the finding Criteria. The Department did not return excess funds to the Federal government, nor gain approval to retain the funds when the overpayment was identified. This resulted in excess cash on hand at the Department level and thus, noncompliance with 31 CFR 205.33. The Department is misinterpreting that the return of Federal funds at the State level is only required when the funds are returned to the Department from the SFA. Therefore, the Department does not have adequate controls over cash management requirements. The finding remains as stated. (State Number: 24-1203-07)
(2024-036) Title: Internal control over CNC cash management needs improvement Prior Year Findings: None State Department: Education Administrative and Financial Services State Bureau: Child Nutrition Services General Government Service Center Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Cash management Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 31 CFR 205.33; State Administrative and Accounting Manual (SAAM) Section 50.40.80 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must minimize the time between the drawdown of Federal funds and the disbursement of these funds for Federal program purposes. The timing and amount of fund transfers must be as close as administratively feasible to the Department’s actual cash outlay for program costs. Section 50.40.80 of the SAAM has defined administratively feasible as no more than seven business days. Condition: Child Nutrition Services (CNS) is responsible for approving monthly Claims For Reimbursement (CFRs) submitted by School Food Authorities (SFAs). The Department of Administrative and Financial Services’ General Government Service Center (GGSC) is responsible for the drawdown of Federal funds to pay for Child Nutrition Cluster (CNC) program expenditures. GGSC utilizes a batch report of CFR amounts approved through the Child Nutrition Program system (CNPWeb) for the drawdown. The Office of the State Auditor (OSA) performed analytical procedures over CFRs and identified two reimbursements that exceeded average CFRs. Further procedures found: • one payment was the result of the SFA erroneously claiming all meals served as free meals, and therefore, paid entirely with Federal funds. The SFA subsequently modified the CFR and claimed only 16 percent of meals served as free, resulting in an overpayment of approximately $113,000. To recover the overpayment, CNS subtracted a portion from subsequent monthly claims with the final recoupment occurring in April 2024. As a result, the SFA had excess cash on hand from November 2023 through April 2024. • the other payment was the result of a rejected payment. The November 2023 payment intended for September and October CFRs was rejected by the State’s accounting system. As a result, the December payment to the SFA included CFRs from September through November. The drawdown of Federal funds for the September and October CFRs occurred in November; however, the SFA was not paid until December. GGSC and CNS did not have controls in place to monitor and ensure that batch payments were processed timely. As a result, the State had excess cash on hand for one month. Context: CNS processed $61.8 million in CFRs in fiscal year 2024. Cause: • Lack of supervisory oversight • Lack of adequate policies and procedures • A revision to a CFR within 60 days that does not increase total reimbursement does not trigger an edit check in the CNPWeb system for manual review. The edit check function is designed to only check overall increases or decreases in the total CFR; therefore, the overpayment of Federal funds went undetected because CNS supplements the Federal meal reimbursement with State funds. Effect: • The Federal government may impose more stringent program-specific cash management requirements based on noncompliance. • Noncompliance with Federal regulations Recommendation: We recommend that CNS: • continue to work with GGSC to ensure that batch payments approved for processing are paid timely; and • adjust edit checks in the CNPWeb system to identify changes in Federal and State funding rather than using the total claim amount in order to prevent overpayments. Corrective Action Plan: See F-18 Management’s Response: The Department partially agrees with this finding. The Department acknowledges that improvements could be made over the controls to ensure the timely processing of batch payments. As a result, new procedures have been developed and implemented to confirm that batch payments are processed without delay. However, the Department disagrees with the characterization of noncompliance with cash management requirement regarding the overpayment recoupment and believes the current controls effectively addressed the issue. The CNPWeb system already includes edit checks that track, offset, and reconcile adjustments between state and federal payments within the federal fiscal year, ensuring compliance with both 7 CFR 210.9 and 2 CFR 200.302. The $113,000 overpayment was fully recouped within the same fiscal year through systematic monthly offsets. These offsets occurred within the fund account (school lunch), and the balance was fully corrected through the current claims without any risk of misallocation. All actions were taken within CNPWeb, with no need for intervention outside of the system. 7 CFR 210.9 provides guidance on maintaining appropriate balances for school-level accounts and is not intended to govern isolated errors that were promptly detected and resolved through established program procedures. The Department does not believe that a three-month excess threshold applies in this case, as the error was corrected in accordance with program requirements, and the funds were reconciled in a timely manner. The Department maintains that the existing internal controls, along with the newly implemented procedures, adequately address the identified issues. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 Auditor’s Concluding Remarks: The Department’s Management Response incorrectly cites 7 CFR 210.9 which outlines requirements for the SFA, not the State. The applicable criteria for the compliance exceptions is 31 CFR 205.33 which is referenced in the finding Criteria. The Department did not return excess funds to the Federal government, nor gain approval to retain the funds when the overpayment was identified. This resulted in excess cash on hand at the Department level and thus, noncompliance with 31 CFR 205.33. The Department is misinterpreting that the return of Federal funds at the State level is only required when the funds are returned to the Department from the SFA. Therefore, the Department does not have adequate controls over cash management requirements. The finding remains as stated. (State Number: 24-1203-07)
(2024-037) Title: Internal control over WIC subrecipient cash management needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Health and Human Services State Bureau: Division of Contract Management Maine Center for Disease Control & Prevention Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) (COVID-19) Assistance Listing Number: 10.557 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Cash management Subrecipient monitoring Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.305 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department is required to monitor cash drawdowns by their subrecipients to ensure that the time elapsing between the payment of Federal funds to the subrecipient and the subrecipient’s actual disbursement for program purposes is minimized. Condition: The Department’s Division of Contract Management (DCM) has three methods for providing payments to subrecipients: cost-settled, cost-settled by invoice, and fee-for-service subawards. • For cost-settled subawards, DCM procedures include making equal advance monthly payments and then reconciling those amounts to the quarterly financial reports submitted by the subrecipient. This procedure does not take into consideration the time elapsing between the payment of Federal funds to the subrecipient and the subrecipient’s actual disbursement for program purposes. • For “cost-settled by invoice” (reimbursement) subawards, DCM procedures do not require subrecipients to include supporting documentation with monthly requests for reimbursement nor do they request supporting documentation at a subsequent date. This procedure does not take into consideration the time elapsing between the payment of Federal funds to the subrecipient and the subrecipient’s actual disbursement for program purposes. • Cash management requirements are not applicable for fee-for-service subawards. Maine Center for Disease Control & Prevention (MeCDC) is responsible for ensuring the WIC program’s subrecipients comply with Federal requirements; however, MeCDC’s subrecipient monitoring procedures do not include review of subrecipient compliance with cash management requirements. All of WIC’s subawards are cost-settled. Therefore, DCM and MeCDC procedures do not support that subrecipient cash management is properly monitored as required by Federal regulations. Context: In fiscal year 2024, the Department provided $5.9 million to subrecipients from WIC grant funds totaling $22.8 million. Cause: • Lack of adequate subrecipient monitoring procedures • Lack of centralized oversight of subrecipient monitoring Effect: • Noncompliance with Federal regulations • Federal programs may not be effectively and efficiently administered. • The Federal government may require the implementation of more stringent subrecipient cash management procedures. Recommendation: We recommend that MeCDC collaborate with DCM to implement monitoring procedures over subrecipient cash management requirements to ensure that the time elapsing between the payment of Federal funds to the subrecipient and the subrecipient’s actual disbursement for program purposes is minimized for the WIC program. Corrective Action Plan: See F-18 Management’s Response: The Department disagrees with this finding. The Department is in compliance with the requirement for minimizing the time between payments to our subrecipients and the disbursement of the funds. Payments are made as close as administratively feasible. The Compliance Supplement suggested audit procedures for Cash Management for pass-through entities refers to 200.305(b)(1)...that same paragraph states that the timing and amount of advance payments must be as close as is administratively feasible. Contact: Anthony Madden, Deputy Director, Division of Audit, DHHS, 207-287-2834 Auditor’s Concluding Remarks: The Department’s interpretation of the applicable Federal regulation selectively emphasizes a single sentence from the broader paragraph, omitting critical context that informs the regulation’s full intent. According to the 2024 Compliance Supplement, pass-through entities must monitor cash drawdowns by their subrecipients to ensure that the time elapsing between the transfer of Federal funds to the subrecipient and their disbursement for program purposes is minimized as required by the applicable cash management requirements in the Federal award to the recipient (2 CFR section 200.305(b)(1)). 2 CFR section 200.305(b)(1) states that the recipient or subrecipient must be paid in advance, provided it maintains or demonstrates the willingness to maintain both written procedures that minimize the time elapsing between the transfer of funds and disbursement by the recipient or subrecipient, and financial management systems that meet the standards for fund control and accountability as established in this part. Advance payments to a recipient or subrecipient must be limited to the minimum amounts needed and be timed with actual, immediate cash requirements of the recipient or subrecipient in carrying out the purpose of the approved program or project. The timing and amount of advance payments must be as close as is administratively feasible to the actual disbursements by the recipient or subrecipient for direct program or project costs and the proportionate share of any allowable indirect costs. The recipient or subrecipient must make timely payments to contractors in accordance with the contract provisions. The Department references the phrase “as close as is administratively feasible” to justify their current process; however, this phrase is part of a broader requirement that establishes specific conditions for advance payments. The regulation requires that the timing between when the subrecipient receives Federal funds from the State and when the subrecipient disburses those funds is closely monitored to ensure that disbursements align with actual, immediate cash needs. A full reading of the provision indicates that “administratively feasible” does not negate the obligation to implement effective controls that minimize this gap, nor does it permit delays or inadequate oversight in Federal cash management. The Department could not provide evidence to demonstrate that they adequately monitored subrecipient cash drawdowns to ensure alignment with actual, immediate cash needs. Additionally, the Department does not require subrecipients to submit invoice documentation to substantiate the timing, amount, or nature of expenditures included in the request of Federal funds. As a result, the Department cannot demonstrate an adequate level of monitoring, as there is no evidence that they collect the necessary information to ensure compliance with Federal cash management requirements. The finding remains as stated. (State Number: 24-1113-03)
(2024-037) Title: Internal control over WIC subrecipient cash management needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Health and Human Services State Bureau: Division of Contract Management Maine Center for Disease Control & Prevention Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) (COVID-19) Assistance Listing Number: 10.557 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Cash management Subrecipient monitoring Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.305 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department is required to monitor cash drawdowns by their subrecipients to ensure that the time elapsing between the payment of Federal funds to the subrecipient and the subrecipient’s actual disbursement for program purposes is minimized. Condition: The Department’s Division of Contract Management (DCM) has three methods for providing payments to subrecipients: cost-settled, cost-settled by invoice, and fee-for-service subawards. • For cost-settled subawards, DCM procedures include making equal advance monthly payments and then reconciling those amounts to the quarterly financial reports submitted by the subrecipient. This procedure does not take into consideration the time elapsing between the payment of Federal funds to the subrecipient and the subrecipient’s actual disbursement for program purposes. • For “cost-settled by invoice” (reimbursement) subawards, DCM procedures do not require subrecipients to include supporting documentation with monthly requests for reimbursement nor do they request supporting documentation at a subsequent date. This procedure does not take into consideration the time elapsing between the payment of Federal funds to the subrecipient and the subrecipient’s actual disbursement for program purposes. • Cash management requirements are not applicable for fee-for-service subawards. Maine Center for Disease Control & Prevention (MeCDC) is responsible for ensuring the WIC program’s subrecipients comply with Federal requirements; however, MeCDC’s subrecipient monitoring procedures do not include review of subrecipient compliance with cash management requirements. All of WIC’s subawards are cost-settled. Therefore, DCM and MeCDC procedures do not support that subrecipient cash management is properly monitored as required by Federal regulations. Context: In fiscal year 2024, the Department provided $5.9 million to subrecipients from WIC grant funds totaling $22.8 million. Cause: • Lack of adequate subrecipient monitoring procedures • Lack of centralized oversight of subrecipient monitoring Effect: • Noncompliance with Federal regulations • Federal programs may not be effectively and efficiently administered. • The Federal government may require the implementation of more stringent subrecipient cash management procedures. Recommendation: We recommend that MeCDC collaborate with DCM to implement monitoring procedures over subrecipient cash management requirements to ensure that the time elapsing between the payment of Federal funds to the subrecipient and the subrecipient’s actual disbursement for program purposes is minimized for the WIC program. Corrective Action Plan: See F-18 Management’s Response: The Department disagrees with this finding. The Department is in compliance with the requirement for minimizing the time between payments to our subrecipients and the disbursement of the funds. Payments are made as close as administratively feasible. The Compliance Supplement suggested audit procedures for Cash Management for pass-through entities refers to 200.305(b)(1)...that same paragraph states that the timing and amount of advance payments must be as close as is administratively feasible. Contact: Anthony Madden, Deputy Director, Division of Audit, DHHS, 207-287-2834 Auditor’s Concluding Remarks: The Department’s interpretation of the applicable Federal regulation selectively emphasizes a single sentence from the broader paragraph, omitting critical context that informs the regulation’s full intent. According to the 2024 Compliance Supplement, pass-through entities must monitor cash drawdowns by their subrecipients to ensure that the time elapsing between the transfer of Federal funds to the subrecipient and their disbursement for program purposes is minimized as required by the applicable cash management requirements in the Federal award to the recipient (2 CFR section 200.305(b)(1)). 2 CFR section 200.305(b)(1) states that the recipient or subrecipient must be paid in advance, provided it maintains or demonstrates the willingness to maintain both written procedures that minimize the time elapsing between the transfer of funds and disbursement by the recipient or subrecipient, and financial management systems that meet the standards for fund control and accountability as established in this part. Advance payments to a recipient or subrecipient must be limited to the minimum amounts needed and be timed with actual, immediate cash requirements of the recipient or subrecipient in carrying out the purpose of the approved program or project. The timing and amount of advance payments must be as close as is administratively feasible to the actual disbursements by the recipient or subrecipient for direct program or project costs and the proportionate share of any allowable indirect costs. The recipient or subrecipient must make timely payments to contractors in accordance with the contract provisions. The Department references the phrase “as close as is administratively feasible” to justify their current process; however, this phrase is part of a broader requirement that establishes specific conditions for advance payments. The regulation requires that the timing between when the subrecipient receives Federal funds from the State and when the subrecipient disburses those funds is closely monitored to ensure that disbursements align with actual, immediate cash needs. A full reading of the provision indicates that “administratively feasible” does not negate the obligation to implement effective controls that minimize this gap, nor does it permit delays or inadequate oversight in Federal cash management. The Department could not provide evidence to demonstrate that they adequately monitored subrecipient cash drawdowns to ensure alignment with actual, immediate cash needs. Additionally, the Department does not require subrecipients to submit invoice documentation to substantiate the timing, amount, or nature of expenditures included in the request of Federal funds. As a result, the Department cannot demonstrate an adequate level of monitoring, as there is no evidence that they collect the necessary information to ensure compliance with Federal cash management requirements. The finding remains as stated. (State Number: 24-1113-03)
(2024-038) Title: Internal control over WIC cash balances needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Health and Human Services Administrative and Financial Services State Bureau: Maine Center for Disease Control & Prevention Health and Human Services Service Center Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) (COVID-19) Assistance Listing Number: 10.557 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Cash management Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.302 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and terms and conditions of the awards. Financial records must adequately identify the source and application of funds and provide accountability for all funds, property, and other assets related to the Federally-funded activities. Condition: The Office of the State Auditor (OSA) issued finding 2019-021 as a result of procedures performed for the fiscal year 2019 audit. This finding identified that “Program personnel did not take the existing cash balance into consideration when requesting Federal funds for the Food portion of the WIC grant.” This resulted in an excess cash balance for the Food grant. The finding continues to be repeated as the Department has not returned the funds to the Federal awarding agency and the excess cash balance remains. Context: The Department calculated a $1,055,104 residual cash balance from the 2013 WIC Food grant and a $4,100 residual cash balance from the 2018 WIC Food grant. Cause: Lack of adequate recordkeeping and account reconciliation in prior years. The Department has made efforts to seek disposition from the Federal awarding agency; however, the issue has not been resolved. Effect: The State may be required to return $1,059,204 to the Federal awarding agency. Recommendation: We recommend that the Department continue efforts to resolve this matter with the Federal awarding agency. Corrective Action Plan: See F-18 Management’s Response: The Department and the DHHS Financial Service Center agree with this finding. The Department will work with the Federal Agency on steps needed to resolve the cash discrepancy. Contact: Sarah Gove, Director, DHHS Service Center, DAFS, 207-458-6626 (State Number: 24-1113-01)
(2024-038) Title: Internal control over WIC cash balances needs improvement Prior Year Findings: See schedule of Findings and Questioned Costs for chart/table State Department: Health and Human Services Administrative and Financial Services State Bureau: Maine Center for Disease Control & Prevention Health and Human Services Service Center Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) (COVID-19) Assistance Listing Number: 10.557 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Cash management Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.302 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and terms and conditions of the awards. Financial records must adequately identify the source and application of funds and provide accountability for all funds, property, and other assets related to the Federally-funded activities. Condition: The Office of the State Auditor (OSA) issued finding 2019-021 as a result of procedures performed for the fiscal year 2019 audit. This finding identified that “Program personnel did not take the existing cash balance into consideration when requesting Federal funds for the Food portion of the WIC grant.” This resulted in an excess cash balance for the Food grant. The finding continues to be repeated as the Department has not returned the funds to the Federal awarding agency and the excess cash balance remains. Context: The Department calculated a $1,055,104 residual cash balance from the 2013 WIC Food grant and a $4,100 residual cash balance from the 2018 WIC Food grant. Cause: Lack of adequate recordkeeping and account reconciliation in prior years. The Department has made efforts to seek disposition from the Federal awarding agency; however, the issue has not been resolved. Effect: The State may be required to return $1,059,204 to the Federal awarding agency. Recommendation: We recommend that the Department continue efforts to resolve this matter with the Federal awarding agency. Corrective Action Plan: See F-18 Management’s Response: The Department and the DHHS Financial Service Center agree with this finding. The Department will work with the Federal Agency on steps needed to resolve the cash discrepancy. Contact: Sarah Gove, Director, DHHS Service Center, DAFS, 207-458-6626 (State Number: 24-1113-01)
(2024-039) Confidential finding, see below for more information Title: Internal control over UI claim payments needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Labor State Bureau: Unemployment Compensation Federal Agency: U.S. Department of Labor Assistance Listing Title: Unemployment Insurance (UI) (COVID-19) Assistance Listing Number: 17.225 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Eligibility Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 20 CFR 615.8; Middle Class Tax Relief and Job Creation Act of 2012; Social Security Act Title III, Section 303; Unemployment Insurance Program Letter No. 5-13; 26 MRSA 1190 through 1199 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. A State administering Unemployment Insurance (UI) must have State laws and policies in place that are consistent with Federal provisions and required by 20 CFR 615.8; the Middle Class Tax Relief and Job Creation Act of 2012; Social Security Act Title III, Section 303; and Unemployment Insurance Program Letter No. 5-13, as follows: • Standards for claim filing and processing including appeals and reviews, communication with claimants and employers, eligibility standards and disqualifications, and Interstate Benefit Payments and agreements • Standards for reasonable work search criteria and policies requiring performance of internal audits of work search activity • Standards for program integrity outlining procedures for identification and recovery of overpayments and penalties, including recovery through offset of future benefit payments The State of Maine’s statutory requirements for UI program benefits are outlined in 26 MRSA 1190 through 1199. Condition: Pursuant to paragraph 6.63 of the U.S. Government Accountability Office’s Government Auditing Standards (also known as the Yellow Book), we omitted details from this finding as they are confidential under the provisions of 5 MRSA 244-C (3). Though the content of this finding has been redacted, we provided the Department(s) with detailed information regarding the specific condition we identified, as well as the related criteria, context, causes, effects, and our specific recommendations for improvement. The Department has complementary controls in place over claimant eligibility, including: • performance of internal work search audits by MDOL personnel for one percent of weekly claims, and • establishment of a Benefits Quality Control Unit tasked with investigating a prescribed number of UI paid claims and denied claims each week. The Office of the State Auditor performed data analytic procedures surrounding continuing eligibility requirements for weekly claim submission and work search activity entered by claimants and identified the following indications of claimant program abuse: • 21 claimants reported repetitive work search activities for all fiscal year 2024 claims, ranging from 7 to 14 consecutive benefit weeks. • 24 claimants reported the same work search contact for all fiscal year 2024 claims, ranging from 17 to 34 consecutive benefit weeks. • Six claimants reported new return to work dates ranging from 7 to 11 consecutive benefit weeks, which generated new temporary unemployment waivers allowing claimants to file weekly claims without reporting work search activities. • Five claimants reported part-time work totaling less than 10 hours per week ranging from 8 to 21 consecutive benefit weeks, generating new weekly unemployment waivers allowing the claimant to file weekly claims without reporting work search activities. Context: In fiscal year 2024, the UI program provided approximately $119 million in State UI benefits and $800 thousand in Federal UI benefits. Cause: • Lack of adequate policies and procedures over continuing claimant eligibility determinations • Lack of adequate supervisory oversight of information system application controls Effect: • Claimants may be incorrectly determined eligible for UI benefits without meeting Federal program requirements, which may result in unallowable issuances of benefit payments that could remain undetected. • Potential questioned costs and disallowances Recommendation: We recommend that the Department enhance policies and procedures to require: • implementation of additional information system application controls. • incorporation of data analytics and data cross-matching procedures to prevent or detect payments to ineligible claimants. This will provide assurance that eligibility requirements are met and adequately supported, and that payments to ineligible claimants are prevented, or detected and corrected, in a timely manner. Corrective Action Plan: See F-18 Management’s Response: The Department partially agrees with this finding. The Department acknowledges these audit findings and uses them to refine its system controls to enhance compliance and accuracy in processing claims. Regarding work search waivers for individuals with a return-to-work date, the Department agrees with the finding and implemented a system update in January 2025 to more effectively administer return to work, work search waivers. Based on specifics of the selected cases, management disagrees with the characterization of some work search activities as repetitive. Work search assistance through the Department’s CareerCenters may appear repetitive on a weekly claim but work search assistance from Department staff is both varied and productive. Additionally, job openings during the covered period were frequent, even with the same employer. When work search or other issues are detected on a claim, the Department schedules a fact-finding interview and requests additional documentation. State law requires the Department to continue an individual’s benefits pending a fact-finding review, for which the individual must be given at least seven days’ notice. In addition to conducting fact-finding interviews on issues detected on the weekly claim, the Department randomly audits 3% of claims each week to verify the information provided. Using information obtained through fact-finding interview, a claims adjudicator may uphold the payment of benefits or require the benefits to be repaid. While our policies and procedures align with existing regulations and are functioning as intended, the Department is committed to continuously improving our systems and processes in order to better serve claimants and uphold program integrity. The identified cases will be used to further refine our procedures. Contact: Suzan McKechnie, Director, Bureau of Unemployment Compensation, DOL, 207-621-5126 Auditor’s Concluding Remarks: The Department is required to establish and maintain effective internal control over compliance with eligibility requirements. While the Department does have controls in place to perform fact-finding interviews and work search audits, those procedures are carried out after UI benefits have been paid. The data analytics procedures noted in the Condition identified potential instances of program abuse and claimant activity with a high risk of noncompliance that was not detected by the Department’s existing internal controls. Implementation of additional information system application controls and incorporation of data analytics and data cross-matching procedures will provide further assurance that eligibility requirements are met and adequately supported, and that payments to ineligible claimants are prevented, or detected and corrected, in a timely manner. The finding remains as stated. (State Number: 24-1302-02)
(2024-039) Confidential finding, see below for more information Title: Internal control over UI claim payments needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Labor State Bureau: Unemployment Compensation Federal Agency: U.S. Department of Labor Assistance Listing Title: Unemployment Insurance (UI) (COVID-19) Assistance Listing Number: 17.225 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Eligibility Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 20 CFR 615.8; Middle Class Tax Relief and Job Creation Act of 2012; Social Security Act Title III, Section 303; Unemployment Insurance Program Letter No. 5-13; 26 MRSA 1190 through 1199 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. A State administering Unemployment Insurance (UI) must have State laws and policies in place that are consistent with Federal provisions and required by 20 CFR 615.8; the Middle Class Tax Relief and Job Creation Act of 2012; Social Security Act Title III, Section 303; and Unemployment Insurance Program Letter No. 5-13, as follows: • Standards for claim filing and processing including appeals and reviews, communication with claimants and employers, eligibility standards and disqualifications, and Interstate Benefit Payments and agreements • Standards for reasonable work search criteria and policies requiring performance of internal audits of work search activity • Standards for program integrity outlining procedures for identification and recovery of overpayments and penalties, including recovery through offset of future benefit payments The State of Maine’s statutory requirements for UI program benefits are outlined in 26 MRSA 1190 through 1199. Condition: Pursuant to paragraph 6.63 of the U.S. Government Accountability Office’s Government Auditing Standards (also known as the Yellow Book), we omitted details from this finding as they are confidential under the provisions of 5 MRSA 244-C (3). Though the content of this finding has been redacted, we provided the Department(s) with detailed information regarding the specific condition we identified, as well as the related criteria, context, causes, effects, and our specific recommendations for improvement. The Department has complementary controls in place over claimant eligibility, including: • performance of internal work search audits by MDOL personnel for one percent of weekly claims, and • establishment of a Benefits Quality Control Unit tasked with investigating a prescribed number of UI paid claims and denied claims each week. The Office of the State Auditor performed data analytic procedures surrounding continuing eligibility requirements for weekly claim submission and work search activity entered by claimants and identified the following indications of claimant program abuse: • 21 claimants reported repetitive work search activities for all fiscal year 2024 claims, ranging from 7 to 14 consecutive benefit weeks. • 24 claimants reported the same work search contact for all fiscal year 2024 claims, ranging from 17 to 34 consecutive benefit weeks. • Six claimants reported new return to work dates ranging from 7 to 11 consecutive benefit weeks, which generated new temporary unemployment waivers allowing claimants to file weekly claims without reporting work search activities. • Five claimants reported part-time work totaling less than 10 hours per week ranging from 8 to 21 consecutive benefit weeks, generating new weekly unemployment waivers allowing the claimant to file weekly claims without reporting work search activities. Context: In fiscal year 2024, the UI program provided approximately $119 million in State UI benefits and $800 thousand in Federal UI benefits. Cause: • Lack of adequate policies and procedures over continuing claimant eligibility determinations • Lack of adequate supervisory oversight of information system application controls Effect: • Claimants may be incorrectly determined eligible for UI benefits without meeting Federal program requirements, which may result in unallowable issuances of benefit payments that could remain undetected. • Potential questioned costs and disallowances Recommendation: We recommend that the Department enhance policies and procedures to require: • implementation of additional information system application controls. • incorporation of data analytics and data cross-matching procedures to prevent or detect payments to ineligible claimants. This will provide assurance that eligibility requirements are met and adequately supported, and that payments to ineligible claimants are prevented, or detected and corrected, in a timely manner. Corrective Action Plan: See F-18 Management’s Response: The Department partially agrees with this finding. The Department acknowledges these audit findings and uses them to refine its system controls to enhance compliance and accuracy in processing claims. Regarding work search waivers for individuals with a return-to-work date, the Department agrees with the finding and implemented a system update in January 2025 to more effectively administer return to work, work search waivers. Based on specifics of the selected cases, management disagrees with the characterization of some work search activities as repetitive. Work search assistance through the Department’s CareerCenters may appear repetitive on a weekly claim but work search assistance from Department staff is both varied and productive. Additionally, job openings during the covered period were frequent, even with the same employer. When work search or other issues are detected on a claim, the Department schedules a fact-finding interview and requests additional documentation. State law requires the Department to continue an individual’s benefits pending a fact-finding review, for which the individual must be given at least seven days’ notice. In addition to conducting fact-finding interviews on issues detected on the weekly claim, the Department randomly audits 3% of claims each week to verify the information provided. Using information obtained through fact-finding interview, a claims adjudicator may uphold the payment of benefits or require the benefits to be repaid. While our policies and procedures align with existing regulations and are functioning as intended, the Department is committed to continuously improving our systems and processes in order to better serve claimants and uphold program integrity. The identified cases will be used to further refine our procedures. Contact: Suzan McKechnie, Director, Bureau of Unemployment Compensation, DOL, 207-621-5126 Auditor’s Concluding Remarks: The Department is required to establish and maintain effective internal control over compliance with eligibility requirements. While the Department does have controls in place to perform fact-finding interviews and work search audits, those procedures are carried out after UI benefits have been paid. The data analytics procedures noted in the Condition identified potential instances of program abuse and claimant activity with a high risk of noncompliance that was not detected by the Department’s existing internal controls. Implementation of additional information system application controls and incorporation of data analytics and data cross-matching procedures will provide further assurance that eligibility requirements are met and adequately supported, and that payments to ineligible claimants are prevented, or detected and corrected, in a timely manner. The finding remains as stated. (State Number: 24-1302-02)
(2024-040) Title: Internal control over UI overpayments needs improvement Prior Year Findings: None State Department: Labor State Bureau: Unemployment Compensation Federal Agency: U.S. Department of Labor Assistance Listing Title: Unemployment Insurance (UI) (COVID-19) Assistance Listing Number: 17.225 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Special tests and provisions Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; Public Law Nos. 112-40 and 113-67 The Department must establish and maintain effective internal controls over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The State is required to properly identify and establish overpayments, track repayments, and process them regularly to ensure recovered payments are returned to the original funding source. The Department must sufficiently automate Unemployment Insurance (UI) operations and appropriately handle overpayment information to obtain, correspond, maintain, and transmit information concerning UI benefits. Condition: The Maine Department of Labor (MDOL) promotes and maintains the integrity of the UI program through the prevention, detection, and recovery of UI overpayments made to claimants. An UI overpayment may be established if a claimant is ultimately deemed ineligible for UI benefits after already receiving payment. MDOL must properly identify and establish overpayments to ensure that appropriate follow up action is initiated based on the classification of the overpayment. Once an overpayment is established and classified, a Demand for Payment Notice is generated within the ReEmployME system and transmitted to the claimant to initiate recoupment. The ReEmployME information system stores all claimant overpayment information including data on specific overpayment classifications, causes, and decisions; history logs; and correspondence with claimants. The Office of the State Auditor (OSA) tested 60 claimant overpayments to determine whether MDOL properly established, classified, and monitored overpayments and collections, and found that: • the ReEmployME system established a duplicate overpayment for one claimant for the same claim week. Because of the duplication, one record of overpayment totaling $520 remained active within the system after the overpayment was liquidated. • One Demand for Payment Notice was not communicated to the claimant. The overpayment totaling $9,668 remained active and uncollected from August 2023 to the time of audit testing in February 2025. OSA selected a non-statistical random sample. Context: In fiscal year 2024, the UI program provided $119 million in State UI benefits and $800,000 in Federal UI benefits, and the Department identified $6.5 million in claimant overpayments. Cause: • ReEmployME system error • Lack of supervisory oversight • Lack of adequate policies and procedures Effect: • Inaccurate UI claimant and overpayment information within the ReEmployME system • Potential untimely or ineffective recoupment of UI benefit overpayments • Noncompliance with Federal regulations Recommendation: We recommend that the Department enhance policies and procedures, including increased supervisory oversight, to ensure that claimant overpayments are accurately recorded in the ReEmployME system, properly monitored, and collected timely. Corrective Action Plan: See F-19 Management’s Response: The Department agrees with this finding. Remediation efforts are already underway for both issues. Several parameters have been established based on prior findings, and manual monitoring is in place to ensure overpayments are correctly identified. Additionally, federal compliance with the Benefit Accuracy Measurement (BAM) program provides an additional layer of oversight to verify the accuracy of unemployment claims. BAM audits are completed by a unit within the Bureau of Unemployment Compensation. Audits include a comprehensive review of claims and payments. To further enhance oversight, system parameters will be implemented to ensure functionality aligns with MDOL’s agreed-upon standards. The agency remains committed to ensuring compliance, improving system functionality, and reinforcing procedural accuracy to mitigate future occurrences of these issues. Contact: Suzan McKechnie Director, Bureau of Unemployment Compensation, MDOL, 207-621-5126 (State Number: 24-1302-01)
(2024-040) Title: Internal control over UI overpayments needs improvement Prior Year Findings: None State Department: Labor State Bureau: Unemployment Compensation Federal Agency: U.S. Department of Labor Assistance Listing Title: Unemployment Insurance (UI) (COVID-19) Assistance Listing Number: 17.225 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Special tests and provisions Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; Public Law Nos. 112-40 and 113-67 The Department must establish and maintain effective internal controls over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The State is required to properly identify and establish overpayments, track repayments, and process them regularly to ensure recovered payments are returned to the original funding source. The Department must sufficiently automate Unemployment Insurance (UI) operations and appropriately handle overpayment information to obtain, correspond, maintain, and transmit information concerning UI benefits. Condition: The Maine Department of Labor (MDOL) promotes and maintains the integrity of the UI program through the prevention, detection, and recovery of UI overpayments made to claimants. An UI overpayment may be established if a claimant is ultimately deemed ineligible for UI benefits after already receiving payment. MDOL must properly identify and establish overpayments to ensure that appropriate follow up action is initiated based on the classification of the overpayment. Once an overpayment is established and classified, a Demand for Payment Notice is generated within the ReEmployME system and transmitted to the claimant to initiate recoupment. The ReEmployME information system stores all claimant overpayment information including data on specific overpayment classifications, causes, and decisions; history logs; and correspondence with claimants. The Office of the State Auditor (OSA) tested 60 claimant overpayments to determine whether MDOL properly established, classified, and monitored overpayments and collections, and found that: • the ReEmployME system established a duplicate overpayment for one claimant for the same claim week. Because of the duplication, one record of overpayment totaling $520 remained active within the system after the overpayment was liquidated. • One Demand for Payment Notice was not communicated to the claimant. The overpayment totaling $9,668 remained active and uncollected from August 2023 to the time of audit testing in February 2025. OSA selected a non-statistical random sample. Context: In fiscal year 2024, the UI program provided $119 million in State UI benefits and $800,000 in Federal UI benefits, and the Department identified $6.5 million in claimant overpayments. Cause: • ReEmployME system error • Lack of supervisory oversight • Lack of adequate policies and procedures Effect: • Inaccurate UI claimant and overpayment information within the ReEmployME system • Potential untimely or ineffective recoupment of UI benefit overpayments • Noncompliance with Federal regulations Recommendation: We recommend that the Department enhance policies and procedures, including increased supervisory oversight, to ensure that claimant overpayments are accurately recorded in the ReEmployME system, properly monitored, and collected timely. Corrective Action Plan: See F-19 Management’s Response: The Department agrees with this finding. Remediation efforts are already underway for both issues. Several parameters have been established based on prior findings, and manual monitoring is in place to ensure overpayments are correctly identified. Additionally, federal compliance with the Benefit Accuracy Measurement (BAM) program provides an additional layer of oversight to verify the accuracy of unemployment claims. BAM audits are completed by a unit within the Bureau of Unemployment Compensation. Audits include a comprehensive review of claims and payments. To further enhance oversight, system parameters will be implemented to ensure functionality aligns with MDOL’s agreed-upon standards. The agency remains committed to ensuring compliance, improving system functionality, and reinforcing procedural accuracy to mitigate future occurrences of these issues. Contact: Suzan McKechnie Director, Bureau of Unemployment Compensation, MDOL, 207-621-5126 (State Number: 24-1302-01)
(2024-041) Title: Internal control over monitoring of employee classification and compensation needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Administrative and Financial Services State Bureau: Human Resources Federal Agency: U.S. Department of the Interior U.S. Department of Labor U.S. Department of Education U.S. Department of Health and Human Services Assistance Listing Title: Fish and Wildlife Cluster Unemployment Insurance (UI) (COVID-19) Special Education Cluster (IDEA) (COVID-19) Rehabilitation Services – Vocational Rehabilitation Grants to States CCDF Cluster (COVID-19) Assistance Listing Number: 15.605, 15.611, 15.626; 17.225; 84.027, 84.173; 84.126; 93.489, 93.575, 93.596 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.430; 5 MRSA 7061 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. Costs of compensation are allowable to the extent that personal services are rendered during the period of performance under the Federal award, total compensation is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity, and follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies. 5 MRSA 7061 states that the (Bureau of Human Resources (BHR)) director shall record the duties and responsibilities of all positions in State service and establish classes for these positions. The procedure shall provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. Condition: BHR maintains the job classification specifications and related compensation plan of State employees. A specific salary specification and grade is assigned based on the duties and responsibilities referenced in the job classification specification; this represents reasonable compensation for the services rendered for all positions that inhabit a given job classification specification. The assigned salary grade provides a basis for the allowability of compensation costs charged to Federal awards by documenting the reasonableness of compensation for services rendered by State employees, and that the position appointments under the job classification specification were made and maintained in accordance with State statute. While BHR relies on data collected from State agencies to implement procedures regarding the classification plan, BHR retains ultimate oversight responsibility. BHR is the only agency with the authority to modify the classification plan. According to 5 MRSA 7061, BHR must provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. The Office of the State Auditor (OSA) tested 19 job classification specifications for compliance with 5 MRSA 7061. BHR could not provide documentation for 14 of the 19 job classification specifications tested to support that they were updated within five years as required by 5 MRSA 7061. Additionally, BHR’s current tracking mechanism does not effectively identify the dates of the last review and next scheduled review, thus hindering compliance with the statutory five-year cycle. OSA selected a non-statistical random sample. Context: • During fiscal year 2024, approximately $139 million in payroll expenditures were charged to Federal grants. This represents approximately ten percent of fiscal year 2024 Statewide payroll expenditures, which totaled $1.3 billion. • BHR was responsible for managing approximately 1,200 job classification specifications in fiscal year 2024. Cause: • Lack of resources • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: State employee job classification and compensation may not accurately reflect the current duties and responsibilities of each position. Without documented evidence that review activities are occurring, BHR cannot ensure that the decisions involving the classification and compensation plan of all State employee positions are properly supported by documentation that accurately reflects the current duties and responsibilities of each position. As a result, this may lead to noncompliance with Federal and State regulations. Recommendation: We recommend that the Department: • enhance oversight regarding the maintenance of the State classification and compensation plan in accordance with State statute; • implement policies and procedures to ensure updates or reviews of the State classification and compensation plan at the job classification specification level are adequately documented; and • implement a tracking mechanism to accurately monitor the dates of past reviews and schedule forthcoming reviews to aid in adherence to the statutory requirement. Corrective Action Plan: See F-19 Management’s Response: The Department disagrees with this finding. The procedure referenced in 5 M.R.S. Sec. 7061(4) is laid out in 18-389 C.M.R. Ch. 4. The Department complies with these written policies and procedures as required by federal and state law. Section 7061(4) was last updated in 2023, with an effective date in October 2023. Pursuant to the JSC on Appropriations, Section 7061(4)(A) requires a review every five years of the state compensation plan for each class or position in the classified service. The FJA process is not related to the compensation plan, however, it is administered under a separate internal control structure that is in place and operating effectively and ensures that the compensation for individual employees is reasonable for the services rendered. The requirement for review of each classification through the FJA process is covered under Section 7061(4)(C) and is required to be reviewed every 10 years. It is also important to note that the Department has conferred with the OAG, who determined that Section 7061(4)(C) is not retroactive, meaning the Department has another 8.5 years to complete a review of all classifications. Additionally, salary studies conducted on State employee wages have shown that the salary and wages of job classifications paid by the State are consistently lower than industry averages, removing the risk that the utilization of these salary schedules as a component of payroll costs will cause overcharges to Federal grants. Contact: Michael J. Dunn, Acting State Human Resources Officer, Bureau of Human Resources, DAFS, 207-287-4651 Auditor’s Concluding Remarks: OSA acknowledges BHR’s reference to 5 MRSA 7061(4), as amended in October 2023, and the procedures for the classification maintenance outlined in 18-389 C.M.R. Ch. 4. We also recognize the distinction BHR draws between the five-year statutory requirement under 5 MRSA 7061(4)(A) for updating job descriptions and compensation plan components, and the ten-year classification plan review introduced under 5 MRSA 7061(4)(C). OSA’s review focused on BHR’s compliance with the five-year update requirement under 5 MRSA 7061(4)(A). While the statute was amended in 2023, the requirement that job descriptions be updated at least every five years has been in place since 1987. The recent amendment did not create this requirement; it expanded BHR’s obligation by tying the update process to the compensation plan and introducing a separate ten-year comprehensive classification review under 5 MRSA 7061(4)(C). These changes reflect an intent to strengthen oversight and modernize the State’s personnel system, not to delay or diminish BHR’s statutory responsibilities. To distinguish between BHR’s statutory responsibilities under 5 MRSA 7061(4)(A) and 5 MRSA 7061(4)(C), subsection (4)(A) requires periodic updating of job descriptions and the compensation plan at least every five years; this ensures that individual job classification specifications remain current and accurately reflect the duties and responsibilities of State positions. In contrast, subsection (4)(C), introduced in 2023, requires a broader, ten-year comprehensive review of the classification plan as a whole. The two requirements serve different purposes and operate on separate cycles. The five-year review of individual classifications under subsection (4)(A) remains an ongoing statutory obligation, regardless of the addition of subsection (4)(C). While BHR references its internal procedures under 18-389 C.M.R. Ch. 4 as evidence of compliance, those procedures do not incorporate or reflect the statutory five-year update requirement in subsection (4)(A) or the ten-year update in subsection (4)(C). Furthermore, BHR could not provide documentation to support that 14 of the 19 job classifications tested by OSA had been reviewed or updated within the required timeframe. BHR does not have a comprehensive system to track classification review dates across the classification plan, making it difficult to demonstrate compliance with the statute or proactively manage updates. Internal policy may guide operations, but compliance is ultimately measured against the statutory requirements that govern those operations. The issues identified in audit testing also have implications for the compensation system. Under 5 MRSA 7065, the State’s compensation plan is developed based on the classification plan, with salary grades assigned to specific job classes according to documented duties and responsibilities. The classification plan is the foundational structure upon which compensation decisions are made. If job descriptions are outdated, or not periodically reviewed as required, positions may be misaligned with inappropriate salary grades, which may lead to pay that does not accurately reflect the nature or complexity of the work, including Federally-funded positions. Without a properly maintained classification system, the State cannot ensure that compensation, whether paid with State or Federal funds, is supported by a valid and compliant classification system. Under 2 CFR 200.430(a)(2), compensation for personal services is allowable under Federal awards only when it follows “an appointment made in accordance with the recipient’s…laws, rules, or written policies.” This Federal regulation places the burden of compliance on the State’s adherence to its own legal framework. The Federal government allows flexibility, but that flexibility hinges on the condition that the State follows its own laws; it is the minimum threshold for allowability requirements over personnel costs. Compliance with this law is not discretionary; it is a legal obligation and direct reflection of the expectations placed on the State by the Legislature and the Federal government. BHR asserts that State employee compensation is consistently below market rates and therefore poses no risk of overcharging Federal programs. Even if BHR’s current assertion that State salaries are below market is accepted, Federal guidance provides that reasonableness in amount is only one factor in determining allowability. Compensation must also follow lawful appointment processes and reflect compliance with State personnel laws. A claim of underpayment is not a compensating control to prevent noncompliance with required classification updates. The following statutes only serve to emphasize the responsibility placed upon BHR and the State Human Resources Officer. Under 5 MRSA 7036, the State Human Resources Officer is explicitly responsible for adopting rules for both classification and compensation plans (7036(I) and (J)), enforcing the Civil Service Law (7036(21)), and conducting both short-term and long-term planning for the State’s personnel system (7036(10)). The Officer is also responsible for responding to reclassification requests (7036(5)) and working closely with agencies on their personnel needs (7036(7)). These statutory responsibilities further confirm that maintaining accurate, up-to-date classification specifications is not discretionary. Moreover, failure to fulfill these legal duties has implications that underscore the purpose of a centralized human resources function. These conditions present a risk to the accessibility to public service employment, including potential delayed hiring decisions and diminished ability to attract and retain a skilled workforce. When classification structures are outdated and statutory mandates are not followed, BHR cannot deliver on its mission. We acknowledge BHR’s consultation with the Office of the Attorney General and its efforts to clarify its interpretation of the law; however, the condition observed during the audit period reflects a neutralization of internal controls and subsequent risk of noncompliance with statutory requirements that directly affect both classification and the allowability of personnel costs under Federal awards. The finding remains as stated. (State Number: 24-0111-01)
(2024-041) Title: Internal control over monitoring of employee classification and compensation needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Administrative and Financial Services State Bureau: Human Resources Federal Agency: U.S. Department of the Interior U.S. Department of Labor U.S. Department of Education U.S. Department of Health and Human Services Assistance Listing Title: Fish and Wildlife Cluster Unemployment Insurance (UI) (COVID-19) Special Education Cluster (IDEA) (COVID-19) Rehabilitation Services – Vocational Rehabilitation Grants to States CCDF Cluster (COVID-19) Assistance Listing Number: 15.605, 15.611, 15.626; 17.225; 84.027, 84.173; 84.126; 93.489, 93.575, 93.596 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.430; 5 MRSA 7061 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. Costs of compensation are allowable to the extent that personal services are rendered during the period of performance under the Federal award, total compensation is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity, and follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies. 5 MRSA 7061 states that the (Bureau of Human Resources (BHR)) director shall record the duties and responsibilities of all positions in State service and establish classes for these positions. The procedure shall provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. Condition: BHR maintains the job classification specifications and related compensation plan of State employees. A specific salary specification and grade is assigned based on the duties and responsibilities referenced in the job classification specification; this represents reasonable compensation for the services rendered for all positions that inhabit a given job classification specification. The assigned salary grade provides a basis for the allowability of compensation costs charged to Federal awards by documenting the reasonableness of compensation for services rendered by State employees, and that the position appointments under the job classification specification were made and maintained in accordance with State statute. While BHR relies on data collected from State agencies to implement procedures regarding the classification plan, BHR retains ultimate oversight responsibility. BHR is the only agency with the authority to modify the classification plan. According to 5 MRSA 7061, BHR must provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. The Office of the State Auditor (OSA) tested 19 job classification specifications for compliance with 5 MRSA 7061. BHR could not provide documentation for 14 of the 19 job classification specifications tested to support that they were updated within five years as required by 5 MRSA 7061. Additionally, BHR’s current tracking mechanism does not effectively identify the dates of the last review and next scheduled review, thus hindering compliance with the statutory five-year cycle. OSA selected a non-statistical random sample. Context: • During fiscal year 2024, approximately $139 million in payroll expenditures were charged to Federal grants. This represents approximately ten percent of fiscal year 2024 Statewide payroll expenditures, which totaled $1.3 billion. • BHR was responsible for managing approximately 1,200 job classification specifications in fiscal year 2024. Cause: • Lack of resources • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: State employee job classification and compensation may not accurately reflect the current duties and responsibilities of each position. Without documented evidence that review activities are occurring, BHR cannot ensure that the decisions involving the classification and compensation plan of all State employee positions are properly supported by documentation that accurately reflects the current duties and responsibilities of each position. As a result, this may lead to noncompliance with Federal and State regulations. Recommendation: We recommend that the Department: • enhance oversight regarding the maintenance of the State classification and compensation plan in accordance with State statute; • implement policies and procedures to ensure updates or reviews of the State classification and compensation plan at the job classification specification level are adequately documented; and • implement a tracking mechanism to accurately monitor the dates of past reviews and schedule forthcoming reviews to aid in adherence to the statutory requirement. Corrective Action Plan: See F-19 Management’s Response: The Department disagrees with this finding. The procedure referenced in 5 M.R.S. Sec. 7061(4) is laid out in 18-389 C.M.R. Ch. 4. The Department complies with these written policies and procedures as required by federal and state law. Section 7061(4) was last updated in 2023, with an effective date in October 2023. Pursuant to the JSC on Appropriations, Section 7061(4)(A) requires a review every five years of the state compensation plan for each class or position in the classified service. The FJA process is not related to the compensation plan, however, it is administered under a separate internal control structure that is in place and operating effectively and ensures that the compensation for individual employees is reasonable for the services rendered. The requirement for review of each classification through the FJA process is covered under Section 7061(4)(C) and is required to be reviewed every 10 years. It is also important to note that the Department has conferred with the OAG, who determined that Section 7061(4)(C) is not retroactive, meaning the Department has another 8.5 years to complete a review of all classifications. Additionally, salary studies conducted on State employee wages have shown that the salary and wages of job classifications paid by the State are consistently lower than industry averages, removing the risk that the utilization of these salary schedules as a component of payroll costs will cause overcharges to Federal grants. Contact: Michael J. Dunn, Acting State Human Resources Officer, Bureau of Human Resources, DAFS, 207-287-4651 Auditor’s Concluding Remarks: OSA acknowledges BHR’s reference to 5 MRSA 7061(4), as amended in October 2023, and the procedures for the classification maintenance outlined in 18-389 C.M.R. Ch. 4. We also recognize the distinction BHR draws between the five-year statutory requirement under 5 MRSA 7061(4)(A) for updating job descriptions and compensation plan components, and the ten-year classification plan review introduced under 5 MRSA 7061(4)(C). OSA’s review focused on BHR’s compliance with the five-year update requirement under 5 MRSA 7061(4)(A). While the statute was amended in 2023, the requirement that job descriptions be updated at least every five years has been in place since 1987. The recent amendment did not create this requirement; it expanded BHR’s obligation by tying the update process to the compensation plan and introducing a separate ten-year comprehensive classification review under 5 MRSA 7061(4)(C). These changes reflect an intent to strengthen oversight and modernize the State’s personnel system, not to delay or diminish BHR’s statutory responsibilities. To distinguish between BHR’s statutory responsibilities under 5 MRSA 7061(4)(A) and 5 MRSA 7061(4)(C), subsection (4)(A) requires periodic updating of job descriptions and the compensation plan at least every five years; this ensures that individual job classification specifications remain current and accurately reflect the duties and responsibilities of State positions. In contrast, subsection (4)(C), introduced in 2023, requires a broader, ten-year comprehensive review of the classification plan as a whole. The two requirements serve different purposes and operate on separate cycles. The five-year review of individual classifications under subsection (4)(A) remains an ongoing statutory obligation, regardless of the addition of subsection (4)(C). While BHR references its internal procedures under 18-389 C.M.R. Ch. 4 as evidence of compliance, those procedures do not incorporate or reflect the statutory five-year update requirement in subsection (4)(A) or the ten-year update in subsection (4)(C). Furthermore, BHR could not provide documentation to support that 14 of the 19 job classifications tested by OSA had been reviewed or updated within the required timeframe. BHR does not have a comprehensive system to track classification review dates across the classification plan, making it difficult to demonstrate compliance with the statute or proactively manage updates. Internal policy may guide operations, but compliance is ultimately measured against the statutory requirements that govern those operations. The issues identified in audit testing also have implications for the compensation system. Under 5 MRSA 7065, the State’s compensation plan is developed based on the classification plan, with salary grades assigned to specific job classes according to documented duties and responsibilities. The classification plan is the foundational structure upon which compensation decisions are made. If job descriptions are outdated, or not periodically reviewed as required, positions may be misaligned with inappropriate salary grades, which may lead to pay that does not accurately reflect the nature or complexity of the work, including Federally-funded positions. Without a properly maintained classification system, the State cannot ensure that compensation, whether paid with State or Federal funds, is supported by a valid and compliant classification system. Under 2 CFR 200.430(a)(2), compensation for personal services is allowable under Federal awards only when it follows “an appointment made in accordance with the recipient’s…laws, rules, or written policies.” This Federal regulation places the burden of compliance on the State’s adherence to its own legal framework. The Federal government allows flexibility, but that flexibility hinges on the condition that the State follows its own laws; it is the minimum threshold for allowability requirements over personnel costs. Compliance with this law is not discretionary; it is a legal obligation and direct reflection of the expectations placed on the State by the Legislature and the Federal government. BHR asserts that State employee compensation is consistently below market rates and therefore poses no risk of overcharging Federal programs. Even if BHR’s current assertion that State salaries are below market is accepted, Federal guidance provides that reasonableness in amount is only one factor in determining allowability. Compensation must also follow lawful appointment processes and reflect compliance with State personnel laws. A claim of underpayment is not a compensating control to prevent noncompliance with required classification updates. The following statutes only serve to emphasize the responsibility placed upon BHR and the State Human Resources Officer. Under 5 MRSA 7036, the State Human Resources Officer is explicitly responsible for adopting rules for both classification and compensation plans (7036(I) and (J)), enforcing the Civil Service Law (7036(21)), and conducting both short-term and long-term planning for the State’s personnel system (7036(10)). The Officer is also responsible for responding to reclassification requests (7036(5)) and working closely with agencies on their personnel needs (7036(7)). These statutory responsibilities further confirm that maintaining accurate, up-to-date classification specifications is not discretionary. Moreover, failure to fulfill these legal duties has implications that underscore the purpose of a centralized human resources function. These conditions present a risk to the accessibility to public service employment, including potential delayed hiring decisions and diminished ability to attract and retain a skilled workforce. When classification structures are outdated and statutory mandates are not followed, BHR cannot deliver on its mission. We acknowledge BHR’s consultation with the Office of the Attorney General and its efforts to clarify its interpretation of the law; however, the condition observed during the audit period reflects a neutralization of internal controls and subsequent risk of noncompliance with statutory requirements that directly affect both classification and the allowability of personnel costs under Federal awards. The finding remains as stated. (State Number: 24-0111-01)
(2024-041) Title: Internal control over monitoring of employee classification and compensation needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Administrative and Financial Services State Bureau: Human Resources Federal Agency: U.S. Department of the Interior U.S. Department of Labor U.S. Department of Education U.S. Department of Health and Human Services Assistance Listing Title: Fish and Wildlife Cluster Unemployment Insurance (UI) (COVID-19) Special Education Cluster (IDEA) (COVID-19) Rehabilitation Services – Vocational Rehabilitation Grants to States CCDF Cluster (COVID-19) Assistance Listing Number: 15.605, 15.611, 15.626; 17.225; 84.027, 84.173; 84.126; 93.489, 93.575, 93.596 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.430; 5 MRSA 7061 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. Costs of compensation are allowable to the extent that personal services are rendered during the period of performance under the Federal award, total compensation is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity, and follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies. 5 MRSA 7061 states that the (Bureau of Human Resources (BHR)) director shall record the duties and responsibilities of all positions in State service and establish classes for these positions. The procedure shall provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. Condition: BHR maintains the job classification specifications and related compensation plan of State employees. A specific salary specification and grade is assigned based on the duties and responsibilities referenced in the job classification specification; this represents reasonable compensation for the services rendered for all positions that inhabit a given job classification specification. The assigned salary grade provides a basis for the allowability of compensation costs charged to Federal awards by documenting the reasonableness of compensation for services rendered by State employees, and that the position appointments under the job classification specification were made and maintained in accordance with State statute. While BHR relies on data collected from State agencies to implement procedures regarding the classification plan, BHR retains ultimate oversight responsibility. BHR is the only agency with the authority to modify the classification plan. According to 5 MRSA 7061, BHR must provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. The Office of the State Auditor (OSA) tested 19 job classification specifications for compliance with 5 MRSA 7061. BHR could not provide documentation for 14 of the 19 job classification specifications tested to support that they were updated within five years as required by 5 MRSA 7061. Additionally, BHR’s current tracking mechanism does not effectively identify the dates of the last review and next scheduled review, thus hindering compliance with the statutory five-year cycle. OSA selected a non-statistical random sample. Context: • During fiscal year 2024, approximately $139 million in payroll expenditures were charged to Federal grants. This represents approximately ten percent of fiscal year 2024 Statewide payroll expenditures, which totaled $1.3 billion. • BHR was responsible for managing approximately 1,200 job classification specifications in fiscal year 2024. Cause: • Lack of resources • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: State employee job classification and compensation may not accurately reflect the current duties and responsibilities of each position. Without documented evidence that review activities are occurring, BHR cannot ensure that the decisions involving the classification and compensation plan of all State employee positions are properly supported by documentation that accurately reflects the current duties and responsibilities of each position. As a result, this may lead to noncompliance with Federal and State regulations. Recommendation: We recommend that the Department: • enhance oversight regarding the maintenance of the State classification and compensation plan in accordance with State statute; • implement policies and procedures to ensure updates or reviews of the State classification and compensation plan at the job classification specification level are adequately documented; and • implement a tracking mechanism to accurately monitor the dates of past reviews and schedule forthcoming reviews to aid in adherence to the statutory requirement. Corrective Action Plan: See F-19 Management’s Response: The Department disagrees with this finding. The procedure referenced in 5 M.R.S. Sec. 7061(4) is laid out in 18-389 C.M.R. Ch. 4. The Department complies with these written policies and procedures as required by federal and state law. Section 7061(4) was last updated in 2023, with an effective date in October 2023. Pursuant to the JSC on Appropriations, Section 7061(4)(A) requires a review every five years of the state compensation plan for each class or position in the classified service. The FJA process is not related to the compensation plan, however, it is administered under a separate internal control structure that is in place and operating effectively and ensures that the compensation for individual employees is reasonable for the services rendered. The requirement for review of each classification through the FJA process is covered under Section 7061(4)(C) and is required to be reviewed every 10 years. It is also important to note that the Department has conferred with the OAG, who determined that Section 7061(4)(C) is not retroactive, meaning the Department has another 8.5 years to complete a review of all classifications. Additionally, salary studies conducted on State employee wages have shown that the salary and wages of job classifications paid by the State are consistently lower than industry averages, removing the risk that the utilization of these salary schedules as a component of payroll costs will cause overcharges to Federal grants. Contact: Michael J. Dunn, Acting State Human Resources Officer, Bureau of Human Resources, DAFS, 207-287-4651 Auditor’s Concluding Remarks: OSA acknowledges BHR’s reference to 5 MRSA 7061(4), as amended in October 2023, and the procedures for the classification maintenance outlined in 18-389 C.M.R. Ch. 4. We also recognize the distinction BHR draws between the five-year statutory requirement under 5 MRSA 7061(4)(A) for updating job descriptions and compensation plan components, and the ten-year classification plan review introduced under 5 MRSA 7061(4)(C). OSA’s review focused on BHR’s compliance with the five-year update requirement under 5 MRSA 7061(4)(A). While the statute was amended in 2023, the requirement that job descriptions be updated at least every five years has been in place since 1987. The recent amendment did not create this requirement; it expanded BHR’s obligation by tying the update process to the compensation plan and introducing a separate ten-year comprehensive classification review under 5 MRSA 7061(4)(C). These changes reflect an intent to strengthen oversight and modernize the State’s personnel system, not to delay or diminish BHR’s statutory responsibilities. To distinguish between BHR’s statutory responsibilities under 5 MRSA 7061(4)(A) and 5 MRSA 7061(4)(C), subsection (4)(A) requires periodic updating of job descriptions and the compensation plan at least every five years; this ensures that individual job classification specifications remain current and accurately reflect the duties and responsibilities of State positions. In contrast, subsection (4)(C), introduced in 2023, requires a broader, ten-year comprehensive review of the classification plan as a whole. The two requirements serve different purposes and operate on separate cycles. The five-year review of individual classifications under subsection (4)(A) remains an ongoing statutory obligation, regardless of the addition of subsection (4)(C). While BHR references its internal procedures under 18-389 C.M.R. Ch. 4 as evidence of compliance, those procedures do not incorporate or reflect the statutory five-year update requirement in subsection (4)(A) or the ten-year update in subsection (4)(C). Furthermore, BHR could not provide documentation to support that 14 of the 19 job classifications tested by OSA had been reviewed or updated within the required timeframe. BHR does not have a comprehensive system to track classification review dates across the classification plan, making it difficult to demonstrate compliance with the statute or proactively manage updates. Internal policy may guide operations, but compliance is ultimately measured against the statutory requirements that govern those operations. The issues identified in audit testing also have implications for the compensation system. Under 5 MRSA 7065, the State’s compensation plan is developed based on the classification plan, with salary grades assigned to specific job classes according to documented duties and responsibilities. The classification plan is the foundational structure upon which compensation decisions are made. If job descriptions are outdated, or not periodically reviewed as required, positions may be misaligned with inappropriate salary grades, which may lead to pay that does not accurately reflect the nature or complexity of the work, including Federally-funded positions. Without a properly maintained classification system, the State cannot ensure that compensation, whether paid with State or Federal funds, is supported by a valid and compliant classification system. Under 2 CFR 200.430(a)(2), compensation for personal services is allowable under Federal awards only when it follows “an appointment made in accordance with the recipient’s…laws, rules, or written policies.” This Federal regulation places the burden of compliance on the State’s adherence to its own legal framework. The Federal government allows flexibility, but that flexibility hinges on the condition that the State follows its own laws; it is the minimum threshold for allowability requirements over personnel costs. Compliance with this law is not discretionary; it is a legal obligation and direct reflection of the expectations placed on the State by the Legislature and the Federal government. BHR asserts that State employee compensation is consistently below market rates and therefore poses no risk of overcharging Federal programs. Even if BHR’s current assertion that State salaries are below market is accepted, Federal guidance provides that reasonableness in amount is only one factor in determining allowability. Compensation must also follow lawful appointment processes and reflect compliance with State personnel laws. A claim of underpayment is not a compensating control to prevent noncompliance with required classification updates. The following statutes only serve to emphasize the responsibility placed upon BHR and the State Human Resources Officer. Under 5 MRSA 7036, the State Human Resources Officer is explicitly responsible for adopting rules for both classification and compensation plans (7036(I) and (J)), enforcing the Civil Service Law (7036(21)), and conducting both short-term and long-term planning for the State’s personnel system (7036(10)). The Officer is also responsible for responding to reclassification requests (7036(5)) and working closely with agencies on their personnel needs (7036(7)). These statutory responsibilities further confirm that maintaining accurate, up-to-date classification specifications is not discretionary. Moreover, failure to fulfill these legal duties has implications that underscore the purpose of a centralized human resources function. These conditions present a risk to the accessibility to public service employment, including potential delayed hiring decisions and diminished ability to attract and retain a skilled workforce. When classification structures are outdated and statutory mandates are not followed, BHR cannot deliver on its mission. We acknowledge BHR’s consultation with the Office of the Attorney General and its efforts to clarify its interpretation of the law; however, the condition observed during the audit period reflects a neutralization of internal controls and subsequent risk of noncompliance with statutory requirements that directly affect both classification and the allowability of personnel costs under Federal awards. The finding remains as stated. (State Number: 24-0111-01)
(2024-041) Title: Internal control over monitoring of employee classification and compensation needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Administrative and Financial Services State Bureau: Human Resources Federal Agency: U.S. Department of the Interior U.S. Department of Labor U.S. Department of Education U.S. Department of Health and Human Services Assistance Listing Title: Fish and Wildlife Cluster Unemployment Insurance (UI) (COVID-19) Special Education Cluster (IDEA) (COVID-19) Rehabilitation Services – Vocational Rehabilitation Grants to States CCDF Cluster (COVID-19) Assistance Listing Number: 15.605, 15.611, 15.626; 17.225; 84.027, 84.173; 84.126; 93.489, 93.575, 93.596 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.430; 5 MRSA 7061 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. Costs of compensation are allowable to the extent that personal services are rendered during the period of performance under the Federal award, total compensation is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity, and follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies. 5 MRSA 7061 states that the (Bureau of Human Resources (BHR)) director shall record the duties and responsibilities of all positions in State service and establish classes for these positions. The procedure shall provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. Condition: BHR maintains the job classification specifications and related compensation plan of State employees. A specific salary specification and grade is assigned based on the duties and responsibilities referenced in the job classification specification; this represents reasonable compensation for the services rendered for all positions that inhabit a given job classification specification. The assigned salary grade provides a basis for the allowability of compensation costs charged to Federal awards by documenting the reasonableness of compensation for services rendered by State employees, and that the position appointments under the job classification specification were made and maintained in accordance with State statute. While BHR relies on data collected from State agencies to implement procedures regarding the classification plan, BHR retains ultimate oversight responsibility. BHR is the only agency with the authority to modify the classification plan. According to 5 MRSA 7061, BHR must provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. The Office of the State Auditor (OSA) tested 19 job classification specifications for compliance with 5 MRSA 7061. BHR could not provide documentation for 14 of the 19 job classification specifications tested to support that they were updated within five years as required by 5 MRSA 7061. Additionally, BHR’s current tracking mechanism does not effectively identify the dates of the last review and next scheduled review, thus hindering compliance with the statutory five-year cycle. OSA selected a non-statistical random sample. Context: • During fiscal year 2024, approximately $139 million in payroll expenditures were charged to Federal grants. This represents approximately ten percent of fiscal year 2024 Statewide payroll expenditures, which totaled $1.3 billion. • BHR was responsible for managing approximately 1,200 job classification specifications in fiscal year 2024. Cause: • Lack of resources • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: State employee job classification and compensation may not accurately reflect the current duties and responsibilities of each position. Without documented evidence that review activities are occurring, BHR cannot ensure that the decisions involving the classification and compensation plan of all State employee positions are properly supported by documentation that accurately reflects the current duties and responsibilities of each position. As a result, this may lead to noncompliance with Federal and State regulations. Recommendation: We recommend that the Department: • enhance oversight regarding the maintenance of the State classification and compensation plan in accordance with State statute; • implement policies and procedures to ensure updates or reviews of the State classification and compensation plan at the job classification specification level are adequately documented; and • implement a tracking mechanism to accurately monitor the dates of past reviews and schedule forthcoming reviews to aid in adherence to the statutory requirement. Corrective Action Plan: See F-19 Management’s Response: The Department disagrees with this finding. The procedure referenced in 5 M.R.S. Sec. 7061(4) is laid out in 18-389 C.M.R. Ch. 4. The Department complies with these written policies and procedures as required by federal and state law. Section 7061(4) was last updated in 2023, with an effective date in October 2023. Pursuant to the JSC on Appropriations, Section 7061(4)(A) requires a review every five years of the state compensation plan for each class or position in the classified service. The FJA process is not related to the compensation plan, however, it is administered under a separate internal control structure that is in place and operating effectively and ensures that the compensation for individual employees is reasonable for the services rendered. The requirement for review of each classification through the FJA process is covered under Section 7061(4)(C) and is required to be reviewed every 10 years. It is also important to note that the Department has conferred with the OAG, who determined that Section 7061(4)(C) is not retroactive, meaning the Department has another 8.5 years to complete a review of all classifications. Additionally, salary studies conducted on State employee wages have shown that the salary and wages of job classifications paid by the State are consistently lower than industry averages, removing the risk that the utilization of these salary schedules as a component of payroll costs will cause overcharges to Federal grants. Contact: Michael J. Dunn, Acting State Human Resources Officer, Bureau of Human Resources, DAFS, 207-287-4651 Auditor’s Concluding Remarks: OSA acknowledges BHR’s reference to 5 MRSA 7061(4), as amended in October 2023, and the procedures for the classification maintenance outlined in 18-389 C.M.R. Ch. 4. We also recognize the distinction BHR draws between the five-year statutory requirement under 5 MRSA 7061(4)(A) for updating job descriptions and compensation plan components, and the ten-year classification plan review introduced under 5 MRSA 7061(4)(C). OSA’s review focused on BHR’s compliance with the five-year update requirement under 5 MRSA 7061(4)(A). While the statute was amended in 2023, the requirement that job descriptions be updated at least every five years has been in place since 1987. The recent amendment did not create this requirement; it expanded BHR’s obligation by tying the update process to the compensation plan and introducing a separate ten-year comprehensive classification review under 5 MRSA 7061(4)(C). These changes reflect an intent to strengthen oversight and modernize the State’s personnel system, not to delay or diminish BHR’s statutory responsibilities. To distinguish between BHR’s statutory responsibilities under 5 MRSA 7061(4)(A) and 5 MRSA 7061(4)(C), subsection (4)(A) requires periodic updating of job descriptions and the compensation plan at least every five years; this ensures that individual job classification specifications remain current and accurately reflect the duties and responsibilities of State positions. In contrast, subsection (4)(C), introduced in 2023, requires a broader, ten-year comprehensive review of the classification plan as a whole. The two requirements serve different purposes and operate on separate cycles. The five-year review of individual classifications under subsection (4)(A) remains an ongoing statutory obligation, regardless of the addition of subsection (4)(C). While BHR references its internal procedures under 18-389 C.M.R. Ch. 4 as evidence of compliance, those procedures do not incorporate or reflect the statutory five-year update requirement in subsection (4)(A) or the ten-year update in subsection (4)(C). Furthermore, BHR could not provide documentation to support that 14 of the 19 job classifications tested by OSA had been reviewed or updated within the required timeframe. BHR does not have a comprehensive system to track classification review dates across the classification plan, making it difficult to demonstrate compliance with the statute or proactively manage updates. Internal policy may guide operations, but compliance is ultimately measured against the statutory requirements that govern those operations. The issues identified in audit testing also have implications for the compensation system. Under 5 MRSA 7065, the State’s compensation plan is developed based on the classification plan, with salary grades assigned to specific job classes according to documented duties and responsibilities. The classification plan is the foundational structure upon which compensation decisions are made. If job descriptions are outdated, or not periodically reviewed as required, positions may be misaligned with inappropriate salary grades, which may lead to pay that does not accurately reflect the nature or complexity of the work, including Federally-funded positions. Without a properly maintained classification system, the State cannot ensure that compensation, whether paid with State or Federal funds, is supported by a valid and compliant classification system. Under 2 CFR 200.430(a)(2), compensation for personal services is allowable under Federal awards only when it follows “an appointment made in accordance with the recipient’s…laws, rules, or written policies.” This Federal regulation places the burden of compliance on the State’s adherence to its own legal framework. The Federal government allows flexibility, but that flexibility hinges on the condition that the State follows its own laws; it is the minimum threshold for allowability requirements over personnel costs. Compliance with this law is not discretionary; it is a legal obligation and direct reflection of the expectations placed on the State by the Legislature and the Federal government. BHR asserts that State employee compensation is consistently below market rates and therefore poses no risk of overcharging Federal programs. Even if BHR’s current assertion that State salaries are below market is accepted, Federal guidance provides that reasonableness in amount is only one factor in determining allowability. Compensation must also follow lawful appointment processes and reflect compliance with State personnel laws. A claim of underpayment is not a compensating control to prevent noncompliance with required classification updates. The following statutes only serve to emphasize the responsibility placed upon BHR and the State Human Resources Officer. Under 5 MRSA 7036, the State Human Resources Officer is explicitly responsible for adopting rules for both classification and compensation plans (7036(I) and (J)), enforcing the Civil Service Law (7036(21)), and conducting both short-term and long-term planning for the State’s personnel system (7036(10)). The Officer is also responsible for responding to reclassification requests (7036(5)) and working closely with agencies on their personnel needs (7036(7)). These statutory responsibilities further confirm that maintaining accurate, up-to-date classification specifications is not discretionary. Moreover, failure to fulfill these legal duties has implications that underscore the purpose of a centralized human resources function. These conditions present a risk to the accessibility to public service employment, including potential delayed hiring decisions and diminished ability to attract and retain a skilled workforce. When classification structures are outdated and statutory mandates are not followed, BHR cannot deliver on its mission. We acknowledge BHR’s consultation with the Office of the Attorney General and its efforts to clarify its interpretation of the law; however, the condition observed during the audit period reflects a neutralization of internal controls and subsequent risk of noncompliance with statutory requirements that directly affect both classification and the allowability of personnel costs under Federal awards. The finding remains as stated. (State Number: 24-0111-01)
(2024-041) Title: Internal control over monitoring of employee classification and compensation needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Administrative and Financial Services State Bureau: Human Resources Federal Agency: U.S. Department of the Interior U.S. Department of Labor U.S. Department of Education U.S. Department of Health and Human Services Assistance Listing Title: Fish and Wildlife Cluster Unemployment Insurance (UI) (COVID-19) Special Education Cluster (IDEA) (COVID-19) Rehabilitation Services – Vocational Rehabilitation Grants to States CCDF Cluster (COVID-19) Assistance Listing Number: 15.605, 15.611, 15.626; 17.225; 84.027, 84.173; 84.126; 93.489, 93.575, 93.596 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.430; 5 MRSA 7061 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. Costs of compensation are allowable to the extent that personal services are rendered during the period of performance under the Federal award, total compensation is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity, and follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies. 5 MRSA 7061 states that the (Bureau of Human Resources (BHR)) director shall record the duties and responsibilities of all positions in State service and establish classes for these positions. The procedure shall provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. Condition: BHR maintains the job classification specifications and related compensation plan of State employees. A specific salary specification and grade is assigned based on the duties and responsibilities referenced in the job classification specification; this represents reasonable compensation for the services rendered for all positions that inhabit a given job classification specification. The assigned salary grade provides a basis for the allowability of compensation costs charged to Federal awards by documenting the reasonableness of compensation for services rendered by State employees, and that the position appointments under the job classification specification were made and maintained in accordance with State statute. While BHR relies on data collected from State agencies to implement procedures regarding the classification plan, BHR retains ultimate oversight responsibility. BHR is the only agency with the authority to modify the classification plan. According to 5 MRSA 7061, BHR must provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. The Office of the State Auditor (OSA) tested 19 job classification specifications for compliance with 5 MRSA 7061. BHR could not provide documentation for 14 of the 19 job classification specifications tested to support that they were updated within five years as required by 5 MRSA 7061. Additionally, BHR’s current tracking mechanism does not effectively identify the dates of the last review and next scheduled review, thus hindering compliance with the statutory five-year cycle. OSA selected a non-statistical random sample. Context: • During fiscal year 2024, approximately $139 million in payroll expenditures were charged to Federal grants. This represents approximately ten percent of fiscal year 2024 Statewide payroll expenditures, which totaled $1.3 billion. • BHR was responsible for managing approximately 1,200 job classification specifications in fiscal year 2024. Cause: • Lack of resources • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: State employee job classification and compensation may not accurately reflect the current duties and responsibilities of each position. Without documented evidence that review activities are occurring, BHR cannot ensure that the decisions involving the classification and compensation plan of all State employee positions are properly supported by documentation that accurately reflects the current duties and responsibilities of each position. As a result, this may lead to noncompliance with Federal and State regulations. Recommendation: We recommend that the Department: • enhance oversight regarding the maintenance of the State classification and compensation plan in accordance with State statute; • implement policies and procedures to ensure updates or reviews of the State classification and compensation plan at the job classification specification level are adequately documented; and • implement a tracking mechanism to accurately monitor the dates of past reviews and schedule forthcoming reviews to aid in adherence to the statutory requirement. Corrective Action Plan: See F-19 Management’s Response: The Department disagrees with this finding. The procedure referenced in 5 M.R.S. Sec. 7061(4) is laid out in 18-389 C.M.R. Ch. 4. The Department complies with these written policies and procedures as required by federal and state law. Section 7061(4) was last updated in 2023, with an effective date in October 2023. Pursuant to the JSC on Appropriations, Section 7061(4)(A) requires a review every five years of the state compensation plan for each class or position in the classified service. The FJA process is not related to the compensation plan, however, it is administered under a separate internal control structure that is in place and operating effectively and ensures that the compensation for individual employees is reasonable for the services rendered. The requirement for review of each classification through the FJA process is covered under Section 7061(4)(C) and is required to be reviewed every 10 years. It is also important to note that the Department has conferred with the OAG, who determined that Section 7061(4)(C) is not retroactive, meaning the Department has another 8.5 years to complete a review of all classifications. Additionally, salary studies conducted on State employee wages have shown that the salary and wages of job classifications paid by the State are consistently lower than industry averages, removing the risk that the utilization of these salary schedules as a component of payroll costs will cause overcharges to Federal grants. Contact: Michael J. Dunn, Acting State Human Resources Officer, Bureau of Human Resources, DAFS, 207-287-4651 Auditor’s Concluding Remarks: OSA acknowledges BHR’s reference to 5 MRSA 7061(4), as amended in October 2023, and the procedures for the classification maintenance outlined in 18-389 C.M.R. Ch. 4. We also recognize the distinction BHR draws between the five-year statutory requirement under 5 MRSA 7061(4)(A) for updating job descriptions and compensation plan components, and the ten-year classification plan review introduced under 5 MRSA 7061(4)(C). OSA’s review focused on BHR’s compliance with the five-year update requirement under 5 MRSA 7061(4)(A). While the statute was amended in 2023, the requirement that job descriptions be updated at least every five years has been in place since 1987. The recent amendment did not create this requirement; it expanded BHR’s obligation by tying the update process to the compensation plan and introducing a separate ten-year comprehensive classification review under 5 MRSA 7061(4)(C). These changes reflect an intent to strengthen oversight and modernize the State’s personnel system, not to delay or diminish BHR’s statutory responsibilities. To distinguish between BHR’s statutory responsibilities under 5 MRSA 7061(4)(A) and 5 MRSA 7061(4)(C), subsection (4)(A) requires periodic updating of job descriptions and the compensation plan at least every five years; this ensures that individual job classification specifications remain current and accurately reflect the duties and responsibilities of State positions. In contrast, subsection (4)(C), introduced in 2023, requires a broader, ten-year comprehensive review of the classification plan as a whole. The two requirements serve different purposes and operate on separate cycles. The five-year review of individual classifications under subsection (4)(A) remains an ongoing statutory obligation, regardless of the addition of subsection (4)(C). While BHR references its internal procedures under 18-389 C.M.R. Ch. 4 as evidence of compliance, those procedures do not incorporate or reflect the statutory five-year update requirement in subsection (4)(A) or the ten-year update in subsection (4)(C). Furthermore, BHR could not provide documentation to support that 14 of the 19 job classifications tested by OSA had been reviewed or updated within the required timeframe. BHR does not have a comprehensive system to track classification review dates across the classification plan, making it difficult to demonstrate compliance with the statute or proactively manage updates. Internal policy may guide operations, but compliance is ultimately measured against the statutory requirements that govern those operations. The issues identified in audit testing also have implications for the compensation system. Under 5 MRSA 7065, the State’s compensation plan is developed based on the classification plan, with salary grades assigned to specific job classes according to documented duties and responsibilities. The classification plan is the foundational structure upon which compensation decisions are made. If job descriptions are outdated, or not periodically reviewed as required, positions may be misaligned with inappropriate salary grades, which may lead to pay that does not accurately reflect the nature or complexity of the work, including Federally-funded positions. Without a properly maintained classification system, the State cannot ensure that compensation, whether paid with State or Federal funds, is supported by a valid and compliant classification system. Under 2 CFR 200.430(a)(2), compensation for personal services is allowable under Federal awards only when it follows “an appointment made in accordance with the recipient’s…laws, rules, or written policies.” This Federal regulation places the burden of compliance on the State’s adherence to its own legal framework. The Federal government allows flexibility, but that flexibility hinges on the condition that the State follows its own laws; it is the minimum threshold for allowability requirements over personnel costs. Compliance with this law is not discretionary; it is a legal obligation and direct reflection of the expectations placed on the State by the Legislature and the Federal government. BHR asserts that State employee compensation is consistently below market rates and therefore poses no risk of overcharging Federal programs. Even if BHR’s current assertion that State salaries are below market is accepted, Federal guidance provides that reasonableness in amount is only one factor in determining allowability. Compensation must also follow lawful appointment processes and reflect compliance with State personnel laws. A claim of underpayment is not a compensating control to prevent noncompliance with required classification updates. The following statutes only serve to emphasize the responsibility placed upon BHR and the State Human Resources Officer. Under 5 MRSA 7036, the State Human Resources Officer is explicitly responsible for adopting rules for both classification and compensation plans (7036(I) and (J)), enforcing the Civil Service Law (7036(21)), and conducting both short-term and long-term planning for the State’s personnel system (7036(10)). The Officer is also responsible for responding to reclassification requests (7036(5)) and working closely with agencies on their personnel needs (7036(7)). These statutory responsibilities further confirm that maintaining accurate, up-to-date classification specifications is not discretionary. Moreover, failure to fulfill these legal duties has implications that underscore the purpose of a centralized human resources function. These conditions present a risk to the accessibility to public service employment, including potential delayed hiring decisions and diminished ability to attract and retain a skilled workforce. When classification structures are outdated and statutory mandates are not followed, BHR cannot deliver on its mission. We acknowledge BHR’s consultation with the Office of the Attorney General and its efforts to clarify its interpretation of the law; however, the condition observed during the audit period reflects a neutralization of internal controls and subsequent risk of noncompliance with statutory requirements that directly affect both classification and the allowability of personnel costs under Federal awards. The finding remains as stated. (State Number: 24-0111-01)
(2024-041) Title: Internal control over monitoring of employee classification and compensation needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Administrative and Financial Services State Bureau: Human Resources Federal Agency: U.S. Department of the Interior U.S. Department of Labor U.S. Department of Education U.S. Department of Health and Human Services Assistance Listing Title: Fish and Wildlife Cluster Unemployment Insurance (UI) (COVID-19) Special Education Cluster (IDEA) (COVID-19) Rehabilitation Services – Vocational Rehabilitation Grants to States CCDF Cluster (COVID-19) Assistance Listing Number: 15.605, 15.611, 15.626; 17.225; 84.027, 84.173; 84.126; 93.489, 93.575, 93.596 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.430; 5 MRSA 7061 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. Costs of compensation are allowable to the extent that personal services are rendered during the period of performance under the Federal award, total compensation is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity, and follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies. 5 MRSA 7061 states that the (Bureau of Human Resources (BHR)) director shall record the duties and responsibilities of all positions in State service and establish classes for these positions. The procedure shall provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. Condition: BHR maintains the job classification specifications and related compensation plan of State employees. A specific salary specification and grade is assigned based on the duties and responsibilities referenced in the job classification specification; this represents reasonable compensation for the services rendered for all positions that inhabit a given job classification specification. The assigned salary grade provides a basis for the allowability of compensation costs charged to Federal awards by documenting the reasonableness of compensation for services rendered by State employees, and that the position appointments under the job classification specification were made and maintained in accordance with State statute. While BHR relies on data collected from State agencies to implement procedures regarding the classification plan, BHR retains ultimate oversight responsibility. BHR is the only agency with the authority to modify the classification plan. According to 5 MRSA 7061, BHR must provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. The Office of the State Auditor (OSA) tested 19 job classification specifications for compliance with 5 MRSA 7061. BHR could not provide documentation for 14 of the 19 job classification specifications tested to support that they were updated within five years as required by 5 MRSA 7061. Additionally, BHR’s current tracking mechanism does not effectively identify the dates of the last review and next scheduled review, thus hindering compliance with the statutory five-year cycle. OSA selected a non-statistical random sample. Context: • During fiscal year 2024, approximately $139 million in payroll expenditures were charged to Federal grants. This represents approximately ten percent of fiscal year 2024 Statewide payroll expenditures, which totaled $1.3 billion. • BHR was responsible for managing approximately 1,200 job classification specifications in fiscal year 2024. Cause: • Lack of resources • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: State employee job classification and compensation may not accurately reflect the current duties and responsibilities of each position. Without documented evidence that review activities are occurring, BHR cannot ensure that the decisions involving the classification and compensation plan of all State employee positions are properly supported by documentation that accurately reflects the current duties and responsibilities of each position. As a result, this may lead to noncompliance with Federal and State regulations. Recommendation: We recommend that the Department: • enhance oversight regarding the maintenance of the State classification and compensation plan in accordance with State statute; • implement policies and procedures to ensure updates or reviews of the State classification and compensation plan at the job classification specification level are adequately documented; and • implement a tracking mechanism to accurately monitor the dates of past reviews and schedule forthcoming reviews to aid in adherence to the statutory requirement. Corrective Action Plan: See F-19 Management’s Response: The Department disagrees with this finding. The procedure referenced in 5 M.R.S. Sec. 7061(4) is laid out in 18-389 C.M.R. Ch. 4. The Department complies with these written policies and procedures as required by federal and state law. Section 7061(4) was last updated in 2023, with an effective date in October 2023. Pursuant to the JSC on Appropriations, Section 7061(4)(A) requires a review every five years of the state compensation plan for each class or position in the classified service. The FJA process is not related to the compensation plan, however, it is administered under a separate internal control structure that is in place and operating effectively and ensures that the compensation for individual employees is reasonable for the services rendered. The requirement for review of each classification through the FJA process is covered under Section 7061(4)(C) and is required to be reviewed every 10 years. It is also important to note that the Department has conferred with the OAG, who determined that Section 7061(4)(C) is not retroactive, meaning the Department has another 8.5 years to complete a review of all classifications. Additionally, salary studies conducted on State employee wages have shown that the salary and wages of job classifications paid by the State are consistently lower than industry averages, removing the risk that the utilization of these salary schedules as a component of payroll costs will cause overcharges to Federal grants. Contact: Michael J. Dunn, Acting State Human Resources Officer, Bureau of Human Resources, DAFS, 207-287-4651 Auditor’s Concluding Remarks: OSA acknowledges BHR’s reference to 5 MRSA 7061(4), as amended in October 2023, and the procedures for the classification maintenance outlined in 18-389 C.M.R. Ch. 4. We also recognize the distinction BHR draws between the five-year statutory requirement under 5 MRSA 7061(4)(A) for updating job descriptions and compensation plan components, and the ten-year classification plan review introduced under 5 MRSA 7061(4)(C). OSA’s review focused on BHR’s compliance with the five-year update requirement under 5 MRSA 7061(4)(A). While the statute was amended in 2023, the requirement that job descriptions be updated at least every five years has been in place since 1987. The recent amendment did not create this requirement; it expanded BHR’s obligation by tying the update process to the compensation plan and introducing a separate ten-year comprehensive classification review under 5 MRSA 7061(4)(C). These changes reflect an intent to strengthen oversight and modernize the State’s personnel system, not to delay or diminish BHR’s statutory responsibilities. To distinguish between BHR’s statutory responsibilities under 5 MRSA 7061(4)(A) and 5 MRSA 7061(4)(C), subsection (4)(A) requires periodic updating of job descriptions and the compensation plan at least every five years; this ensures that individual job classification specifications remain current and accurately reflect the duties and responsibilities of State positions. In contrast, subsection (4)(C), introduced in 2023, requires a broader, ten-year comprehensive review of the classification plan as a whole. The two requirements serve different purposes and operate on separate cycles. The five-year review of individual classifications under subsection (4)(A) remains an ongoing statutory obligation, regardless of the addition of subsection (4)(C). While BHR references its internal procedures under 18-389 C.M.R. Ch. 4 as evidence of compliance, those procedures do not incorporate or reflect the statutory five-year update requirement in subsection (4)(A) or the ten-year update in subsection (4)(C). Furthermore, BHR could not provide documentation to support that 14 of the 19 job classifications tested by OSA had been reviewed or updated within the required timeframe. BHR does not have a comprehensive system to track classification review dates across the classification plan, making it difficult to demonstrate compliance with the statute or proactively manage updates. Internal policy may guide operations, but compliance is ultimately measured against the statutory requirements that govern those operations. The issues identified in audit testing also have implications for the compensation system. Under 5 MRSA 7065, the State’s compensation plan is developed based on the classification plan, with salary grades assigned to specific job classes according to documented duties and responsibilities. The classification plan is the foundational structure upon which compensation decisions are made. If job descriptions are outdated, or not periodically reviewed as required, positions may be misaligned with inappropriate salary grades, which may lead to pay that does not accurately reflect the nature or complexity of the work, including Federally-funded positions. Without a properly maintained classification system, the State cannot ensure that compensation, whether paid with State or Federal funds, is supported by a valid and compliant classification system. Under 2 CFR 200.430(a)(2), compensation for personal services is allowable under Federal awards only when it follows “an appointment made in accordance with the recipient’s…laws, rules, or written policies.” This Federal regulation places the burden of compliance on the State’s adherence to its own legal framework. The Federal government allows flexibility, but that flexibility hinges on the condition that the State follows its own laws; it is the minimum threshold for allowability requirements over personnel costs. Compliance with this law is not discretionary; it is a legal obligation and direct reflection of the expectations placed on the State by the Legislature and the Federal government. BHR asserts that State employee compensation is consistently below market rates and therefore poses no risk of overcharging Federal programs. Even if BHR’s current assertion that State salaries are below market is accepted, Federal guidance provides that reasonableness in amount is only one factor in determining allowability. Compensation must also follow lawful appointment processes and reflect compliance with State personnel laws. A claim of underpayment is not a compensating control to prevent noncompliance with required classification updates. The following statutes only serve to emphasize the responsibility placed upon BHR and the State Human Resources Officer. Under 5 MRSA 7036, the State Human Resources Officer is explicitly responsible for adopting rules for both classification and compensation plans (7036(I) and (J)), enforcing the Civil Service Law (7036(21)), and conducting both short-term and long-term planning for the State’s personnel system (7036(10)). The Officer is also responsible for responding to reclassification requests (7036(5)) and working closely with agencies on their personnel needs (7036(7)). These statutory responsibilities further confirm that maintaining accurate, up-to-date classification specifications is not discretionary. Moreover, failure to fulfill these legal duties has implications that underscore the purpose of a centralized human resources function. These conditions present a risk to the accessibility to public service employment, including potential delayed hiring decisions and diminished ability to attract and retain a skilled workforce. When classification structures are outdated and statutory mandates are not followed, BHR cannot deliver on its mission. We acknowledge BHR’s consultation with the Office of the Attorney General and its efforts to clarify its interpretation of the law; however, the condition observed during the audit period reflects a neutralization of internal controls and subsequent risk of noncompliance with statutory requirements that directly affect both classification and the allowability of personnel costs under Federal awards. The finding remains as stated. (State Number: 24-0111-01)
(2024-041) Title: Internal control over monitoring of employee classification and compensation needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Administrative and Financial Services State Bureau: Human Resources Federal Agency: U.S. Department of the Interior U.S. Department of Labor U.S. Department of Education U.S. Department of Health and Human Services Assistance Listing Title: Fish and Wildlife Cluster Unemployment Insurance (UI) (COVID-19) Special Education Cluster (IDEA) (COVID-19) Rehabilitation Services – Vocational Rehabilitation Grants to States CCDF Cluster (COVID-19) Assistance Listing Number: 15.605, 15.611, 15.626; 17.225; 84.027, 84.173; 84.126; 93.489, 93.575, 93.596 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.430; 5 MRSA 7061 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. Costs of compensation are allowable to the extent that personal services are rendered during the period of performance under the Federal award, total compensation is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity, and follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies. 5 MRSA 7061 states that the (Bureau of Human Resources (BHR)) director shall record the duties and responsibilities of all positions in State service and establish classes for these positions. The procedure shall provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. Condition: BHR maintains the job classification specifications and related compensation plan of State employees. A specific salary specification and grade is assigned based on the duties and responsibilities referenced in the job classification specification; this represents reasonable compensation for the services rendered for all positions that inhabit a given job classification specification. The assigned salary grade provides a basis for the allowability of compensation costs charged to Federal awards by documenting the reasonableness of compensation for services rendered by State employees, and that the position appointments under the job classification specification were made and maintained in accordance with State statute. While BHR relies on data collected from State agencies to implement procedures regarding the classification plan, BHR retains ultimate oversight responsibility. BHR is the only agency with the authority to modify the classification plan. According to 5 MRSA 7061, BHR must provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. The Office of the State Auditor (OSA) tested 19 job classification specifications for compliance with 5 MRSA 7061. BHR could not provide documentation for 14 of the 19 job classification specifications tested to support that they were updated within five years as required by 5 MRSA 7061. Additionally, BHR’s current tracking mechanism does not effectively identify the dates of the last review and next scheduled review, thus hindering compliance with the statutory five-year cycle. OSA selected a non-statistical random sample. Context: • During fiscal year 2024, approximately $139 million in payroll expenditures were charged to Federal grants. This represents approximately ten percent of fiscal year 2024 Statewide payroll expenditures, which totaled $1.3 billion. • BHR was responsible for managing approximately 1,200 job classification specifications in fiscal year 2024. Cause: • Lack of resources • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: State employee job classification and compensation may not accurately reflect the current duties and responsibilities of each position. Without documented evidence that review activities are occurring, BHR cannot ensure that the decisions involving the classification and compensation plan of all State employee positions are properly supported by documentation that accurately reflects the current duties and responsibilities of each position. As a result, this may lead to noncompliance with Federal and State regulations. Recommendation: We recommend that the Department: • enhance oversight regarding the maintenance of the State classification and compensation plan in accordance with State statute; • implement policies and procedures to ensure updates or reviews of the State classification and compensation plan at the job classification specification level are adequately documented; and • implement a tracking mechanism to accurately monitor the dates of past reviews and schedule forthcoming reviews to aid in adherence to the statutory requirement. Corrective Action Plan: See F-19 Management’s Response: The Department disagrees with this finding. The procedure referenced in 5 M.R.S. Sec. 7061(4) is laid out in 18-389 C.M.R. Ch. 4. The Department complies with these written policies and procedures as required by federal and state law. Section 7061(4) was last updated in 2023, with an effective date in October 2023. Pursuant to the JSC on Appropriations, Section 7061(4)(A) requires a review every five years of the state compensation plan for each class or position in the classified service. The FJA process is not related to the compensation plan, however, it is administered under a separate internal control structure that is in place and operating effectively and ensures that the compensation for individual employees is reasonable for the services rendered. The requirement for review of each classification through the FJA process is covered under Section 7061(4)(C) and is required to be reviewed every 10 years. It is also important to note that the Department has conferred with the OAG, who determined that Section 7061(4)(C) is not retroactive, meaning the Department has another 8.5 years to complete a review of all classifications. Additionally, salary studies conducted on State employee wages have shown that the salary and wages of job classifications paid by the State are consistently lower than industry averages, removing the risk that the utilization of these salary schedules as a component of payroll costs will cause overcharges to Federal grants. Contact: Michael J. Dunn, Acting State Human Resources Officer, Bureau of Human Resources, DAFS, 207-287-4651 Auditor’s Concluding Remarks: OSA acknowledges BHR’s reference to 5 MRSA 7061(4), as amended in October 2023, and the procedures for the classification maintenance outlined in 18-389 C.M.R. Ch. 4. We also recognize the distinction BHR draws between the five-year statutory requirement under 5 MRSA 7061(4)(A) for updating job descriptions and compensation plan components, and the ten-year classification plan review introduced under 5 MRSA 7061(4)(C). OSA’s review focused on BHR’s compliance with the five-year update requirement under 5 MRSA 7061(4)(A). While the statute was amended in 2023, the requirement that job descriptions be updated at least every five years has been in place since 1987. The recent amendment did not create this requirement; it expanded BHR’s obligation by tying the update process to the compensation plan and introducing a separate ten-year comprehensive classification review under 5 MRSA 7061(4)(C). These changes reflect an intent to strengthen oversight and modernize the State’s personnel system, not to delay or diminish BHR’s statutory responsibilities. To distinguish between BHR’s statutory responsibilities under 5 MRSA 7061(4)(A) and 5 MRSA 7061(4)(C), subsection (4)(A) requires periodic updating of job descriptions and the compensation plan at least every five years; this ensures that individual job classification specifications remain current and accurately reflect the duties and responsibilities of State positions. In contrast, subsection (4)(C), introduced in 2023, requires a broader, ten-year comprehensive review of the classification plan as a whole. The two requirements serve different purposes and operate on separate cycles. The five-year review of individual classifications under subsection (4)(A) remains an ongoing statutory obligation, regardless of the addition of subsection (4)(C). While BHR references its internal procedures under 18-389 C.M.R. Ch. 4 as evidence of compliance, those procedures do not incorporate or reflect the statutory five-year update requirement in subsection (4)(A) or the ten-year update in subsection (4)(C). Furthermore, BHR could not provide documentation to support that 14 of the 19 job classifications tested by OSA had been reviewed or updated within the required timeframe. BHR does not have a comprehensive system to track classification review dates across the classification plan, making it difficult to demonstrate compliance with the statute or proactively manage updates. Internal policy may guide operations, but compliance is ultimately measured against the statutory requirements that govern those operations. The issues identified in audit testing also have implications for the compensation system. Under 5 MRSA 7065, the State’s compensation plan is developed based on the classification plan, with salary grades assigned to specific job classes according to documented duties and responsibilities. The classification plan is the foundational structure upon which compensation decisions are made. If job descriptions are outdated, or not periodically reviewed as required, positions may be misaligned with inappropriate salary grades, which may lead to pay that does not accurately reflect the nature or complexity of the work, including Federally-funded positions. Without a properly maintained classification system, the State cannot ensure that compensation, whether paid with State or Federal funds, is supported by a valid and compliant classification system. Under 2 CFR 200.430(a)(2), compensation for personal services is allowable under Federal awards only when it follows “an appointment made in accordance with the recipient’s…laws, rules, or written policies.” This Federal regulation places the burden of compliance on the State’s adherence to its own legal framework. The Federal government allows flexibility, but that flexibility hinges on the condition that the State follows its own laws; it is the minimum threshold for allowability requirements over personnel costs. Compliance with this law is not discretionary; it is a legal obligation and direct reflection of the expectations placed on the State by the Legislature and the Federal government. BHR asserts that State employee compensation is consistently below market rates and therefore poses no risk of overcharging Federal programs. Even if BHR’s current assertion that State salaries are below market is accepted, Federal guidance provides that reasonableness in amount is only one factor in determining allowability. Compensation must also follow lawful appointment processes and reflect compliance with State personnel laws. A claim of underpayment is not a compensating control to prevent noncompliance with required classification updates. The following statutes only serve to emphasize the responsibility placed upon BHR and the State Human Resources Officer. Under 5 MRSA 7036, the State Human Resources Officer is explicitly responsible for adopting rules for both classification and compensation plans (7036(I) and (J)), enforcing the Civil Service Law (7036(21)), and conducting both short-term and long-term planning for the State’s personnel system (7036(10)). The Officer is also responsible for responding to reclassification requests (7036(5)) and working closely with agencies on their personnel needs (7036(7)). These statutory responsibilities further confirm that maintaining accurate, up-to-date classification specifications is not discretionary. Moreover, failure to fulfill these legal duties has implications that underscore the purpose of a centralized human resources function. These conditions present a risk to the accessibility to public service employment, including potential delayed hiring decisions and diminished ability to attract and retain a skilled workforce. When classification structures are outdated and statutory mandates are not followed, BHR cannot deliver on its mission. We acknowledge BHR’s consultation with the Office of the Attorney General and its efforts to clarify its interpretation of the law; however, the condition observed during the audit period reflects a neutralization of internal controls and subsequent risk of noncompliance with statutory requirements that directly affect both classification and the allowability of personnel costs under Federal awards. The finding remains as stated. (State Number: 24-0111-01)
(2024-041) Title: Internal control over monitoring of employee classification and compensation needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Administrative and Financial Services State Bureau: Human Resources Federal Agency: U.S. Department of the Interior U.S. Department of Labor U.S. Department of Education U.S. Department of Health and Human Services Assistance Listing Title: Fish and Wildlife Cluster Unemployment Insurance (UI) (COVID-19) Special Education Cluster (IDEA) (COVID-19) Rehabilitation Services – Vocational Rehabilitation Grants to States CCDF Cluster (COVID-19) Assistance Listing Number: 15.605, 15.611, 15.626; 17.225; 84.027, 84.173; 84.126; 93.489, 93.575, 93.596 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.430; 5 MRSA 7061 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. Costs of compensation are allowable to the extent that personal services are rendered during the period of performance under the Federal award, total compensation is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity, and follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies. 5 MRSA 7061 states that the (Bureau of Human Resources (BHR)) director shall record the duties and responsibilities of all positions in State service and establish classes for these positions. The procedure shall provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. Condition: BHR maintains the job classification specifications and related compensation plan of State employees. A specific salary specification and grade is assigned based on the duties and responsibilities referenced in the job classification specification; this represents reasonable compensation for the services rendered for all positions that inhabit a given job classification specification. The assigned salary grade provides a basis for the allowability of compensation costs charged to Federal awards by documenting the reasonableness of compensation for services rendered by State employees, and that the position appointments under the job classification specification were made and maintained in accordance with State statute. While BHR relies on data collected from State agencies to implement procedures regarding the classification plan, BHR retains ultimate oversight responsibility. BHR is the only agency with the authority to modify the classification plan. According to 5 MRSA 7061, BHR must provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. The Office of the State Auditor (OSA) tested 19 job classification specifications for compliance with 5 MRSA 7061. BHR could not provide documentation for 14 of the 19 job classification specifications tested to support that they were updated within five years as required by 5 MRSA 7061. Additionally, BHR’s current tracking mechanism does not effectively identify the dates of the last review and next scheduled review, thus hindering compliance with the statutory five-year cycle. OSA selected a non-statistical random sample. Context: • During fiscal year 2024, approximately $139 million in payroll expenditures were charged to Federal grants. This represents approximately ten percent of fiscal year 2024 Statewide payroll expenditures, which totaled $1.3 billion. • BHR was responsible for managing approximately 1,200 job classification specifications in fiscal year 2024. Cause: • Lack of resources • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: State employee job classification and compensation may not accurately reflect the current duties and responsibilities of each position. Without documented evidence that review activities are occurring, BHR cannot ensure that the decisions involving the classification and compensation plan of all State employee positions are properly supported by documentation that accurately reflects the current duties and responsibilities of each position. As a result, this may lead to noncompliance with Federal and State regulations. Recommendation: We recommend that the Department: • enhance oversight regarding the maintenance of the State classification and compensation plan in accordance with State statute; • implement policies and procedures to ensure updates or reviews of the State classification and compensation plan at the job classification specification level are adequately documented; and • implement a tracking mechanism to accurately monitor the dates of past reviews and schedule forthcoming reviews to aid in adherence to the statutory requirement. Corrective Action Plan: See F-19 Management’s Response: The Department disagrees with this finding. The procedure referenced in 5 M.R.S. Sec. 7061(4) is laid out in 18-389 C.M.R. Ch. 4. The Department complies with these written policies and procedures as required by federal and state law. Section 7061(4) was last updated in 2023, with an effective date in October 2023. Pursuant to the JSC on Appropriations, Section 7061(4)(A) requires a review every five years of the state compensation plan for each class or position in the classified service. The FJA process is not related to the compensation plan, however, it is administered under a separate internal control structure that is in place and operating effectively and ensures that the compensation for individual employees is reasonable for the services rendered. The requirement for review of each classification through the FJA process is covered under Section 7061(4)(C) and is required to be reviewed every 10 years. It is also important to note that the Department has conferred with the OAG, who determined that Section 7061(4)(C) is not retroactive, meaning the Department has another 8.5 years to complete a review of all classifications. Additionally, salary studies conducted on State employee wages have shown that the salary and wages of job classifications paid by the State are consistently lower than industry averages, removing the risk that the utilization of these salary schedules as a component of payroll costs will cause overcharges to Federal grants. Contact: Michael J. Dunn, Acting State Human Resources Officer, Bureau of Human Resources, DAFS, 207-287-4651 Auditor’s Concluding Remarks: OSA acknowledges BHR’s reference to 5 MRSA 7061(4), as amended in October 2023, and the procedures for the classification maintenance outlined in 18-389 C.M.R. Ch. 4. We also recognize the distinction BHR draws between the five-year statutory requirement under 5 MRSA 7061(4)(A) for updating job descriptions and compensation plan components, and the ten-year classification plan review introduced under 5 MRSA 7061(4)(C). OSA’s review focused on BHR’s compliance with the five-year update requirement under 5 MRSA 7061(4)(A). While the statute was amended in 2023, the requirement that job descriptions be updated at least every five years has been in place since 1987. The recent amendment did not create this requirement; it expanded BHR’s obligation by tying the update process to the compensation plan and introducing a separate ten-year comprehensive classification review under 5 MRSA 7061(4)(C). These changes reflect an intent to strengthen oversight and modernize the State’s personnel system, not to delay or diminish BHR’s statutory responsibilities. To distinguish between BHR’s statutory responsibilities under 5 MRSA 7061(4)(A) and 5 MRSA 7061(4)(C), subsection (4)(A) requires periodic updating of job descriptions and the compensation plan at least every five years; this ensures that individual job classification specifications remain current and accurately reflect the duties and responsibilities of State positions. In contrast, subsection (4)(C), introduced in 2023, requires a broader, ten-year comprehensive review of the classification plan as a whole. The two requirements serve different purposes and operate on separate cycles. The five-year review of individual classifications under subsection (4)(A) remains an ongoing statutory obligation, regardless of the addition of subsection (4)(C). While BHR references its internal procedures under 18-389 C.M.R. Ch. 4 as evidence of compliance, those procedures do not incorporate or reflect the statutory five-year update requirement in subsection (4)(A) or the ten-year update in subsection (4)(C). Furthermore, BHR could not provide documentation to support that 14 of the 19 job classifications tested by OSA had been reviewed or updated within the required timeframe. BHR does not have a comprehensive system to track classification review dates across the classification plan, making it difficult to demonstrate compliance with the statute or proactively manage updates. Internal policy may guide operations, but compliance is ultimately measured against the statutory requirements that govern those operations. The issues identified in audit testing also have implications for the compensation system. Under 5 MRSA 7065, the State’s compensation plan is developed based on the classification plan, with salary grades assigned to specific job classes according to documented duties and responsibilities. The classification plan is the foundational structure upon which compensation decisions are made. If job descriptions are outdated, or not periodically reviewed as required, positions may be misaligned with inappropriate salary grades, which may lead to pay that does not accurately reflect the nature or complexity of the work, including Federally-funded positions. Without a properly maintained classification system, the State cannot ensure that compensation, whether paid with State or Federal funds, is supported by a valid and compliant classification system. Under 2 CFR 200.430(a)(2), compensation for personal services is allowable under Federal awards only when it follows “an appointment made in accordance with the recipient’s…laws, rules, or written policies.” This Federal regulation places the burden of compliance on the State’s adherence to its own legal framework. The Federal government allows flexibility, but that flexibility hinges on the condition that the State follows its own laws; it is the minimum threshold for allowability requirements over personnel costs. Compliance with this law is not discretionary; it is a legal obligation and direct reflection of the expectations placed on the State by the Legislature and the Federal government. BHR asserts that State employee compensation is consistently below market rates and therefore poses no risk of overcharging Federal programs. Even if BHR’s current assertion that State salaries are below market is accepted, Federal guidance provides that reasonableness in amount is only one factor in determining allowability. Compensation must also follow lawful appointment processes and reflect compliance with State personnel laws. A claim of underpayment is not a compensating control to prevent noncompliance with required classification updates. The following statutes only serve to emphasize the responsibility placed upon BHR and the State Human Resources Officer. Under 5 MRSA 7036, the State Human Resources Officer is explicitly responsible for adopting rules for both classification and compensation plans (7036(I) and (J)), enforcing the Civil Service Law (7036(21)), and conducting both short-term and long-term planning for the State’s personnel system (7036(10)). The Officer is also responsible for responding to reclassification requests (7036(5)) and working closely with agencies on their personnel needs (7036(7)). These statutory responsibilities further confirm that maintaining accurate, up-to-date classification specifications is not discretionary. Moreover, failure to fulfill these legal duties has implications that underscore the purpose of a centralized human resources function. These conditions present a risk to the accessibility to public service employment, including potential delayed hiring decisions and diminished ability to attract and retain a skilled workforce. When classification structures are outdated and statutory mandates are not followed, BHR cannot deliver on its mission. We acknowledge BHR’s consultation with the Office of the Attorney General and its efforts to clarify its interpretation of the law; however, the condition observed during the audit period reflects a neutralization of internal controls and subsequent risk of noncompliance with statutory requirements that directly affect both classification and the allowability of personnel costs under Federal awards. The finding remains as stated. (State Number: 24-0111-01)
(2024-041) Title: Internal control over monitoring of employee classification and compensation needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Administrative and Financial Services State Bureau: Human Resources Federal Agency: U.S. Department of the Interior U.S. Department of Labor U.S. Department of Education U.S. Department of Health and Human Services Assistance Listing Title: Fish and Wildlife Cluster Unemployment Insurance (UI) (COVID-19) Special Education Cluster (IDEA) (COVID-19) Rehabilitation Services – Vocational Rehabilitation Grants to States CCDF Cluster (COVID-19) Assistance Listing Number: 15.605, 15.611, 15.626; 17.225; 84.027, 84.173; 84.126; 93.489, 93.575, 93.596 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.430; 5 MRSA 7061 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. Costs of compensation are allowable to the extent that personal services are rendered during the period of performance under the Federal award, total compensation is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity, and follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies. 5 MRSA 7061 states that the (Bureau of Human Resources (BHR)) director shall record the duties and responsibilities of all positions in State service and establish classes for these positions. The procedure shall provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. Condition: BHR maintains the job classification specifications and related compensation plan of State employees. A specific salary specification and grade is assigned based on the duties and responsibilities referenced in the job classification specification; this represents reasonable compensation for the services rendered for all positions that inhabit a given job classification specification. The assigned salary grade provides a basis for the allowability of compensation costs charged to Federal awards by documenting the reasonableness of compensation for services rendered by State employees, and that the position appointments under the job classification specification were made and maintained in accordance with State statute. While BHR relies on data collected from State agencies to implement procedures regarding the classification plan, BHR retains ultimate oversight responsibility. BHR is the only agency with the authority to modify the classification plan. According to 5 MRSA 7061, BHR must provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. The Office of the State Auditor (OSA) tested 19 job classification specifications for compliance with 5 MRSA 7061. BHR could not provide documentation for 14 of the 19 job classification specifications tested to support that they were updated within five years as required by 5 MRSA 7061. Additionally, BHR’s current tracking mechanism does not effectively identify the dates of the last review and next scheduled review, thus hindering compliance with the statutory five-year cycle. OSA selected a non-statistical random sample. Context: • During fiscal year 2024, approximately $139 million in payroll expenditures were charged to Federal grants. This represents approximately ten percent of fiscal year 2024 Statewide payroll expenditures, which totaled $1.3 billion. • BHR was responsible for managing approximately 1,200 job classification specifications in fiscal year 2024. Cause: • Lack of resources • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: State employee job classification and compensation may not accurately reflect the current duties and responsibilities of each position. Without documented evidence that review activities are occurring, BHR cannot ensure that the decisions involving the classification and compensation plan of all State employee positions are properly supported by documentation that accurately reflects the current duties and responsibilities of each position. As a result, this may lead to noncompliance with Federal and State regulations. Recommendation: We recommend that the Department: • enhance oversight regarding the maintenance of the State classification and compensation plan in accordance with State statute; • implement policies and procedures to ensure updates or reviews of the State classification and compensation plan at the job classification specification level are adequately documented; and • implement a tracking mechanism to accurately monitor the dates of past reviews and schedule forthcoming reviews to aid in adherence to the statutory requirement. Corrective Action Plan: See F-19 Management’s Response: The Department disagrees with this finding. The procedure referenced in 5 M.R.S. Sec. 7061(4) is laid out in 18-389 C.M.R. Ch. 4. The Department complies with these written policies and procedures as required by federal and state law. Section 7061(4) was last updated in 2023, with an effective date in October 2023. Pursuant to the JSC on Appropriations, Section 7061(4)(A) requires a review every five years of the state compensation plan for each class or position in the classified service. The FJA process is not related to the compensation plan, however, it is administered under a separate internal control structure that is in place and operating effectively and ensures that the compensation for individual employees is reasonable for the services rendered. The requirement for review of each classification through the FJA process is covered under Section 7061(4)(C) and is required to be reviewed every 10 years. It is also important to note that the Department has conferred with the OAG, who determined that Section 7061(4)(C) is not retroactive, meaning the Department has another 8.5 years to complete a review of all classifications. Additionally, salary studies conducted on State employee wages have shown that the salary and wages of job classifications paid by the State are consistently lower than industry averages, removing the risk that the utilization of these salary schedules as a component of payroll costs will cause overcharges to Federal grants. Contact: Michael J. Dunn, Acting State Human Resources Officer, Bureau of Human Resources, DAFS, 207-287-4651 Auditor’s Concluding Remarks: OSA acknowledges BHR’s reference to 5 MRSA 7061(4), as amended in October 2023, and the procedures for the classification maintenance outlined in 18-389 C.M.R. Ch. 4. We also recognize the distinction BHR draws between the five-year statutory requirement under 5 MRSA 7061(4)(A) for updating job descriptions and compensation plan components, and the ten-year classification plan review introduced under 5 MRSA 7061(4)(C). OSA’s review focused on BHR’s compliance with the five-year update requirement under 5 MRSA 7061(4)(A). While the statute was amended in 2023, the requirement that job descriptions be updated at least every five years has been in place since 1987. The recent amendment did not create this requirement; it expanded BHR’s obligation by tying the update process to the compensation plan and introducing a separate ten-year comprehensive classification review under 5 MRSA 7061(4)(C). These changes reflect an intent to strengthen oversight and modernize the State’s personnel system, not to delay or diminish BHR’s statutory responsibilities. To distinguish between BHR’s statutory responsibilities under 5 MRSA 7061(4)(A) and 5 MRSA 7061(4)(C), subsection (4)(A) requires periodic updating of job descriptions and the compensation plan at least every five years; this ensures that individual job classification specifications remain current and accurately reflect the duties and responsibilities of State positions. In contrast, subsection (4)(C), introduced in 2023, requires a broader, ten-year comprehensive review of the classification plan as a whole. The two requirements serve different purposes and operate on separate cycles. The five-year review of individual classifications under subsection (4)(A) remains an ongoing statutory obligation, regardless of the addition of subsection (4)(C). While BHR references its internal procedures under 18-389 C.M.R. Ch. 4 as evidence of compliance, those procedures do not incorporate or reflect the statutory five-year update requirement in subsection (4)(A) or the ten-year update in subsection (4)(C). Furthermore, BHR could not provide documentation to support that 14 of the 19 job classifications tested by OSA had been reviewed or updated within the required timeframe. BHR does not have a comprehensive system to track classification review dates across the classification plan, making it difficult to demonstrate compliance with the statute or proactively manage updates. Internal policy may guide operations, but compliance is ultimately measured against the statutory requirements that govern those operations. The issues identified in audit testing also have implications for the compensation system. Under 5 MRSA 7065, the State’s compensation plan is developed based on the classification plan, with salary grades assigned to specific job classes according to documented duties and responsibilities. The classification plan is the foundational structure upon which compensation decisions are made. If job descriptions are outdated, or not periodically reviewed as required, positions may be misaligned with inappropriate salary grades, which may lead to pay that does not accurately reflect the nature or complexity of the work, including Federally-funded positions. Without a properly maintained classification system, the State cannot ensure that compensation, whether paid with State or Federal funds, is supported by a valid and compliant classification system. Under 2 CFR 200.430(a)(2), compensation for personal services is allowable under Federal awards only when it follows “an appointment made in accordance with the recipient’s…laws, rules, or written policies.” This Federal regulation places the burden of compliance on the State’s adherence to its own legal framework. The Federal government allows flexibility, but that flexibility hinges on the condition that the State follows its own laws; it is the minimum threshold for allowability requirements over personnel costs. Compliance with this law is not discretionary; it is a legal obligation and direct reflection of the expectations placed on the State by the Legislature and the Federal government. BHR asserts that State employee compensation is consistently below market rates and therefore poses no risk of overcharging Federal programs. Even if BHR’s current assertion that State salaries are below market is accepted, Federal guidance provides that reasonableness in amount is only one factor in determining allowability. Compensation must also follow lawful appointment processes and reflect compliance with State personnel laws. A claim of underpayment is not a compensating control to prevent noncompliance with required classification updates. The following statutes only serve to emphasize the responsibility placed upon BHR and the State Human Resources Officer. Under 5 MRSA 7036, the State Human Resources Officer is explicitly responsible for adopting rules for both classification and compensation plans (7036(I) and (J)), enforcing the Civil Service Law (7036(21)), and conducting both short-term and long-term planning for the State’s personnel system (7036(10)). The Officer is also responsible for responding to reclassification requests (7036(5)) and working closely with agencies on their personnel needs (7036(7)). These statutory responsibilities further confirm that maintaining accurate, up-to-date classification specifications is not discretionary. Moreover, failure to fulfill these legal duties has implications that underscore the purpose of a centralized human resources function. These conditions present a risk to the accessibility to public service employment, including potential delayed hiring decisions and diminished ability to attract and retain a skilled workforce. When classification structures are outdated and statutory mandates are not followed, BHR cannot deliver on its mission. We acknowledge BHR’s consultation with the Office of the Attorney General and its efforts to clarify its interpretation of the law; however, the condition observed during the audit period reflects a neutralization of internal controls and subsequent risk of noncompliance with statutory requirements that directly affect both classification and the allowability of personnel costs under Federal awards. The finding remains as stated. (State Number: 24-0111-01)
(2024-041) Title: Internal control over monitoring of employee classification and compensation needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Administrative and Financial Services State Bureau: Human Resources Federal Agency: U.S. Department of the Interior U.S. Department of Labor U.S. Department of Education U.S. Department of Health and Human Services Assistance Listing Title: Fish and Wildlife Cluster Unemployment Insurance (UI) (COVID-19) Special Education Cluster (IDEA) (COVID-19) Rehabilitation Services – Vocational Rehabilitation Grants to States CCDF Cluster (COVID-19) Assistance Listing Number: 15.605, 15.611, 15.626; 17.225; 84.027, 84.173; 84.126; 93.489, 93.575, 93.596 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.430; 5 MRSA 7061 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. Costs of compensation are allowable to the extent that personal services are rendered during the period of performance under the Federal award, total compensation is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity, and follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies. 5 MRSA 7061 states that the (Bureau of Human Resources (BHR)) director shall record the duties and responsibilities of all positions in State service and establish classes for these positions. The procedure shall provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. Condition: BHR maintains the job classification specifications and related compensation plan of State employees. A specific salary specification and grade is assigned based on the duties and responsibilities referenced in the job classification specification; this represents reasonable compensation for the services rendered for all positions that inhabit a given job classification specification. The assigned salary grade provides a basis for the allowability of compensation costs charged to Federal awards by documenting the reasonableness of compensation for services rendered by State employees, and that the position appointments under the job classification specification were made and maintained in accordance with State statute. While BHR relies on data collected from State agencies to implement procedures regarding the classification plan, BHR retains ultimate oversight responsibility. BHR is the only agency with the authority to modify the classification plan. According to 5 MRSA 7061, BHR must provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. The Office of the State Auditor (OSA) tested 19 job classification specifications for compliance with 5 MRSA 7061. BHR could not provide documentation for 14 of the 19 job classification specifications tested to support that they were updated within five years as required by 5 MRSA 7061. Additionally, BHR’s current tracking mechanism does not effectively identify the dates of the last review and next scheduled review, thus hindering compliance with the statutory five-year cycle. OSA selected a non-statistical random sample. Context: • During fiscal year 2024, approximately $139 million in payroll expenditures were charged to Federal grants. This represents approximately ten percent of fiscal year 2024 Statewide payroll expenditures, which totaled $1.3 billion. • BHR was responsible for managing approximately 1,200 job classification specifications in fiscal year 2024. Cause: • Lack of resources • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: State employee job classification and compensation may not accurately reflect the current duties and responsibilities of each position. Without documented evidence that review activities are occurring, BHR cannot ensure that the decisions involving the classification and compensation plan of all State employee positions are properly supported by documentation that accurately reflects the current duties and responsibilities of each position. As a result, this may lead to noncompliance with Federal and State regulations. Recommendation: We recommend that the Department: • enhance oversight regarding the maintenance of the State classification and compensation plan in accordance with State statute; • implement policies and procedures to ensure updates or reviews of the State classification and compensation plan at the job classification specification level are adequately documented; and • implement a tracking mechanism to accurately monitor the dates of past reviews and schedule forthcoming reviews to aid in adherence to the statutory requirement. Corrective Action Plan: See F-19 Management’s Response: The Department disagrees with this finding. The procedure referenced in 5 M.R.S. Sec. 7061(4) is laid out in 18-389 C.M.R. Ch. 4. The Department complies with these written policies and procedures as required by federal and state law. Section 7061(4) was last updated in 2023, with an effective date in October 2023. Pursuant to the JSC on Appropriations, Section 7061(4)(A) requires a review every five years of the state compensation plan for each class or position in the classified service. The FJA process is not related to the compensation plan, however, it is administered under a separate internal control structure that is in place and operating effectively and ensures that the compensation for individual employees is reasonable for the services rendered. The requirement for review of each classification through the FJA process is covered under Section 7061(4)(C) and is required to be reviewed every 10 years. It is also important to note that the Department has conferred with the OAG, who determined that Section 7061(4)(C) is not retroactive, meaning the Department has another 8.5 years to complete a review of all classifications. Additionally, salary studies conducted on State employee wages have shown that the salary and wages of job classifications paid by the State are consistently lower than industry averages, removing the risk that the utilization of these salary schedules as a component of payroll costs will cause overcharges to Federal grants. Contact: Michael J. Dunn, Acting State Human Resources Officer, Bureau of Human Resources, DAFS, 207-287-4651 Auditor’s Concluding Remarks: OSA acknowledges BHR’s reference to 5 MRSA 7061(4), as amended in October 2023, and the procedures for the classification maintenance outlined in 18-389 C.M.R. Ch. 4. We also recognize the distinction BHR draws between the five-year statutory requirement under 5 MRSA 7061(4)(A) for updating job descriptions and compensation plan components, and the ten-year classification plan review introduced under 5 MRSA 7061(4)(C). OSA’s review focused on BHR’s compliance with the five-year update requirement under 5 MRSA 7061(4)(A). While the statute was amended in 2023, the requirement that job descriptions be updated at least every five years has been in place since 1987. The recent amendment did not create this requirement; it expanded BHR’s obligation by tying the update process to the compensation plan and introducing a separate ten-year comprehensive classification review under 5 MRSA 7061(4)(C). These changes reflect an intent to strengthen oversight and modernize the State’s personnel system, not to delay or diminish BHR’s statutory responsibilities. To distinguish between BHR’s statutory responsibilities under 5 MRSA 7061(4)(A) and 5 MRSA 7061(4)(C), subsection (4)(A) requires periodic updating of job descriptions and the compensation plan at least every five years; this ensures that individual job classification specifications remain current and accurately reflect the duties and responsibilities of State positions. In contrast, subsection (4)(C), introduced in 2023, requires a broader, ten-year comprehensive review of the classification plan as a whole. The two requirements serve different purposes and operate on separate cycles. The five-year review of individual classifications under subsection (4)(A) remains an ongoing statutory obligation, regardless of the addition of subsection (4)(C). While BHR references its internal procedures under 18-389 C.M.R. Ch. 4 as evidence of compliance, those procedures do not incorporate or reflect the statutory five-year update requirement in subsection (4)(A) or the ten-year update in subsection (4)(C). Furthermore, BHR could not provide documentation to support that 14 of the 19 job classifications tested by OSA had been reviewed or updated within the required timeframe. BHR does not have a comprehensive system to track classification review dates across the classification plan, making it difficult to demonstrate compliance with the statute or proactively manage updates. Internal policy may guide operations, but compliance is ultimately measured against the statutory requirements that govern those operations. The issues identified in audit testing also have implications for the compensation system. Under 5 MRSA 7065, the State’s compensation plan is developed based on the classification plan, with salary grades assigned to specific job classes according to documented duties and responsibilities. The classification plan is the foundational structure upon which compensation decisions are made. If job descriptions are outdated, or not periodically reviewed as required, positions may be misaligned with inappropriate salary grades, which may lead to pay that does not accurately reflect the nature or complexity of the work, including Federally-funded positions. Without a properly maintained classification system, the State cannot ensure that compensation, whether paid with State or Federal funds, is supported by a valid and compliant classification system. Under 2 CFR 200.430(a)(2), compensation for personal services is allowable under Federal awards only when it follows “an appointment made in accordance with the recipient’s…laws, rules, or written policies.” This Federal regulation places the burden of compliance on the State’s adherence to its own legal framework. The Federal government allows flexibility, but that flexibility hinges on the condition that the State follows its own laws; it is the minimum threshold for allowability requirements over personnel costs. Compliance with this law is not discretionary; it is a legal obligation and direct reflection of the expectations placed on the State by the Legislature and the Federal government. BHR asserts that State employee compensation is consistently below market rates and therefore poses no risk of overcharging Federal programs. Even if BHR’s current assertion that State salaries are below market is accepted, Federal guidance provides that reasonableness in amount is only one factor in determining allowability. Compensation must also follow lawful appointment processes and reflect compliance with State personnel laws. A claim of underpayment is not a compensating control to prevent noncompliance with required classification updates. The following statutes only serve to emphasize the responsibility placed upon BHR and the State Human Resources Officer. Under 5 MRSA 7036, the State Human Resources Officer is explicitly responsible for adopting rules for both classification and compensation plans (7036(I) and (J)), enforcing the Civil Service Law (7036(21)), and conducting both short-term and long-term planning for the State’s personnel system (7036(10)). The Officer is also responsible for responding to reclassification requests (7036(5)) and working closely with agencies on their personnel needs (7036(7)). These statutory responsibilities further confirm that maintaining accurate, up-to-date classification specifications is not discretionary. Moreover, failure to fulfill these legal duties has implications that underscore the purpose of a centralized human resources function. These conditions present a risk to the accessibility to public service employment, including potential delayed hiring decisions and diminished ability to attract and retain a skilled workforce. When classification structures are outdated and statutory mandates are not followed, BHR cannot deliver on its mission. We acknowledge BHR’s consultation with the Office of the Attorney General and its efforts to clarify its interpretation of the law; however, the condition observed during the audit period reflects a neutralization of internal controls and subsequent risk of noncompliance with statutory requirements that directly affect both classification and the allowability of personnel costs under Federal awards. The finding remains as stated. (State Number: 24-0111-01)
(2024-041) Title: Internal control over monitoring of employee classification and compensation needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Administrative and Financial Services State Bureau: Human Resources Federal Agency: U.S. Department of the Interior U.S. Department of Labor U.S. Department of Education U.S. Department of Health and Human Services Assistance Listing Title: Fish and Wildlife Cluster Unemployment Insurance (UI) (COVID-19) Special Education Cluster (IDEA) (COVID-19) Rehabilitation Services – Vocational Rehabilitation Grants to States CCDF Cluster (COVID-19) Assistance Listing Number: 15.605, 15.611, 15.626; 17.225; 84.027, 84.173; 84.126; 93.489, 93.575, 93.596 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.430; 5 MRSA 7061 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. Costs of compensation are allowable to the extent that personal services are rendered during the period of performance under the Federal award, total compensation is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity, and follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies. 5 MRSA 7061 states that the (Bureau of Human Resources (BHR)) director shall record the duties and responsibilities of all positions in State service and establish classes for these positions. The procedure shall provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. Condition: BHR maintains the job classification specifications and related compensation plan of State employees. A specific salary specification and grade is assigned based on the duties and responsibilities referenced in the job classification specification; this represents reasonable compensation for the services rendered for all positions that inhabit a given job classification specification. The assigned salary grade provides a basis for the allowability of compensation costs charged to Federal awards by documenting the reasonableness of compensation for services rendered by State employees, and that the position appointments under the job classification specification were made and maintained in accordance with State statute. While BHR relies on data collected from State agencies to implement procedures regarding the classification plan, BHR retains ultimate oversight responsibility. BHR is the only agency with the authority to modify the classification plan. According to 5 MRSA 7061, BHR must provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. The Office of the State Auditor (OSA) tested 19 job classification specifications for compliance with 5 MRSA 7061. BHR could not provide documentation for 14 of the 19 job classification specifications tested to support that they were updated within five years as required by 5 MRSA 7061. Additionally, BHR’s current tracking mechanism does not effectively identify the dates of the last review and next scheduled review, thus hindering compliance with the statutory five-year cycle. OSA selected a non-statistical random sample. Context: • During fiscal year 2024, approximately $139 million in payroll expenditures were charged to Federal grants. This represents approximately ten percent of fiscal year 2024 Statewide payroll expenditures, which totaled $1.3 billion. • BHR was responsible for managing approximately 1,200 job classification specifications in fiscal year 2024. Cause: • Lack of resources • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: State employee job classification and compensation may not accurately reflect the current duties and responsibilities of each position. Without documented evidence that review activities are occurring, BHR cannot ensure that the decisions involving the classification and compensation plan of all State employee positions are properly supported by documentation that accurately reflects the current duties and responsibilities of each position. As a result, this may lead to noncompliance with Federal and State regulations. Recommendation: We recommend that the Department: • enhance oversight regarding the maintenance of the State classification and compensation plan in accordance with State statute; • implement policies and procedures to ensure updates or reviews of the State classification and compensation plan at the job classification specification level are adequately documented; and • implement a tracking mechanism to accurately monitor the dates of past reviews and schedule forthcoming reviews to aid in adherence to the statutory requirement. Corrective Action Plan: See F-19 Management’s Response: The Department disagrees with this finding. The procedure referenced in 5 M.R.S. Sec. 7061(4) is laid out in 18-389 C.M.R. Ch. 4. The Department complies with these written policies and procedures as required by federal and state law. Section 7061(4) was last updated in 2023, with an effective date in October 2023. Pursuant to the JSC on Appropriations, Section 7061(4)(A) requires a review every five years of the state compensation plan for each class or position in the classified service. The FJA process is not related to the compensation plan, however, it is administered under a separate internal control structure that is in place and operating effectively and ensures that the compensation for individual employees is reasonable for the services rendered. The requirement for review of each classification through the FJA process is covered under Section 7061(4)(C) and is required to be reviewed every 10 years. It is also important to note that the Department has conferred with the OAG, who determined that Section 7061(4)(C) is not retroactive, meaning the Department has another 8.5 years to complete a review of all classifications. Additionally, salary studies conducted on State employee wages have shown that the salary and wages of job classifications paid by the State are consistently lower than industry averages, removing the risk that the utilization of these salary schedules as a component of payroll costs will cause overcharges to Federal grants. Contact: Michael J. Dunn, Acting State Human Resources Officer, Bureau of Human Resources, DAFS, 207-287-4651 Auditor’s Concluding Remarks: OSA acknowledges BHR’s reference to 5 MRSA 7061(4), as amended in October 2023, and the procedures for the classification maintenance outlined in 18-389 C.M.R. Ch. 4. We also recognize the distinction BHR draws between the five-year statutory requirement under 5 MRSA 7061(4)(A) for updating job descriptions and compensation plan components, and the ten-year classification plan review introduced under 5 MRSA 7061(4)(C). OSA’s review focused on BHR’s compliance with the five-year update requirement under 5 MRSA 7061(4)(A). While the statute was amended in 2023, the requirement that job descriptions be updated at least every five years has been in place since 1987. The recent amendment did not create this requirement; it expanded BHR’s obligation by tying the update process to the compensation plan and introducing a separate ten-year comprehensive classification review under 5 MRSA 7061(4)(C). These changes reflect an intent to strengthen oversight and modernize the State’s personnel system, not to delay or diminish BHR’s statutory responsibilities. To distinguish between BHR’s statutory responsibilities under 5 MRSA 7061(4)(A) and 5 MRSA 7061(4)(C), subsection (4)(A) requires periodic updating of job descriptions and the compensation plan at least every five years; this ensures that individual job classification specifications remain current and accurately reflect the duties and responsibilities of State positions. In contrast, subsection (4)(C), introduced in 2023, requires a broader, ten-year comprehensive review of the classification plan as a whole. The two requirements serve different purposes and operate on separate cycles. The five-year review of individual classifications under subsection (4)(A) remains an ongoing statutory obligation, regardless of the addition of subsection (4)(C). While BHR references its internal procedures under 18-389 C.M.R. Ch. 4 as evidence of compliance, those procedures do not incorporate or reflect the statutory five-year update requirement in subsection (4)(A) or the ten-year update in subsection (4)(C). Furthermore, BHR could not provide documentation to support that 14 of the 19 job classifications tested by OSA had been reviewed or updated within the required timeframe. BHR does not have a comprehensive system to track classification review dates across the classification plan, making it difficult to demonstrate compliance with the statute or proactively manage updates. Internal policy may guide operations, but compliance is ultimately measured against the statutory requirements that govern those operations. The issues identified in audit testing also have implications for the compensation system. Under 5 MRSA 7065, the State’s compensation plan is developed based on the classification plan, with salary grades assigned to specific job classes according to documented duties and responsibilities. The classification plan is the foundational structure upon which compensation decisions are made. If job descriptions are outdated, or not periodically reviewed as required, positions may be misaligned with inappropriate salary grades, which may lead to pay that does not accurately reflect the nature or complexity of the work, including Federally-funded positions. Without a properly maintained classification system, the State cannot ensure that compensation, whether paid with State or Federal funds, is supported by a valid and compliant classification system. Under 2 CFR 200.430(a)(2), compensation for personal services is allowable under Federal awards only when it follows “an appointment made in accordance with the recipient’s…laws, rules, or written policies.” This Federal regulation places the burden of compliance on the State’s adherence to its own legal framework. The Federal government allows flexibility, but that flexibility hinges on the condition that the State follows its own laws; it is the minimum threshold for allowability requirements over personnel costs. Compliance with this law is not discretionary; it is a legal obligation and direct reflection of the expectations placed on the State by the Legislature and the Federal government. BHR asserts that State employee compensation is consistently below market rates and therefore poses no risk of overcharging Federal programs. Even if BHR’s current assertion that State salaries are below market is accepted, Federal guidance provides that reasonableness in amount is only one factor in determining allowability. Compensation must also follow lawful appointment processes and reflect compliance with State personnel laws. A claim of underpayment is not a compensating control to prevent noncompliance with required classification updates. The following statutes only serve to emphasize the responsibility placed upon BHR and the State Human Resources Officer. Under 5 MRSA 7036, the State Human Resources Officer is explicitly responsible for adopting rules for both classification and compensation plans (7036(I) and (J)), enforcing the Civil Service Law (7036(21)), and conducting both short-term and long-term planning for the State’s personnel system (7036(10)). The Officer is also responsible for responding to reclassification requests (7036(5)) and working closely with agencies on their personnel needs (7036(7)). These statutory responsibilities further confirm that maintaining accurate, up-to-date classification specifications is not discretionary. Moreover, failure to fulfill these legal duties has implications that underscore the purpose of a centralized human resources function. These conditions present a risk to the accessibility to public service employment, including potential delayed hiring decisions and diminished ability to attract and retain a skilled workforce. When classification structures are outdated and statutory mandates are not followed, BHR cannot deliver on its mission. We acknowledge BHR’s consultation with the Office of the Attorney General and its efforts to clarify its interpretation of the law; however, the condition observed during the audit period reflects a neutralization of internal controls and subsequent risk of noncompliance with statutory requirements that directly affect both classification and the allowability of personnel costs under Federal awards. The finding remains as stated. (State Number: 24-0111-01)
(2024-041) Title: Internal control over monitoring of employee classification and compensation needs improvement Prior Year Findings: See schedule of Findings and Questioned costs for chart/table State Department: Administrative and Financial Services State Bureau: Human Resources Federal Agency: U.S. Department of the Interior U.S. Department of Labor U.S. Department of Education U.S. Department of Health and Human Services Assistance Listing Title: Fish and Wildlife Cluster Unemployment Insurance (UI) (COVID-19) Special Education Cluster (IDEA) (COVID-19) Rehabilitation Services – Vocational Rehabilitation Grants to States CCDF Cluster (COVID-19) Assistance Listing Number: 15.605, 15.611, 15.626; 17.225; 84.027, 84.173; 84.126; 93.489, 93.575, 93.596 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.430; 5 MRSA 7061 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. Costs of compensation are allowable to the extent that personal services are rendered during the period of performance under the Federal award, total compensation is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity, and follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies. 5 MRSA 7061 states that the (Bureau of Human Resources (BHR)) director shall record the duties and responsibilities of all positions in State service and establish classes for these positions. The procedure shall provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. Condition: BHR maintains the job classification specifications and related compensation plan of State employees. A specific salary specification and grade is assigned based on the duties and responsibilities referenced in the job classification specification; this represents reasonable compensation for the services rendered for all positions that inhabit a given job classification specification. The assigned salary grade provides a basis for the allowability of compensation costs charged to Federal awards by documenting the reasonableness of compensation for services rendered by State employees, and that the position appointments under the job classification specification were made and maintained in accordance with State statute. While BHR relies on data collected from State agencies to implement procedures regarding the classification plan, BHR retains ultimate oversight responsibility. BHR is the only agency with the authority to modify the classification plan. According to 5 MRSA 7061, BHR must provide for periodic updating of job descriptions at least every five years to accurately reflect current duties and responsibilities of each job classification. The Office of the State Auditor (OSA) tested 19 job classification specifications for compliance with 5 MRSA 7061. BHR could not provide documentation for 14 of the 19 job classification specifications tested to support that they were updated within five years as required by 5 MRSA 7061. Additionally, BHR’s current tracking mechanism does not effectively identify the dates of the last review and next scheduled review, thus hindering compliance with the statutory five-year cycle. OSA selected a non-statistical random sample. Context: • During fiscal year 2024, approximately $139 million in payroll expenditures were charged to Federal grants. This represents approximately ten percent of fiscal year 2024 Statewide payroll expenditures, which totaled $1.3 billion. • BHR was responsible for managing approximately 1,200 job classification specifications in fiscal year 2024. Cause: • Lack of resources • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: State employee job classification and compensation may not accurately reflect the current duties and responsibilities of each position. Without documented evidence that review activities are occurring, BHR cannot ensure that the decisions involving the classification and compensation plan of all State employee positions are properly supported by documentation that accurately reflects the current duties and responsibilities of each position. As a result, this may lead to noncompliance with Federal and State regulations. Recommendation: We recommend that the Department: • enhance oversight regarding the maintenance of the State classification and compensation plan in accordance with State statute; • implement policies and procedures to ensure updates or reviews of the State classification and compensation plan at the job classification specification level are adequately documented; and • implement a tracking mechanism to accurately monitor the dates of past reviews and schedule forthcoming reviews to aid in adherence to the statutory requirement. Corrective Action Plan: See F-19 Management’s Response: The Department disagrees with this finding. The procedure referenced in 5 M.R.S. Sec. 7061(4) is laid out in 18-389 C.M.R. Ch. 4. The Department complies with these written policies and procedures as required by federal and state law. Section 7061(4) was last updated in 2023, with an effective date in October 2023. Pursuant to the JSC on Appropriations, Section 7061(4)(A) requires a review every five years of the state compensation plan for each class or position in the classified service. The FJA process is not related to the compensation plan, however, it is administered under a separate internal control structure that is in place and operating effectively and ensures that the compensation for individual employees is reasonable for the services rendered. The requirement for review of each classification through the FJA process is covered under Section 7061(4)(C) and is required to be reviewed every 10 years. It is also important to note that the Department has conferred with the OAG, who determined that Section 7061(4)(C) is not retroactive, meaning the Department has another 8.5 years to complete a review of all classifications. Additionally, salary studies conducted on State employee wages have shown that the salary and wages of job classifications paid by the State are consistently lower than industry averages, removing the risk that the utilization of these salary schedules as a component of payroll costs will cause overcharges to Federal grants. Contact: Michael J. Dunn, Acting State Human Resources Officer, Bureau of Human Resources, DAFS, 207-287-4651 Auditor’s Concluding Remarks: OSA acknowledges BHR’s reference to 5 MRSA 7061(4), as amended in October 2023, and the procedures for the classification maintenance outlined in 18-389 C.M.R. Ch. 4. We also recognize the distinction BHR draws between the five-year statutory requirement under 5 MRSA 7061(4)(A) for updating job descriptions and compensation plan components, and the ten-year classification plan review introduced under 5 MRSA 7061(4)(C). OSA’s review focused on BHR’s compliance with the five-year update requirement under 5 MRSA 7061(4)(A). While the statute was amended in 2023, the requirement that job descriptions be updated at least every five years has been in place since 1987. The recent amendment did not create this requirement; it expanded BHR’s obligation by tying the update process to the compensation plan and introducing a separate ten-year comprehensive classification review under 5 MRSA 7061(4)(C). These changes reflect an intent to strengthen oversight and modernize the State’s personnel system, not to delay or diminish BHR’s statutory responsibilities. To distinguish between BHR’s statutory responsibilities under 5 MRSA 7061(4)(A) and 5 MRSA 7061(4)(C), subsection (4)(A) requires periodic updating of job descriptions and the compensation plan at least every five years; this ensures that individual job classification specifications remain current and accurately reflect the duties and responsibilities of State positions. In contrast, subsection (4)(C), introduced in 2023, requires a broader, ten-year comprehensive review of the classification plan as a whole. The two requirements serve different purposes and operate on separate cycles. The five-year review of individual classifications under subsection (4)(A) remains an ongoing statutory obligation, regardless of the addition of subsection (4)(C). While BHR references its internal procedures under 18-389 C.M.R. Ch. 4 as evidence of compliance, those procedures do not incorporate or reflect the statutory five-year update requirement in subsection (4)(A) or the ten-year update in subsection (4)(C). Furthermore, BHR could not provide documentation to support that 14 of the 19 job classifications tested by OSA had been reviewed or updated within the required timeframe. BHR does not have a comprehensive system to track classification review dates across the classification plan, making it difficult to demonstrate compliance with the statute or proactively manage updates. Internal policy may guide operations, but compliance is ultimately measured against the statutory requirements that govern those operations. The issues identified in audit testing also have implications for the compensation system. Under 5 MRSA 7065, the State’s compensation plan is developed based on the classification plan, with salary grades assigned to specific job classes according to documented duties and responsibilities. The classification plan is the foundational structure upon which compensation decisions are made. If job descriptions are outdated, or not periodically reviewed as required, positions may be misaligned with inappropriate salary grades, which may lead to pay that does not accurately reflect the nature or complexity of the work, including Federally-funded positions. Without a properly maintained classification system, the State cannot ensure that compensation, whether paid with State or Federal funds, is supported by a valid and compliant classification system. Under 2 CFR 200.430(a)(2), compensation for personal services is allowable under Federal awards only when it follows “an appointment made in accordance with the recipient’s…laws, rules, or written policies.” This Federal regulation places the burden of compliance on the State’s adherence to its own legal framework. The Federal government allows flexibility, but that flexibility hinges on the condition that the State follows its own laws; it is the minimum threshold for allowability requirements over personnel costs. Compliance with this law is not discretionary; it is a legal obligation and direct reflection of the expectations placed on the State by the Legislature and the Federal government. BHR asserts that State employee compensation is consistently below market rates and therefore poses no risk of overcharging Federal programs. Even if BHR’s current assertion that State salaries are below market is accepted, Federal guidance provides that reasonableness in amount is only one factor in determining allowability. Compensation must also follow lawful appointment processes and reflect compliance with State personnel laws. A claim of underpayment is not a compensating control to prevent noncompliance with required classification updates. The following statutes only serve to emphasize the responsibility placed upon BHR and the State Human Resources Officer. Under 5 MRSA 7036, the State Human Resources Officer is explicitly responsible for adopting rules for both classification and compensation plans (7036(I) and (J)), enforcing the Civil Service Law (7036(21)), and conducting both short-term and long-term planning for the State’s personnel system (7036(10)). The Officer is also responsible for responding to reclassification requests (7036(5)) and working closely with agencies on their personnel needs (7036(7)). These statutory responsibilities further confirm that maintaining accurate, up-to-date classification specifications is not discretionary. Moreover, failure to fulfill these legal duties has implications that underscore the purpose of a centralized human resources function. These conditions present a risk to the accessibility to public service employment, including potential delayed hiring decisions and diminished ability to attract and retain a skilled workforce. When classification structures are outdated and statutory mandates are not followed, BHR cannot deliver on its mission. We acknowledge BHR’s consultation with the Office of the Attorney General and its efforts to clarify its interpretation of the law; however, the condition observed during the audit period reflects a neutralization of internal controls and subsequent risk of noncompliance with statutory requirements that directly affect both classification and the allowability of personnel costs under Federal awards. The finding remains as stated. (State Number: 24-0111-01)
(2024-042) Title: Internal control over HAF Program reporting and earmarking needs improvement Prior Year Findings: None State Department: Professional and Financial Regulation State Bureau: Consumer Credit Protection Federal Agency: U.S. Department of the Treasury Assistance Listing Title: Homeowner Assistance Fund Program (COVID-19) Assistance Listing Number: 21.026 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Matching, level of effort, earmarking Reporting Type of Finding: Material weakness Material noncompliance Questioned Costs: None Criteria: 2 CFR 200.303; American Rescue Plan Act of 2021, Section 3206; 15 USC 9058d(c)(2) The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must submit quarterly reports providing financial and performance data regarding administration of the Homeowner Assistance Fund (HAF) Program that include financial data, targeting data, and other information. The Department is also required to submit an annual report to the U.S. Department of the Treasury regarding the impact of the HAF Program. The HAF Program’s earmarking requirements include: • counseling or educational efforts targeted to households eligible to be served related to foreclosure prevention or displacement, in an aggregate amount up to five percent of the funding received by the HAF participant. • planning, community engagement, needs assessment, and administrative expenses for qualified expenses, in an aggregate amount not to exceed 15 percent of the funding received by the HAF participant. If the HAF participant has only received the initial ten percent of its allocation, no more than 50 percent of the initial payment is permitted to be used for the expenses mentioned. • participants providing not less than 60 percent of funds to homeowners with income less than 100 percent Area Median Income (AMI) or 100 percent of U.S. median income. • participants should target homeowners that are classified as Socially Disadvantaged Individuals and 100 percent AMI or less. Condition: The Department contracts with a subrecipient to administer the HAF Program. A Memorandum of Understanding (MOU) between the Department and the subrecipient outlines the following: • The subrecipient is responsible for preparation of all required reporting under the HAF Program. • The Department is responsible for certification and submission of all reports prepared by the subrecipient. During fiscal year 2024, four quarterly financial reports and one annual performance report for the HAF Program were required to be submitted to the Federal government. The MOU requires Department certification and submission of all HAF Program reports; however, the subrecipient prepared and certified all required reports during fiscal year 2024 with no oversight from the Department. In addition, the Department did not maintain records of any fiscal year 2024 HAF Program financial or performance reports or supporting documentation. The Department solicited the reports from the subrecipient only after the Office of the State Auditor’s (OSA) request for audit documentation. The Department subsequently provided OSA with all reports in response to the audit request; however, the Department could not provide documentation to support: • the Department’s review of each financial and performance report prepared by the subrecipient, as it did not occur prior to certification and submission by the subrecipient. • amounts reported on the State’s fiscal year 2024 HAF Program financial and performance reports. • amounts reported on key line items for HAF Program earmarking requirements and related obligation and expenditure totals. The Department has no assurance that HAF Program reports prepared by the subrecipient and submitted to the Federal government on behalf of the State are accurate or properly supported. In addition, the Department has no assurance that the HAF Program was in compliance with Federal requirements for earmarking, as supporting documentation for such compliance is part of the subrecipient’s reporting process. Furthermore, OSA was unable to verify the accuracy of submitted reports or compliance with earmarking requirements, as supporting documentation was not maintained. Context: In fiscal year 2024, the Department expended $29.4 million in HAF Program funds; the entire amount was passed through to the subrecipient. Cause: • Lack of supervisory oversight • Lack of adequate policies and procedures Effect: • Noncompliance with Federal regulations • HAF Program reports, including earmarking requirements, submitted to the Federal government are not properly supported and may not be accurate as documentation is not reviewed or maintained by the Department. • Incomplete or inaccurate HAF Program reports may result in incorrect information used by the Federal government for programmatic, policy, or statistical purposes. Recommendation: We recommend that the Department establish and implement policies and procedures to require a documented review and approval of all HAF Program reports and related earmarking requirements prepared by the subrecipient, prior to certification and submission by the Department as required by the established MOU. This will ensure that information reported to the Federal government is accurate, complete, and properly supported, and that earmarking requirements have been met. Corrective Action Plan: See F-20 Management’s Response: The Department agrees with this finding. The Department will establish and implement additional policies and procedures for this program. The Department will require that the subrecipient submit the required program and financial reports to the department for review prior to submission to the federal agency starting with the reporting period ending March 2025 reporting period. Contact: Rachel Hendsbee, Director, Administrative Services Division, Department of Professional and Financial Regulation, 207-624-8500 (State Number: 24-1698-01)
(2024-043) Title: Internal control over HAF Program subrecipient monitoring needs improvement Prior Year Findings: None State Department: Professional and Financial Regulation State Bureau: Consumer Credit Protection Federal Agency: U.S. Department of the Treasury Assistance Listing Title: Homeowner Assistance Fund Program (COVID-19) Assistance Listing Number: 21.026 Federal Award Identification Number: See E-77 to E-78 Compliance Area: Subrecipient monitoring Type of Finding: Material weakness Material noncompliance Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.332 The Department must establish and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. The Department must: • evaluate each subrecipient’s risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring procedures. • verify that the subrecipient is audited as required when a subrecipient’s Federal award expenditures are expected to equal or exceed $750,000 during the fiscal year. • monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Condition: The Homeowner Assistance Fund (HAF) Program provides funding to mitigate financial hardships associated with the pandemic, including preventing homeowner mortgage delinquencies, defaults, foreclosures, and loss of utilities or home energy services and displacements of homeowners experiencing financial hardships. In fiscal year 2024, the Department passed through HAF Program funds to one subrecipient responsible for administering the program. The Department contracted with a vendor to perform all subrecipient monitoring for the HAF Program; however, only one monitoring report for the first quarter of fiscal year 2024 had been received by the Department at the time of audit testing in February 2025. No subrecipient monitoring information was received by the Department during the actual use of the grant award in fiscal year 2024. As a result, the Department had no assurance in fiscal year 2024 that: • the subrecipient’s risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward was evaluated for purposes of determining the appropriate subrecipient monitoring procedures. • the subrecipient received a Single Audit as required. The Office of the State Auditor reviewed the quarterly monitoring report received from the vendor and noted that the subrecipient’s Single Audit requirement and related monitoring was not addressed. • the activities of the subrecipient were monitored as necessary to ensure that the subaward was used for authorized purposes and in compliance with Federal statutes, regulations, and the terms and conditions of the subaward, and that subaward performance goals were achieved. In addition to untimely vendor subrecipient monitoring reports, the Department’s review and approval of subrecipient reimbursement requests was not adequately designed, as submission of detailed expenditure information with the subrecipient’s requests for reimbursement of HAF Program funds was not required. A summary spreadsheet outlining actual and projected expenditures for the second-tier subrecipient was the only support provided to the Department with each reimbursement request, which does not provide adequate detail to ensure that the subaward was used for authorized purposes. Context: In fiscal year 2024, the Department expended $29.4 million in HAF Program funds; the entire amount was passed through to the subrecipient. Cause: • Lack of supervisory oversight • Lack of adequate policies and procedures Effect: • Noncompliance with Federal regulations • Lack of ongoing or adequate subrecipient monitoring procedures could result in subrecipient noncompliance that would go undetected during the award term. Recommendation: We recommend that the Department develop and implement policies and procedures to ensure that: • all Federal award program subrecipients of the Department are subject to ongoing monitoring activities during the grant award term. • detailed documentation in support of subrecipient reimbursement requests is received prior to payment approval. Corrective Action Plan: See F-20 Management’s Response: The Department agrees with this finding. The Department has contracted with a vendor to perform subrecipient monitoring of the HAF program. The Department will ensure that subrecipient reports adequately detail expenditures. Contact: Rachel Hendsbee, Director, Administrative Services Division, Department of Professional and Financial Regulation, 207-624-8500 (State Number: 24-1698-02)