Findings Citing § 200.303

Finding # 2025-019 Federal Program Name Unemployment Insurance (UI) (COVID-19) Federal Awarding Agency U.S. Department of Labor State Agency Department of Labor and Industry (department) ALN # 17.225 Grant # 24A55UI038784, UI37234225A30, 23A55UI039333, 24A55UI000047, 26A60UR000026, 24A60UR000067, 23A55UI034726 Compliance Requirement L. Reporting Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department did not have sufficient internal controls in place to ensure that various required federal reports were accurate and complete during fiscal year 2024. Context: The department submits several UI reports to the federal government. Some reports cover financial data while others cover program performance metrics. The following table represents the reports that were reviewed and issues identified: The department’s new computer system Montana Unemployment Services Environment (MUSE) went online in fall 2023. MUSE retains documentation of the reviews and approvals of the reconciliations and amounts reported on the federal reports. No instances of noncompliance were identified during the audit period. This is consistent with an isolated internal control deficiency. Repeat Finding: The portion of this finding related to UI-3 and ETA 9050 reports is a repeat finding and was reported as Single Audit finding 2023-011 in the audit for the two fiscal years ended June 30, 2023.The department addressed the previous issue related to errors in the reports, but the control portion of the recommendation continues. Effect: Without adequate controls, the department risks reporting incorrect information to the federal government. Noncompliance with federal reporting requirements could result in reduced funding or additional conditions imposed by the federal government. Cause: The department's internal control procedures did not include documentation of supervisory review and approval of reports or of complete reconciliations. Department personnel indicated these gaps were not recognized until the issue in the previous Single Audit Report. As noted above, the department’s new computer system, MUSE, addressed the internal control issues and maintains documentation to support reviews of reconciliations. Recommendation: We recommend the Department of Labor and Industry strengthen internal controls by maintaining documentation to support reviews of reconciliations of all amounts reported on federal Unemployment Insurance program reports. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.

Finding Number 2025-020 Federal Program Name Unemployment Insurance (UI) (COVID-19) Federal Awarding Agency U.S. Department of Labor State Agency Department of Labor and Industry (department) ALN # 17.225 Grant # 24A55UI038784, UI37234225A30, 23A55UI039333, 24A55UI000047, 26A60UR000026, 24A60UR000067, 23A55UI034726 Compliance Requirement N. Special Tests and Provisions Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: As part of administering the Benefit Accuracy Measurement (BAM) program, the department draws a weekly sample of paid and denied claims and conducts in-depth investigations to verify that unemployment compensation administration is consistent with state and federal law. Federal regulations specify the number of claims the department must review weekly, quarterly, and annually. Prior to April 2024, the department did not retain evidence of their monitoring of completion of claims reviews. Context: The department uses a federal reporting system to monitor the BAM review status and track progress toward required review totals.The department did not save documentation from the federal reporting system, showing that monitoring occurred. Auditors were unable to verify that monitoring was in use prior to April 2024. No instances of noncompliance were identified during the audit period. This is consistent with an isolated internal control deficiency rather than a systemic compliance failure. Repeat Finding: This is a repeat finding and was reported as Single Auditing finding 2023-009 in the audit for the two fiscal years ended June 30, 2023. Effect: Without documented evidence of monitoring, the department could not demonstrate it was identifying and correcting errors in a timely manner prior to April 2024. This also places the department out of compliance with federal regulations, which require recipients of federal funding to maintain effective internal controls over federal awards. Cause: Department personnel used the federal reporting system to track case selection and review progress, but did not recognize the need to retain documentation of that monitoring activity until the issue was raised in the prior single audit report. Recommendation: We recommend the Department of Labor and Industry continue to use a process to regularly retain and document evidence of the internal controls used to monitor completion of required BAM case reviews. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.

Finding # 2025-021 Federal Program Name Unemployment Insurance (UI) (COVID-19) Federal Awarding Agency U.S. Department of Labor State Agency Department of Labor and Industry (department) ALN # 17.225 Grant # 24A55UI038784, UI37234225A30, 23A55UI039333, 24A55UI000047, 26A60UR000026, 24A60UR000067, 23A55UI034726 Compliance Requirement L. Reporting Type of Finding Material Weakness and Material Noncompliance Questioned Costs No questioned costs identified Criteria: Federal guidance, ETA (Employment and Training Administration) 2112 Handbook, part B, requires the ETA 2112 report to reflect all money received, passed through, or paid out of the state unemployment fund. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacks sufficient internal controls to reconcile or review key line items on the monthly ETA 2112 reports. The department did not reconcile beginning or ending balances on the ETA 2112 reports for fiscal years 2024 and 2025, resulting in unresolved differences in both years. Context: The ETA 2112 Financial Transaction Summary is a monthly report accounting for all funds received in, passed through, or paid out of the state unemployment fund. The department submits this report to the federal government as part of its UI reporting obligations. We identified the following internal control deficiencies in our audit: • Prior to May 2024, the department did not reconcile federal withholding activity for the Unemployment Trust Fund account between the ETA 2112 report and state accounting system. • The department did not reconcile beginning and ending balances on the ETA 2112 to the benefits account bank statement for the duration of the audit period. • The department did not have proper documentation of reconciliations between the reported account balances and bank statements until March 2024. Additionally, our testing of eight reports revealed differences in ending and beginning balances ranging from $5.8 million to $7.5 million in FY2024 and $22.5 million to $26.2 million in FY2025. We designed a randomly selected, non-statistical sample of 8 and found differences in all 8 months. Repeat Finding: The portion of this finding relating to the reconciliations is a repeat finding and was reported in the Single Audit finding 2023-011 in the audit for the two fiscal years ended June 30, 2023. The department implemented new internal controls when its new Montana Unemployment System Environment (MUSE) system was launched in 2024. Effect: Without adequate control, the department reported incorrect information on federal reports. Noncompliance with federal reporting requirements could result in reduced funding or additional conditions imposed by the federal government. Cause: The department's internal control procedures did not include reconciliations or review and approval of reports prior to communication of the previous Single Audit findings. If the department continues to operate under their new procedures, this recommendation should be resolved. Recommendation: We recommend the Department of Labor and Industry: A. Continue to strengthen internal controls to complete and maintain sufficient documentation of reconciliations. B. Report accurate and complete data on the ETA 2112 federal report for the Unemployment Insurance program. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action, see the Corrective Action Plan starting on page D-1.

Finding 2025-004 Federal Program Name WIC Special Supplemental Nutrition Program for Women, Infants, and Children Federal Awarding Agency U.S. Department of Agriculture State Agency Department of Public Health and Human Services (department) ALN # 10.557 Grant # 243MT705W1003, 243MT705W1006, 253MT705W1003, 253MT705W1006 Compliance Requirement B. Allowable Costs/Cost Principles Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Department controls over the infant formula rebate calculation process are not sufficient, as no documentation of the review of the rebate calculation exists. Context: Each month, department staff calculate the infant formula rebate by totaling units of formula redeemed and applying the applicable rate. The same staff member prepares and sends the invoice to the manufacturer. A second staff member reviews the calculation for accuracy; however, no documentation of that review exists. In fiscal years 2024 and 2025, rebates were approximately 17% of total expenditures, or $2.7 million and $2.9 million, respectively. Effect: Without documented evidence of review, the department cannot demonstrate that a review occurred. While no errors were identified in the rebate calculations tested, if no review occurred it could result in an undetected error. An undetected error in the calculation could result in inaccurate invoices and incorrect reimbursement amounts. Cause: Staff believed a second-person review was sufficient but did not recognize the need to document it. Since this issue was identified, the department updated its process. A new tracking tool was developed, and for fiscal year 2026, the department began documenting all rebate calculation reviews. This included retroactively reviewing all fiscal year 2026 calculations. Recommendation: We recommend the Department of Public Health and Human Services enhance internal controls to maintain documented evidence that rebate calculations are reviewed prior to invoicing the manufacturer. Views of Responsible Officials: The department concurs with the recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.

Finding 2025-005 Federal Program Name WIC Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Federal Awarding Agency U.S. Department of Agriculture State Agency Department of Public Health and Human Services (department) ALN # 10.557 Grant # 243MT705W1003, 243MT705W1006, 253MT705W1003, 253MT705W1006 Compliance Requirement A. Activities Allowed/Unallowed B. Allowable Costs/Cost Principles H. Period of Performance Type of Finding Material Noncompliance and Material Weakness Questioned Costs Known questioned costs of approximately $19,260 and likely questioned costs exceeding $25,000 Criteria: Federal regulation, 2 CFR 200.403(a), (g), and (h) states costs are allowable when they are necessary and reasonable for the performance of the federal award and adequately documented. This means the costs must be adequately documented and incurred during the approved budget period. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's internal controls were not sufficient to ensure all reimbursements paid to local agencies were fully supported. The department reimbursed some local agencies without receiving or maintaining adequate documentation to determine whether funding was used for allowable activities, allowable costs, and within the period of performance. Questioned Costs: Auditors reviewed support for selected months across tested local agencies and treated any expenditure without detailed supporting documentation retained by the department as a questioned cost. Testing was not performed to identify which costs apply to which grant award, but we estimate most of the questioned costs are administrative costs. We calculated questioned costs for 5 of the 7 selected agencies. Total known questioned costs were approximately $19,260. We estimate likely questioned costs exceed $25,000. Context: Local agencies throughout the state, such as county health departments, contract with the department to provide WIC services. The department monitors activity at local agencies through monthly expenditure reviews before reimbursement and during periodic monitoring visits. Monthly expenditure reviews are high-level and do not include requesting or reviewing support for individual expenses. Testing of these reviews found no issues. However, the documentation was not detailed enough to determine whether the expenditures were allowable and incurred within the period of performance for most of the audit period. Except for salaries, the department’s monthly expense form included budget categories only and did not require the local agency to provide additional information about the costs or when the costs were incurred. In one example the local agency sought reimbursement for expenditures a couple of months after the expense was incurred, indicating that the expenses included on the monthly expenditure form are not always for that month. The department identified the lack of detail in their monthly expense form as a control weakness, and late in the audit period adopted an updated monthly expense form that requires local agencies to provide context for all cost categories they are seeking reimbursement for. Because monthly review documentation was insufficient to verify allowability and period of performance, audit testing focused on monitoring visits. Monitoring visits, conducted at least every other year, include a more thorough review of costs, such as verifying invoices and receipts. We performed testing on a random nonstatistical sample of 7 of the 38 local agencies that had a monitoring visit during the audit period. We stopped testing after identifying errors in 5 of the 7 agencies. One subrecipient had fully supported payments. The department provided documentation for the 7th agency 6 weeks after our initial request for documentation. This agency was excluded from testing as material noncompliance had already been identified. Questioned costs are based only on agencies tested. All questioned costs are from periods before the department updated the monthly expense form. The department provided the monitoring documentation submitted by the agencies for department review. The documentation received was insufficient to provide reasonable assurance that all local agency costs incurred were for allowable costs and allowable activities, and occurred within the period of performance. Specifically: • Two agencies provided invoices and receipts for some, but not all, expenditures. Auditors could not verify whether all costs were allowable or within the period of performance. One of these agencies also received reimbursement for indirect costs despite the contract indicating indirect costs were not applicable. • Two agencies provided invoices, receipts, and a general ledger. Period of performance was verified using the general ledger; however, the ledger was not detailed enough to verify whether all costs and activities were allowable. • One agency provided no invoices, receipts, or general ledger. We could not verify period of performance, allowable costs, or allowable activities. Effect: The department did not retain detailed documentation of local agency expenditures at the time of department reimbursement, nor did the department obtain or retain additional detailed supporting documentation during its monitoring process. This increases the risk that local agencies used WIC funds for unallowable activities or costs. The department is not in compliance with federal regulations and known and likely questioned costs were identified. Cause: Some local agencies did not submit supporting documentation during the monitoring process. Although department staff noted these gaps during monitoring visits and included the lack of documentation in the department’s monitoring report, documentation retained by the department was incomplete, inaccurate, or unavailable. Department staff also indicate that they reviewed detailed documentation during their monitoring processes, but did not retain all of it due to volume. This includes some instances where local agencies submitted invoices by mail or the department reviewed the invoices and receipts while on site at the local agency, and department staff did not scan or retain the physical documents. Late in the audit period, the department did create a new monthly expense reimbursement form that requires more detailed information from the local agencies. While this was in place for only part of the audit period, it does capture detailed information missing from earlier monthly expenditure reimbursements and monitoring visits. If the department continues to use this new form it will likely obtain the level of detail necessary to support local agency expenditure reimbursements. Recommendation: We recommend the Department of Public Health and Human Services: A. Continue to implement internal controls requiring local agencies to submit detailed documentation and requiring department staff to retain detailed documentation received. B. Ensure reimbursements to local agencies are supported by documentation to confirm costs are allowable, activities are allowable, and expenditures fall within the relevant period of performance. Views of Responsible Officials: The department does not concur with this recommendation. The department noted that its monitoring framework is the level of monitoring required by federal requirements. The department further noted that the federal regulations do not require transaction level or receipt level documentation of all subrecipient expenditures as a condition of reimbursement. Extending receipt-level submission and retention to every expenditure would add substantial administrative work for the department and its local agencies. Rebuttal of Views of Responsible Officials: We considered the department’s nonconcurrence with the recommendation. Audit testing was focused on the allowability of costs and activities and period of performance and not subrecipient monitoring controls. The support available was insufficient to provide reasonable assurance that all local agency costs incurred were for allowable costs and allowable activities and that costs occurred within the period of performance. As discussed above, we believe the new monthly expense reimbursement form implemented by the department late in the audit period will likely capture the detailed information missing from earlier expenditure reimbursements. These new department processes do not obtain a receipt for every transaction at the subrecipient level, but do capture more information and details about transactions to support that the costs were for allowable costs, allowable activities, and occurred within the period of performance at the time of reimbursement. As such, our recommendation stands.

Finding 2025-100 State Agency Department of Public Health and Human Services (department) Federal Awarding Agency U. S. Department of Health and Human Services Federal Program Name Epidemiology and Laboratory Capacity for Infectious Diseases (ELC)(COVID-19) ALN # 93.323 Grant # NH23IP922574, NUCK000409, NU500CK000500, NU51CK000366, NUE2EH001420 Federal Program Name Immunization Cooperative Agreement (COVID-19) ALN # 93.268 Grant # NH23IP922574 Federal Program Name Adoption Assistance – Title IV-E ALN # 93.659 Grant # 2401MTADPT, 2501MTADPT Federal Program Name Low-Income Home Energy Assistance (LIHEAP) ALN # 93.568 Grant # 2201MTLIEI, 2201MTLIEA, 2301MTLIEI, 2301MTLIEA, 2401MTLIEI, 2401MTLIEA, 2501MTLIEI, 2501MTLIEA Federal Awarding Agency U. S. Department of Agriculture Federal Program Name Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) ALN # 10.557 Grant # 243MT705W1003, 243MT705W1006, 253MT705W1003, 253MT705W1006 Compliance Requirement C. Cash Management Type of Finding Significant Deficiency Questioned Costs No questioned costs identified Criteria: Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacks sufficient controls over cash draws to minimize the time between the drawdown of federal funds and their disbursement, as required by federal regulations, in the ELC, Immunization, Adoption Assistance, LIHEAP and WIC programs. Context: The prior audit identified a design deficiency in internal controls over the department's cash management process for federal cash draws. No process changes were made until partway through FY2025, and some planned changes were not implemented. The existing process did not prevent programs from accumulating excess cash. We noted isolated instances of excess cash and inconsistent draw patterns. However, there was no indication of a pattern of excess cash in the programs identified. Our analysis supports that there was no material noncompliance with the requirements to minimize time between draws and disbursement. Repeat Finding: The department has had cash management findings spanning the previous 3 single audits. The 2019-024 finding related to the WIC program, identifying material noncompliance and a control deficiency. In the single audit covering the two fiscal years ending June 30, 2021 it was determined that the prior audit recommendations had not been implemented. This is a repeat finding from the Single Audit for the two fiscal years ending June 30, 2023 (Finding 2023-052), related to the ELC and Adoption Assistance programs. The finding is new for the Immunization, LIHEAP, and WIC programs. Differing from the last three single audits, we didn’t identify material noncompliance related to cash management. Effect: Without proper cash management, the department risks failing to minimize the time between the drawdown of federal funds and disbursing them for program operations, as required by federal regulations. Cause: The department uses templates to guide draws and identify excess cash balances. However, each program has unique cash management requirements that necessitate template modifications. These tools were insufficient to prevent all periods of excess cash. The timing of the prior single audit did not allow the department adequate time to implement the prior recommendation where the department would daily monitor high-risk funds. In addition, adjustments to their processes had to be made because of Department of Governmental Efficiency changes impacting the timing of reimbursements as well as a new state law enacted near the end of FY2025 that affected the timing of inter-entity loans affected the department’s ability to adjust their process. Recommendation: We recommend the Department of Public Health and Human Services continue to enhance internal controls over cash draws to minimize the time between the drawdown of federal funds and their disbursement for federal program purposes. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.

Finding 2025-064 Federal Program Name Comprehensive Literacy Development Program (Literacy) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.371 Grant # S371C190012, S371C190012-19A, S371C190012-20, S371C190012-21 Compliance Requirement A. Activities Allowed B. Allowable Costs/Cost Principles M. Subrecipient Monitoring Type of Finding Other Matter: Questioned Costs for a Non-Major Program Questioned Costs $130,752 Criteria: Federal regulation, 2 CFR 200.332(d), requires pass-through entities to, “Monitor the activities of the subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The pass-through entity is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved.” Federal regulation, 2 CFR Part 200.403(a) and (g), requires costs to be necessary and reasonable, as well as adequately documented. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office’s subrecipient monitoring process for the Literacy program lacked sufficient documentation on cash requests throughout the audit period. The prior audit reported this issue; however, new procedures were not fully in place until partway through the audit period. Questioned Costs: We question $130,752 in costs paid to two eligible Local Education Agencies (LEAs), which are generally schools or school districts. While a third school also provided insufficient documentation for reimbursement, that school had already been identified as an ineligible school. We questioned the costs for the entire school in finding 2025-065. Those questioned costs are excluded here to prevent double counting the same expenditures as questioned costs. Context: This program was not audited as a major federal program under the Single Audit, so testing was limited to following up on the prior audit recommendation. Auditors reviewed 10 cash requests, five from each fiscal year. All five fiscal year 2025 requests were adequately documented. Three of the five fiscal year 2024 requests lacked adequate documentation as they were missing time periods, descriptions of services provided, or quantities purchased. Two of the three erroneous payments were made to eligible schools and one was made to an ineligible school. Repeat Finding: This is a repeat finding and was reported as Single Audit finding 2023-039 from the audit for the two fiscal years ended June 30, 2023. Effect: Without adequate controls over cash requests, the office may have reimbursed subrecipients for unallowable, unnecessary, or unreasonable expenses. Cause: This issue was originally communicated to the office in late fiscal year 2024, leaving only part of the audit period for the office to strengthen controls. In November 2024, the office updated its procedures to require schools to submit specific details with cash requests. Several of the deficient requests were submitted before this update took effect. Additionally, the internal auditor began sampling cash requests later in the audit period, but that control was also not in place for the full period. If the office continues to operate under their new procedures, this recommendation should be resolved. Recommendation: We recommend the Office of Public Instruction: A. Continue to use enhanced internal control review procedures to ensure subrecipient payment requests are for allowable costs and activities. B. Reimburse subrecipients after obtaining and reviewing support to ensure costs are reasonable, necessary, and adequately documented, as required by federal regulations. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.

Finding 2025-065 Federal Program Name Comprehensive Literacy Development Program (Literacy) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.371 Grant # S371C190012, S371C190012-19A, S371C190012-20, S371C190012-21 Compliance Requirement B. Allowable Costs/Cost Principles E. Eligibility Type of Finding Other Matter: Questioned Costs for a Non-Major Program Questioned Costs $4,442,942 Criteria: The Elementary and Secondary Education Act of 1965 Section 2221(b)(2) defines an eligible entity as one or more local educational agencies that serve a high percentage of high needs schools and meets other criteria such as having a high percentage of children reading below grade level or a high proportion of students who are special needs, codified at 20 U.S.C. 6301 et. Seq. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office awarded Literacy funds to local education agencies (LEAs), which are generally schools or school districts, that were not eligible under federal eligibility regulations. The office inconsistently applied criteria and it did not always follow federal regulations. The prior single audit reported this issue; however, the office disagreed with the finding and continued making payments to those schools under existing subaward agreements, resulting in questioned costs in the current period. As the Department of Education has not conducted their following up to resolve this issue, we continue to report it as a finding. Questioned Costs: We question costs of $4,442,942 using actual payments to the ineligible schools identified from the office’s grant system. Context: The prior audit tested all 43 schools that received allocations from the office during fiscal years 2022 and 2023 and identified 9 schools that were not eligible for federal Literacy funds. Because Literacy is no longer a major federal program, current audit procedures focused only on following up with those 9 schools. During fiscal years 2024 and 2025, the office continued distributing federal funds to all 9 ineligible schools under subaward agreements established during the prior audit period, resulting in significant questioned costs. Although the office updated its internal control processes in late 2025, both the internal control and compliance deficiencies identified in the prior audit persisted throughout the current audit period. Repeat Finding: This is a repeat finding and was reported as Single Audit finding 2023-041 from the audit for the two fiscal years ended June 30, 2023. Effect: The office is not in compliance with federal regulations. We question more than $4.4 million in Literacy subrecipient costs that were paid to schools that did not meet the federal eligibility requirements. This also confirms that the office's internal controls were not operating effectively during fiscal years 2024 and 2025. Additionally, schools that did not receive funding may have been selected had the original federal criteria been applied. The state's criteria used was broader than the federal criteria which expanded the pool of eligible applicants. Cause: As the prior audit reported, the office submitted conflicting eligibility requirements during the federal application process and could not demonstrate that it awarded funds consistent with Elementary and Secondary Education Act (ESEA) requirements. Because the grant was nearing its end when the prior audit concluded, the office did not adjust original eligibility determinations and continued reimbursing the 9 schools through the grant run-out period. For new grants, the office updated its process, and documentation now reflects all federal eligibility criteria and each school's compliance with those criteria. If the office continues to use these updated procedures, this finding should be resolved. Recommendation: We recommend the Office of Public Instruction: A. Continue to use enhanced controls implemented as of May 2025 grants to ensure only eligible subrecipients are allocated funding. B. Award subgrants only to eligible schools, as required by federal regulations. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.

Finding 2025-032 Federal Program Name Formula Grants for Rural Areas and Tribal Transit Program (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.509 Grant # MT-2018-011, MT-2020-013, MT-2022-019, MT-2023-004, MT-2023-005, MT-2024-018, MT-2025-006 Questioned Costs $2,505,563 Federal Program Name Enhanced Mobility of Seniors and Individuals with Disabilities (COVID-19) ALN # 20.513 Grant # MT-2021-006, MT-2022-028, MT-2022-029, MT-2023-007, MT-2023-019, MT-2023-020, MT-2024-018, MT-2025-006 Questioned Costs $3,149,674 Federal Program Name Buses and Bus Facilities Formula, Competitive, and Low or No Emissions Programs ALN # 20.526 Grant # MT-2022-029 Questioned Costs $507,741 Compliance Requirement I. Procurement and Suspension and Debarment Type of Finding Material Weakness, Material Noncompliance, and Other Matter Criteria: Federal regulation, 49 CFR 663.25, requires grant recipients, before signing a public transit vehicle supplier contract, to review documentation listing each vehicle part, its manufacturer, country of origin, and cost, then certify that the vehicles will meet Buy America requirements. Federal regulation, 49 CFR 663.41, requires grant recipients to keep on file a certification that they received the manufacturer's self-certification of compliance with relevant Federal Motor Vehicle Safety Standards (FMVSS) before awarding a public transit vehicle supplier contract. Federal regulation, 49 CFR 665.7, requires grant recipients to determine whether a public transit vehicle requires testing at the Bus Testing Facility. If testing is required, the grant recipient must obtain the test results and certify that the vehicle received a passing score before accepting delivery. Bus models are tested for maintainability, reliability, safety, performance, structural integrity, durability, fuel economy, noise, and emissions. Federal regulation, 2 CFR 200.334, requires grant recipients to retain all records supporting a federal award for three years after submitting the final expenditure report. Records for federally funded equipment must be retained for three years after final disposition. Montana state procurement policy requires agencies to maintain a complete record of the procurement process to ensure compliance and facilitate auditing. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department's internal controls did not include reviews of vehicle procurements to verify compliance with Buy America, FMVSS, or bus testing requirements, resulting in federal noncompliance. Because the affected purchases were paid for with federal grant funds across three programs, we question costs for all affected programs: Formula Grants for Rural Areas, Enhanced Mobility of Seniors and Individuals with Disabilities, and Buses and Bus Facilities Formula, Competitive, and Low or No Emissions Programs. Questioned Costs: Vehicles funded through multiple ALNs were purchased under the noncompliant contracts. We question the federal share of all vehicles purchased under those contracts. Because vehicle deliveries span multiple audit periods, we cannot determine the exact federal expenditures within this audit period alone. Likely questioned costs exceed $25,000 in this audit period, and are also expected to exceed $25,000 in future audit periods. Context: When the department subgrants federal awards to purchase public transit vehicles, it procures the vehicles on behalf of local transit providers. Before signing a supplier contract, the department must review and document that vehicles meet safety, domestic production, and contract specification requirements. The department's procurement division is responsible for obtaining this documentation. In a randomly selected nonstatistical sample of four of the nine purchase contracts issued during the audit period, auditors found two contracts with compliance issues: Contract 1 – Buy America: The supplier did not provide the required part-by-part Buy America documentation. Instead, it provided only a general promise of future compliance. Despite this, the department’s procurement staff certified that they had reviewed the required documentation and awarded the contract. Contract 2 – FMVSS and Bus Testing: The department obtained a manufacturer statement that vehicles complied with safety standards but did not certify receipt of the required documentation, as federal regulation requires. The department also failed to determine whether full bus testing was required, did not obtain the required test results, and accepted vehicle delivery without the required documentation. Federal regulations require Buy America and FMVSS documentation and certification at both the pre-award and post-delivery stages. Documentation provided only at delivery does not satisfy the pre-award requirement. Neither contract should have been awarded without the required certifications in hand. Effect: Without part-by-part Buy America documentation, the department could not confirm the vehicles would be manufactured in compliance with Buy America requirements. Without the required FMVSS certification and bus testing results, the department could not confirm the vehicles met applicable safety, reliability, or performance standards. Cause: The supplier for the first contract told the department it does not provide detailed Buy America documentation before manufacturing vehicles. Department procurement staff accepted the supplier's promise of future compliance rather than requiring the documentation federal regulations mandate before contract award. The department also lacked a process to review procurements for compliance with pre-award federal requirements. Regarding record retention, the department contends that 49 CFR 663 does not require it to retain detailed Buy America documentation. However, both the Uniform Guidance and Montana state procurement policy require agencies to retain procurement records to demonstrate compliance. Recommendation: We recommend that the Montana Department of Transportation: A. Strengthen internal controls to ensure all federal requirements are met when procuring public transit vehicles. B. Conduct a pre-award audit before entering into any vehicle supplier contract, as required by Federal regulations. C. Obtain required bus testing documentation before accepting delivery of vehicles, as required by federal regulations. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.

2025-001 Improve Controls Over Food and Nutrition Services Reporting Federal Agency: U.S. Department of Education Program: Child Nutrition Cluster AL Number: 10.555 Award Year: 2025 Type of Finding Internal Control over Compliance - Reporting - Significant Deficiency Criteria or Specific Requirement In accordance with 2 CFR 200.303 management of the Town is responsible for establishing, documenting, and maintaining effective internal control over Federal award that provides reasonable assurance that the Town is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. Condition and Context Requests for reimbursement were not reviewed by anyone other than the preparer. Cause Weaknesses in the design of internal controls. Effect or Potential Effect Without proper documentation and adherence to the review and approval process, there is an increased risk of inaccurate reimbursement requests being submitted to the grantor. Questioned Costs There are no questioned costs as a result of this finding as there are no costs directly associated with the finding. Recommendation The Town should implement formal policies and procedures regarding separation of duties and the requirement of a second individual being involved in the reporting process. Views of Responsible Official and Planned Corrective Action Management’s views and Corrective Action Plan are included at the end of this report.

Finding 2025-012 – Lack of Internal Controls Over Major Federal Program – Highway Planning and Construction Cluster (Federal-Aid Highway Program) (Repeat Finding – 2013-015, 2014-015, 2015-015, 2017-015, 2018-015, 2020-015, 2021-015, 2024-012) PASS-THROUGH GRANTOR: Bureau of Indian Affairs FEDERAL AGENCY: U.S. Department of Transportation ASSISTANCE LISTING: 20.205 FEDERAL PROGRAM NAME: Highway Planning and Construction Cluster (Federal-Aid Highway Program FEDERAL AWARD YEAR: 2020, 2022, 2023 CONTROL CATEGORY: Activities Allowed or Unallowed; Allowable Costs/Cost Principles; Matching; Procurement and Suspension and Debarment; Special Tests and Provisions QUESTIONED COSTS: $-0- Condition: During the process of documenting the County’s internal controls regarding federal disbursements, we noted that the County has not established procedures to ensure compliance with the following compliance requirements: Activities Allowed or Unallowed; Allowable Costs/Cost Principles; Matching; Procurement and Suspension and Debarment; Special Tests and Provisions. Cause of Condition: Policies and procedures have not been designed and implemented to ensure federal expenditures are made in accordance with federal compliance requirements. Effect of Condition: This condition could result in noncompliance with grant requirements and could result in a loss of federal funds to the County. Recommendation: OSAI recommends the County gain an understanding of requirements for this program and implement internal control procedures to ensure compliance with requirements. Management Response: Chairman of the Board of County Commissioners: The Board of County Commissioners will work with all County Officials to go over all grants and federal monies that the County receives to ensure that proper internal controls are implemented. Criteria: OMB 2 CFR 200, Subpart D. 200.303(a) reads as follows: Subpart D-Post Federal Award Requirements §200.303 Internal Controls The non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Further, accountability and stewardship should be overall goals in management's accounting of federal funds. Internal controls should be designed to monitor compliance with laws and regulations pertaining to grant contracts.

Finding 2025-014 – Lack of Internal Controls Over Major Federal Program – Coronavirus State and Local Fiscal Recovery Funds (Repeat Finding – 2024-014) PASS-THROUGH GRANTOR: Direct Grant FEDERAL AGENCY: U.S. Department of Treasury ASSSITANCE LISTING: 21.027 FEDERAL PROGRAM NAME: Coronavirus State and Local Fiscal Recovery Funds FEDERAL AWARD YEAR: 2021 CONTROL CATEGORY: Activities Allowed or Unallowed; Allowable Costs/Cost Principles; Period of Performance; Procurement and Suspension and Debarment; Reporting; Subrecipient Monitoring QUESTIONED COSTS: $0 Condition: During the process of documenting the County’s internal controls regarding federal disbursements, we noted that the County has not established procedures to ensure compliance with the following compliance requirements: Activities Allowed or Unallowed; Allowable Costs/Cost Principles; Period of Performance; Procurement and Suspension and Debarment; Reporting; and Subrecipient Monitoring. Cause of Condition: Policies and procedures have not been designed and implemented to ensure federal expenditures are made in accordance with federal compliance requirements. Effect of Condition: This condition resulted in noncompliance with grant requirements and could result in loss of federal funds to the County. Recommendation: OSAI recommends the County gain an understanding of requirements for this program and implement internal control procedures to ensure compliance with requirements. Management Response: Chairman of the Board of County Commissioners: The Board of County Commissioners will work with all County Officials to go over all grants and federal monies that Caddo County receives to ensure that proper internal controls are implemented. Criteria: OMB 2 CFR 200, Subpart D. 200.303(a) reads as follows: Subpart D-Post Federal Award Requirements §200.303 Internal Controls The non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Further, accountability and stewardship should be overall goals in management's accounting of federal funds. Internal controls should be designed to monitor compliance with laws and regulations pertaining to grant contracts.

FA 2025-002 Improve Controls over Expenditures Compliance Requirements: Activities Allowed or Unallowed Allowable Costs/Cost Principles Procurement and Suspension and Debarment Internal Control Impact: Significant Deficiency Compliance Impact: Nonmaterial Noncompliance Federal Awarding Agency: U.S. Department of Agriculture Pass-Through Entity: Georgia Department of Education Assistance Listing Numbers and Titles: 10.553 – School Breakfast Program; 10.555 – National School Lunch Program Federal Award Number: 255GA324N1199 (Year: 2025) Questioned Costs: $40,701 Description: A review of expenditures charged to the Child Nutrition Cluster revealed that the School District’s internal control procedures were not operating appropriately to ensure that expenditures were appropriately reviewed, approved, and documented. Background: The Child Nutrition Cluster (CNC) is comprised of various programs that are intended to assist states in administering and overseeing food service program operators that provide healthful, nutritious meals to eligible children in public and non-profit private schools, residential childcare institutions, and summer programs. This Cluster of programs also fosters healthy eating habits in children by providing fresh fruits and fresh vegetables to children attending elementary and secondary schools and encourages the domestic consumption of nutritious agricultural commodities. CNC funding is granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Agriculture, and GaDOE is responsible for distributing funds to local educational agencies (LEAs) and overseeing the various CNC programs. CNC funds totaling $9,655,237 were expended and reported on the Liberty County Board of Education’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2025. Criteria: As a recipient of federal awards, the School District is required to establish, document, and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient… (g) Be adequately documented, (h) Cost must be incurred during the approved budget period…” Additionally, provisions included in the Uniform Guidance, Section 200.318 – General Procurement Standards state, “(a)… the recipient or subrecipient must maintain and use documented procedures for procurement transactions under a Federal award or subaward, including for acquisition of property or services. These documented procurement procedures must be consistent with State, local, and tribal laws and regulations… (b) Recipients and subrecipients must maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders.” In addition, provisions included in the Uniform Guidance, Section 200.320 – Procurement Methods provide guidance for informal procurement methods and state “If simplified acquisition procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources.” Condition: A sample of 23 expenditures was randomly selected for testing using a nonstatistical sampling approach. These transactions were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements were met. The following deficiencies were noted: • For four expenditures, evidence of review and approval was not reflected within the voucher package. • The School District could not provide evidence that an adequate number of rate or price quotations were obtained from qualified sources or documentary evidence as justification for single source procurement for three small purchase expenditures. • The School District could not provide evidence that an adequate number of sealed bids or proposals were obtained from qualified sources or documentary evidence as justification for single source procurement for three simplified acquisition expenditures. • Two expenditures were not recorded in the correct fiscal year. Questioned Costs: Upon testing a sample of $1,659,140 in expenditure transactions, known questioned costs of $40,701 were identified. Using the total population of $5,920,045 in expenditure transactions, we project the likely questioned costs to be approximately $145,228. The following Assistance Listing Numbers were affected by known and likely questioned costs: 10.553 and 10.555. Cause: In discussing these deficiencies with the School District, they believe these issues are primarily due to employee turnover, the lack of proper documentation and not following its policies and procedures that govern the procurement process for federal programs. Effect: The School District was not in compliance with the Uniform Guidance or GaDOE guidance related to the Child Nutrition Cluster. Failure to ensure that expenditures are reviewed, approved, and documented appropriately and follow proper procurement procedures exposes the School District to unnecessary risk of error and misuse of federal funds. Additionally, failure to ensure that appropriate documentation exists to support the allowability of payments associated with the CNC fund may expose the School District to unnecessary financial strains and shortages as GaDOE may require the School District to return funds associated with improperly documented expenditures. Recommendation: The School District should review current internal control procedures related to Child Nutrition Cluster expenditures. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that expenditures reflect evidence of review and approval prior to payment and follow appropriate procurement procedures. In addition, all expenditure voucher packages and procurement documentation should be maintained on-file according to the School District’s record retention policy and should contain all required components. Furthermore, management should develop and implement a monitoring process to ensure that controls are operating appropriately. Views of Responsible Officials: We concur with this finding.

FA 2025-001 Improve Controls over Expenditures Compliance Requirements: Procurement and Suspension and Debarment Internal Control Impact: Material Weakness Compliance Impact: Material Noncompliance Federal Awarding Agency: U.S. Department of Health and Human Services Pass-Through Entity: None Assistance Listing Number and Title: 93.243 – Substance Abuse and Mental Health Services Projects of Regional and National Significance Federal Award Number: H79SM088573 (Year: 2025) Questioned Costs: $80,321 Description: A review of expenditures charged to the Substance Abuse and Mental Health Services Projects of Regional and National Significance program revealed that the School District’s internal control procedures were not operating appropriately to ensure that the School District’s procurement and suspension and debarment procedures were followed. Background: The Substance Abuse and Mental Health Services Projects of Regional and National Significance (SAMH) program provides funds for the purpose of increasing student access to evidence-based and culturally relevant trauma support services and mental health care by developing innovative initiatives, activities, and programs to link local school systems with local trauma-informed support and mental health systems, including those under the Indian Health Service. SAMH funding is granted to Liberty County Board of Education by the U.S. Department of Health and Human Services. SAMH funds totaling $995,591 were expended and reported on the Liberty County Board of Education’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2025. Criteria: As a recipient of federal awards, the School District is required to establish, document, and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Additionally, provisions included in the Uniform Guidance, Section 200.318 – General Procurement Standards state, “(a)… the recipient or subrecipient must maintain and use documented procedures for procurement transactions under a Federal award or subaward, including for acquisition of property or services. These documented procurement procedures must be consistent with State, local, and tribal laws and regulations… (b) Recipients and subrecipients must maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders.” In addition, provisions included in the Uniform Guidance, Section 200.320 – Procurement Methods provide guidance for informal procurement methods and state “If simplified acquisition procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources. Furthermore, Title 2 CFR Section 180.300 states in part that the recipient or subrecipient must “verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking SAM.gov Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person.” Condition: A sample of 17 expenditures was randomly selected for testing using a nonstatistical sampling approach. These transactions were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements were met. The following deficiencies were identified: • One expenditure did not reflect evidence of supervisory review. • The School District could not provide evidence that an adequate number of rate or price quotations were obtained from qualified sources or documentary evidence as justification for single source procurement for one simplified acquisition expenditure reviewed. • For two expenditures, documentation could not be provided to support the entity’s verification that the vendor was not suspended or debarred or otherwise excluded from participating in the transaction. Questioned Costs: Upon testing a sample of $127,714 in expenditure transactions, known questioned costs of $80,321 were identified. Using the total population of $630,037 in expenditure transactions, we project the likely questioned costs to be approximately $396,237. The following Assistance Listing Numbers were affected by known and likely questioned costs: 93.243. Cause: In discussing these deficiencies with the School District, they believe these issues are primarily due to the lack of proper documentation and not following its policies and procedures that govern the procurement process for federal programs. Effect: The School District was not in compliance with the Uniform Guidance. Failure to ensure that expenditures are appropriately approved and implement procedures to address procurement and suspension and debarment compliance requirements exposes the School District to unnecessary risk of error and misuse of federal funds and could result in the expenditure of federal funds for unallowable purposes and/or with unqualified vendors. In addition, this deficiency could lead to the return of grant funds associated with unallowable expenditures. Recommendation: The School District should evaluate and improve internal control procedures to ensure that expenditures are reviewed and approved prior to payment, that required procurement methods are properly identified and followed and required procurement and suspension and debarment documentation is properly identified, safeguarded, and retained. In addition, management should develop a monitoring process to ensure that these procedures are operating appropriately. Views of Responsible Officials: We concur with this finding.

Federal Agency: United States Department of Agriculture (USDA) Federal Program: 10.558 Child and Adult Care Food Program (CACFP) 2024 and 2025 CACFP 2024 and 2025 CACFP-CIL 2024 and 2025 CACFP-SPON State Agency: Department of Health and Senior Services (DHSS) - Bureau of Community Food and Nutrition Assistance (BCFNA) Type of Finding: Internal Control (Material Weakness) and Material Noncompliance Questioned Costs: $0 Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Subrecipient Monitoring As noted in our two previous audits, during the year ended June 30, 2025, the BCFNA did not have sufficient controls and procedures to ensure CACFP reimbursements to subrecipients were allowable and supported with sufficient documentation, as required by federal regulations. As a result, significant unallowable and unsupported reimbursements were made without being prevented or detected timely. Audit sampling results show the subrecipient payment error rate continued to increase; however, the BCFNA has implemented only a few changes to address our prior-year audit findings and strengthen monitoring procedures. The BCFNA administers the CACFP through contracts with child and adult care centers/sponsors of centers (subrecipients) that provide meals to eligible children and adults under their care. The facilities/sponsors determine eligibility of each participant for free or reduced price meals, and are reimbursed at fixed rates for the number and type of meals served. During the year ended June 30, 2025, the BCFNA paid over 730 facilities/sponsors approximately $69.9 million for meal services. Disbursements to facilities/sponsors represented approximately 98% of the program's expenditures. To receive reimbursement for meals provided to eligible participants, CACFP facilities/sponsors submit monthly claims through the CNPWeb (CNP) claim system. The CNP system has edit checks to prevent and detect certain claim errors, such as meal claims that exceed facility/sponsor total enrollment and/or license capacity, or claims for types of meals the facility/sponsor was not approved to serve. Claims that pass the edit checks are reviewed by a BCFNA Public Health Program Associate, while claims that do not pass the edit checks are returned to the facility/sponsor for revision. Facilities/sponsors are not required to provide supporting documentation with their claim but are required to maintain and retain detailed records, including meal count, attendance, enrollment, eligibility determination records, receipt slips, menus, and other documentation to support meals claimed. Facility/sponsor records are maintained on a monthly basis, therefore reviews or verifications of those records generally cover the entire month as opposed to a shorter time period. BCFNA nutritionists perform periodic monitoring reviews of the facilities/sponsors and disallow costs associated with claim errors identified. These reviews have identified significant issues and claim errors, including some potentially fraudulent activity, and led to over 15 contract terminations in recent years. Since meal reimbursements are made without any supporting documentation, the BCFNA relies on system edit checks and subrecipient monitoring procedures to prevent and detect meal reimbursement claim errors. However, these edit checks and procedures alone were not sufficient to prevent and detect unallowable and unsupported meal reimbursement claims on a timely basis. The BCFNA has not implemented procedures to review supporting documentation, on a test basis, except for testing performed during routine monitoring reviews generally conducted once every 1 to 3 years for each facility/sponsor, and technical assistance reviews performed for all new facilities/sponsors or at the request of the facility/sponsor. Additionally, as noted in finding number 2025-011, continued weaknesses in the BCFNA monitoring procedures and noncompliance with subrecipient monitoring requirements were identified. Our review of documentation supporting a randomly-selected sample of 60 BCFNA monitoring reviews conducted for 60 CACFP facilities/sponsors during the year ended June 30, 2025, noted BCFNA disallowances (overclaims/underclaims) in 50 of 58 (86%) reviews for which meal reimbursement claims were tested and errors quantified. Overclaims totaled $72,561 (43 reviews) and underclaims totaled $4,275 (7 reviews), with a net overclaim of $68,286 or at least 12% of claims tested by the BCFNA. Disallowances resulted from various errors including incorrect or unsupported eligibility determinations, meal counts and attendance records, or noncompliance associated with menus and food purchases. The BCFNA adjusted subsequent claims to recoup or reimburse for the identified overclaims/underclaims. Erroneous and unsupported reimbursements represent at least 12% of meal reimbursements tested. If similar errors were made on the remaining population of CACFP meal reimbursements totaling approximately $69.9 million, unallowable costs could be significant. The table below summarizes audit sample results from the prior fiscal year 2023 and 2024 audits and current fiscal year 2025 audit. For each year, we performed a randomly-selected sample of BCFNA monitoring reviews conducted for CACFP facilities/sponsors during the applicable year. Without sufficient controls to ensure the accuracy of facility/sponsor meal reimbursement claims, the BCFNA cannot demonstrate adequate internal controls to ensure CACFP costs are allowable and supported, and the risk of paying unsupported and unallowable claims will continue. Regulation 7 CFR Section 226.7(k) requires the BCFNA to establish procedures for institutions to properly submit claims for reimbursement. Such procedures must include edit checks, including but not limited to, ensuring payments are made only for approved meal types and that the number of meals for which reimbursement is provided does not exceed the product of the total enrollment times operating days times approved meal types. Regulation 2 CFR Section 200.403 (within 2 CFR Part 200, known as Uniform Guidance), provides that costs charged to federal programs should be necessary and reasonable for the performance of the federal award and adequately documented. Further, 2 CFR Section 200.303(a) requires the recipient to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in Standards for Internal Control in the Federal Government issued by the Comptroller General of the United States or the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)." In response to the USDA - Food and Nutrition Service (FNS) resolution of the fiscal year 2023 finding, the BCFNA made some changes such as improving application and corrective action plan processes. To prevent continued unallowable and unsupported reimbursements to subrecipients, the BCFNA needs to continue to strengthen internal controls over meal reimbursements. An April 2025 email from an FNS official to the DHSS, provided to auditors by DHSS officials, states the fiscal year 2023 finding was not sustained by the FNS because (1) the FNS does not require or expect the BCFNA to validate claims at the time of claim submission, and (2) the BCFNA was in compliance with edit check requirements. However, the prior audit finding neither recommended the BCFNA validate claims at the time of submission nor noted noncompliance with edit check requirements. As of August 2026, the DHSS had received no communication from the FNS regarding the fiscal year 2024 finding. Finding Classification This finding is classified as a material weakness in internal control and material noncompliance with the federal activities allowed, allowable costs, and subrecipient monitoring requirements. The noncompliance identified in the finding is material based on the results of our audit sample, which identified at least 12% of subrecipient meal reimbursements tested by the BCFNA were not in compliance with federal requirements. The 12% error rate exceeds our audit materiality threshold of 4%. While the errors identified in the finding were corrected, similar material noncompliance in the remainder of the payments not tested is likely. Our decisions regarding the classification of the internal control deficiencies were made in accordance with AU-C Section 935, Compliance Audits, and the AICPA Audit Guide: Government Auditing Standards and Single Audits (Audit Guide). The Audit Guide provides the following definitions regarding internal control deficiencies: "A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis." "A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis." "[A] reasonable possibility exists when the likelihood of the event is either reasonably possible or probable …" Reasonably possible is "[t]he chance of the future event or events occurring is more than remote but less than likely." Probable means "[t]he future event or events are likely to occur." The failure to design and implement adequate controls and procedures to ensure CACFP reimbursements to subrecipients are allowable and supported led to material noncompliance with the applicable requirements. The BCFNA's controls failed to prevent the material noncompliance identified. While the BCFNA's controls detected and corrected the payment errors identified, the detection and correction was not timely, occurring up to 3 years after the payments were made. Also, the detection and correction was limited to only 1 test month per subrecipient without any attempt to identify and correct noncompliance that occurred beyond the test month because, as noted at finding number 2025-011, the BCFNA's controls do not provide for expanded testing when significant errors are identified. Therefore, similar, material noncompliance in the remainder of the payments not tested is likely. Further, because the internal control deficiencies have not been corrected, similar, material noncompliance in future payments is likely. For these reasons, the deficiencies are considered a material weakness. Recommendation The DHSS through the BCFNA continue to strengthen internal controls over meal reimbursements to CACFP facilities/sponsors to ensure costs are allowable and supported. Auditee's Response We disagree with the auditor's finding. Our Corrective Action Plan includes an explanation and specific reasons for our disagreement. Auditor's Comment The DHSS Corrective Action Plan (CAP) states the DHSS, for the third year in a row, disagrees with the finding and believes no corrective action is required because (1) they believe controls over meal reimbursements are in compliance with USDA requirements and guidance, and (2) the nearly identical FY23 finding (finding number 2023-012) was not sustained by the USDA. However, in making these statements, the DHSS ignored the noncompliance with specific USDA and Uniform Guidance requirements identified in the finding, and failed to recognize and acknowledge that existing subrecipient reimbursement and monitoring procedures have allowed serious and material subrecipient noncompliance year after year. The statement that the FY23 finding was not sustained by the USDA misrepresents the outcome of the finding resolution, as the USDA required the DHSS to implement changes as part of that resolution (see further explanation in the finding). As of August 2026, the DHSS had received no communication from the USDA regarding the fiscal year 2024 finding. The DHSS further argues their recoupment of the overclaims identified in the finding reduces the severity of the finding. However, existing recoupment practices are not sufficient to deter and prevent similar improper payments in the future. Regulation 7 CFR Section 226.7(k) requires the BCFNA to establish procedures for subrecipients to properly submit claims for reimbursement. Given the extent of material subrecipient noncompliance that continues to occur, BCFNA procedures are clearly not sufficient to prevent future noncompliance. The BCFNA has focused on individual components of its systems, but has not holistically evaluated whether the procedures, collectively and in their entirety, comply with the federal requirements intended to ensure subrecipient reimbursements are allowable and supported. The BCFNA continues to strictly follow existing procedures without making adequate adjustments to address and mitigate the serious subrecipient reimbursement problems. Recognizing problems and responding to them are critical components of an effective internal control system designed to ensure compliance with the federal requirements. The DHSS CAP includes additional misrepresentations of the contents of the finding. These statements, which attempt to negate or reduce the significance of the noncompliance noted in the finding, are listed below: • The CAP states the sentence stating meal reimbursements are made without any supporting documentation is "factually incorrect" because the subrecipients are required to maintain documentation. However, that sentence, which correctly summarizes procedures outlined in the previous paragraph, is referring to documentation maintained by the subrecipients but not submitted to or reviewed by the DHSS at the time of reimbursement. • The CAP claims the SAO projected the sample errors to the full population of reimbursements for the year. This statement is not true, as the SAO did not perform a statistical sample, nor did we project sample results to the population. While the SAO did not project sample results, it is worth noting that the sample was pulled from a population of 389 monitoring reviews performed during the year that consisted of approximately one-half of all CACFP subrecipients. Subrecipient data clearly shows significant subrecipient noncompliance continues to occur within the CACFP. These problems cannot be denied and should not be ignored. Until the DHSS recognizes these problems, acknowledges there are weaknesses in its existing procedures, and takes action to strengthen them, significant improper payments to subrecipients will likely continue.

Federal Agency: United States Department of Agriculture (USDA) Federal Program: 10.558 Child and Adult Care Food Program (CACFP) 2024 and 2025 CACFP 2024 and 2025 CACFP-CIL 2024 and 2025 CACFP-SPON State Agency: Department of Health and Senior Services (DHSS) - Bureau of Community Food and Nutrition Assistance (BCFNA) Type of Finding: Internal Control (Material Weakness) and Material Noncompliance Questioned Costs: Unknown Compliance Requirement: Subrecipient Monitoring As noted in our two previous audits, during the year ended June 30, 2025, BCFNA subrecipient monitoring procedures were not in compliance with subrecipient monitoring requirements and were not sufficient to ensure CACFP subrecipient compliance with program requirements. As noted at finding 2025-010, audit sample results show the subrecipient payment error rate continued to increase. The BCFNA has implemented only a few changes to address our prior-year audit findings and strengthen monitoring procedures. During the year ended June 30, 2025, the BCFNA disbursed approximately $69.9 million to over 730 CACFP subrecipients, which consist of child and adult care centers and sponsors of centers. Disbursements to subrecipients represented approximately 98% of the program's expenditures. As part of its pass-through responsibilities, 7 CFR Section 226.6(a)(5), the BCFNA is required to ensure subrecipients effectively operate the program. Regulation 2 CFR Section 200.332(c) requires pass-through entities to evaluate each subrecipient's fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring. Regulation 2 CFR Section 200.332(e) requires pass-through entities to monitor the activities of the subrecipient as necessary to ensure the subrecipient complies with federal statutes, regulations, and the terms and conditions of the subaward, and achieves goals and objectives. The BCFNA's subrecipient monitoring process, outlined in the Internal Nutritionist Manual, provides the requirements for monitoring the CACFP facilities/sponsors. The manual provides the planned frequency and type of monitoring activities, monitoring methods, and corrective action requirements. The manual requires the preparation of a risk assessment at the end of each monitoring review that assigns points to the facility/sponsor based on the number and severity of deficiencies and findings, with more deficiencies leading to a higher score. The score determines the required timing of future monitoring reviews of the facility/sponsor. Facilities/sponsors with a score of 0 to 10 points will be next monitored in 3 years, a score of 11 to 25 points within 2 years, a score of 26 to 35 points in 1 year; and facilities/sponsors with a score of 36 or more points are considered "seriously deficient" and are required to submit a Corrective Action Plan (CAP). If the CAP is deemed sufficient, seriously deficient facilities/sponsors will have a CAP verification review in 6 months. A score is not assigned for 6-month CAP verification reviews. During FY25, the BCFNA began performing technical assistance reviews for all new facilities/sponsors. In May 2024, when the BCFNA changed the risk assessment and scoring system, the BCFNA ceased assigning a grade of A, B, B-, or C to each review and widened the score ranges and associated review requirements. DHSS officials indicated the scores assessed by the new system are frequently higher than those assessed under the previous manual system. The impact of these changes on the frequency and effectiveness of the monitoring reviews is unclear. During each monitoring review, BCFNA personnel review documentation supporting a sample of claims during a test month. Any identified errors and associated overclaims/underclaims exceeding established thresholds are recouped/reimbursed in the facility's/sponsor's future claims. When reviews identify noncompliance, facilities/sponsors are required to prepare and submit a CAP to the BCFNA. In addition, as noted at finding number 2025-010, the BCFNA relies on these subrecipient monitoring procedures to prevent and detect meal reimbursement claim errors. Monitoring reviews have identified significant issues and claim errors, including some potentially fraudulent activity, and led to over 15 contract terminations in recent years. To test compliance with subrecipient monitoring requirements, and to evaluate the effectiveness of BCFNA monitoring procedures, we reviewed and analyzed a randomly-selected sample of 60 BCFNA monitoring reviews conducted for 60 CACFP facilities/sponsors during the year ended June 30, 2025. While our review found the sample monitoring reviews were performed in accordance with the policies and procedures outlined in the Internal Nutritionist Manual, we identified areas where these policies and procedures could be strengthened and improved to ensure facilities/sponsors comply with program requirements and submit proper claims. Our review and analysis of the 60 sampled monitoring reviews noted the monitoring reviews identified significant errors, noncompliance, disallowances, and overclaims. Our comparison of the sampled reviews to prior reviews noted deficient facilities/sponsors generally had continued deficiencies and little improvement from prior reviews, as follows: • Of the 58 sampled monitoring reviews assigned a score, 26 (45%) facilities/sponsors had a score of 10 or less, while 32 (55%) had a score of 11 or more. • Of the 29 facilities/sponsors that had a score of 11 or more and had a prior review, 27 (93%) had the same or higher score than the prior review indicating a lack of significant improvement or decline in compliance since the prior review. • Of the 2 facilities/sponsors that had a score of 36 or more and had a prior review, both had higher scores than the prior review. • For 50 of 58 monitoring reviews (86%) for which the BCFNA tested claims and quantified errors (with claims totaling $568,271 during the test months), the BCFNA identified overclaims totaling $72,561 and underclaims totaling $4,275, netting to $68,286, or at least 12% of the reimbursements tested. As noted at finding 2025-010, audit sample results show the subrecipient payment error rate increased from prior years. Our review of BCFNA subrecipient monitoring procedures during the year ended June 30, 2025, noted areas that should be strengthened and improved. Claims testing The Internal Nutritionist Manual and monitoring practices provide for testing of a sample of claims within only 1 test month during each monitoring review, and do not provide for expanded testing when significant errors are identified. For example, 2 facilities had 100% overpayment rates and were assigned scores of 34 and 13; however, additional testing was not performed for either facility. Neither facility was deemed "seriously deficient;" and the facilities were scheduled to be next reviewed in 1 year and 2 years, respectively. BCFNA personnel indicated monitoring reviews are limited to only 1 test month since the USDA Monitoring Handbook does not require expanded testing of records beyond 1 month. However, the USDA Monitoring Handbook suggests testing activities during 1 test month, and also suggests the state agency may determine additional review is warranted and review records beyond the test month to determine the extent of the noncompliance. When significant errors are identified, additional testing would help BCFNA nutritionists determine the extent that instances of noncompliance are isolated versus pervasive. Such information would be valuable to the overall conclusions and points assigned to the review, and in decisions regarding subsequent monitoring. Overclaim recoupment BCFNA subrecipient monitoring procedures do not provide for identification and pursuit of recoupment of all overpayments associated with errors identified during monitoring reviews. When overclaims due to noncompliance with eligibility requirements are identified during monitoring reviews, the BCFNA only identifies and seeks recoupment for the overclaims made during the test month. Overclaims associated with eligibility errors begin at the time the eligibility determination was made and continue until the error is discovered. Although the BCFNA is aware noncompliance occurred during the month(s) before the test month, the BCFNA does not attempt to identify those overclaims. In addition, when a facility/sponsor is terminated, the BCFNA does not always identify or seek recoupment of overclaim amounts. In our sample of 60 monitoring reviews, the contract for 1 sponsor was terminated as a result of a 6-month CAP verification review. For this sponsor, in the review prior to the 6-month CAP verification review, the BCFNA identified and recouped overclaims of $2,879, or 100% of total claims tested. In the subsequent 6-month CAP verification review, significant claim errors were identified in the test month claims paid, which totaled $4,091, and the sponsor was terminated. However, the test month claims were not fully tested, and overclaims were not identified or recouped. Any overclaims not identified and recouped from this sponsor would be considered questioned costs; however, those questioned costs are unknown. BCFNA officials indicated they do not pursue recoupment of overclaims beyond the test month because this practice is allowed by the USDA. They indicated they pursue recoupment of overclaims for facilities/sponsors with terminated contracts on a case-by-case basis, considering various factors. However, 7 CFR Section 226.14 provides that state agencies shall disallow and recover any portion of a claim for reimbursement not properly payable, including claims not made in accordance with recordkeeping requirements. Pursuing full recoupment would hold facilities/sponsors accountable for all overclaims and would serve as a deterrent to future errors, noncompliance, and overclaims. Further, without procedures to identify and recoup all overclaims, there is a risk that significant overclaims will go undetected and unrecouped, and questioned costs could be significant. Conclusions In addition to complying with federal requirements, strong subrecipient monitoring procedures are necessary to ensure facilities/sponsors comply with program requirements, submit proper claims, and address deficiencies identified. Subrecipient monitoring procedures should be designed to prevent future deficiencies and noncompliance. Without strong internal controls, there is increased risk of noncompliance, errors, fraud, waste, and abuse of federal funds. Strong monitoring procedures would ensure facilities/sponsors are held accountable for and correct errors and noncompliance identified. Regulation 2 CFR Section 200.332(h) requires pass-through entities to consider whether the results of a subrecipient's audit, site visits, or other monitoring necessitate adjustments to the pass-through entity's records. Further, 2 CFR Section 200.303(a) requires the recipient to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in Standards for Internal Control in the Federal Government issued by the Comptroller General of the United States or the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)." Finding classification This finding is classified as a material weakness in internal control and material noncompliance with the federal subrecipient monitoring requirements. Our audit of the BCFNA's compliance with federal subrecipient monitoring requirements concluded the BCFNA did not materially comply with federal requirements to ensure subrecipients effectively operate the CACFP and to monitor the activities of the subrecipient as necessary to ensure the subrecipient complies with federal statutes, regulations, and the terms and conditions of the subaward, and achieves goals and objectives. This conclusion is based on the facts, deficiencies, and noncompliance stated in the finding, including the following: 1) Disbursements to subrecipients represented approximately 98% of the CACFP expenditures. 2) BCFNA subrecipient monitoring reviews identified significant errors, noncompliance, disallowances, and overclaims; and deficiencies identified often continued for years with little improvement from review to review. The 12% subrecipient payment error rate identified by the BCFNA, which exceeds our audit materiality threshold of 4%, along with the high rate of continued noncompliance, serve as indicators of the ineffectiveness of the BCFNA monitoring process. 3) The BCFNA did not comply with federal subrecipient monitoring requirements regarding disallowing and recovering improper payments. 4) Multiple deficiencies in monitoring procedures were identified. In conducting a Single Audit in accordance with 2 CFR Part 200 (Uniform Guidance), auditors are required by 2 CFR Section 200.514(d)(1)(2), to determine whether the auditee has complied with federal statutes, regulations, and the terms and conditions of federal awards that may have a direct and material effect on each of its major programs, as outlined in the OMB Compliance Supplement. While compliance with the USDA CACFP handbooks was considered in our audit, our conclusion on compliance is based on the BCFNA's compliance with the federal statutes and regulations, as required. Our decisions regarding the classification of the internal control deficiencies were made in accordance with AU-C Section 935, Compliance Audits, and the AICPA Audit Guide: Government Auditing Standards and Single Audits (Audit Guide). The Audit Guide provides the following definitions regarding internal control deficiencies: A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. "[A] reasonable possibility exists when the likelihood of the event is either reasonably possible or probable…" Reasonably possible is when "[t]he chance of the future event or events occurring is more than remote but less than likely." Probable means "[t]he future event or events are likely to occur." The failure to design and implement adequate controls and procedures over subrecipient monitoring led to material noncompliance with the subrecipient monitoring requirements. The BCFNA's controls failed to develop an effective subrecipient monitoring process that ensures subrecipients comply with federal statutes, regulations, and the terms and conditions of subawards, and achieve goals and objectives. Because the internal control deficiencies have not been corrected, it is probable that the material noncompliance will continue. For these reasons, the deficiencies are considered a material weakness. Recommendation The DHSS through the BCFNA continue to review, strengthen, and enforce subrecipient monitoring procedures to ensure CACFP facilities/sponsors comply with program requirements, submit proper claims, and address deficiencies identified. The BCFNA should enhance procedures to provide for identification and recoupment of overclaims associated with all errors identified during monitoring reviews, as required by federal regulations; and expand testing when significant errors are identified. The DHSS should identify and recoup the overclaims for the terminated sponsor noted in this finding. Auditee's Response We disagree with the auditor's finding. Our Corrective Action Plan includes an explanation and specific reasons for our disagreement. Auditor's Comment The DHSS Corrective Action Plan (CAP) states the DHSS, for the third year in a row, disagrees with the finding and believes no corrective action is required because (1) they believe subrecipient monitoring, claim recoupment, and risk assessment procedures comply with USDA requirements; and (2) the similar FY23 finding (finding number 2023-013) was closed by the USDA after reviewing the DHSS corrective action plan. The DHSS CAP further states they believe the SAO is holding the DHSS to higher standards than required by federal guidance and regulations and that implementing the SAO's recommendations would cause undue burden on the participants and providers of the program which the USDA warns against. However, in making these statements, the DHSS ignored the noncompliance with specific USDA and Uniform Guidance requirements identified in the finding, and failed to recognize and acknowledge that existing subrecipient reimbursement and monitoring procedures have allowed serious and material subrecipient noncompliance year after year. Furthermore, federal agency closure of a prior year finding does not protect the DHSS from future findings. As of August 2026, the DHSS had received no communication from the USDA regarding the fiscal year 2024 finding. Regarding the finding statement that policies and procedures should be strengthened and improved, the DHSS CAP states the SAO has applied performance audit standards instead of single audit standards. This statement is incorrect. While not required, we have included a finding classification section that outlines the auditor's responsibilities under the single audit, as well as audit guidance followed in making decisions regarding the BCFNA's internal controls and compliance with the federal statutes and regulations. Regarding the finding section pertaining to recoupment of overclaims, the DHSS CAP claims the "BCFNA pursues recoupment of overclaims of only the test month per USDA requirements, although when warranted, additional reviews are conducted beyond the test month. In addition, BCFNA officials pursue recoupment of overclaims for facilities/sponsors with terminated contracts on a case-by-case basis, taking into consideration various factors." While the DHSS makes this claim, in our sample of 60 monitoring reviews, the DHSS did not expand testing beyond the test month for any reviews, and did not seek recoupment of overclaims for the facility/sponsor terminated as a result of the monitoring reviews. As part of its pass-through responsibilities outlined in the federal regulations, the BCFNA is required to ensure subrecipients comply with federal regulations and terms and conditions of the subaward, and effectively operate the program. Given the extent of material subrecipient noncompliance that continues to occur, BCFNA procedures are clearly not sufficient to deter and prevent future noncompliance. The BCFNA has focused on individual components of its systems, but has not holistically evaluated whether the procedures, collectively and in their entirety, comply with the federal requirements intended to ensure subrecipient reimbursements are allowable and supported. The BCFNA continues to strictly follow existing procedures without making adequate adjustments to address and mitigate the serious subrecipient reimbursement problems. Recognizing problems and responding to them are critical components of an effective internal control system designed to ensure compliance with the federal requirements. For three years, the SAO has recommended the BCFNA enhance procedures related to identification and recoupment of overclaims, as required by federal regulations; and expand testing when significant errors are identified. The BCFNA has ignored these recommendations; and as a result, lacks a sufficient method for deterring future noncompliance. While the DHSS argues these recommendations would cause undue burden on the participants of the program and the subrecipients, not implementing these recommendations could cause an undue burden on the DHSS and the subrecipients, since weak consequences or deterrents to noncompliance leads to continued noncompliance, which requires increased monitoring and follow-up efforts. Subrecipient data clearly shows significant subrecipient noncompliance is occurring within the CACFP. These problems cannot be denied and should not be ignored. Until the DHSS recognizes these problems, acknowledges there are weaknesses in its existing procedures, and takes action to strengthen them, significant improper payments to subrecipients will likely continue.

Federal Agency: Department of Housing and Urban Development (HUD) Federal Program: 14.228 COVID-19 - Community Development Block Grants/State's Program and Non-Entitlement Grants in Hawaii 2020 - B-20-DW-29-0001 14.228 Community Development Block Grants/State's Program and Non-Entitlement Grants in Hawaii 2017 - B-17-DC-29-0001 2018 - B-18-DC-29-0001, B-18-DP-29-0001, and B-18-DP-29-0002 2019 - B-19-DC-29-0001 and B-19-DP-29-0001 2020 - B-20-DC-29-0001 2021 - B-21-DC-29-0001 2022 - B-22-DC-29-0001 State Agency: Department of Economic Development (DED) Type of Finding: Internal Control (Significant Deficiency) and Nonmaterial Noncompliance Compliance Requirement: Reporting DED controls and procedures are not sufficient to fully comply with Federal Funding Accountability and Transparency Act (FFATA) reporting requirements for the Community Development Block Grant (CDBG) program. During state fiscal year 2025, the DED did not fully comply with FFATA reporting requirements for 18 of 27 subawards reviewed. During state fiscal year 2025, the DED disbursed approximately $56.2 million in first-tier subawards to 178 subrecipients of the CDBG program. First-tier subaward payments accounted for approximately 97% of the program's expenditures. The FFATA requires comprehensive reporting for certain federal awards to promote transparency and accountability over the use of the federal funds. Regulation 2 CFR Part 170, Appendix A, requires the DED to report first-tier subawards of $30,000 or more no later than the end of the month following the month in which the subaward was made. The regulation provides "[t]he recipient must also report a subaward if a modification increases the Federal funding to an amount that equals or exceeds $30,000. All reported subawards should reflect the total amount of the subaward." Information is reported to System for Award Management (SAM.gov) (the FFATA Subaward Reporting System [FSRS.gov] prior to March 2025) and is publicly available at USAspending.gov. The DED issues CDBG program subawards to local governments, such as counties and cities, for multiple-year periods. Due to the nature of the subawards and because the DED can spend federal awards over a several-year period (typically 8 federal fiscal years), the DED continuously modifies and updates subaward amounts and sources as subaward terms and conditions change, and as federal awards are reallocated to the subawards. Modifications to subawards impact FFATA reporting, and uncorrected reporting errors can carry forward for many years. To test compliance with FFATA reporting requirements, we reviewed a random sample of 27 CDBG subawards, totaling $18,598,846, that were active during the year ended June 30, 2025. For each subaward tested, we reviewed the original issuance and any applicable modifications, including issuances/modifications that occurred before the year ended June 30, 2025 (our review for timeliness of reporting was limited to the year ended June 30, 2025). Of the 27 subawards, 18 (67%) had instances of noncompliance (11 of which had at least 1 instance during the year ended June 30, 2025), as shown in the following table: In addition to the errors noted in the table, FFATA reports for 11 of 27 (41%) subawards did not report the correct federal award identification number (FAIN), or correct combination of FAINs. As a result, some or all of the subaward amounts were reported under incorrect federal award year(s). The following example explains 1 subaward that had multiple types of errors as of auditors' testing through February 2026: When the subaward totaling $957,409 was issued in April 2021, the DED timely and correctly completed FFATA reporting for $957,409, but reported the incorrect FAIN (federal award year 2019 instead of 2018). When the subaward was modified in August 2024, increasing the amount by $121,179, to $1,078,588, the DED correctly reported the increase amount and the FAIN, but completed FFATA reporting 1 month late. When the subaward was again modified in April 2025, decreasing the amount by $15,000, to $1,063,588, the DED did not complete any FFATA reporting. As a result, the subaward was overstated by $15,000 on USAspending.gov, and approximately 90% of the total amount was reported under an incorrect federal award year. Many FFATA reporting errors noted were associated with subaward modifications. Each of the 27 sampled subawards remained above $30,000 following each modification. DED personnel disagreed with some of the errors associated with modifications because they believe FFATA reporting is only required for subaward increases of $30,000 or more, regardless of the resulting subaward amount. They further stated they believe FFATA reporting is not required for any decreases of subaward amounts. However, the FFATA clearly states reporting is required if the modification results in a subaward amount that equals or exceeds $30,000 and that the total subaward amount should be reflected. Without adequate internal control over FFATA reporting, there is less assurance the information included in the FFATA reporting is complete, accurate, and submitted timely. In addition to noncompliance with federal requirements, FFATA inaccuracies increase the risk that those using the reports could rely on incomplete information. Regulation 2 CFR Section 200.303(a) requires recipients to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Recommendation The DED strengthen internal controls to ensure information is timely and accurately reported for the CDBG program and complete FFATA reporting in accordance with the applicable requirements. Auditee's Response We partially agree with the auditor's finding. Our Corrective Action Plan includes an explanation and specific reasons for our disagreement and any planned actions to address the finding. Auditor's Comment The DED Corrective Action Plan (CAP) states the DED partially agrees with the recommendation, and provides the following 4 arguments: (1) The DED disagrees with the inclusion of errors in the audit report that were related to subawards executed prior to the audit period (year ended June 30, 2025), and believes the correct audit population should only include new subawards and amendments executed during the audit period, rather than all active subawards. However, as noted in the finding, due to the nature of the subawards (including DED's continuous modifications over a several year period), and the risk that uncorrected reporting errors can carry forward for many years, we reviewed a sample of subawards that were active during the year ended June 30, 2025. It was necessary to review the subaward, including original issuance and any applicable modifications, in entirety to determine the accuracy of FFATA reporting. Ignoring some activity could have led to inaccurate conclusions. (2) The DED believes the finding is inconsistent with the regulatory intent regarding systemic noncompliance because the DED corrected certain FFATA reporting discrepancies prior to and during the audit period. However, as reported in the finding, these corrections did not fully address all FFATA discrepancies. In addition, this argument disregards the auditor's responsibility to follow criteria outlined in 2 CFR 200.516 (Uniform Guidance) for reporting audit findings. The DED's insufficient internal controls and noncompliance with FFATA reporting requirements are systemic in nature; and therefore, the finding is classified as a significant deficiency in internal control, which is required to be reported. (3) Under the DED's literal interpretation of 2 CFR Part 170, Appendix A, DED personnel believe the DED does not have to report any deobligations (decreases of subaward amounts) and it only has to report subaward increases of $30,000 or more, regardless of the resulting subaward amount. (4) The DED disagrees subawards were reported in the incorrect federal award year (FAIN) because DED personnel do not believe they have to report modifications to FAIN information that occur after the initial award. Arguments (3) and (4) directly conflict with the FFATA's stated goal, which is "[t]o require full disclosure of all entities and organizations receiving federal funds." Further, the OMB Compliance Supplement defines "amount of subaward" as "[t]he net dollar amount of federal funds awarded to the subawardee including modifications." In addition to noncompliance, not reporting (a) deobligations, (b) all modifications that result in a subaward amount that equals or exceeds $30,000, and (c) FAIN modifications, prevents users from accessing complete and accurate information. The following example further illustrates the impact of inaccurate FFATA reporting by the DED. In our review of some subawards associated with FAIN B-19-DC-29-0001 (one of the DED's federal awards during the 2019 federal award year), we observed the USASpending.gov website showed the DED received $22.6 million in federal award funding, but awarded $95.9 million in subawards of these federal funds, over 4 times the federal award amount. Incomplete and inaccurate FFATA reporting leads to limited accuracy and transparency to the public. Until the errors are corrected, the DED's FFATA reporting will remain erroneous in future years.

Federal Agency: Department of the Treasury Federal Program: 21.027 COVID-19 - Coronavirus State and Local Fiscal Recovery Funds SLFRP4542 State Agency: Office of Administration (OA) Type of Finding: A - Internal Control (Material Weakness) and Material Noncompliance B - Internal Control (Material Weakness) and Material Noncompliance Compliance Requirement: Subrecipient Monitoring As noted in our previous 2 audits, during the year ended June 30, 2025, the OA had not established policies and procedures regarding monitoring subrecipients of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program. As a result, the OA and 2 other state agencies did not comply with the Uniform Guidance (UG) requirements regarding identifying and monitoring subrecipients of the SLFRF program. The OA is the lead agency responsible for administering the SLFRF program. The purpose of the SLFRF program is to provide funding to respond to the COVID-19 public health emergency (PHE) or its negative impacts; respond to workers performing essential work during the PHE; provide government services, to the extent of the reduction in revenue due to the PHE (revenue replacement); make necessary investments in water, sewer, or broadband infrastructure; provide emergency relief from natural disasters or the negative economic impacts of natural disasters; and finance certain surface transportation and housing projects. The OA and various state agencies designed projects within the various allowable SLFRF program categories, and are responsible for administering the projects. The OA developed the American Rescue Plan Act Grant Management Portal (portal) to serve as the official repository of information and documentation supporting each SLFRF program project. The state agencies upload supporting documentation to the portal, including contracts, payment requests, and other supporting documentation. Most payments are made on a reimbursement basis. The OA reviews each payment request and processes the payments. Some SLFRF program projects are administered through subawards. The OA and various state agencies establish contracts with each subrecipient that outline various SLFRF program requirements, terms, and conditions. In the Schedule of Expenditures of Federal Awards (SEFA), the OA reported that approximately $302 million was passed through to subrecipients of the SLFRF program during the year ended June 30, 2025. This amount represents approximately 41% of the SLFRF program expenditures. These awards were administered through the OA and 8 other state agencies. In response to our prior audit findings, the OA held a training for state agency personnel in August 2024; sent a letter to state agencies in January 2025 covering agency responsibilities related to certain SLFRF program subrecipient monitoring requirements, such as subrecipient determinations, risk assessments, and single audits; and executed interagency agreements with the various state agencies in October and November 2025 (after the current audit period). Of the 8 state agencies that administered subawards reported in the SEFA during the year ended June 30, 2025, 4 administered the majority of the subawards, with payments totaling approximately $272 million, or 90% of the total subrecipient payments reported in the SEFA. These 4 state agencies were the Department of Mental Health (DMH), the Department of Higher Education and Workforce Development (DHEWD), the Department of Natural Resources (DNR), and the Department of Economic Development (DED). Our review and testing of subrecipient monitoring procedures focused on the OA and these 4 state agencies. For the 4 state agencies, a total of 287 recipients were identified as subrecipients in the SEFA. To understand the OA and state agency procedures, and to test compliance with subrecipient monitoring requirements, we randomly selected a sample of payments for 30 subrecipient projects from the 4 state agencies. The 30 subrecipients were awarded a total of approximately $191 million in SLFRF program funding and were paid a total of approximately $53 million during the year ended June 30, 2025. We reviewed records in the portal and requested information from the state agencies to support the subawards. A. Subrecipient Determination During the year ended June 30, 2025, the OA had not established policies and procedures to determine whether recipients of the SLFRF program funds were subrecipients or contractors. As a result, 1 of the 4 state agencies, the DHEWD, had not conducted determinations for any of their subrecipients. Subrecipient monitoring requirements are outlined in the UG. Regulation 2 CFR Section 200.331 states the pass-through entity is responsible for making case-by-case determinations to determine whether the entity receiving federal funds is a subrecipient or a contractor. The classification of a subrecipient is dependent upon whether the entity is responsible for making eligibility determinations for assistance, has its performance measured in relation to whether the objectives of the federal program were met, has responsibility for programmatic decision-making, is responsible for adherence to federal program requirements, and implements a program for a public purpose. The OA did not evaluate each SLFRF program recipient for the UG criteria, and did not make a determination of whether the entity was a subrecipient or contractor. OA officials assigned responsibility for making these determinations and identifying subrecipients to the applicable state agencies, but did not provide clear guidance to the state agencies or ensure the state agencies properly performed and documented the determinations. The DHEWD had not conducted determinations for either of its 2 sampled subrecipients. DHEWD personnel indicated they did not believe they were responsible for performing subrecipient determinations for the SLFRF program. Without adequate procedures over subrecipient or contractor determinations, the OA lacks assurance that its subrecipients have been identified for subrecipient monitoring purposes. B. Subrecipient Monitoring During the year ended June 30, 2025, the OA did not implement an effective subrecipient monitoring program to monitor the SLFRF program subrecipients. As a result, 2 of the 4 agencies reviewed, the DHEWD and the DMH, did not perform sufficient subrecipient monitoring procedures. Regulation 2 CFR Section 200.332(c) states that pass-through entities must evaluate each subrecipient's fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring. Risk assessments may consider factors such as the subrecipient's prior experience with the same or similar subawards, the results of previous audits, whether the subrecipient has new personnel or new or substantially-changed systems, and the extent and results of any federal agency monitoring. Regulation 2 CFR Section 200.332(e) requires pass-through entities to monitor the activities of a subrecipient as necessary to ensure the subrecipient complies with federal statutes, regulations, and the terms and conditions of the subaward. The pass-through entity is responsible for monitoring the overall performance of a subrecipient to ensure the goals and objectives of the subaward are achieved. In monitoring a subrecipient, a pass-through entity must (1) review financial and performance reports; (2) ensure the subrecipient takes corrective action on all significant developments that negatively affect the subaward; (3) issue a management decision for audit findings pertaining only to the federal award provided to the subrecipient from the pass-through entity; and (4) resolve audit findings specifically related to the subaward. To monitor subrecipients of the SLFRF program, the OA relies on its pre-payment monitoring process. During the year ended June 30, 2025, the OA did not perform any post-payment monitoring procedures, and relied on the state agencies to perform these procedures without sufficiently communicating with the state agencies regarding their subrecipient monitoring responsibilities or ensuring the state agencies performed monitoring reviews. Risk assessments The OA did not ensure required risk assessments for subrecipients of the SLFRF program were performed to determine the nature, timing, and extent of monitoring procedures necessary. Two of the 4 state agencies, the DHEWD and the DMH, did not perform any risk assessments for any of the sampled subrecipients. OA officials indicated risk assessment procedures are the responsibility of the state agencies; however, during the year ended June 30, 2025, the OA did not provide clear guidance to the state agencies or ensure the state agencies performed and used risk assessments as required. DHEWD officials indicated they did not perform subrecipient risk assessments because the subrecipients are institutions of higher education, to which the DHEWD distributes annual state funding. However, the UG does not provide for exemptions to the risk assessment requirements for such entities. DMH officials indicated assessments were informally completed; however, the DMH could not provide any documentation of such informal risk assessments or how those risk assessments were considered in monitoring decisions. DMH officials stated they are in the process of developing formal risk assessment tools. In addition to complying with federal requirements, risk assessments are necessary to ensure monitoring reviews are conducted with adequate frequency to help ensure subrecipient compliance with program requirements. The interagency agreements the OA executed with the various state agencies in October and November 2025 (after the current audit period) describe agency responsibilities for monitoring subrecipient compliance with SLFRF program requirements, including risk assessments. OA pre-payment monitoring process The OA has not developed policies and procedures outlining its pre-payment monitoring process and did not always clearly document monitoring performed prior to making payments. In their review and approval of each SLFRF program subrecipient payment request, OA officials stated they thoroughly review supporting documentation uploaded to the portal by the state agencies, including contracts, bid documentation, invoices, and other supporting documentation. OA officials further stated they review for compliance with certain types of SLFRF program compliance requirements, including allowable activities and allowable costs, procurement, and period of performance. However, the OA does not clearly document review procedures performed. For each of the 30 subrecipient projects sampled, the portal included documentation pertaining to some, but not all of the applicable compliance requirements. Without documented policies and procedures and documentation of prepayment monitoring procedures performed, the OA cannot demonstrate subrecipient monitoring procedures were performed. Additional monitoring procedures The OA did not monitor subrecipients beyond the pre-payment monitoring process previously described. OA officials stated post-payment monitoring procedures are the responsibility of the state agencies; however, during the year ended June 30, 2025, the OA did not sufficiently communicate with the agencies regarding subrecipient monitoring responsibilities or ensure the agencies performed monitoring reviews. Our review of subrecipient monitoring procedures at the 4 state agencies noted 2 agencies, the DHEWD and the DMH, had not developed written policies or procedures regarding subrecipient monitoring and did not perform sufficiently documented monitoring procedures. For 4 of 30 subrecipient projects sampled for the 4 agencies (13%), the DHEWD (2 subrecipients) and the DMH (2 subrecipients) could not provide documentation of subrecipient monitoring performed. While DHEWD officials indicated they perform pre-payment monitoring procedures, they could not provide documentation of such reviews for either of the 2 sampled projects. Furthermore, the DHEWD does not perform any additional subrecipient monitoring, such as monitoring subrecipients' compliance with procurement requirements. As a result, the DHEWD was unable to provide documentation to support the bidding of applicable aspects for 1 of 9 DHEWD projects sampled for a review of compliance with procurement requirements. While DMH officials indicated they perform annual billing service reviews to monitor subrecipients, the DMH did not perform such reviews for the 2 DMH projects sampled. In addition to noncompliance with subrecipient monitoring requirements, the failure to ensure sufficient monitoring procedures were performed and documented increases the risk that subrecipient noncompliance will not be prevented or detected timely. The interagency agreements the OA executed with the various state agencies in October and November 2025 (after the current audit period) describe agency responsibilities for monitoring subrecipient compliance with SLFRF program requirements. Conclusions The OA is the lead agency responsible for administering the SLFRF program. OA officials indicated the state agencies were responsible for some of the subrecipient monitoring requirements. However, without clear communication and monitoring of these responsibilities, the OA lacks assurance of compliance with all subrecipient monitoring requirements. Without an established subrecipient monitoring program, the OA cannot provide assurance subrecipients are complying with SLFRF program requirements and there is increased risk that noncompliance with program requirements or subaward terms and conditions will go undetected, or that subaward performance goals will not be achieved. In addition, a subrecipient monitoring program is necessary to demonstrate adequate internal controls over compliance with subrecipient monitoring requirements. Documented policies and procedures are necessary to clearly communicate responsibilities to the state agencies, prevent misunderstandings, and demonstrate adequate internal controls over compliance with subrecipient monitoring requirements. Regulation 2 CFR Section 200.303(a) requires the recipient to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in Standards for Internal Control in the Federal Government issued by the Comptroller General of the United States or the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)." Paragraph 3.10 of the Standards for Internal Control in the Federal Government, also known as the Green Book, states, "[e]ffective documentation assists in management's design of internal control by establishing and communicating the who, what, when, where, and why of internal control execution to personnel. Documentation also provides a means to retain organizational knowledge and mitigate the risk of having that knowledge limited to a few personnel, as well as a means to communicate that knowledge as needed to external parties, such as external auditors." Paragraph 12.01 states, "[m]anagement should implement control activities through policies." Recommendations The OA: A. Continue to work with the state agencies to ensure documented determinations are prepared to determine whether all recipients of SLFRF program funds are subrecipients or contractors. B. Develop policies and procedures outlining pre-payment monitoring procedures and document monitoring performed prior to making payments. The OA should also continue to ensure subrecipient monitoring tasks delegated to state agencies are adequately communicated. Procedures should be established to ensure subrecipient monitoring procedures are appropriately completed in accordance with the Uniform Guidance, including performing risk assessments for each subrecipient, monitoring for compliance with federal requirements and subaward terms and conditions, and ensuring subaward goals and objectives are achieved. Auditee's Response A. We agree with the auditor's finding. Our Corrective Action Plan includes our planned actions to address the finding. B. We agree with the auditor's finding. Our Corrective Action Plan includes our planned actions to address the finding.

Federal Agency: Department of Health and Human Services (DHHS) Federal Program: 93.667 Social Services Block Grant 2023 - 2301MOSOSR 2024 - 2401MOSOSR State Agencies: Department of Social Services (DSS) - Division of Finance and Administrative Services (DFAS) and Department of Health and Senior Services (DHSS) Type of Finding: Internal Control (Significant Deficiency) and Nonmaterial Noncompliance Compliance Requirement: Reporting The DFAS does not have adequate internal controls and procedures to ensure Social Services Block Grant (SSBG) program Post-Expenditure Report activities are accurately reported. In addition, the DHSS does not have adequate internal controls and procedures to ensure DHSS activities are accurately reported. As a result, the Post-Expenditure Report filed during the audit period as originally submitted did not accurately report expenditures for the year ended June 30, 2024. The SSBG program allows states the flexibility to determine what services will be provided, consistent with statutory goals and objectives; who is eligible for the services; and how funds will be distributed among services and entities within the state, including whether to provide services directly or contract with other public or private agencies and individuals for the services. The DSS is the SSBG program's lead agency and is responsible for submitting to the federal DHHS, the annual Post-Expenditure Report of services provided during the period. The DSS, through a memorandum of understanding (MOU), contracts with the DHSS for some SSBG program services. The DSS and the DHSS separately administer program services, and separately track data supporting those services, such as expenditures and individuals served. The MOU requires the DHSS to provide the DSS with data to be included in the annual report. Both agencies complete portions of a shared spreadsheet with data respective to the agencies' services. The DFAS uses the shared spreadsheet to prepare the annual report. Our review of the SSBG Post-Expenditure Report for the year ended June 30, 2024, submitted by the DFAS in December 2024, noted errors in reported amounts for expenditures and recipient counts for various services. These errors occurred because personnel of both agencies entered inaccurate data in their respective portions of the shared spreadsheet. These inaccuracies, as well as other factors, led to errors in multiple lines and columns in the annual report. For example, the DFAS originally reported some adjustments to Case Management expenditures (line 2), instead of Protective Services - Children and Residential Treatment expenditures (lines 22 and 24), causing understatements and overstatements in these amounts, respectively. In addition, the DHSS originally reported expenditures for the federal fiscal year ended September 30, 2024, instead of the state fiscal year ended June 30, 2024 (lines 2, 3, 14, 28, and 29), causing both understatements and overstatements in the DHSS amounts. The effect of these errors on expenditures reported in the SSBG Post-Expenditure Report for the year ended June 30, 2024, is summarized in the table below. These errors were not detected during DFAS or DHSS supervisory review procedures. After we notified the DFAS of the DSS errors, the DFAS submitted a first revision to correct the errors. In response to our inquiries regarding the accuracy of the DHSS data, the DHSS corrected the shared spreadsheet and the DFAS submitted a second and final revision to correct the DHSS errors. Regulation 45 CFR Section 96.74 requires each state to submit an annual SSBG Post-Expenditure Report. Effective internal controls and procedures are needed to ensure these reports are accurately prepared. Such controls should include detailed supervisory reviews of data entered into shared spreadsheets and annual reports. Regulation 2 CFR Section 200.303(a) requires recipients to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Recommendations The DSS through the DFAS strengthen internal controls and procedures to ensure annual SSBG Post-Expenditure Reports are accurately prepared and submitted. The DHSS strengthen internal controls and procedures to ensure expenditure data is accurately entered into the shared spreadsheet for inclusion in the annual SSBG Post-Expenditure Report. Auditees' Responses DSS: We agree with the auditor's finding. Our Corrective Action Plan includes our planned actions to address the finding. DHSS: We agree with the auditor's finding. Our Corrective Action Plan includes our planned actions to address the finding.

Federal Agency: Department of Health and Human Services (DHHS) Federal Program: 93.667 Social Services Block Grant 2025 - 2501MOSOSR State Agency: Department of Social Services (DSS) - Division of Finance and Administrative Services (DFAS) Type of Finding: Internal Control (Significant Deficiency) Compliance Requirement: Reporting DFAS controls and procedures are not sufficient to timely submit Federal Funding Accountability and Transparency Act (FFATA) reports for the Social Services Block Grant (SSBG) program. During state fiscal year 2025, the DFAS did not timely submit FFATA reports in accordance with its policy for 3 of 20 subrecipients reviewed. During state fiscal year 2025, the DSS disbursed approximately $7.5 million in first-tier subawards to 20 subrecipients of the SSBG program. First-tier subaward payments accounted for approximately 17% of the program's expenditures. The FFATA requires comprehensive reporting for certain federal awards to promote transparency and accountability over the use of the federal funds. Regulation 2 CFR Part 170, Appendix A, requires the DFAS to report first-tier subawards of $30,000 or more no later than the end of the month following the month in which the subaward was made. Information is reported to System for Award Management (SAM.gov) (the FFATA Subaward Reporting System [FSRS.gov] prior to March 2025), and is publicly available at USASpending.gov. The DSS issues SSBG program subawards for a 3-year period, covering 3 state fiscal years (from federal funding, for 4 federal fiscal years). For subawards requiring FFATA reporting, because the DSS receives federal funding for 1-year periods, FFATA reporting is required at the time the subaward is made under the first year of federal funding. FFATA reporting is again required for the same subaward when the second and subsequent years of federal funding are received (several months later, then annually). The requirements related to the timing of FFATA reporting are clearly stated in 2 CFR Part 170, Appendix A for initial subawards (first year of federal funding), but are not addressed for second and subsequent years. The DFAS addresses subsequent years in its FFATA reporting policy, which states "[i]f a contract period is over multiple grant years, the second tier [year] of funding will need to be tracked to ensure DSS uploads the second tier [year] by the end of the month following the date of the award." For example, for federal awards issued in November, the policy provides for reporting for second and subsequent years by the end of December. To test compliance with FFATA reporting requirements and DFAS policy, we randomly selected and reviewed subawards requiring FFATA reporting for 3 of the 20 SSBG program subrecipients, totaling $2,227,306 in state fiscal year 2025. The related agreements covered the 3-year period from July 1, 2022, to June 30, 2025. Because the federal fiscal year 2025 funding (fourth year of federal funding) was awarded in November 2024, the DFAS policy required FFATA reporting by December 2024. However, DFAS personnel did not submit these 3 reports until March 2025, resulting in a 3 month delay. DFAS personnel indicated the delays occurred due to a vacancy in the position responsible for FFATA reporting. They stated they do not believe the delays and noncompliance with their policy during the vacancy period were problematic because the federal regulations do not specifically address second and subsequent year reports, and they consider the policy to be an internal procedure rather than a requirement. Without adequate internal control over FFATA reporting, including adherence to policies and procedures, there is less assurance the information included in the FFATA reporting is submitted timely. Regulation 2 CFR Section 200.303(a) requires recipients to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Recommendation The DSS through the DFAS review, strengthen, and enforce internal controls to ensure information is timely reported for the SSBG program and complete FFATA reporting in accordance with its policy. Auditee's Response We agree with the auditor's finding. Our Corrective Action Plan includes our planned actions to address the finding.

Federal Agency: Department of Health and Human Services Federal Program: 93.767 Children's Health Insurance Program (CHIP) 2024 - 2405MO3002 and 2405MO5021 2025 - 2505MO3002 and 2505MO5021 93.778 COVID-19 - Grants to States for Medicaid (Medicaid) 93.778 Grants to States for Medicaid 2024 - 2405MO5MAP and 2405MO5ADM 2025 - 2505MO5MAP and 2505MO5ADM State Agency: Department of Social Services (DSS) - MO HealthNet Division (MHD) and Family Support Division (FSD) Type of Finding: Internal Control (Material Weakness) Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Eligibility The DSS does not have sufficient controls to ensure participants of the Medicaid program and the CHIP are not improperly enrolled in more than one eligibility system. As of May 2025, there were 9,834 participants dually enrolled in both eligibility systems. There were approximately 1.27 million Medicaid program and CHIP participants as of June 30, 2025. The DSS maintains two eligibility systems for Medicaid program and CHIP participants. Eligibility for low-income adults, pregnant women, and children, based on their Modified Adjusted Gross Income (MAGI), is maintained in the Missouri Eligibility and Enrollment System (MEDES). Eligibility for participants who are aged 65 and over, blind, or disabled is maintained in the Family Assistance Management Information System (FAMIS). State match rates differ for each program within the MEDES and the FAMIS. For example, for the quarter ended June 30, 2025, the federal/state share was 90%/10% for the MEDES-based Adult Expansion Group (AEG) program and approximately 65%/35% for the FAMIS-based Aged, Blind and Disabled program. As of June 30, 2025, there were approximately 982,000 Medicaid program and CHIP participants in the MEDES, and approximately 288,000 Medicaid program and CHIP participants in the FAMIS. Prior to October 2021, most participants met Medicaid program/CHIP eligibility requirements within only one of the eligibility systems. With the expansion of the Medicaid program, and addition of AEG program eligibility to the MEDES, some AEG program participants meet program eligibility requirements in both systems and participants must choose which program they want to participate in. For example, some disabled and blind participants who were enrolled in the FAMIS prior to the expansion also met the eligibility requirements for the AEG program, and had the option to move from the FAMIS-based program to the MEDES-based AEG program. Also, with the expansion, AEG program-eligible participants applying for certain FAMIS-based programs are temporarily placed in the MEDES-based AEG program until the applicable determination is made. For most situations, if participants meet eligibility requirements of a program in both systems, adjustments to eligibility information in one or both systems are necessary to ensure the participant is enrolled in only one system. There are a few, rare situations in which participants can be properly enrolled in both systems. According to the MHD Eligibility for Multiple MO HealthNet Programs policy, when processing new enrollments or eligibility redeterminations for participants who meet program eligibility requirements in both systems, FSD benefit program technicians should obtain the participant's program choice and update eligibility information in the applicable system to reflect enrollment in the chosen program, and disenrollment in the program not chosen, if necessary. The policy further provides that once disability determinations are made for AEG program-eligible participants temporarily placed in the AEG program, updates to the applicable systems should be made to ensure the participant is enrolled in only one system. MEDES and FAMIS operate independently, have not been integrated, and do not interface. For participants who meet the eligibility requirements of programs in both systems, FSD staff must manually ensure each participant is enrolled in only one system, removing improper duplicate enrollment when necessary. There are no additional controls, such as reports, reconciliations, or match processes, to prevent, detect, or correct instances of participants improperly enrolled in both systems. To test compliance with eligibility requirements, we reviewed eligibility documentation for a randomly-selected sample of 60 Medicaid program and CHIP participants enrolled in the MEDES and 60 enrolled in the FAMIS during the year ended June 30, 2025. Of the 120 participants, 1 (1%) was improperly enrolled in both the MEDES and the FAMIS. In November 2024, this participant applied for a FAMIS-based program. Because he was eligible for the AEG program, he was temporarily placed in the AEG program in the MEDES, effective November 2024, while his eligibility for the FAMIS-based program was being determined. In January 2025, when he was determined eligible for the FAMIS-based program, the FSD entered his eligibility for that program in the FAMIS, effective January 2025. However, the FSD did not manually identify the improper dual enrollment and disenroll him in the MEDES until June 2025, when his guardian made an inquiry regarding his benefits. During the period January through June 2025, the DSS made monthly managed care payments on behalf of the participant under the AEG program. Because payments were made for only one of the enrolled programs during that period, there are no questioned costs. Upon our request, the MHD prepared and provided to auditors a listing showing 9,834 participants, or 1% of the total population, enrolled in both the MEDES and the FAMIS as of May 2025. Improper payments would not have occurred on behalf of all 9,834 participants since not all dual enrollments are improper. However, because the MHD had not identified, reviewed, and corrected eligibility for these participants, related improper payments and claims could be significant. DSS officials agreed manual processes allowed the improper dual enrollment for the participant identified above. They indicated controls in the Medicaid Management Information System (payment system) could prevent some improper payments for dually-enrolled participants; however, these controls are limited and would not prevent all improper payments and claims. The failure to implement and enforce adequate internal controls to ensure participants are not improperly dually enrolled in the MEDES and the FAMIS increases the risk that improper Medicaid program and CHIP payments may be made or claimed at the incorrect federal/state share. Furthermore, 2 CFR Section 200.303(a) requires the recipient to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Recommendation The DSS through the MHD and the FSD strengthen internal controls to timely prevent, detect, and correct improper dual enrollments in the MEDES and the FAMIS for participants of the Medicaid program and the CHIP. The DSS should review the dual enrollments for the participants identified in this finding, correct any improper enrollments in the applicable eligibility system(s), and recoup any related improper payments and claims. Auditee's Response We agree with the auditor's finding. Our Corrective Action Plan includes our planned actions to address the finding.

Federal Agency: Department of Health and Human Services (DHHS) Federal Program: 93.767 Children's Health Insurance Program (CHIP) 2024 - 2405MO3002 and 2405MO5021 2025 - 2505MO3002 and 2505MO5021 93.778 COVID-19 - Grants to States for Medicaid (Medicaid) 93.778 Grants to States for Medicaid 2024 - 2405MO5MAP and 2405MO5ADM 2025 - 2505MO5MAP and 2505MO5ADM State Agency: Department of Social Services (DSS) - MO HealthNet Division (MHD) and Family Support Division (FSD) Type of Finding: Internal Control (Material Weakness) Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Eligibility As noted in our two previous audits, the vital records death match was not operating in the Medicaid Eligibility Determination and Enrollment System (MEDES) during the year ended June 30, 2025. As a result, there is no assurance that all participants in the Medicaid program and the CHIP are eligible for benefits and there is an opportunity for improper benefit payments to be made. To ensure participants continue to be eligible for benefits, 42 CFR Sections 435.916(d) and 435.952(a) require the agency to redetermine eligibility whenever it receives information about a change in a participant's circumstances that may affect eligibility. The regulation requires termination of benefits when a participant no longer meets eligibility requirements. Monthly death matches against Department of Health and Senior Services (DHSS) vital records information serve as a key internal control to identify and terminate ineligible participants. When operating, vital records death match results automatically update participant eligibility, terminating eligibility upon death, in the applicable eligibility systems. As of June 30, 2025, there were approximately 982,000 participants in the MEDES, whose eligibility is based on their Modified Adjusted Gross Income (MAGI); and approximately 288,000 Aged, Blind and Disabled program participants in the Family Assistance Management Information System (FAMIS). The monthly MEDES vital records death match was not operating during the year ended June 30, 2025. DSS officials indicated the death match was eliminated from the MEDES due to system problems sometime before July 2022. DSS officials indicated they plan to resume use of the DHSS vital records death match in the MEDES in the future, but the anticipated resumption date is unknown. The DSS Corrective Action Plan (CAP) and Summary Schedule of Prior Audit Findings (SSPAF) for prior audit finding number 2024-002 state although the MEDES death match is not functional, MEDES participants that receive other benefits in the FAMIS (Supplemental Nutrition Assistance Program, Temporary Assistance for Needy Families, and/or Medicaid Aged, Blind and Disabled program) are subject to the FAMIS death match. However, not all MEDES participants receive other benefits in the FAMIS and are subject to that death match. The CAP and SSPAF further state the MEDES annual review process includes a death match with federal records; however, as noted at finding number 2025-003, the annual redetermination process was not fully functional during the year ended June 30, 2025 and will not terminate deceased participants in a timely manner, allowing the opportunity for improper benefit payments to be made until the redetermination is completed. The failure to implement and enforce adequate internal controls to ensure participant cases are closed upon death as required can result in Medicaid program and CHIP payments being made on behalf of ineligible individuals, which would be unallowable costs of the federal programs and result in payments from state funds that should not have occurred. Regulation 2 CFR Section 200.303(a) requires the recipient to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Recommendation The DSS through the MHD and the FSD resume the DHSS vital records death match in the MEDES. Auditee's Response We partially agree with the auditor's finding. Our Corrective Action Plan includes an explanation and specific reasons for our disagreement and any planned actions to address the finding. Auditor's Comment Similar to prior audits, the DSS CAP states the DSS partially agrees with the finding because the "DSS has controls in place to identify deceased individuals in the MAGI eligibility system (MEDES)." As stated in the finding, the DSS has some controls that operate in place of the eliminated MEDES death match for some participants. However, since not all participants are subject to those controls, the remaining participants are not subject to a death match and the DSS does not have an anticipated completion date to reinstate this death match.

Federal Agency: Department of Health and Human Services (DHHS) Federal Program: 93.767 Children's Health Insurance Program (CHIP) 2024 - 2405MO3002 and 2405MO5021 2025 - 2505MO3002 and 2505MO5021 93.778 COVID-19 - Grants to States for Medicaid (Medicaid) 93.778 Grants to States for Medicaid 2024 - 2405MO5MAP and 2405MO5ADM 2025 - 2505MO5MAP and 2505MO5ADM State Agency: Department of Social Services (DSS) - MO HealthNet Division (MHD) and Family Support Division (FSD) Type of Finding: Internal Control (Material Weakness) Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Eligibility The DSS does not have sufficient controls to ensure redeterminations are completed as required for certain Medicaid program and CHIP participants whose eligibility is based on the Modified Adjusted Gross Income (MAGI). Controls in place during the year ended June 30, 2025, were not sufficient to ensure compliance with the December 31, 2025, extended unwinding period deadline for reassessments. As of December 31, 2025, the DSS had a backlog of approximately 85,000 participants, for which redeterminations had not been completed. As of June 30, 2025, there were approximately 982,000 MAGI-based participants. To ensure MAGI-based participants continue to be eligible for benefits, 42 CFR Section 435.916 requires a redetermination of eligibility once every 12 months, or when circumstances affecting a participant's eligibility change. The regulation requires termination of benefits when a participant no longer meets eligibility requirements. During the period March 19, 2020, to March 31, 2023, the eligibility redetermination and most termination requirements were temporarily suspended in response to the COVID-19 Public Health Emergency (PHE). During that period all validly enrolled participants on March 19, 2020, were to remain continuously enrolled, except for participants who requested removal, moved out of state, or died. Effective April 1, 2023, under the COVID-19/Annual Renewals Unwinding User Acceptance Test Plan, submitted to the DHHS - Centers for Medicare and Medicaid Services (DHHS-CMS), the DSS was to resume and complete redeterminations for all participants over a 14-month period, which ended June 30, 2024. In August 2024, the DSS received an extension of this deadline from the DHHS-CMS. Under the extension, the DSS was required to complete redeterminations for all participants, and terminate benefits for participants who no longer meet eligibility requirements, by December 31, 2025. The Medicaid Eligibility Determination and Enrollment System (MEDES) tracks eligibility information from MAGI-based participants, including redetermination due dates; and in some cases, performs redeterminations. Non-automatic redeterminations for MAGI-based participants are performed manually by FSD benefit program technicians. To ensure continuous enrollment during the PHE and the extended unwinding period, the DSS programmed the MEDES to continue coverage effective March 18, 2020, except in the case of a participant's death, out-of-state move, or voluntary closure. DSS officials previously estimated the backlog of redeterminations would be resolved by July 2025; however, they stated at the December 31, 2025, deadline, there were approximately 85,000 participants for which redeterminations had not been completed. DSS officials indicated the FSD was not able to process redeterminations in a timely manner due to a number of continued workload and staffing challenges, including increased enrollment created by the expansion of Medicaid program, staffing shortages, and temporary reassignment of staff to work on other tasks. Due to the magnitude of participants needing redeterminations, implementation of effective internal controls well in advance of deadlines, and closely monitoring the effectiveness of those controls, is necessary to achieve compliance by the deadlines. The failure to implement adequate internal controls to ensure redeterminations are performed as required and ineligible participant cases are closed can result in Medicaid program and CHIP payments being made on behalf of ineligible individuals (including the state matching portion of the payment), which would result in unallowable costs of the federal programs and additional state dollars spent for unqualified participants. Regulation 2 CFR Section 200.303(a) requires the recipient to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Recommendation The DSS through the MHD and the FSD strengthen internal controls to ensure redeterminations are completed as required. Auditee's Response We disagree with the auditor's finding. Our Corrective Action Plan includes an explanation and specific reasons for our disagreement. Auditor's Comment The DSS Corrective Action Plan (CAP) states the DSS disagrees with the finding because (1) the DSS was ". . . actively monitoring and strategizing to work towards completing all renewals by the deadline of December 31, 2025," and (2) the DSS ". . . does not consider this within the scope of the SFY [state fiscal year] 2025 audit because federal requirements did not require all renewals to be complete until December 31, 2025, which falls in SFY 2026." As stated in the finding, the DSS had a backlog of approximately 85,000 participants requiring redetermination at the extended deadline of December 31, 2025. Recent information provided by DSS officials shows a backlog of approximately 47,000 (45% reduction) as of July 28, 2026, 7 months after the extended deadline. The CAP states the DSS increased its efforts to work the backlog in April 2025, 9 months prior to the extended deadline. These efforts were clearly too late and not sufficient to resolve the backlog by the extended deadline. Due to the magnitude and annual nature of redeterminations, it is clear processes needed to be established and strengthened years, not months, in advance of the extended deadline. Because the DSS lacked effective controls during the audit period (a period of 6 to 18 months prior to the extended deadline), a finding is warranted. The longer the DSS continues to fail to timely perform redeterminations further escalates the risk of improper state and federal payments on behalf of ineligible individuals.

Federal Agency: Department of Health and Human Services Federal Program: 93.767 Children's Health Insurance Program (CHIP) 2024 - 2405MO3002 and 2405MO5021 2025 - 2505MO3002 and 2505MO5021 93.778 COVID-19 - Grants to States for Medicaid (Medicaid) 93.778 Grants to States for Medicaid 2024 - 2405MO5MAP and 2405MO5ADM 2025 - 2505MO5MAP and 2505MO5ADM State Agency: Department of Social Services (DSS) - MO HealthNet Division (MHD) and Family Support Division (FSD) Type of Finding: Internal Control (Material Weakness) and Nonmaterial Noncompliance Compliance Requirement: Eligibility The DSS does not have sufficient controls to ensure eligibility determinations are performed within required timeframes for participants of the Medicaid program and the CHIP. Significant application processing delays noted in our three previous audits continued during the year ended June 30, 2025. In our test of compliance with eligibility requirements for the year ended June 30, 2025, we noted 19 of 120 eligibility determinations were made 7 to 115 days after the required timeframes and averaged approximately 40 days late. The FSD is responsible for determining the eligibility of Medicaid program and CHIP participants. FSD benefit program technicians perform the majority of eligibility determinations using participants' Modified Adjusted Gross Income (MAGI). For the remaining non-MAGI participants, including participants in the MO HealthNet Aged, Blind, and Disabled programs, eligibility is not based on their MAGI. As of June 30, 2025, there were approximately 982,000 MAGI-based participants and approximately 288,000 non-MAGI-based participants. To ensure applicants can receive necessary medical care timely, 42 CFR Section 435.912(c)(3) requires new Medicaid program eligibility determinations be made within 45 days of application and within 90 days of application for applicants who apply for benefits on the basis of disability. Regulation 42 CFR Section 435.912(e) allows exceptions to these timeframes in certain unusual circumstances, such as a doctor's delay. Regulation 42 CFR Section 457.340(d) requires the same timeliness standards for CHIP participants. To test compliance with eligibility requirements, we reviewed randomly- selected samples of 60 MAGI-based participants, and 60 non-MAGI-based participants, all of which were new enrollments, subject to the timeliness requirements. The DSS did not meet timeliness requirements for 4 of the 60 MAGI-based eligibility determinations (7%), and 15 of the 60 non-MAGI-based determinations (25%). The 19 late determinations were made 7 to 115 days after the required 45-day or 90-day requirement, and averaged 40 days late. Similar to the three previous audits, DSS officials indicated the FSD continues to be challenged with processing applications in a timely manner due to a number of workload and staffing challenges, including unwinding of eligibility redetermination COVID-19 waivers compounded by increased enrollment due to expansion of the Medicaid program, staffing shortages, and temporary reassignment of staff to work on other tasks. DSS officials indicated they are developing and implementing technologies to assist participants and the DSS with various eligibility actions such as submitting applications, verifying income and resources, and providing required information. DSS officials stated as of December 2025, they have resolved the delays for MAGI-based participants, and they are working to resolve the delays for non-MAGI-based participants. In addition to noncompliance with federal requirements, the failure to ensure eligibility determinations are performed timely can result in potentially eligible participants not receiving necessary medical care. To ensure compliance with federal requirements, the DSS should implement and enforce adequate internal controls to ensure eligibility determinations are performed within required timeframes. Regulation 2 CFR Section 200.303(a) requires the recipient to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Recommendation The DSS through the MHD and the FSD continue to review, strengthen, and enforce internal controls to ensure participant eligibility is determined within the required timeframes. Auditee's Response We agree with the auditor's finding. Our Corrective Action Plan includes our planned actions to address the finding.

Federal Agency: Department of Health and Human Services (DHHS) Federal Program: 93.778 Grants to States for Medicaid (Medicaid) 2025 - 2505MO5ADM State Agency: Department of Social Services (DSS) - Division of Finance and Administrative Services (DFAS) Type of Finding: Internal Control (Significant Deficiency) and Nonmaterial Noncompliance Compliance Requirement: Reporting DFAS controls and procedures are not sufficient to timely submit Federal Funding Accountability and Transparency Act (FFATA) reports as required for the Medicaid program. During state fiscal year 2025, the DFAS did not timely submit a FFATA report for its one subrecipient of the Medicaid program. During state fiscal year 2025, the DSS disbursed approximately $4.9 million in first-tier subawards to its one Medicaid subrecipient, which accounted for less than 1% of the program's expenditures. The FFATA requires comprehensive reporting for certain federal awards to promote transparency and accountability over the use of the federal funds. Regulation 2 CFR Part 170, Appendix A, requires the DFAS to report first-tier subawards of $30,000 or more no later than the end of the month following the month in which the subaward was made. Information is reported to the System for Award Management (SAM.gov) (the FFATA Subaward Reporting System [FSRS.gov] prior to March 2025), and is publicly available at USASpending.gov. To test compliance with FFATA reporting requirements, we reviewed the one subaward requiring FFATA reporting, totaling approximately $4.9 million, awarded during state fiscal year 2025. The subaward was made in September 2024; however, DFAS personnel did not submit the FFATA report until February 2025, resulting in a 4 month delay. DFAS personnel indicated the delay occurred due to employee turnover in the position responsible for FFATA reporting. Without adequate internal control over FFATA reporting, there is less assurance the information included in the FFATA reporting is submitted timely. Regulation 2 CFR Section 200.303(a) requires recipients to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Recommendation The DSS through the DFAS strengthen internal controls to ensure information is timely reported for the Medicaid program and complete FFATA reporting in accordance with the applicable requirements. Auditee's Response We agree with the auditor's finding. Our Corrective Action Plan includes our planned actions to address the finding.

Federal Agency: Department of Health and Human Services Federal Program: 93.778 Grants to States for Medicaid (Medicaid) 2024 - 2405MO5MAP and 2405MO5ADM 2025 - 2505MO5MAP and 2505MO5ADM State Agency: Department of Health and Senior Services (DHSS) - Division of Senior and Disability Services (DSDS) Type of Finding: Internal Control (Significant Deficiency) and Nonmaterial Noncompliance Compliance Requirements: Activities Allowed or Unallowed and Allowable Costs/Cost Principles As similarly noted in our 2 prior audit reports, the DSDS does not have effective controls to ensure Participant Choice Agreements are completed and retained for participants of the State Plan Personal Care (SPPC) program. Required documentation was not on file for 14 of 60 participants reviewed. The DSDS is responsible for the direct administration of various Medicaid funded Home and Community Based Services (HCBS) programs for seniors and adults with disabilities, including the SPPC. During the year ended June 30, 2025, the DHSS made payments totaling approximately $1.2 billion on behalf of approximately 76,700 participants of the SPPC. As part of the initial assessment and annual reassessment process, DSDS personnel are required to ensure a Participant Choice Agreement (DA-3 form) was signed by the participant and the assessor. The DSDS uses Participant Choice Agreements to comply with 42 CFR Section 441.725 that requires participants be provided information and given choices regarding their care and that written consent be obtained from the individual. Signed agreements were uploaded to the CyberAccess web tool prior to May 2025, when the CyberAccess web tool was replaced by the Fusion web tool. Agreements previously uploaded to the CyberAccess web tool were transferred to the Fusion web tool. Assessments and reassessments are completed by either DSDS personnel or provider personnel. DSDS personnel perform quality assurance reviews of assessments and reassessments completed by provider personnel, and are required to ensure a signed Participant Choice Agreement was uploaded. Once the Participant Choice Agreement is uploaded to the CyberAccess or Fusion web tool by the assessor, the original agreement is not retained to prevent Health Insurance Portability and Accountability Act (HIPAA) breaches. The DSDS identified a weakness in the CyberAccess web tool upload process that prevented successful upload of some Participant Choice Agreements; and because the original agreements are not retained, there is no record of those agreements. To address this weakness, the DHSS used a special projects team to identify and resolve missing agreements on a sample basis. To test compliance with federal requirements, we reviewed Fusion web tool records for 60 randomly-selected participants enrolled in the SPPC program during the year ended June 30, 2025. A Participant Choice Agreement was not retained in the Fusion web tool records for 14 participants (23%). Of the 14 participants, 10 assessments/reassessments were completed by DSDS personnel and 4 were completed by providers. Neither the DSDS quality assurance reviews nor the special projects team identified the missing agreements. Assessments/reassessments for 13 participants originated in the CyberAccess web tool and 1 originated in the Fusion web tool. DHSS officials were unable to determine whether Participant Choice Agreements were completed but not uploaded to the CyberAccess web tool and/or migrated to the Fusion web tool, or never completed for these participants. DHSS officials indicated in addition to the CyberAccess web tool upload problem, the missing forms can be attributed to turnover and a large number of new staff, as well as issues with the migration of information from the CyberAccess web tool to the Fusion web tool. Without ensuring Participant Choice Agreements are completed and retained, the DSDS cannot demonstrate the participants were provided the proper choices in care services as required. Regulation 2 CFR Section 200.303(a) requires recipients to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Recommendation The DHSS through the DSDS continue to implement procedures to ensure a signed Participant Choice Agreement is completed and retained for all participants of the State Plan Personal Care program. The DSDS should identify and replace all missing Participant Choice Agreements with newly completed agreements. Auditee's Response We agree with the auditor's finding. Our Corrective Action Plan includes our planned actions to address the finding.

Federal Agency: Department of Homeland Security - Federal Emergency Management Agency (FEMA) Federal Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) 2017 - FEMA - 4317 DR-MO 2019 - FEMA - 4435 DR-MO and FEMA - 4451 DR-MO 2020 - FEMA - 4490 DR-MO and FEMA - 4552 DR-MO 2021 - FEMA - 4612 DR-MO and FEMA - 4636 DR-MO 2022 - FEMA - 4665 DR-MO 2023 - FEMA - 4741 DR-MO 2024 - FEMA - 4803 DR-MO 2025 - FEMA - 4855 DR-MO State Agency: Department of Public Safety - State Emergency Management Agency (SEMA) Type of Finding: Internal Control (Material Weakness) and Material Noncompliance Compliance Requirement: Subrecipient Monitoring As similarly noted in our previous audit, during state fiscal year 2025, the SEMA did not fully comply with subrecipient monitoring requirements for the Disaster Grants - Public Assistance (Presidentially Declared Disasters) (DGPA) program. The SEMA did not communicate all required federal award information to subrecipients, completed only 25% of the required number of subrecipient monitoring reviews, and did not perform supervisory reviews of some monitoring reviews. The SEMA disbursed approximately $197 million to 312 DGPA program subrecipients during the year ended June 30, 2025. Regulation 2 CFR Section 200.332(b) requires pass-through entities to ensure every subaward is clearly identified to the subrecipient as a subaward and lists specific information to be communicated to the subrecipient. Regulation 2 CFR Section 200.332(c) requires pass-through entities to evaluate each subrecipient's fraud risk and risk of noncompliance with a subaward to determine the appropriate subrecipient monitoring. Regulation 2 CFR Section 200.332(e) requires pass-through entities to monitor the activities of the subrecipient as necessary to ensure the subrecipient complies with federal statutes, regulations, and the terms and conditions of the subaward, and achieves performance goals and objectives. Pass-through entities are required to ensure the subrecipient takes corrective action on all significant developments that negatively affect the subaward, including findings from single audits, site visits, and other means. The SEMA enters into a subaward agreement and provides a grant award form to each DGPA program subrecipient with various information about the grant. The SEMA's tiered monitoring process, outlined in the SEMA's Risk Assessment Form and Recovery Division Monitoring Policy (monitoring policy), requires risk assessments be performed 24 months after the disaster declaration for each subrecipient. Risk assessments are performed to evaluate various risk indicators and categorize each subrecipient as high, medium, or low risk. The risk category determines the type and nature of monitoring required for the subrecipient. The policy requires on-site monitoring reviews for all high-risk subrecipients and desk reviews of 20% of medium-risk subrecipients. No additional action is required for low-risk subrecipients. The monitoring policy requires the SEMA to generate reports listing any deficiencies noted during on-site and desk monitoring reviews. The monitoring report will, if applicable, reflect any notice given to the subrecipient about delinquent reports, failure to submit proper documentation, and issues noted during the review. The monitoring report also identifies the SEMA's and subrecipient's actions and plans to resolve the issue(s) by documenting a brief written plan and timeline for the resolution of the issues identified. When all issues have been resolved, the policy requires a follow-up letter and updated monitoring report to be provided to the subrecipient. The policy requires that the appropriate section specialist and the fiscal manager approve the monitoring reports. Subaward information As similarly noted in a FEMA report summarizing an August 2025 FEMA review, during state fiscal year 2025, the SEMA did not include all required federal award identification information in the grant award forms. The grant award forms lacked the following required information: federal award date; subaward budget period start and end date; amount of federal funds obligated in the subaward; total amount of federal funds obligated to the subrecipient, including the current financial obligation; and total amount of the federal award committed to the subrecipient. When required federal grant award information is excluded from grant award forms, subrecipients can be uninformed about specific requirements pertaining to the subaward and there is increased risk of noncompliance with program requirements. In response to the FEMA review, the SEMA updated the grant award forms to include the missing information effective for grants issued in January 2026. Monitoring reviews During state fiscal year 2025, the SEMA performed risk assessments for all 1,049 subrecipients requiring risk assessments; however, the SEMA performed only 64 of the 259 (25%) monitoring reviews required by the monitoring policy. The following table shows the results of the risk assessments performed for fiscal year 2025, the monitoring reviews required by federal regulation and SEMA policy, the monitoring reviews completed, and the monitoring reviews outstanding at year end. In addition, our randomly-selected sample of 2 of the 17 on-site reviews and 5 of the 47 desk reviews completed during state fiscal year 2025, noted the 2 on-site monitoring reports were not approved by the Section Specialist or the Fiscal Manager, as required by the monitoring policy. SEMA personnel indicated they began performing monitoring reviews in January 2025, in response to the prior audit finding; however, they did not have enough time to complete all required monitoring reviews by the end of the fiscal year. SEMA personnel also explained they did not realize supervisory approval of the on-site monitoring reports was required by SEMA's monitoring policy. When subrecipient monitoring reviews are not performed as required by federal regulation and SEMA policy, there is increased risk that noncompliance with program requirements will go undetected. Without adequate supervisory review of monitoring reports, the SEMA has less assurance the reviews were performed adequately and in accordance with the monitoring policy. Conclusions Without adequate internal controls over subrecipient monitoring requirements, there is increased risk of noncompliance, errors, fraud, waste, and abuse of federal funds. Adherence to policies and procedures is necessary to ensure compliance with subrecipient monitoring requirements. Regulation 2 CFR Section 200.303(a) requires the recipient to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Recommendation The SEMA continue to strengthen controls and procedures to communicate federal award information to DGPA program subrecipients and monitor subrecipients in accordance with the monitoring policy. In addition, the SEMA should ensure supervisory reviews of monitoring reports are performed, as required. Auditee's Response We agree with the auditor's finding. Our Corrective Action Plan includes our planned actions to address the finding.

Federal Agency: Department of Homeland Security - Federal Emergency Management Agency (FEMA) Federal Program: 97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) 2017 - FEMA - 4317 DR-MO 2019 - FEMA - 4435 DR-MO and FEMA - 4451 DR-MO 2020 - FEMA - 4490 DR-MO 2021 - FEMA - 4612 DR-MO and FEMA - 4636 DR-MO 2022 - FEMA - 4665 DR-MO 2023 - FEMA - 4741 DR-MO 2024 - FEMA - 4803 DR-MO 2025 - FEMA - 4855 DR-MO State Agency: Department of Public Safety - State Emergency Management Agency (SEMA) Type of Finding: Internal Control (Significant Deficiency) and Nonmaterial Noncompliance Compliance Requirement: Reporting SEMA controls and procedures are not sufficient to fully comply with Federal Funding Accountability and Transparency Act (FFATA) reporting requirements for the Disaster Grants - Public Assistance (Presidentially Declared Disasters) (DGPA) program. During state fiscal year 2025, the SEMA did not fully comply with FFATA reporting requirements for 6 of 17 subawards reviewed. During state fiscal year 2025, the SEMA disbursed approximately $197 million in first-tier subawards to 312 subrecipients of the DGPA program. First-tier subaward payments accounted for nearly 100% of total program expenditures. The FFATA requires comprehensive reporting for certain federal awards to promote transparency and accountability over the use of the federal funds. Regulation 2 CFR Part 170, Appendix A, requires the SEMA to report first-tier subawards of $30,000 or more no later than the end of the month following the month in which the subaward was made. Information is reported to the System for Award Management (SAM.gov) (to the FFATA Subaward Reporting System [FSRS.gov] prior to March 2025) and is publicly available at USASpending.gov. On a monthly basis, SEMA procedures provide that SEMA personnel enter subawards made during the previous month into an Excel spreadsheet. SEMA personnel filter the spreadsheet information to identify subawards that require FFATA reporting, transfer the data to the federal reporting template, and upload the data to SAM.gov (previously FSRS.gov). Various subaward data is uploaded, including the entity name, award amount, and the date issued. To test compliance with FFATA reporting requirements, we reviewed 17 randomly-selected DGPA program subawards, totaling approximately $23.8 million, awarded during state fiscal year 2025. Of the 17 subawards, 6 (35%) had instances of noncompliance, as shown in the following table. SEMA personnel indicated the FFATA reporting delays occurred due to technical issues encountered during the transition from FSRS.gov to SAM.gov, and difficulties identifying the Unique Entity Identifier (UEI) for some subrecipients. However, the SEMA did not timely upload the reports once these issues were resolved. SEMA personnel indicated reports for two subawards lacked the project numbers due to manual entry errors. Without adequate internal control over FFATA reporting, there is less assurance the information included in the FFATA reporting is complete, accurate, and submitted timely. In addition to noncompliance with federal requirements, not reporting subawards to the FSRS accurately and timely increases the risk that users of the reports could rely on incomplete and inaccurate information. Regulation 2 CFR Section 200.303(a) requires recipients to "[e]stablish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award." Recommendation The SEMA strengthen internal controls to ensure information is timely and accurately reported for the DGPA program and complete FFATA reporting in accordance with the applicable requirements. Auditee's Response We agree with the auditor's finding. Our Corrective Action Plan includes our planned actions to address the finding.

Federal Program ARP - McKinney Education for Homeless Children, ARP - Community Partnerships, McKinney Education for Homeless Children Identification Number 24-4998-HM, 25-4998-C3, 25-4920 Assistance Listing Number 84.425W, 84.425U, 84.196A Passed Through Illinois State Board of Education Federal Agency U.S. Department of Education Criteria: Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls requires agency to establish and maintain effective internal control over the federal award to provide reasonable assurance that Federal awards are managed in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Additionally, the Regional Office of Education #47 must comply with grant accounting and reporting requirements established by grant agreements with the Illinois State Board of Education (ISBE) and other grantors in addition to the requirements established by ISBE’s fiscal policies and procedures for grantees. Among these requirements are accurate, current, and complete disclosure of grant financial activity to the grantor. In addition, strong internal controls are necessary and include reconciling grant financial reports with supporting accounting records and ensuring that all reports are reviewed and approved by a responsible official prior to submission. Condition: The Regional Office of Education #47 did not maintain adequate internal controls over the grant accounting and financial reporting process. While the Regional Office of Education #47 maintains controls over the processing of expenditures, there are not sufficient controls over the general ledger and financial statement reporting process for management or employees in the normal course of performing their assigned functions to prevent, or detect and correct, discrepancies between grant expenditures reports, the general ledger, financial statements, and supplementary information. During our review of the Regional Office of Education #47’s grant expenditures, it was noted that the Regional Office of Education #47 did not have adequate controls to ensure accuracy and consistency between grant expenditures reports, general ledger, financial statements, and supplementary information. Audit procedures revealed differences between the grant expenditures reports and the Regional Office of Education #47’s financial statements and General Ledger (GL) as shown below: Total Expenditures Per Grant Grant Reports and the Schedule Total Expenditures Federal Grants of Expenditures of Federal Per Financial Difference Over Assistance Listing Number Awards (SEFA) Statements and GL (Under) Stated ARP - McKinney Education for Homeless Children 84.425W $112,133 $124,432 $(12,299) ARP - Community Partnerships 84.425U 2,475 3,300 (825) McKinney Education for Homeless Children 84.196A 123,965 121,671 2,294 Federal Grants Net Difference $(10,830) State Grant Total Expenditures Per Total Expenditures per Code Grant Reports Financial Statements and GL Difference Over (Under) Computer Science 2025 -3999 $43,567 $27,723 $15,844 Less Expenditures disbursed in FY26 (10,627) State Grant Net Difference $5,217 Management was unable to provide documentation to support and reconcile the federal and State grant differences of $(10,830) and $5,217, respectively. Questioned Costs: None Context: The Regional Office of Education #47 provided a combined total of 15 federal and State grant expenditure reports totaling $684,461 and $1,594,506, respectively, which were submitted for the fiscal year 2025. Auditors reviewed all 15 reports and found that 4 were not reconciled to the general ledger before submission. Effect: The Regional Office of Education #47’s management or its employees, in the normal course of performing their assigned functions, did not prevent or detect general ledger, financial statements, and supplementary information discrepancies in a timely manner. Cause: Regional Office of Education #47’s management did not perform a timely review and reconciliation of federal and State grant expenditure reports to the general ledger, financial statements, and supplementary information for accuracy and consistency. Recommendation: We recommend that the Regional Office of Education #47 implement comprehensive procedures to ensure the accuracy of grant accounting and reporting including: a. Establish accountability for timely reconciliation of grant reimbursement reports to the general ledger, financial statements, and supplementary information. b. Integrate into the year-end closing procedures documentation of the reconciliation including the sign-offs of preparer and review by a responsible official prior to submission. Management’s Response: Management agrees with the recommendation and will implement additional procedures to formally document the reconciliation of grant expenditure reports to the general ledger and financial statements prior to submission and as part of the year-end closing process. The Regional Office believes grant expenditures were properly accounted for; however, management recognizes the need for enhanced documentation of the reconciliation process and will implement preparer and reviewer sign-offs to ensure consistency and strengthen internal controls over grant financial reporting.

FA 2025-001 Improve Controls over Cash Management Compliance Requirement: Cash Management Internal Control Impact: Material Weakness Compliance Impact: Material Noncompliance Federal Awarding Agency: U.S. Department of Education Pass-Through Entity: Georgia Department of Education Assistance Listing Number and Title: 84.371C – Comprehensive Literacy Development Federal Award Number: S371C190016 (Year: 2021) Questioned Costs: None Identified Description: The School District made cash drawdowns in excess of immediate cash needs of the Comprehensive Literacy Development program. Background Information: The School District may request Comprehensive Literacy Development program funds from the Georgia Department of Education (GaDOE) once per month. GaDOE requires the School District to submit DE-0147 – Requests for Reimbursement of Monthly Cash Disbursements through the Grants Accounting Online Reporting System to receive program funds. When a DE-0147 request is submitted and approved, the Comprehensive Literacy Development program funds are typically disbursed to the School District through an electronic payment process the next week. Criteria: As a recipient of federal awards, the School District is required to establish, document, and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Additionally, provisions included in the Uniform Guidance Section 200.305(b) state, “For recipients and subrecipients other than States, payment methods must minimize the time elapsing between the transfer of funds from the Federal agency or the pass-through entity and the disbursement by the recipient or subrecipient…” In addition, the Uniform Guidance Section 200.302(b)(6) requires that the entity develop written cash management procedures. Condition: A review of all cash drawdowns and disbursements related to the Comprehensive Literacy Development program was performed to determine if any excessive cash balances were maintained during the fiscal year under review. Excessive cash balances totaling as much as $43,073.23 were maintained for a cumulative total of 94 days throughout FY25, occurring across multiple periods, with the longest continuous occurrence lasting 41 days. Cause: In discussing this issue with the School District, they indicated that the lack of review of federal grants resulted in excess cash drawdown requests. Effect: The School District was not in compliance with the Uniform Guidance and GaDOE guidance. In addition, the School District could potentially accrue an interest liability that would be owed back to the federal government. Furthermore, when the School District cannot meet the requirement to minimize the time elapsing between the transfer of funds and disbursement of those funds, provisions included in the Uniform Guidance allow GaDOE to change the method by which the School District is transferred fund and delay the School District’s receipt of these funds. This may include a requirement by GaDOE to submit invoices prior to being reimbursed for the Comprehensive Literacy Development program expenditures. Recommendation: The School District should establish procedures to accurately forecast the cash needs of the Comprehensive Literacy Development program and minimize the time elapsing between the transfer of funds from GaDOE and the disbursement of such funds by the School District. In addition, these procedures should be documented in writing in accordance with the Uniform Guidance. Furthermore, management should develop and implement a monitoring process to ensure that these procedures are followed. Views of Responsible Officials: We concur a review of the cash ledger for the Comprehensive Literacy (L4GA) grant fund 418 indicated there was an excessive cash balance for several days throughout FY25, however we respectfully disagree with the statements that the excessive cash balance was maintained for a total of 94 days and was due to the lack of review of the grant. While the LEA does agree there was an excessive cash balance in the Comprehensive Literacy/L4GA grant fund 418 for at least 94 days throughout FY25, the LEA would like to submit that per the analysis performed by the FY2025 DOAA audit team, the longest number of consecutive days for which the excessive cash balance was maintained was 41 days. It is also the view of the LEA that the excessive cash balance was not due to the lack of review of the federal grant nor due to intentionally drawing down funds from GADOE in excess of immediate cash needs, but instead largely due in part to the LEA receiving a duplicate reimbursement payment from GADOE for specific expenditures that were erroneously submitted twice by the LEA to GADOE. Finally, the LEA’s would like to submit that the cause for not immediately detecting and rectifying the excessive balance error was due to the timing of the posting of other numerous expenditures coinciding with the posting of the duplicate reimbursement payment within the 418 ledger, and the lack of review of specific reports that would have helped to identify that the cash ledger reflected an excessive cash balance from the duplicate reimbursement payment for grant expenditures. The LEA acknowledges this was unacceptable; the error should have been detected and corrected earlier in the fiscal year and there was a deficiency in the process of monitoring the cash ledger for fund 418. Auditor's Concluding Remarks: We acknowledge the LEA's response. The LEA does not dispute that an excessive cash balance existed in fund 418 during FY25 or that a deficiency in its review of the fund 418 cash ledger prevented timely detection and correction. This remains the substance of the finding. Our analysis confirms the excessive balance occurred over a cumulative 94 days, with the longest continuous occurrence lasting 41 days, and we will revise the finding to reflect this distinction. Regardless of the initiating event, including the duplicate GADOE reimbursement cited by the LEA, the LEA's response confirms that reports which would have identified the excessive balance were not reviewed, a deficiency in monitoring sufficient to ensure compliance with federal cash management requirements under 2 CFR 200.305. We reaffirm our finding, revised as noted above, and will review the LEA's corrective action during our next audit.

Reference Number: 2025-001 Prior Year Finding: 2024-002 Federal Agency: U.S. Department of Housing and Urban Development (HUD) Entity: City of Portsmouth (the City) Federal Program: Community Development Block Grants/Entitlement Grants Cluster Assistance Listing: 14.218 Federal Award Identification Number and Year: 2018, 2019, 2020, 2023 Pass-Through Entity: N/A Award Number and Period: B-18-MC-51-0018 (7/1/18-9/1/26) B-19-MC-51-0018 (7/1/19-9/1/27) B-20-MC-51-0018 (7/1/20-9/1/28) B-23-MC-51-0018 (7/1/23-9/1/30) Compliance Requirement: Reporting – Federal Funding Accountability and Transparency Act (FFATA) Type of Finding Material Weakness in Internal Control Over Compliance, Material Noncompliance Criteria or specific requirement: Compliance – Per the Federal Funding Accountability and Transparency Act (FFATA), prime (direct) recipients of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS). Reports must be filed in FSRS by the end of the month following the month in which the prime recipient awards any sub-grant greater than or equal to $30,000. If the initial award is below $30,000 but subsequent grant modifications result in a total award equal to or over $30,000, the award will be subject to the reporting requirements as of the date the award exceeds $30,000. If the initial award equals or exceeds $30,000 but funding is subsequently de-obligated such that the total award amount falls below $30,000, the award continues to be subject to FFATA reporting requirements. The following key data elements must be reported: Subawardee Name and Data Universal Numbering System (DUNS) number; Amount of Subaward (inclusive of modifications); Subaward Obligation/Action Date; Date of Report Submission; Subaward Number; Project Description; and Names and Compensation of Highly Compensated Officers. (Names and Compensation of Highly Compensated Officers must only be reported when the entity in the preceding fiscal year received 80 percent or more of its annual gross revenues in Federal awards; and $25,000,000 or more in annual gross revenues from Federal awards; and the public does not have access to this information about the compensation of the senior executives of the entity through periodic reports filed under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. §§ 78m(a), 78o(d)) or section 6104 of the Internal Revenue Code of 1986.) Control – Per 2 CFR section 200.303(a), a non-Federal entity must: Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should comply with guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Condition: The City of Portsmouth did not report subaward information to FSRS during FY 2025. Context: None of the ten subawards selected for testing were reported to FSRS during FY 2025. Total subawards selected were $250,000.00, and $-0- was reported as required by FFATA requirements. Cause: The City’s procedures and controls were not sufficient to ensure that subawards were reported to FSRS during FY 2025. Effect: Subawards were not reported to FSRS in accordance with FFATA requirements. Questioned costs: None noted. Recommendation: We recommend the City establish procedures and internal controls to ensure that all required subawards are reported timely and accurately to FSRS no later than the end of the month following the month of issuance of each subaward. Views of Responsible Officials: Management agrees with the finding. Transactions Tested 1 Subaward not reported 1 Report not timely 0 Subaward amount incorrect 0 Subaward missing key elements 0 Dollar Amount of Tested Transactions $250,000.00 Subaward not reported $250,000.00 Report not timely $0 Subaward amount incorrect $0 Subaward missing key elements $0

Condition and Context: The District did not establish controls to identify and monitor applicable federal reporting requirements associated with its federal awards. As a result, the District did not submit its Single Audit reporting package to the Federal Audit Clearinghouse by the required deadline of March 31, 2026. Criteria: Title 2 U.S. Code of Federal Regulations (CFR) §200.303 requires non-Federal entities to establish and maintain effective internal control over Federal awards that provides reasonable assurance the entity is managing the awards in compliance with Federal statutes, regulations, and the terms and conditions of the award. Additionally, 2 CFR §200.512(a) requires the audit reporting package to be submitted to the Federal Audit Clearinghouse within the earlier of 30 calendar days after receipt of the auditor's reports or nine months after the end of the audit period. Cause: The District had not established procedures to identify when Federal expenditures triggered Single Audit requirements or to monitor and ensure compliance with applicable Federal reporting deadlines. Effect: The District did not timely submit its Single Audit reporting package to the Federal Audit Clearinghouse. Failure to comply with Federal reporting requirements may result in increased oversight by granting agencies and could affect the District's continued eligibility for current or future Federal funding. Recommendation: The District should establish procedures to identify applicable Federal compliance requirements upon acceptance of Federal awards, monitor cumulative Federal expenditures to determine when a Single Audit is required, assign responsibility for monitoring reporting deadlines, and maintain a compliance calendar to ensure timely submission of all required Federal reports and the Single Audit reporting package. The District's Response: The District’s responsible officials’ views and planned corrective action are in its corrective action plan at the end of the report.

Finding 2025-003 Deadline for Federal Single Audit – Reporting – Noncompliance and Internal Control over Compliance – Significant Deficiency Agency/Pass-Through Grantor: United States Department of Agriculture Environmental Protection Agency Assistance Listing Numbers (ALN) and Program Name: 10.665 – Schools and Roads Cluster 10.760 – Water and Waste Disposal Systems for Rural Communities 66.468 – Drinking Water State Revolving Fund Award Year: FY 2025 Criteria or Specific Requirement: The Uniform Guidance in 2 CFR Section 200.303 requires that non-Federal entities receiving Federal awards (i.e., auditee management) establish and maintain internal control designed to reasonably ensure compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. In accordance with 2 CFR Section 200.512(a), the audit must be completed and the data collection form and reporting package must be submitted within the earlier of 30 calendar days after receipt of the auditor’s report, or nine months after the end of the audit period, adjusted for any extensions permitted by the Office of Management and Budget. Condition: The reporting package and data collection form for the year ended June 30, 2025 were not submitted by the deadline to the Federal Audit Clearinghouse. Cause: The audit was not completed on time to file the reporting package and data collection form, due to a delay in closing the books, records, and grants. Effect or potential effect: The Schedule of Expenditures of Federal Awards was not available in a timely manner in order to allow for timely submission of Form SF-SAC Questioned Costs: None Context: The Form SF-SAC is due nine months after the fiscal year end. The form for the fiscal year ended June 30, 2025 was filed late. Identification as a repeat finding: Not a repeat finding. Recommendation: We recommend the Borough adopt policies and procedures, including tracking and monitoring of reporting requirements, to ensure that the audit, reporting package, and data collection form are electronically filed with the Federal Audit Clearinghouse within the applicable deadline. Views of responsible officials: Management concurs with this finding. Management will ensure Beginning balance reconciliations and year-end adjustments will be completed by September and will work with external auditors to have a financial statement draft prior to their fieldwork.

Federal agency: Department of Education Federal program title: Student Financial Assistance Cluster Assistance Listing Numbers: 84.063 – Federal Pell Grant Program 84.268 – Federal Direct Loan Program Award Period: July 1, 2024, to June 30, 2025 Type of Finding: Other Matters Finding related to Compliance within Uniform Guidance and Significant Deficiency in Internal Controls over Compliance. Criteria or specific requirement: Institutions are required to report enrollment information under the Pell grant and the Direct loan programs via the National Student Loan Data System (NSLDS) (OMB No. 1845-0035) (Pell, 34 CFR 690.83(b)(2); Direct Loan, 34 CFR 685.309). Institutions must review, update, and verify student enrollment statuses, program information, and effective dates that appear on the Enrollment Reporting Roster file or on the Enrollment Maintenance page of the NSLDS Professional Access (NSLDSFAP) website. There are two categories of enrollment information with separate record types; “Campus Level” and “Program Level,” both of which need to be reported accurately and timely. The NSLDS Enrollment Reporting Guide provides the requirements and guidance for reporting enrollment details using the NSLDS Enrollment Reporting Process. Institutions must report enrollment changes within 30 days; however, if a roster file is expected within 60 days, you may provide the updated data on that roster file. Additionally, the College is required to ensure adequate internal controls over compliance are established and maintained in accordance with 2 CFR 200.303. Condition: During our testing of the Direct Loan and Pell Grant programs, we selected a sample of 40 students to test for timeliness and accurate reporting of student status changes to the National Student Loan Data System (NSLDS). 30 Students had one or more noncompliant reporting elements noting 30 Instances where students’ campus level enrolment was not certified every 60 days to NSLDS during active enrollment period. Questioned costs Known: None. Context: Out of a sample of 40 enrollment changes selected for testing for the requirement noted above, we noted 30 students with exceptions. 2025– 002 (Continued) Cause: Oversight and clerical error within the Financial Aid office. Effect: The NSLDS system is not updated with the student information in time which can cause over awarding should the student transfer to another institution and the students may not properly enter the repayment period.. Repeat Finding: Yes 2024-002 Recommendation: We recommend that the College continue to enhance its policies and procedures regarding enrollment reporting including additional monitoring over the third-party service provider to ensure that reporting is completed accurately and timely. Views of responsible officials and planned corrective actions: There is no disagreement with the audit finding. Management has addressed their corrective action plan in a separately issued letter.

Federal agency: Department of Education Federal program title: Student Financial Assistance Cluster Assistance Listing Numbers: 84.063 – Federal Pell Grant Program 84.268 – Federal Direct Loan Program 84.007 – Supplemental Educational Opportunity Grant Program 84.379 –Teacher Education Assistance for College and Higher Education Grants Award Period: July 1, 2024, to June 30, 2025 Type of Finding: Other Matters Finding related to Compliance within Uniform Guidance and Significant Deficiency in Internal Controls over Compliance. Criteria or specific requirement: The Code of Federal Regulations, 34 CFR 668.164(h)(2)(ii) A title IV, HEA credit balance must be paid directly to the student or parent as soon as possible, but no later than fourteen (14) days after the first day of class of a payment period if the credit balance occurred on or before the first day of class of that payment period. Additionally, the College is required to ensure adequate internal controls over compliance are established and maintained in accordance with 2 CFR 200.303. Condition: Out of a sample of 40 credit refunds tested, we noted 1 instance where a title IV credit refund was paid to a student beyond 14 days of the credit balance being derived. Questioned costs Known: None Context: One instance of noncompliance in a sample of 40 student refunds tested. Cause: Delays on the physical printing of the check for the student. Effect: Delays on issuing credit refunds could cause a student to not receive their needed credit balance timely. Repeat Finding: No. Recommendation: We recommend that the College to review and enhance its policies and procedures regarding credit balance refunds. Views of responsible officials and planned corrective actions: There is no disagreement with the audit finding. Management has addressed their corrective action plan in a separately issued letter. Section IV – Findings and Questioned Costs – State Financial Assistance Our audit did not disclose any matters required to be reported in accordance with Chapter 10.650, Rules of the Florida Auditor General for the year ended June 30, 2025

FINDING 2025-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): BREAKFAST SY 24-25, LUNCH FY24-25, SUPPLY CHAIN SY 24-25, ADMIN 24-25, OPER FY 24-25, FY 2024-2025 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Other Matters Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC) during the audit period. Per the contract with the FSMC, detailed cost documentation must be submitted monthly to support what the School Corporation was charged for each cost, charge, or expense. An oversight or review process was not in place to ensure the FSMC expenditures were supported by proper detail documentation, were allowable, and only for the operation of the food service program. One expenditure tested was paid for 'end of the year awards' for employees of the FSMC and should not have been paid by the School Corporation. Another expenditure was for a monthly IT billing. Per our review of the contract, this should not be charged to the School Corporation but assumed as an expense of the FSMC under their "Administrative Fee". The billing selected as part of the sample was one month, but further review of the ledger indicated the School Corporation was charged this billing each month in the audit period. These expenditures were considered questioned costs totaling $1,299. INDIANA STATE BOARD OF ACCOUNTS 24 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.1 states in part: "Questioned cost means a cost that is questioned by the auditor because of an audit finding: (1) Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a Federal award, including for funds used to match Federal funds; (2) Where the costs, at the time of the audit, are not supported by adequate documentation; or (3) Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. (4) Questioned costs are not an improper payment until reviewed and confirmed to be improper as defined in OMB Circular A-123 appendix C. (See also the definition of Improper payment in this section)." Cause Management had not developed an adequate system of internal controls to ensure costs charged to the program were allowable and necessary for the operation of the program. INDIANA STATE BOARD OF ACCOUNTS 25 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without an effective review of the detailed records, federal expenditures were unallowable, which the funding agency could potentially recover. Questioned Costs Questioned costs in the amount of $1,299 were identified as described in the Condition and Context. Recommendation We recommended that the School Corporation's management establish a proper system of internal controls to ensure costs that are charged to the program are allowable and necessary. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-004 Subject: Child Nutrition Cluster - Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): BREAKFAST SY 24-25, LUNCH FY24-25, SUPPLY CHAIN SY 24-25, ADMIN 24-25, OPER FY 24-25, FY 2024-2025 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Other Matters Condition and Context Internal controls were not effective in ensuring that supporting documentation of pay rates were retained for payroll expenditures. Six payroll expenditures paid from the School Lunch fund were tested, and documentation supporting the pay rates for these expenditures was not provided for audit. As a result, these expenditures were considered questioned costs totaling $12,697. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: INDIANA STATE BOARD OF ACCOUNTS 26 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.334 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." 2 CFR 200.1 states in part: "Questioned cost means a cost that is questioned by the auditor because of an audit finding: (1) Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a Federal award, including for funds used to match Federal funds; (2) Where the costs, at the time of the audit, are not supported by adequate documentation; or (3) Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. (4) Questioned costs are not an improper payment until reviewed and confirmed to be improper as defined in OMB Circular A-123 appendix C. (See also the definition of Improper payment in this section)." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." INDIANA STATE BOARD OF ACCOUNTS 27 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 2 CFR 200.430(i) states in part: "Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE's definition of IBS); . . . (vii) Support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. . . ." Cause Management had not developed an adequate system of internal controls to ensure costs charged to the program were allowable and necessary for the operation of the program. Effect Without an effective review of the detailed records, federal expenditures were unallowable, which the funding agency could potentially recover. Questioned Costs Questioned costs in the amount of $12,697 were identified as described in the Condition and Context. Recommendation We recommended that the School Corporation's management establish a proper system of internal controls to ensure costs that are charged to the program are allowable and necessary. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-005 Subject: Special Education Cluster (IDEA) - Condition of Records Federal Agency: Department of Education Federal Programs: Special Education Grants to States, COVID-19 - Special Education Grants to States, Special Education Preschool Grants, COVID-19 - Special Education Preschool Grants Assistance Listings Numbers: 84.027, 84.027X, 84.173, 84.173X Federal Award Numbers and Years (or Other Identifying Numbers): 23611-051-PN01,24611-051-PN01, 22611-051-ARP, 23619-051-PN01, 25619-051-PN01, 22619-051-ARP Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed; Allowable Costs/Cost Principles; Matching, Level of Effort, Earmarking; Period of Performance; Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation received reimbursements totaling $12,668,761 from the Special Education Cluster (IDEA) federal awards during the audit period. The reimbursements were associated with six separate federal awards, each of which was required to be accounted for in a separate fund within the School Corporation's financial management system. Expenditures were to be made in accordance with the approved grant applications and budgets, with reimbursement requests subsequently submitted to the Indiana Department of Education (IDOE). The School Corporation was responsible for maintaining detailed disbursement ledgers for each grant fund to support the amounts claimed for reimbursement. As is typical with reimbursement-based grants, the ending cash and investment balances of each grant fund were expected to reflect overdrawn balances until the subsequent reimbursements were received from the IDOE. The $12,668,761 received in the Special Education Cluster (IDEA) funds during the audit period was based on 23 reimbursement requests for expenditures incurred. Based on our review of grant fund records and inquiry with management, we identified the following deficiencies:  The reimbursement requests for the reimbursements received during the audit period included dates of July 1, 2021 to March 31, 2025. It was not easily determined what was requested for reimbursement for the earlier dates due to the School Corporation including in the "Dates Included in this Request" section descriptions such as "Entire Grant Period" and "Start to March 21, 2025". The supporting documentation with the reimbursement requests did not always have detail or specifically state which disbursements were included in the amount for the request. Several had documentation that showed detail for a period of time then a calculation was done to subtract what was previously requested for reimbursement. The total received in reimbursements was $12,668,761. The total detailed disbursement ledgers for the population that could be determined reflected total expenditures of $15,894,839. This resulted in $3,226,078 in disbursements in excess of what the School Corporation requested for reimbursement.  Of the six federal awards reported on the Schedule Expenditures of Awards, four reached the award's performance end date, and of those four, three reported a Grant Balance After Reimbursement on the last Reimbursement Form. o Grant 23619-051-PN01 reported a Grant Balance After Reimbursement of $1,367 on February 26, 2024. The dates included in this final request were "01/01/24 - 01/31/24." INDIANA STATE BOARD OF ACCOUNTS 29 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) o Grant 22611-051-ARP reported a Grant Balance After Reimbursement of $55,581 on December 15, 2023. The dates included in this final request were "06/01/23 - 09/30/23." o Grant 22619-051-ARP reported a Grant Balance After Reimbursement of $82,677 on December 13, 2023. The dates included in this final request were "Entire Grant Period."  Of the 23 reimbursement requests submitted, only 10 were supported by detailed disbursement ledgers that agreed with the dates and amounts claimed. The remaining 13 reimbursement requests could not be directly reconciled to the supporting documentation provided. Upon further inquiry with management, additional information was provided; however, these records lacked sufficient detail, such as transactions, reasons for overspending, and which transactions were not requested for reimbursement due to overspending. Due to the deficiencies noted above, the School Corporation was unable to provide sufficient appropriate evidence for us to determine populations, and, therefore, audit and base an opinion on the compliance requirements subject to audit that were determined to have a direct and material effect on the program. As a result, the $12,668,761 in reimbursements received during the audit period were considered questioned costs. The lack of internal controls and noncompliance were material and systemic throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.302 states in part: "(a) . . . the other non-Federal entity's financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. See also § 200.450. (b) The financial management system of each non-Federal entity must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): INDIANA STATE BOARD OF ACCOUNTS 30 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements set forth in §§ 200.328 and 200.329. . . . (3) Records that identify adequately the source and application of funds for federallyfunded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income, and interest and be supported by source documentation. (4) Effective control over, and accountability, for all funds, property, and assets. The non- Federal entity must adequately safeguard all assets and ensure that they are used solely for authorized purposes. See § 200.303. (5) Comparison of expenditures with budget amounts for each Federal award. (6) Written procedures to implement the requirements of § 200.305. (7) Written procedures for determining the allowability of costs in accordance with subpart E of this part and the terms and conditions of the Federal award." 2 CFR 200.1 states in part: "Questioned cost means a cost that is questioned by the auditor because of an audit finding: (1) Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a Federal award, including for funds used to match Federal funds; (2) Where the costs, at the time of the audit, are not supported by adequate documentation; or (3) Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. (4) Questioned costs are not an improper payment until reviewed and confirmed to be improper as defined in OMB Circular A-123 appendix C. (See also the definition of Improper payment in this section)." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. INDIANA STATE BOARD OF ACCOUNTS 31 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.1 states in part: ". . . Financial obligations, when referencing a recipient's or subrecipient's use of funds under a Federal award, means orders placed for property and services, contracts and subawards made, and similar transactions that require payment. Period of performance means the total estimated time interval between the start of an initial Federal award and the planned end date, which may include one or more funded portions, or budget periods. Identification of the period of performance in the Federal award per § 200.211(b)(5) does not commit the awarding agency to fund the award beyond the currently approved budget period. Unliquidated financial obligations means, for financial reports prepared on a cash basis, financial obligations incurred by the non-Federal entity that have not been paid (liquidated). . . ." 2 CFR 200.309 states: "If a Federal awarding agency or pass-through entity approves an extension, or if a recipient extends under § 200.308(e)(2), the Period of Performance will be amended to end at the completion of the extension. If termination occurs, the Period of Performance will be amended to end upon the effective date of termination. If a renewal award is issued, a distinct Period of Performance will begin." 2 CFR 200.320 states in part: "The non-Federal entity must have and use documented procurement procedures, consistent with the standards of this section and §§ 200.317, 200.318, and 200.319 for any of the following methods of procurement used for the acquisition of property or services required under a Federal award or sub-award. . . ." 2 CFR 180.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking the SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." INDIANA STATE BOARD OF ACCOUNTS 32 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 511 IAC 7-34-7(b) states: "The public agency, in providing special education and related services to students in nonpublic schools must expend at least an amount that is the same proportion of the public agency total subgrant under 20 U.S.C. 1411(f) as the number of nonpublic school students with disabilities, who are enrolled by their parents in nonpublic schools within its boundaries, is to the total number of students with disabilities of the same age range." Cause The School Corporation experienced turnover in key personnel over the federal program which contributed to the lack of appropriate supporting records. A proper system of internal controls was not designed to ensure continuity of policies, procedures, and records when personnel transitions occurred. Effect Noncompliance with the grant agreement and the compliance requirements could result in the repayment of federal funds. Questioned Costs We identified $12,668,761 in questioned costs as noted in the Condition and Context. Recommendation We recommended that the School Corporation's management develop policies and procedures to ensure continuity of school records during a personnel change, and that all reimbursement requests are properly supported by detailed records. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-006 Subject: Title I Grants to Local Educational Agencies - Internal Controls Federal Agency: Department of Education Federal Program: Title I Grants to Local Educational Agencies Assistance Listings Number: 84.010 Federal Award Numbers and Years (or Other Identifying Numbers): S010A210014, S010A220014, S010A230014, S010A240014 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed; Matching, Level of Effort, Earmarking Audit Finding: Material Weakness Repeat Findings This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-003. INDIANA STATE BOARD OF ACCOUNTS 33 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context The School Corporation had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties, that would likely be effective in preventing, or detecting and correcting, issues related to the grant agreement and the Activities Allowed or Unallowed and Matching, Level of Effort, Earmarking compliance requirements. Activities Allowed or Unallowed Title I Payroll Distribution Reports were reviewed and approved by the Title I Director or Title I Budget Supervisor to confirm that payroll charges were allowable under the grant. However, the review process was not documented and, as a result, could not be verified. Level of Effort The department heads responsible for federal grants, along with the Director of Internal Audits, initiated a review of the Payroll Distribution report to verify that employees were paid from the appropriate funds. However, the review was limited to certain funds and did not encompass all funds within the School Corporation. The lack of internal controls was a systemic issue throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." Cause The School Corporation did not establish or implement a proper system of internal controls. Documented procedures were either missing or insufficient to ensure proper review of payroll expenses. Payroll distribution reviews were limited to certain funds and lacked documentation, leaving oversight incomplete and inconsistent. Effect The lack of documentation demonstrating appropriate reviews of payroll charges by the School Corporation was present throughout the audit period, which increased the risk that employees could be paid from incorrect funds and compliance with grant requirements could not be demonstrated. Questioned Costs There were no questioned costs identified. INDIANA STATE BOARD OF ACCOUNTS 34 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation The School Corporation should develop and implement an internal control system specifically designed to ensure appropriate documentation and review of payroll charges. This system should include documented procedures for payroll approvals, proper segregation of duties, and routine oversight by qualified personnel. The School Corporation should ensure that staff responsible are knowledgeable about compliance standards, including Activities Allowed or Unallowed and Matching, Level of Effort, Earmarking compliance requirements. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-007 Subject: Title I Grants to Local Educational Agencies - Allowable Costs/Cost Principles Federal Agency: Department of Education Federal Program: Title I Grants to Local Educational Agencies Assistance Listings Number: 84.010 Federal Award Numbers and Years (or Other Identifying Numbers): S010A210014, S010A220014, S010A230014, S010A240014 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Other Matters Repeat Findings This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-004. Condition and Context Costs charged to grant funds must be adequately documented. To adequately document payroll expenses charged to the grant fund, contracts or other documentation supporting the employees' approved rates of pay are necessary. The School Corporation utilized a financial software system that has two different sides, an employee portal side and an administrator side. Employee contracts are approved by the employee, the Superintendent of Schools, and the President of the School Board within the system on the employee portal side. Once approved, the data in the employee portal side is fed into a process in the administrator side. The School Corporation could not provide a contract or approved payroll rate for 4 of 24 employees tested. As such, we could not verify the employee was paid their correct rates for hours spent working on grant-related activities. This resulted in known questioned costs of $103,640. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: INDIANA STATE BOARD OF ACCOUNTS 35 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.334 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." 2 CFR 200.1 states in part: "Questioned cost means a cost that is questioned by the auditor because of an audit finding: (1) Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a Federal award, including for funds used to match Federal funds; (2) Where the costs, at the time of the audit, are not supported by adequate documentation; or (3) Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. (4) Questioned costs are not an improper payment until reviewed and confirmed to be improper as defined in OMB Circular A-123 appendix C. (See also the definition of Improper payment in this section)." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.430(i) states in part: "Standards for Documentation of Personnel Expenses INDIANA STATE BOARD OF ACCOUNTS 36 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE's definition of IBS); . . . (vii) Support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. . . ." Cause The School Corporation did not maintain or provide adequate documentation to support payroll expenses charged to the grant fund. While employee contracts are approved within the financial software system, the process lacked sufficient oversight and record retention practices to ensure that approved pay rates were accessible and verifiable. Effect Without access to approved contracts or documentation verifying payroll rates for 4 of the 24 employees tested, the School Corporation could not demonstrate that payroll costs charged to the grant were accurate and allowable. This lack of documentation resulted in known questioned costs totaling $103,640. Additionally, the absence of reliable records increases the risk of noncompliance with federal grant requirements and necessitates expanded audit procedures, which will likely lead to higher audit costs. Questioned Costs Questioned costs in the amount of $103,640 were identified as described in the Condition and Context. Recommendation The School Corporation should establish and enforce documentation procedures to verify payroll rates for all employees whose compensation is charged to federal grants. This includes maintaining approved contracts, salary schedules, and supporting records that clearly demonstrate the accuracy and allowability of payroll costs. A review and approval process by a second knowledgeable party should be implemented to ensure compliance prior to submission. Additionally, the School Corporation should provide necessary support and resources for staff involved in payroll and grant management to strengthen recordkeeping practices. These measures will reduce the risk of noncompliance, minimize questioned costs, and help control future audit expenses. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-008 Subject: Title I Grants to Local Educational Agencies - Eligibility Federal Agency: Department of Education Federal Program: Title I Grants to Local Educational Agencies Assistance Listings Number: 84.010 Federal Award Numbers and Years (or Other Identifying Numbers): S010A210014, S010A220014, S010A230014, S010A240014 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Eligibility Audit Findings: Material Weakness, Other Matters Condition and Context Eligibility for Title I is determined on the Eligible School Summary of the Title I application. Data from the School Corporation's student software system (Real Time data reports) was uploaded to the Indiana Department of Education's (IDOE) Data Exchange System. Enrollment and poverty information for the School Corporation was then abstracted by the IDOE from the Data Exchange System and prepopulated into the Title I application for the School Corporation. These counts are based upon the School Corporation's records as of October of the prior fiscal year. The enrollment and the poverty status of each student included in the summary data should have been supported by school records. The October 2022 and 2023 Real Time data reports, which were used to prepopulate the School Corporation's enrollment numbers for the 2023-2024 and 2024-2025 Title I applications, were tested for accuracy. Of the 25 students tested, there were 3 students in which the School Corporation could not locate enrollment or attendance documentation for the 2023-2024 school year. Additionally, 1 student was missing enrollment and attendance documentation for the 2024-2025 school year. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.334 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." INDIANA STATE BOARD OF ACCOUNTS 38 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 34 CFR 200.78(a)(1) states: "After reserving funds, as applicable, under § 200.77, including funds for equitable services for private school students, their teachers, and their families, an LEA must allocate funds under this subpart to school attendance areas and schools, identified as eligible and selected to participate under section 1113(a) or (b) of the ESEA, in rank order on the basis of the total number of public school children from low-income families in each area or school." Cause The School Corporation had not designed or implemented an oversight or review process to ensure that the data prepopulated into the Title I application was accurately reported. Effect Noncompliance with the grant agreement and the compliance requirement listed above could result in the repayment of federal funds. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation improve verification procedures to ensure enrollment data is fully supported before submission. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-009 Subject: Title I Grants to Local Educational Agencies - Special Tests and Provisions - Annual Report Card, High School Graduation Rate Federal Agency: Department of Education Federal Program: Title I Grants to Local Educational Agencies Assistance Listings Number: 84.010 Federal Award Numbers and Years (or Other Identifying Numbers): S010A210014, S010A220014, S010A230014, S010A240014 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Special Tests and Provisions - Annual Report Card, High School Graduation Rate Audit Findings: Material Weakness, Other Matters Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-007. INDIANA STATE BOARD OF ACCOUNTS 39 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context An effective internal control system, which would include segregation of duties, was not in place at the School Corporation in order to ensure compliance with requirements related to the grant agreement and the Special Tests and Provisions - Annual Report Card, High School Graduation Rate compliance requirement. The School Corporation reports graduation rate data for all public high schools within the School Corporation using the four-year adjusted cohort rate. The School Corporation has a total of five high schools plus the juvenile detention center for which graduation rate data is submitted. To remove a student from the cohort, the School Corporation must confirm the reason for removal in writing. Additionally, required documentation for each removal type must be retained by the School Corporation. The Indiana Department of Education (IDOE) has outlined the acceptable documentation required when a student exists in a cohort. Once a student's required documentation is received, the School Corporation may then remove the student from the graduation cohort using the associated mobility code. Of the 40 students selected for testing, 8 students had documentation maintained by the School Corporation; however, the documentation did not meet the IDOE's student mobility documentation requirements. Additionally, 10 students had no documentation to support the mobility code assigned. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 20 USC 7801(23)(B) states: "To remove a student from a cohort, a school or local educational agency shall require documentation, or obtain documentation from the State educational agency, to confirm that the student has transferred out, emigrated to another country, or transferred to a prison or juvenile facility, or is deceased." Cause The School Corporation did not establish or implement an effective internal control system, including adequate segregation of duties, to ensure compliance with the grant agreement and the Special Tests and Provisions - Annual Report Card, High School Graduation Rate compliance requirement. Specifically, the School Corporation failed to maintain appropriate documentation supporting student cohort removals in accordance with the IDOE requirements. This deficiency resulted from a lack of oversight, insufficient staff training on documentation standards, and the absence of formal review procedures to verify the accuracy and completeness of graduation rate data submitted. INDIANA STATE BOARD OF ACCOUNTS 40 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Due to the lack of effective internal controls and noncompliance with the IDOE documentation requirements, the School Corporation submitted inaccurate graduation rate data for the audit period. Specifically, the improper or missing documentation for student cohort removals undermines the reliability of reported graduation rates. This misrepresentation of school performance can affect accountability determinations and jeopardize continued eligibility for federal funding tied to compliance with grant and reporting requirements. Questioned Costs There were no questioned costs identified. Recommendation The School Corporation should design and implement an internal control system to ensure compliance with the IDOE documentation requirements for graduation rate reporting. This includes establishing clear procedures for verifying and retaining acceptable student mobility documentation, assigning oversight responsibilities to ensure proper review of documentation and procedures, and providing staff with necessary support and resources over documentation standards. Periodic reviews and monitoring should be instituted to ensure compliance and improve documentation retention. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-010 Subject: Title I Grants to Local Educational Agencies - Special Tests and Provisions - Assessment System Security Federal Agency: Department of Education Federal Program: Title I Grants to Local Educational Agencies Assistance Listings Number: 84.010 Federal Award Numbers and Years (or Other Identifying Numbers): S010A210014, S010A220014, S010A230014, S010A240014 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Special Tests and Provisions - Assessment System Security Audit Findings: Significant Deficiency, Other Matters Condition and Context State educational agencies (SEA), in consultation with local educational agencies (LEA), are required to establish and maintain an assessment security system that is valid, reliable, and consistent with relevant professional and technical standards. Within their assessment system, SEAs must have policies and procedures to maintain test security measures and ensure that LEAs implement those policies and procedures. As such, the Indiana Department of Education created and published the Indiana Assessments Policy Manual. As a part of the assessment security, any individual who administers, handles, or has access to secure test materials at the School Corporation shall complete assessment training and sign a testing security and integrity statement that remains on file in the appropriate building-level office each year. Everyone required to sign the testing integrity agreement shall sign the form by an established date. INDIANA STATE BOARD OF ACCOUNTS 41 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Of the 25 individuals tested, the School Corporation could not provide evidence that 1 employee in the 2023-2024 school year and 2 employees in the 2024-2025 school year had completed the required assessment security training or had signed the assessment security agreement. The lack of internal controls was a systemic issue throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federals award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 511 IAC 5-5-5(b) states: "Any individual who administers, handles, or has access to secure test materials at the school or school corporation shall complete assessment training and sign a testing security and integrity agreement to remain on file in the appropriate building-level office each year." Indiana Assessments Policy Manual states: "Ensure all staff (including, but not limited to, TAs, proctors, principals, teachers in tested as well as non-tested grade levels, front office staff, teacher aides, cafeteria employees, custodians, etc.) complete IDOE's required test security and integrity training by September 30 annually. Locally maintain documentation (attendance sign-in sheets, training agendas, and other training materials) reflecting completion of all required training." Cause A proper system of internal controls was not designed by management of the School Corporation to ensure required school employees took the training. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, certifications were not properly completed or maintained to ensure employees attended the assessment system training or signed the assessment security agreement. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation implement a verification process to ensure all employees who are required to participate in the training complete the training and sign the required training documentation, either digitally or on physical forms, in a timely manner. INDIANA STATE BOARD OF ACCOUNTS 42 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-011 Subject: Gaining Early Awareness and Readiness for Undergraduate Programs - Internal Controls Federal Agency: Department of Education Federal Program: Gaining Early Awareness and Readiness for Undergraduate Programs Assistance Listings Number: 84.334 Federal Award Number and Year (or Other Identifying Number): P334A210080 Compliance Requirements: Cash Management, Period of Performance Audit Finding: Material Weakness Condition and Context The School Corporation used reimbursement requests to claim allowable expenses paid from Gaining Early Awareness and Readiness for Undergraduate Programs. These requests must be based on and supported by transactions recorded within the School Corporation's Gaining Early Awareness and Readiness for Undergraduate Programs funds. The School Corporation's internal controls over the Gaining Early Awareness and Readiness for Undergraduate Programs Cash Management and Period of Performance compliance requirements were not consistent throughout the audit period. During our review of all the grant reimbursement requests, it was noted that not all reimbursement requests had evidence of a review. The reimbursement requests submitted from July 1, 2023 through November 30, 2024, were not reviewed and approved. The lack of internal controls was isolated to the period identified above. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." Cause Management of the School Corporation had not established a proper system of internal controls over reimbursement requests to ensure compliance with the Cash Management and Period of Performance compliance requirements. INDIANA STATE BOARD OF ACCOUNTS 43 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect The failure to establish a system of internal controls could have enabled material misstatements or irregularities to remain undetected. The failure to monitor the internal control system placed the School Corporation at risk that internal controls may not be either designed properly or operating effectively to provide reasonable assurance that internal controls would have prevented, or detected and corrected, misstatements in a timely manner. Questioned Costs There were no questioned costs identified. Recommendation We recommended the School Corporation's management implement consistent internal control procedures to ensure all grant reimbursement requests are properly reviewed and approved before submission. This should include establishing a formal review process, requiring documented sign-off for every request, and periodically monitoring compliance throughout the grant period. Strengthening these controls will help ensure adherence to Gaining Early Awareness and Readiness for Undergraduate Programs Cash Management and Period of Performance compliance requirements and improve overall grant oversight. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-012 Subject: Gaining Early Awareness and Readiness for Undergraduate Programs - Allowable Costs/Cost Principles Federal Agency: Department of Education Federal Program: Gaining Early Awareness and Readiness for Undergraduate Programs Assistance Listings Number: 84.334 Federal Award Number and Year (or Other Identifying Number): P334A210080 Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Other Matters Condition and Context Costs charged to grant funds must be adequately documented. To adequately document payroll expenses charged to the grant fund, contracts or other documentation supporting the employees' approved rates of pay are necessary. The School Corporation utilized a financial software system that has two different sides, an employee portal side and an administrator side. Employee contracts are approved by the employee, the Superintendent of Schools, and the President of the School Board within the system on the employee portal side. Once approved, the data in the employee portal side is fed into a process in the administrator side. INDIANA STATE BOARD OF ACCOUNTS 44 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation provided approved payroll rate documentation that did not agree with the amount paid for eight of nine employees tested. As such, we could not verify the employee was paid the correct rate for hours spent working on grant-related activities. Seven of the employees were overpaid, and one of the employees was underpaid based on the approved payroll rate documentation that was provided. This resulted in known questioned costs of $2,981. The lack of internal controls and noncompliance were systemic throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.334 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." 2 CFR 200.1 states in part: "Questioned cost means a cost that is questioned by the auditor because of an audit finding: (1) Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a Federal award, including for funds used to match Federal funds; (2) Where the costs, at the time of the audit, are not supported by adequate documentation; or (3) Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. (4) Questioned costs are not an improper payment until reviewed and confirmed to be improper as defined in OMB Circular A-123 appendix C. (See also the definition of Improper payment in this section)." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: INDIANA STATE BOARD OF ACCOUNTS 45 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (c) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (d) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.430(i) states in part: "Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE's definition of IBS); . . . (vii) Support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. . . ." Cause The School Corporation did not maintain or provide adequate documentation to support payroll expenses charged to the grant fund. While employee contracts were approved within the financial software system, the process lacked sufficient oversight and record retention practices to ensure that approved rates of pay were accessible and verifiable. Effect Without access to accurate approved contracts or documentation verifying payroll rates for 8 of the 9 employees tested, the School Corporation could not demonstrate that payroll costs charged to the grant were accurate and allowable. This lack of accurate documentation resulted in known questioned costs totaling $2,981. Additionally, the absence of reliable records increases the risk of noncompliance with federal grant requirements and necessitates expanded audit procedures, which will likely lead to higher audit costs. Questioned Costs Questioned costs in the amount of $2,981 were identified as described in the Condition and Context. INDIANA STATE BOARD OF ACCOUNTS 46 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommended that the School Corporation management establish and implement an internal control system over payroll processes to ensure compliance with federal grant requirements. This includes developing formal procedures for documenting payroll charges to federal programs, review and approval processes by a second knowledgeable individual, and maintaining records to support all payroll expenditures. Staff involved in payroll and grant management should receive necessary support and resources regarding federal documentation standards and allowable cost principles. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-013 Subject: Gaining Early Awareness and Readiness for Undergraduate Programs - Procurement and Suspension and Debarment Federal Agency: Department of Education Federal Program: Gaining Early Awareness and Readiness for Undergraduate Programs Assistance Listings Number: 84.334 Federal Award Number and Year (or Other Identifying Number): P334A210080 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context Federal regulations allow for informal procurement methods when the value of the procurement for property or services does not exceed the simplified acquisition threshold, which is set at $250,000 unless a lower, more restrictive threshold is set by a non-Federal entity. As Indiana Code has set a more restrictive threshold of $150,000, informal procurement methods are permitted when the value of the procurement does not exceed $150,000. This informal process allows for methods other than the formal bid process. The informal process is divided between two methods based on thresholds. Micro-purchases, typically for those purchases $10,000 or under, and small purchase procedures for those purchases above the micropurchase threshold, but below the simplified acquisition threshold. Micro-purchases may be awarded without soliciting competitive price rate quotations. If small purchase procedures are used, then price or rate quotations must be obtained from an adequate number of qualified sources. When the value of the procurement for property or services exceeds the simplified acquisition threshold, formal procurement methods are required. Formal procurement methods require adherence to documented procedures and formal methods such as sealed bids or proposals. The School Corporation did not have internal controls in place to ensure it complied with the procurement compliance requirement for small purchase and simplified acquisition procurement methods. During the audit period, the School Corporation paid 40 vendors from the Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) that fell into the small purchase threshold. Of those 40 vendors 3 vendors were tested. All 3 vendors did not have any rate quotes from qualified sources. The total dollar amount paid to these three vendors was $156,175. INDIANA STATE BOARD OF ACCOUNTS 47 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had two vendors during the audit period, which exceeded the simplified acquisition threshold that were paid from the Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP). Both vendors were tested and it was determined that the School Corporation did not follow the formal procurement method of sealed bids or competitive proposals, nor was a circumstance documented that would have allowed for noncompetitive procurement for the purchases. The total dollar amount paid to these vendors was $724,290. In addition, the School Corporation did not follow its own purchasing policy #6325, in which the School Corporation had set a threshold of $3,500 for small purchases. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.320 states in part: "The non-Federal entity must have and use documented procurement procedures, consistent with the standards of this section and §§ 200.317, 200.318, and 200.319 for any of the following methods of procurement used for the acquisition of property or services required under a Federal award or sub-award. (a) Informal procurement methods. When the value of the procurement for property or services under a Federal award does not exceed the simplified acquisition threshold (SAT), as defined in § 200.1, or a lower threshold established by a non-Federal entity, formal procurement methods are not required. The non-Federal entity may use informal procurement methods to expedite the completion of its transactions and minimize the associated administrative burden and cost. The informal methods used for procurement of property or services at or below the SAT include: . . . (2) Small purchases— (i) Small purchase procedures. The acquisition of property or services, the aggregate dollar amount of which is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources as determined appropriate by the non-Federal entity. INDIANA STATE BOARD OF ACCOUNTS 48 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (ii) Simplified acquisition thresholds. The non-Federal entity is responsible for determining an appropriate simplified acquisition threshold based on internal controls, an evaluation of risk and its documented procurement procedures which must not exceed the threshold established in the FAR. When applicable, a lower simplified acquisition threshold used by the non-Federal entity must be authorized or not prohibited under State, local, or tribal laws or regulations. (b) Formal procurement methods. When the value of the procurement for property or services under a Federal financial assistance award exceeds the SAT, or a lower threshold established by a non-Federal entity, formal procurement methods are required. Formal procurement methods require following documented procedures. Formal procurement methods also require public advertising unless a non-competitive procurement can be used in accordance with § 200.319 or paragraph (c) of this section. The following formal methods of procurement are used for procurement of property or services above the simplified acquisition threshold or a value below the simplified acquisition threshold the non-Federal entity determines to be appropriate: (1) Sealed bids. A procurement method in which bids are publicly solicited and a firm fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid, conforming with all the material terms and conditions of the invitation for bids, is the lowest in price. The sealed bids method is the preferred method for procuring construction, if the conditions. . . . (2) Proposals. A procurement method in which either a fixed price or costreimbursement type contract is awarded. Proposals are generally used when conditions are not appropriate for the use of sealed bids. . . ." Cause A proper system of internal controls was not implemented by management of the School Corporation. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to affect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, procurement procedures for goods and services were not adhered to for vendors that fell within the small purchase and the exceeded simplified acquisition thresholds. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish and implement an effective internal control system over small purchases and purchases exceeding the simplified acquisition threshold to ensure compliance with federal grant requirements. Appropriate documentation should be maintained to ensure the procurement methods are being followed. INDIANA STATE BOARD OF ACCOUNTS 49 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-014 Subject: Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) - Condition of Records Federal Agency: Department of Education Federal Program: Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) Assistance Listings Number: 84.374 Federal Award Number and Year (or Other Identifying Number): S374A200039 Compliance Requirements: Matching, Level of Effort, Earmarking; Period of Performance; Reporting Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation received reimbursements totaling $3,530,669 from Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) (TSL) federal awards during the audit period. Expenditures were to be made in accordance with the approved grant applications and budgets, with reimbursement requests subsequently submitted to the U.S. Department of Education. The School Corporation was responsible for complying with requirements of the grant per the grant agreements. We found the following deficiencies: Matching, Level of Effort, Earmarking The School Corporation did not provide documentation of how the matching requirement was met. Grant award letters were not provided; therefore, we could not ensure the required percentage local match was met. Period of Performance Grant award letters would indicate the period of the grant in which expenditures are allowed to be reimbursed. However, those letters were never provided. Therefore, we could not test to ensure compliance with the Period of Performance compliance requirement. Reporting According to our understanding of the grant, there should have been two final Annual Performance Reports and two mid-year Annual Performance Reports submitted within the audit period. Two reports were provided; however, they were from outside the audit period. Since the appropriate reports were not provided for audit, we could not test to ensure compliance with the Reporting compliance requirement. There were multiple Directors over the Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) during the audit period. At the time the audit was conducted, no previous Directors were employed with the School Corporation and there were no current employees that were knowledgeable of the grant and its requirements. The lack of internal controls and failure to maintain and provide adequate supporting documentation were systemic issues throughout the audit period. INDIANA STATE BOARD OF ACCOUNTS 50 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.334 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." 2 CFR 200.302 states in part: "(a) . . . the other non-Federal entity's financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award. See also § 200.450. (b) The financial management system of each non-Federal entity must provide for the following (see §§ 200.334, 200.335, 200.336, and 200.337): (1) Identification, in its accounts, of all Federal awards received and expended and the Federal programs under which they were received. Federal program and Federal award identification must include, as applicable, the Assistance Listings title and number, Federal award identification number and year, name of the Federal agency, and name of the pass-through entity, if any. (2) Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements set forth in §§ 200.328 and 200.329. . . . (3) Records that identify adequately the source and application of funds for federallyfunded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income, and interest and be supported by source documentation. (4) Effective control over, and accountability, for all funds, property, and assets. The non- Federal entity must adequately safeguard all assets and ensure that they are used solely for authorized purposes. See § 200.303. INDIANA STATE BOARD OF ACCOUNTS 51 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (5) Comparison of expenditures with budget amounts for each Federal award. (6) Written procedures to implement the requirements of § 200.305. (7) Written procedures for determining the allowability of costs in accordance with subpart E of this part and the terms and conditions of the Federal award." Cause The School Corporation experienced turnover in key personnel over the federal program, which contributed to the lack of appropriate documentation. A proper system of internal controls was not designed to ensure continuity of policies, procedures, and records when personnel transitions occurred. Effect Noncompliance with the grant agreement and the compliance requirements could result in the repayment of federal funds. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management develop policies and procedures to ensure continuity of school records during a personnel change. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-015 Subject: Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) - Cash Management Federal Agency: Department of Education Federal Program: Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) Assistance Listings Number: 84.374 Federal Award Number and Year (or Other Identifying Number): S374A200039 Compliance Requirement: Cash Management Audit Finding: Material Weakness Condition and Context An effective internal control system was not in place at the School Corporation to ensure compliance with requirements related to the grant agreement and the Cash Management compliance requirement. Requests for reimbursement were made with no documented review before or after submission. There were multiple Directors over the Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) during the audit period. At the time the audit was conducted, no previous Directors were employed with the School Corporation and there were no current employees that were knowledgeable of the grant and its requirements. INDIANA STATE BOARD OF ACCOUNTS 52 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The lack of internal controls was systemic throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." Cause The School Corporation experienced turnover in key personnel over the federal program, which contributed to the lack of appropriate documentation. A proper system of internal controls was not designed to ensure continuity of policies, procedures, and records when personnel transitions occurred. Effect Noncompliance with the grant agreement and the compliance requirements could result in the repayment of federal funds. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management develop policies and procedures to ensure continuity of school records during a personnel change. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-016 Subject: Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) - Activities Allowed or Unallowed Federal Agency: Department of Education Federal Program: Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) Assistance Listings Number: 84.374 Federal Award Number and Year (or Other Identifying Number): S374A200039 Compliance Requirement: Activities Allowed or Unallowed Audit Findings: Material Weakness, Other Matters INDIANA STATE BOARD OF ACCOUNTS 53 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context An effective internal control system was not in place at the School Corporation to ensure compliance with requirements related to the grant agreement and the Activities Allowed or Unallowed compliance requirement. A sample of 60 expenditures paid from the Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) funds (TSL) were tested. In that sample, we determined 7 were not allowed, which included advertising expenditures, other unallowed expenditures, and reimbursements for alcohol. This resulted in known questioned costs of $43,574. There were multiple Directors over the TSL during the audit period. At the time the audit was conducted, no previous Directors were employed with the School Corporation and there were no current employees that were knowledgeable of the grant and its requirements. The lack of internal controls and noncompliance were systemic throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.1 states in part: "Questioned cost means a cost that is questioned by the auditor because of an audit finding: (1) Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a Federal award, including for funds used to match Federal funds; (2) Where the costs, at the time of the audit, are not supported by adequate documentation; or (3) Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. (4) Questioned costs are not an improper payment until reviewed and confirmed to be improper as defined in OMB Circular A-123 appendix C. (See also the definition of Improper payment in this section)." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: INDIANA STATE BOARD OF ACCOUNTS 54 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." Cause Management had not developed an adequate system of internal controls to ensure costs charged to the program were allowable and necessary for the operation of the program. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of preventing, or detecting and correcting, noncompliance. As a result, weaknesses in the internal control environment allowed instances of noncompliance to occur and remain undetected during the audit period resulting in $43,574 of questioned costs. Questioned Costs Questioned costs in the amount of $43,574 were identified as described in the Condition and Context. Recommendation We recommended that the School Corporation's management develop policies and procedures to ensure continuity of school records during a personnel change. We also recommended that the School Corporation's management establish a system of internal controls, including segregation of duties, to ensure compliance with the grant agreement and the Activities Allowed or Unallowed compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2025-017 Subject: Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) - Allowable Costs/Cost Principles Federal Agency: Department of Education Federal Program: Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) Assistance Listings Number: 84.374 Federal Award Number and Year (or Other Identifying Number): S374A200039 Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Other Matters INDIANA STATE BOARD OF ACCOUNTS 55 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context An effective internal control system was not in place at the School Corporation to ensure compliance with requirements related to the grant agreement and the Allowable Costs/Cost Principles compliance requirement. There were multiple Directors over the Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) (TSL) during the audit period. At the time the audit was conducted, no previous Directors were employed with the School Corporation and there were no current employees that were knowledgeable of the grant and its requirements. A sample of 60 expenditures paid from the TSL were tested. In that sample, we determined the following noncompliance:  There were 7 vendor expenditures that were not allowable, which included advertising expenditures, other unallowable costs, and reimbursements for alcohol. This resulted in known questioned costs of $43,574.  There were 12 stipends that could not be verified as the School Corporation was unable to provide documentation confirming School Board approval. This resulted in known questioned costs of $14,028. The combined vendor and stipend issues resulted in known questioned costs of $57,602. The lack of internal controls and noncompliance were systemic throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.1 states in part: "Questioned cost means a cost that is questioned by the auditor because of an audit finding: (1) Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a Federal award, including for funds used to match Federal funds; (2) Where the costs, at the time of the audit, are not supported by adequate documentation; or (3) Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. INDIANA STATE BOARD OF ACCOUNTS 56 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (4) Questioned costs are not an improper payment until reviewed and confirmed to be improper as defined in OMB Circular A-123 appendix C. (See also the definition of Improper payment in this section)." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." Cause Management had not developed an adequate system of internal controls to ensure costs charged to the program were allowable and necessary for the operation of the program. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of preventing, or detecting and correcting, noncompliance. As a result, weaknesses in the internal control environment allowed instances of noncompliance to occur and remain undetected during the audit period resulting in $57,602 of questioned costs. Questioned Costs Questioned costs in the amount of $57,602 were identified as described in the Condition and Context. Recommendation We recommended that the School Corporation's management develop policies and procedures to ensure continuity of school records during a personnel change. We also recommended that the School Corporation's management establish a system of internal controls, including segregation of duties, to ensure compliance with the grant agreement and the Allowable Costs/Cost Principles compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.