(2025-019) Title: Internal control over CNC claim reimbursements needs improvement Prior Year Findings: See Schedule of Findings and Questioned Costs for chart/table State Department: Education State Bureau: Child Nutrition Services Federal Agency: U.S. Department of Agriculture Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.556, 10.559, 10.582 Federal Award Identification Number: See E-65 to E-66 Compliance Area: Allowable costs/cost principles Reporting Type of Finding: Material weakness Material noncompliance Questioned costs Known Questioned Costs: ALN 10.559 $61,336 ALN 10.582 $12,215 Likely Questioned Costs: Undeterminable; due to the variety of exceptions in the test population, an error rate cannot be applied to the population, and a projection of questioned costs cannot be reasonably estimated. Criteria: 2 CFR 200.303; 2 CFR 200.403; 7 CFR 210.7 and .8; 7 CFR 225.6, .9, and .16; Richard B. Russell National School Lunch Act (NSLA), Section 19 The Department must establish, document, and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. To be allowable under Federal awards, costs must be necessary and reasonable for the performance of the Federal award and be adequately documented. 7 CFR 210.7 and .8 for the National School Lunch Program (NSLP) require: • claims for reimbursement (CFRs) to be based on lunch counts taken daily at the point of service, which correctly identify the number of free, reduced price, and paid lunches served to eligible children. • the Department to compare, on a monthly basis, the number of free and reduced price lunches claimed to the number of children approved for free and reduced price lunches enrolled in the School Food Authority (SFA) for the month of October and multiply that number by the days of operation and the attendance factor employed by the SFA. At its discretion, the Department may conduct this comparison against data which reflects the number of children approved for free and reduced price lunches for a more current month(s). 7 CFR 225 for the Summer Food Service Program (SFSP) requires: • information that must be on a site information sheet provided by the sponsor for approval by the Department prior to participation in SFSP, including estimated meal counts, types of meals, meal service times, and procedures to ensure duplicate meals are not distributed at non-congregate sites. In order to approve a site, the area where the site proposes to serve is not or will not be served in whole or in part by another site. • payments to a sponsor must equal the amount derived by multiplying the number of eligible meals, by type, actually served under the sponsor’s program to eligible children by the current applicable reimbursement rate for each meal type. Sponsors must be eligible to receive additional reimbursement for each meal served to participating children at rural or self-preparation sites. Section 19 of the Richard B. Russell NSLA states that the per-pupil grant provided to a school under the Fresh Fruit and Vegetable Program (FFVP) shall be not less than $50, nor more than $75. Condition: The Child Nutrition Cluster (CNC) includes the School Breakfast Program, NSLP, Special Milk Program for Children, SFSP, and FFVP. The objectives of the programs are to provide nutritious meals to eligible children in schools and summer food programs; to foster healthy eating habits by providing fresh fruits and vegetables to children attending elementary schools; and to encourage the consumption of nutritious agriculture commodities. The Department of Education (DOE) is responsible for the administration of CNC programs for the State. DOE provides benefits to each SFA or sponsor on a reimbursement basis. SFAs and sponsors must submit CFRs based on actual meals served for the month utilizing the Child Nutrition Program (CNPWeb) system. Claims pass through a system of edit checks built into the CNPWeb system, are automatically approved after those edit checks, and are processed based on rates programmed in the system. DOE does not verify the allowability or accuracy of monthly CFRs prior to payment, and edit checks built into the CNPWeb system are not routinely monitored. There are no monthly procedures in place that operate as controls over the allowability of claims. As a result, DOE has no assurance that SFA and sponsor monthly claim submissions are accurate or complete, or that the resulting CFR is allowable prior to payment. For SFSP, DOE requires applications from sponsors that include individual site sheets. The information on the sheet must include the estimated number of meals, types of meals to be served, and meal service times. Non-congregate sites must provide enough detail to ensure the area where the site proposes to serve meets certain criteria, including verification that the site is rural; is not or will not be served in whole or in part by another site; serves an area in which poor economic conditions exist or is approved for reimbursement only for free meals served to enrolled children who meet income standards; and has procedures to ensure that duplicate meals are not served to any child. Residential and non-residential camps must include in their site sheets the number of children enrolled in each session who meet income standards prior to filing the camp’s CFR for each session. The Office of the State Auditor (OSA) tested 44 SFSP CFRs and found: • 4 residential or non-residential camp CFRs that did not include the number of children enrolled in each session who met income standards prior to filing their CFR, resulting in questioned costs totaling $31,647. Additionally, of these 4 CFRs: o 2 were missing non-congregate site plan attestations; and o 1 did not include a site classification type on its site sheet, which determines the appropriate reimbursement rate. • 1 CFR to a non-congregate site that did not have documented procedures to prevent duplicate meal service on the site sheet and had census data contained within the non-congregate plan that did not match U.S. Census Bureau data, resulting in questioned costs totaling $29,689. OSA selected a non-statistical random sample. Furthermore, for each month of operation, DOE must report the number of meals served by meal type and sponsor type to the United States Department of Agriculture’s Food Nutrition Services (FNS) on the FNS-418 report. DOE does not have assurance that the CNPWeb system’s default classification of urban sites as self-prep when the field is left blank results in accurate FNS-418 reporting. DOE initiated a request to the CNPWeb system vendor to correct this system error in April 2025; however, the issue persisted for the entirety of fiscal year 2025. For FFVP, allocations made by DOE must result in a per-pupil grant not less than $50 nor more than $75 to participating SFAs and sponsors. OSA tested 18 SFAs and sponsors that participated in FFVP in fiscal year 2025 and found that 11 SFAs and sponsors had per-pupil allocations that were not between $50 and $75 per pupil, ranging from $15 per pupil to $104 per pupil. The allocation of funds over $75 per pupil resulted in questioned costs of $12,215. OSA selected a non-statistical random sample. Context: In fiscal year 2025, DOE processed SFA and sponsor CFRs totaling: • $58.5 million under NSLP; • $2.8 million under SFSP; and • $2.7 million under FFVP. Cause: • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: • Noncompliance with Federal regulations • Known questioned costs • Potential future questioned costs and disallowances • Potential incorrect rates of reimbursement paid to SFAs and sponsors • Inaccurate FNS-418 reports submitted to FNS Recommendation: We recommend that the Department enhance policies and procedures and increase oversight to: • review CFRs on a monthly basis to provide assurance that SFA and sponsor payments are accurate and complete; • ensure all required information is included in SFA and sponsor applications and CFR submissions prior to payment, including site classification types and non-congregate plan information on site information sheets; and • ensure FFVP per pupil allocation amounts comply with Federal regulations. Corrective Action Plan: See F-14 Management’s Response: The Department agrees with this finding. The exceptions referenced in this finding are from the program FY23 audit. All identified exceptions have been addressed in the 2025 program year and the upcoming 2026 program year with the strengthening of program software and provided training to the program sponsors. During program years 2020–2023, the Summer Food Service Program (SFSP) operated under emergency authorities in response to COVID-19, during which the USDA implemented numerous program flexibilities and temporarily waived certain regulatory requirements. In subsequent years, many of these flexibilities continued but were reintroduced with additional regulatory requirements, expanded data collection, and ongoing updates to program guidance. As a result, program regulations and administrative requirements have evolved rapidly, with federal guidance frequently being released throughout the program year. The Child Nutrition team has worked to remain current with these evolving requirements and implement updates as changes occur. In some instances, updated regulations or federal guidance are issued after the program year has begun, which can result in necessary system changes or corrections to the Child Nutrition software system being implemented after the operating period has already started. At the request of School Administrative Units, Child Nutrition re-allocated funds for the FFVP from schools with unexpended balances, to schools requesting additional funds. A procedure has been implemented for SFY 2026 to ensure school allocations remain within the $50-75/student allocation range. Contact: Jane McLucas, Director of Child Nutrition, DOE, 207-624-6880 Auditor’s Concluding Remarks: Management’s Response stating “the exceptions referenced in this finding are from the program FY23 audit” is incorrect. All exceptions identified relate to payments made to SFAs and sponsors and Federal reporting submissions during fiscal year 2025. The finding remains as stated. (State Number: 25-1203-02)
(2025-029) Title: Internal control over National Guard payroll costs needs improvement Prior Year Findings: None State Department: Defense, Veterans and Emergency Management Administrative and Financial Services State Bureau: Military Security and Employment Service Center Federal Agency: U.S. Department of Defense Assistance Listing Title: National Guard Military Operations and Maintenance (O&M) Projects Assistance Listing Number: 12.401 Federal Award Identification Number: See E-65 to E-66 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.403, .430 and .431; 5 MRSA 7065 The Department must establish, document, and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. To be allowable under Federal awards, costs must be necessary and reasonable for the performance of the Federal award and be adequately documented. Compensation for personal services includes all renumeration, paid or accrued, for services of employees rendered during the period of performance under the Federal award, including but not necessarily limited to wages and salaries. Compensation for personal services may also include fringe benefits. Costs of compensation are allowable to the extent that they are reasonable for the services rendered and conform to the established written policy of the recipient. Salary increases are based on merit. Salary advancements within an established range shall not be automatic, but shall be dependent upon specific recommendation of the appointing officer and approval of the commissioner. The recommendation shall be based upon standards of performance as indicated by merit ratings or other pertinent data. No advancements in salary may be made until the employee has completed the probationary period. Condition: The National Guard Military Operations and Maintenance Projects (National Guard O&M Projects) program supports the Army and Air National Guard in minor construction, maintenance, repair, or operation of facilities, and provides mission operational support to be performed by the State. Performance Management Forms (PMFs) document an employee’s overall performance rating; identify the pay grade and step for the employee, including whether a merit increase should be applied based on performance; and document management approval, which includes the supervisor and the agency head. The Department of Defense, Veterans and Emergency Management is responsible for completing PMFs and submitting them to the Security and Employment Service Center for processing. The Office of the State Auditor (OSA) tested payroll costs for 24 employees charged to the National Guard O&M Projects program during fiscal year 2025 and found that 8 PMFs did not have evidence of the agency head approval; 7 of the 8 PMFs resulted in merit increases in fiscal year 2025. OSA selected a non-statistical random sample. Context: In fiscal year 2025, the National Guard O&M Projects program expenditures totaled $30.1 million, of which $11.1 million was expended for payroll. Cause: • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: • Potential unauthorized salary adjustments could result in future questioned costs • Noncompliance with State regulations Recommendation: We recommend that the Department enhance policies and procedures and increase oversight to ensure that PMFs properly support the National Guard O&M Projects program’s payroll costs in accordance with Federal and State regulations. Corrective Action Plan: See F-18 Management’s Response: DVEM Response: The Department partially agrees with this finding. The Department agrees that eight positions lacked an agency head signature. As a result, we have taken steps to ensure appropriate agency heads are identified for each of those positions and the agency heads are aware of the need to sign off on the relevant forms. However, we disagree that there is lack of adequate policies and procedures that could result in future questioned costs. All of the PMFs were completed and signed by a supervisor and employee indicating that performance was properly assessed to support the employee’s pay grade, step and merit increase. DVEM Contact: Michelle Lenihan, Deputy Commissioner, DVEM, 207- 430-5997 DAFS Response: The Bureau of Human Resources partially agrees with this finding. The Bureau of Human Resources agrees that the positions identified lacked agency head signatures. BHR disagrees with OSA as to the effect of those missing signatures. As OSA indicates “Performance Management Forms (PMFs) document an employee’s overall performance rating, identify the pay grade and step for the employee, including whether a merit increase should be applied based on performance.” The performance management forms are developed and updated centrally by BHR and all Departments are required to use the same forms. The Agency Head will often not have any direct knowledge of a specific employee’s actual performance. The purpose of the Agency Head signature is not as a control to whether an employee is meeting performance expectations, rather it is because the Agency Head is responsible for the budget of their respective agency, including personnel services. Due to other controls at the Finance Service Center and Controller’s Office, all positions were appropriately budgeted for, and employees received their appropriate pay. DAFS Contact: Michael J. Dunn, Esq., Acting State Human Resources Officer, BHR, 207-215-2951 Auditor’s Concluding Remarks: 2 CFR 200.303 requires the Department to establish, document, and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. State internal control procedures require review and approval of the PMF by both the supervisor and agency head, as evidenced by their signatures, to ensure an employee’s pay grade and step are appropriate based on performance. Both signatures on the PMF support that payroll costs of the National Guard O&M Projects program have been adequately reviewed for allowability purposes in accordance with Federal and State regulations. The finding remains as stated. Contact: (State Number: 25-1503-02)
(2025-033) Title: Internal control over Health Disparities program payments to subrecipients needs improvement Prior Year Findings: None State Department: Health and Human Services State Bureau: Maine Center for Disease Control & Prevention Federal Agency: U.S. Department of Health and Human Services Assistance Listing Title: Activities to Support State, Tribal, Local and Territorial (STLT) Health Department Response to Public Health or Healthcare Crises Assistance Listing Number: 93.391 Federal Award Identification Number: See E-65 to E-66 Compliance Area: Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.403 The Department must establish, document, and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of the award. To be allowable under Federal awards, costs must be necessary and reasonable for the performance of the Federal award and be adequately documented. Condition: The Activities to Support State, Tribal, Local and Territorial (STLT) Health Department Response to Public Health or Healthcare Crises (Health Disparities) program was implemented to address disparities in access to healthcare in populations that are at high-risk and underserved, including racial and ethnic minority groups and people living in rural communities. The Health Disparities program is administered by the Maine Center for Disease Control & Prevention’s (MeCDC) Division of Population Health Equity. MeCDC has a memorandum of understanding in place with the Department of Public Safety’s Emergency Medical Services (EMS) Bureau to assist in administering the Health Disparities program. The Office of the State Auditor (OSA) tested 27 payments issued by MeCDC to subrecipients and found: • 2 payments totaling $69,535 to 1 subrecipient against a contract for which a cash surplus existed at the time of payment. • 1 payment of $40,621 based on a quarterly financial report that contained detailed expense information that did not match approved contract expenditures. • 2 payments totaling $252,824 to 1 subrecipient to close out a contract were issued prior to receipt by the Department of the required final progress reports. Therefore, MeCDC does not have policies and procedures in place to prevent payments to subrecipients that do not meet the criteria set forth in 2 CFR 200.303 at the time of payment. Subsequently, MeCDC was able to provide reports to demonstrate that the funds had been used in accordance with the terms and conditions of the award. OSA utilized a risk-based approach to select 9 payments issued by MeCDC and selected a non-statistical random sample of subrecipient contracts to test all payments made in fiscal year 2025 that were related to those contracts. Context: MeCDC provided $3.2 million from a total of $6.2 million to Health Disparities program subrecipients during fiscal year 2025. Cause: • Lack of adequate policies and procedures • Lack of supervisory oversight Effect: • Potential future questioned costs and disallowances • Noncompliance with Federal regulations Recommendation: We recommend that MeCDC implement procedures and enhance oversight to ensure payments made to subrecipients are accurate, allowable, and adequately supported at the time of payment. Corrective Action Plan: See F-20 Management’s Response: The Department disagrees with this finding. The conditions noted do not support that costs were unallowable. Furthermore, the Department demonstrated that the funds had been used in accordance with the terms and conditions of the award. The Department’s processes provide reasonable assurance that payments are appropriate. Contact: Eden Hale, Associate Director, Division of Population Health Equity, Maine CDC, 207-441-1090 Auditor’s Concluding Remarks: OSA acknowledges that subsequent information demonstrated that the funds were used for allowable purposes; however, this does not absolve the Department of responsibility to ensure accuracy and appropriateness at the time of payment. The Department did not demonstrate that controls are in place to ensure that all payments to subrecipients are allowable at the time of payment. The finding remains as stated. (State Number: 25-1123-04)
(2025-041) Title: Internal control over TANF client payments needs improvement Prior Year Findings: See Schedule of Findings and Questioned Costs for chart/table State Department: Health and Human Services State Bureau: Office for Family Independence Federal Agency: U.S. Department of Health and Human Services Assistance Listing Title: Temporary Assistance for Needy Families (TANF) Assistance Listing Number: 93.558 Federal Award Identification Number: See E-65 to E-66 Compliance Area: Activities allowed or unallowed Allowable costs/cost principles Type of Finding: Significant deficiency Questioned Costs: None Criteria: 2 CFR 200.303; 2 CFR 200.403; 45 CFR 263.11 The Department must establish, document, and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. To be allowable under Federal awards, costs must be necessary and reasonable for the performance of the Federal award and be adequately documented. The Department must use Federal Temporary Assistance for Needy Families (TANF) funds for expenditures that are reasonably calculated to accomplish the purposes of TANF. Use of funds in violation of this is considered misuse of funds. Condition: The TANF program provides time-limited assistance to needy families with children so that the children can be cared for in their own homes or in the homes of relatives; to end dependence of needy parents on government benefits by promoting job preparation, work, and marriage; to prevent out-of-wedlock pregnancies, including establishing prevention and reduction goals; and to encourage the formation and maintenance of two-parent families. The Department issues monthly cash benefits to TANF clients while they work towards self-sufficiency. The Department also issues TANF support service payments directly to TANF clients for various items and services, and to providers on behalf of TANF clients for services rendered such as childcare and transportation. The Office of the State Auditor (OSA) tested 60 cash benefits and 60 support service payments and found: • 1 cash benefit issued in March 2025 did not include all members of the household, resulting in an underpayment of $395. Upon further review, OSA found an additional $3,843 underpaid to the client during fiscal year 2025. • 2 support service payments issued for transportation were calculated by the Department using a distance other than the most direct route as required. The payments included: o one payment issued in November 2024 that overpaid a TANF client $3. Upon further review, OSA found an additional $15 overpaid to the client during fiscal year 2025. o one payment issued in September 2024 that underpaid a TANF client $3. Upon further review, OSA found an additional $11 underpaid to the client during fiscal year 2025. • 1 support service payment overpaid a childcare provider by $2. Upon further review, OSA found an additional $8 that was overpaid to the provider during fiscal year 2025. OSA selected non-statistical random samples. Context: In fiscal year 2025, $51.7 million from a total of $104.9 million was paid to TANF clients for services and direct cash benefits. Cause: • Lack of adequate procedures • Lack of supervisory oversight Effect: • Potential future questioned costs and disallowances • Noncompliance with Federal regulations Recommendation: We recommend that the Department: • implement additional procedures to ensure that payments made to TANF clients are accurate, allowable, and adequately documented; • increase monitoring procedures over these payments; • establish recoupments for the identified overpayments; and • issue benefits/payments to clients or providers for identified underpayments. Corrective Action Plan: See F-23 Management’s Response: The Department agrees with this finding. Actions have been taken to issue corrective payments for benefits that were underpaid and benefits that were overpaid have been referred for recoupment. The Corrective Action Plan will mitigate the agreed upon errors from reoccurring. Contact: Ian Yaffe, Director, Office for Family Independence, DHHS, 207-592-1481 (State Number: 25-1111-06)
(2025-055) Title: Internal control over the Foster Care and Adoption Assistance eligibility and benefit determination process needs improvement Prior Year Findings: See Schedule of Findings and Questioned Costs for chart/table State Department: Health and Human Services State Bureau: Office of Child and Family Services Federal Agency: U.S. Department of Health and Human Services Assistance Listing Title: Foster Care – Title IV-E Adoption Assistance – Title IV-E Assistance Listing Number: 93.658; 93.659 Federal Award Identification Number: See E-65 to E-66 Compliance Area: Allowable costs/cost principles Eligibility Type of Finding: Material weakness Material noncompliance Questioned costs Known Questioned Costs: ALN 93.658 $51,247 ALN 93.659 $42,689 Likely Questioned Costs: Undeterminable; the Office of the State Auditor (OSA) selected a sample of clients who received Title IV-E benefits during fiscal year 2025 and identified known questioned costs associated with 11 clients based on various eligibility attributes. Since each exception is unique to the client, a projection of questioned costs cannot be reasonably estimated. Criteria: 2 CFR 200.303; 2 CFR 200.403; 45 CFR 1356.21 and .40; 42 USC 671; Department of Health and Human Services (DHHS) 10-148 Chapter 16 Rules Providing for the Licensing of Family Foster Homes for Children; Office for Child and Family Services’ (OCFS) Financial Resource Specialist (FRS) Policy and Procedure Manual The Department must establish, document, and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. To be allowable under Federal awards, costs must be necessary and reasonable for the performance of the Federal award and be adequately documented. 45 CFR 1356.21 outlines eligibility criteria which, if met, allows the State to pay foster care maintenance payments on behalf of eligible children, in accordance with the Title IV-E agency’s foster care maintenance payment rate schedule, to individuals serving as foster family homes, to childcare institutions, or to public or private child-placement or childcare agencies. 45 CFR 1356.40 outlines eligibility criteria which, if met, allows the State to pay a portion of the Federal Adoption Assistance maintenance payments and claim Federal financial participation for the payment. 42 USC 671 requires that prospective foster parents and any other adult living in the home who has resided in the provider home in the preceding 5 years satisfactorily meet a child abuse and neglect registry check. The requirement applies to foster care maintenance payments made on behalf of the foster child. DHHS 10-148 Chapter 16 Rules Providing for the Licensing of Family Foster Homes for Children states that an application may be denied if the applicant(s) have an open Child Protective Services case or a closed substantiated and/or indicated Child Protective Services case. In addition, applications for renewal of a license shall be made 60 days prior to the date of expiration to ensure that necessary licensing procedures may be completed for the continuity of the license. The OCFS FRS Policy and Procedure Manual defines Supplemental Security Income (SSI) as unearned income; documentation to support unearned income includes benefit award letters, copies of checks, child support printouts, Automated Client Eligibility System (ACES) printouts or other documentation. In addition, a child may be eligible for both SSI and Title IV-E. The Department, through an FRS, must make a decision as to which would yield greater financial benefits for the State. Condition: OCFS administers the Foster Care – Title IV-E (Foster Care) and Adoption Assistance – Title IV-E (Adoption Assistance) programs for the State as outlined below: • The Foster Care program is designed to help states provide safe and stable out-of-home care for children under its jurisdiction until the children are returned home safely, placed with adoptive families, or placed in other planned arrangements for permanency. • The Adoption Assistance program provides Federal funds to states to facilitate the timely placement of children, whose special needs or circumstances would otherwise make them difficult to place, with adoptive families. Funds are available for a one-time payment to assist with the costs of adopting a child, as well as for subsidies to adoptive families for the care of the eligible child on an ongoing basis. An FRS determines program eligibility and initiates benefits through completion of a determination checklist. The FRS reviews program eligibility factors, gathers required supporting documentation, and documents the certification decision on the checklist. The FRS enters the information into the child welfare information system for processing. Once the client is determined eligible in the child welfare information system, a level of benefits is assigned. OCFS relies on this information and the related system coding to ensure that benefits are accurately provided to eligible clients. OSA tested 60 initial client eligibility determinations and found 1 client’s prospective foster parent did not satisfactorily meet a child abuse and neglect registry check in accordance with 42 USC 671 and DHHS Rules Providing for the Licensing of Family Foster Homes for Children. The Resource Family Home (RFH) received $12,566 in Federal Foster Care benefits on behalf of 2 clients, resulting in questioned costs of the entire amount. OSA tested 60 Adoption Assistance benefit payments and 60 Foster Care benefit payments, along with the related eligibility determination for those clients, and found: • 5 clients who were placed in a RFH that the foster/adoptive parent did not satisfactorily meet a child abuse and neglect registry check in accordance with 42 USC 671 and DHHS Rules Providing for the Licensing of Family Foster Homes for Children. The RFHs received benefits from both Federal programs on behalf of multiple clients, resulting in questioned costs for the Foster Care and Adoption Assistance programs of $7,629 and $42,689, respectively. • 2 clients determined to be ineligible by OCFS due to a conversion issue within the newly implemented child welfare information system continued to receive Foster Care benefit payments during the fiscal year, resulting in questioned costs of $11,768. • 1 client who received Federal benefits for both Title IV-E and SSI during the fiscal year. OCFS could not provide documentation of their consideration of the SSI documented in ACES, or their decision regarding claiming Title IV-E benefits instead of SSI benefits, resulting in questioned costs for the Foster Care program of $12,687. • 1 client determined ineligible due to an inactive license for 6 months past the initial renewal period, continued to receive Foster Care benefit payments during the fiscal year, resulting in questioned costs for the Foster Care program of $6,447. • 1 client received a one-time payment to adjust Adoption Assistance childcare benefits; however, it was paid out of Foster Care benefits, resulting in questioned costs of $150. OSA selected non-statistical random samples. Context: In fiscal year 2025, the State provided approximately: • 1,000 Foster Care clients with $5.3 million in Federal benefits; and • 4,500 Adoption Assistance clients with $25.5 million in Federal benefits. Identified Cause: • Lack of adequate policies and procedures • Lack of appropriate oversight over eligibility and benefit determinations Potential Effect: • Known questioned costs • Potential future questioned costs and disallowances • Benefits were provided to ineligible clients. • Noncompliance with Federal regulations Recommendation: We recommend that the Department: • implement additional procedures to ensure that payments made on behalf of clients are accurate and allowable in accordance with program regulations; • establish recoupments for the overpayments identified; and • strengthen licensing practices for background screening of potential and current RFHs. Corrective Action Plan: See F-28 Management’s Response: The Department partially agrees with this finding. OCFS disagrees with the condition that child abuse and neglect registry checks for RFH require a denial. According to State of Maine Department of Health and Human Services Chapter 16 Rules Providing for the Licensing of Family Foster Homes for Children: Section 9: Licensing Requirements for Family Foster Homes for Children, Sect A. (9): An application may be denied if the applicant(s) have an open Child Protective Services Case or a closed substantiated and/or indicated Child Protective Services case. An open Child Protective Services Case includes a pending disposition of an open report, a case open for assessment or a case open for services. OCFS also disagrees with the condition that Title IV-E was claimed in error during their foster care placement, since the Social Security Administration (SSA) did not stop SSI payments to the biological parent, and is requiring OCFS to pay back the Title IV-E funding that was received to help pay for the child's care. This is an error of the SSA office that DHHS has no responsibility over. DHHS reports all children removed from their parents’ custody to SSA through a monthly federally required reporting process. SSA would be responsible for taking any action based on that reporting. DHHS does not agree that Maine taxpayers should be penalized for the federal agency's failure to take action and stop benefits to the parent. OCFS agrees to the remaining conditions noting that: Changes were made to the Katahdin system (User story 3002158) that were released on 8/3/2025 to avoid overlapping payments for childcare in both Foster Care and Adoption. Changes were made to the OCFS Licensing policy in July 2025, removing the 60-day time limit on the license renewal process. Contact: Robert Blanchard, Associate Director, OCFS, DHHS, 207-624-7955 Auditor’s Concluding Remarks: Regarding the exceptions related to child abuse and neglect registry checks for RFHs, OCFS is only citing State policy and omitting the Federal requirement (42 USC 671) which states that prospective foster parents and any other adult living in the home who has resided in the provider home in the preceding 5 years satisfactorily meet a child abuse and neglect registry check. For all 5 clients in the Condition, the foster/adoptive parent did not satisfactorily meet a child abuse and neglect registry check; 2 of the 5 clients were subsequently removed from the RFH as a result of the child abuse and neglect registry checks. Regarding the client who received both SSI and Federal Title IV-E benefits, though OCFS states that this exception is SSA’s responsibility, the FRS did not properly identify that the client was receiving SSI benefits when determining Foster Care eligibility. As a result, the FRS did not decide which benefit would yield greater financial benefits for the State, and the client received Federal benefits from both Title IV-E and SSI during fiscal year 2025. The finding remains as stated. (State Number: 25-1109-03)
(2025-060) Title: Internal control over the Adoption Assistance – Title IV-E eligibility and benefit determination process needs improvement Prior Year Findings: See Schedule of Findings and Questioned Costs for chart/table State Department: Health and Human Services State Bureau: Office of Child and Family Services Federal Agency: U.S. Department of Health and Human Services Assistance Listing Title: Adoption Assistance – Title IV-E Assistance Listing Number: 93.659 Federal Award Identification Number: See E-65 to E-66 Compliance Area: Allowable costs/cost principles Eligibility Type of Finding: Significant deficiency Questioned costs Known Questioned Costs: $1,645 Likely Questioned Costs: Undeterminable; the Office of the State Auditor (OSA) selected a sample of clients who received Title IV-E benefits during fiscal year 2025 and identified known questioned costs for 1 client based on various eligibility attributes. Since each exception is unique to the client, a projection of questioned costs cannot be reasonably estimated. Criteria: 2 CFR 200.303; 2 CFR 200.403; 45 CFR 1356.40 The Department must establish, document, and maintain effective internal control over Federal awards that provides reasonable assurance that the Department is managing awards in compliance with Federal statutes, regulations, and the terms and conditions of awards. To be allowable under Federal awards, costs must be necessary and reasonable for the performance of the Federal award and be adequately documented. The State is allowed to pay a portion of the Federal Adoption Assistance maintenance payments and claim Federal financial participation for Title IV-E eligible clients. Condition: The Adoption Assistance – Title IV-E (Adoption Assistance) program provides Federal funds to states to facilitate the timely placement of children, whose special needs or circumstances would otherwise make them difficult to place, with adoptive families. Funds are available for a one-time payment to assist with the costs of adopting a child as well as for subsidies to adoptive families to assist with the care of the eligible child on an ongoing basis. The Office of Child and Family Services (OCFS) administers the Adoption Assistance program for the State. OCFS financial resource specialists (FRS) are responsible for determining program eligibility and initiating benefits. The FRS uses the Adoption Assistance Checklist to ensure that program eligibility factors, required supporting information, and final determination for Federal Adoption Assistance benefits are obtained and documented. Once the client is determined eligible in the child welfare information system, a daily rate is negotiated by OCFS and the adoptive parents at a rate that does not exceed what the client would qualify for under the Foster Care – Title IV-E program. OSA tested 60 client benefit payments and identified that: • 1 adoptive parent continued to receive Adoption Assistance maintenance payments after OCFS was informed that the client moved out of the home. In addition, the client’s clothing allowance payment was erroneously sent to the individual they were living with at the time of issuance instead of the adoption placement. The client received a daily Adoption Assistance rate of $26.25, resulting in questioned costs of $1,645 during fiscal year 2025. • 1 client, who was eligible for Adoption Assistance, erroneously received a State-funded Foster Care childcare payment while also receiving Federally-funded Adoption Assistance childcare payments during fiscal year 2025. • 1 client, who was eligible for Adoption Assistance, erroneously received 2 weeks of State-funded Foster Care maintenance payments while also receiving Federally-funded Adoption Assistance maintenance payments during fiscal year 2025. OSA selected a non-statistical random sample. Context: In fiscal year 2025, the State provided approximately 4,500 Adoption Assistance clients with $25.5 million in Federal benefits. Cause: • Lack of adequate policies and procedures over verification and accuracy of benefit determinations and associated Adoption Assistance payments • Lack of supervisory oversight Effect: • Known questioned costs • Potential future questioned costs and disallowances • Noncompliance with Federal and State regulations Recommendation: We recommend that the Department enhance policies and procedures and increase oversight to ensure the accuracy of eligibility and benefit determinations, and verify that benefit payments are made in accordance with Federal regulations. Corrective Action Plan: See F-29 Management’s Response: The Department agrees with this finding. The Department will develop training information for distribution to child welfare staff defining steps for them to take when they discover that a child in an adoption assistance agreement is no longer receiving support from the adoptive parents. These steps will raise the information to the OCFS Adoption Unit Manager's attention so they can take appropriate actions. Contact: Denise Merrill, Manager of Child Welfare Statewide Programs, DHHS, 207-822-2255 (State Number: 25-1110-01)
Condition: For FAL 10.185, all 40 vendor disbursements tested lacked evidence of supervisory approval, as the payment request forms were not signed by the designated approver prior to payment. For FAL 10.558, 27 of thirty-two vendor disbursements tested lacked documented supervisory approval prior to payment. Finally for FAL 84.010A, two of the ten vendor disbursements tested lacked documented supervisory approval prior to payment. In each noted instance, payments were processed without evidence that the School performed and documented a review in accordance with established internal control procedures. Criteria: According to 2 CFR §200.303, Internal Controls, non-Federal entities must establish and maintain effective internal control over federal awards that provides reasonable assurance the entity is managing the award in compliance with federal statutes, regulations, and the terms and conditions of the award. Further, under 2 CFR §§200.403, Factors Affecting Allowability of Costs, and 200.405, Allocable Costs, costs charged to federal awards must be necessary, reasonable, allocable, and conform to any limitations or exclusions set forth in federal regulations or award terms. Cause: The School did not consistently enforce established approval procedures, and monitoring controls were not operating effectively to ensure payment request forms were reviewed and signed prior to disbursement. Effect: Failure to document supervisory approval increases the risk that unallowable, inaccurate, or unsupported expenditures could be processed and charged to federal programs without detection. Recommendation: We recommend that the School enforce existing policies requiring documented supervisory approval prior to processing payments and implement monitoring procedures to ensure approval documentation is completed and retained. In addition, the School should strengthen pre-payment review procedures to ensure expenditures are evaluated for allowability, necessity, reasonableness, and proper allocation in accordance with 2 CFR Part 200 and applicable program requirements. Training should be provided to personnel responsible for processing and approving federal program expenditures to reinforce compliance responsibilities. Management’s Response: The School’s responsible officials’ views and planned corrective action are in its corrective action plan at the end of the report.
Reference Number: 2025-009 Prior Year Finding: 2024-011 Federal Agency: U.S. Department of Labor State Department Name: Department of Labor State Division: Division of Unemployment Insurance Federal Program: Unemployment Insurance, COVID-19 – Unemployment Insurance Assistance Listing Number: 17.225 Award Number and Year: 24A55UI000067 (10/1/2023 – 12/31/2026) 25A55UI000116 (10/1/2024 – 12/31/2027) Compliance Requirement: Allowable Cost/Cost Principles – General Disbursements Type of Finding: Significant Deficiency in Internal Control Over Compliance, Other Matters Criteria or Specific Requirement Compliance: 2 CFR section 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. (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity. (d) Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. (g) Be adequately documented. 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 Documentation to support General Disbursement transactions was not readily available for review. States are required to develop and implement internal controls to ensure proper supporting documentation is maintained and readily available for audit, but the Division of Unemployment Insurance (Division) was unable to provide supporting documentation to auditors on a timely basis. Context For three of sixty general disbursement transactions selected for testing, the Division was initially unable to provide supporting documentation and confirmed lack of support for these items to auditors. After the conclusion of audit test work, the Division provided support for the sample selections, however, it was not submitted for audit review in a timely manner. Questioned Costs None noted. Cause The Division’s procedures and controls are not sufficient to ensure timely submission of requested audit documentation. Effect Lack of effective controls could cause the Division to incur program charges without supporting documentation. Recommendation The Division should review and enhance its procedures and controls regarding general disbursements to ensure that supporting documentation is readily available upon audit request. Views of Responsible Officials We acknowledge that audit ready evidence was not produced in a timely fashion but respectfully disagree that the Division did not maintain this evidence. The lack of timely production can be attributed to lack of awareness of the proper repository where such audit evidence was maintained and/or could be easily retrieved, as opposed to no maintenance at all. We also maintain that the division was able to substantiate all expenses queried. Auditor Rejoinder On October 1, 2025, auditors sent a request to the Division for supporting documentation for sixty samples selected for testing. Documentation was provided to auditors on November 10, 2025, but for three of the sixty samples it was deemed insufficient for testing. Auditors followed up with the Division, requesting additional support for these samples, but it was not provided. On February 17, 2026, auditors met with Fiscal Management regarding the status of the outstanding supporting documentation and were informed it was not available and would not be provided. After this meeting, auditors finalized audit test work, drafted the audit finding, and sent it to the Division for a written response. On March 11, 2026, the Division provided additional support to auditors after the conclusion of audit test work. Auditors acknowledge that support was eventually provided but maintain that the Division’s procedures and controls are insufficient to ensure that adequate supporting documentation is readily available for audit.
Reference Number: 2025-021 Prior Year Finding: No Federal Agency: U.S. Department of Health and Human Services State Department Name: Department of Health and Social Services State Division: Division of Medicaid and Medical Assistance Federal Program: Children’s Health Insurance Program Assistance Listing Number: 93.767 Award Number and Year: SAI000005399 (10/1/2023 – 9/30/2024) Compliance Requirement: Period of Performance Type of Finding: Material Weakness in Internal Control over Compliance, Material Noncompliance Criteria or Specific Requirement Compliance: A non-Federal entity may charge only allowable costs incurred during the approved budget period of a federal award’s period of performance and any costs incurred before the federal awarding agency or pass-through entity made the federal award that were authorized by the federal awarding agency or pass-through entity (2 CFR sections 200.308 200.309 and 200.403(h)). A period of performance may contain one or more budget periods. 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 Division of Medicaid and Medical Assistance (Division) was unable to provide evidence that expenditures were incurred during the grant’s allowable period of performance. Context Forty disbursement transactions recorded during September and October 2024 were selected for testing. For forty of forty transactions selected, the Division was unable to provide documentation that the costs were incurred during the grant’s period of performance. Cause The Division’s procedures and internal controls were not operating sufficiently to ensure that expenditures charged to the program were incurred within the award’s period of performance. Effect Costs could be deemed unallowable by the awarding agency if funds are expended and/or obligated outside of the allowable period of performance. Questioned Costs Undetermined. Recommendation The Division should review and enhance its procedures and internal controls to ensure that it maintains documentation that expenditures charged to the program are incurred within an award’s allowable period of performance. Views of Responsible Officials To prevent recurrence, we are implementing the following actions: 1. Enhanced Monitoring Controls o Establish a centralized tracking system for all awards, including start and end dates. 2. Staff Training and Accountability o Conduct mandatory training for program and finance staff on compliance with period of performance requirements. o Assign clear responsibility for monitoring award timelines to designated personnel. 3. Pre-Closeout Review Process o Introduce a formal pre-closeout review 60 days before the award end date to identify and resolve outstanding obligations. o Require certification from both program and finance leads confirming that all expenditures fall within the allowable period. 4. Post-Expenditure Review o Perform monthly reconciliation of expenditures against the period of performance. o Immediately flag and correct any discrepancies identified.
Allowable Costs/Cost Principles – Consultant Payments Program Name: Federal-State Partnership for Intercity Passenger Rail (Assistance Listing 20.326) Federal Award Agency: Department of Transportation Award Years: Federal Fiscal Years 2024 and 2025 Federal Award Number: 69A36524520310FSPCT Background The Department of Transportation (DOT) Consultant Design Administration Manual defines extra work as work the department orders beyond the scope of the agreement when such work is not reflected in the fee payments specified in the agreement. Criteria Title 2 U.S. Code of Federal Regulations (CFR) Part 200.317 requires that when conducting procurement transactions under a federal award, a state must follow the same policies and procedures it uses for procurements with non-federal funds. Title 2 CFR Part 200.403(c) and (g) provides that to be allowable under federal awards, costs must be consistent with established policies and procedures and adequately documented. The DOT Consultant Design Administration Manual requires consultants to obtain written authorization from the department before they begin any extra work; otherwise, DOT is not obligated to compensate the consultant for that work. Condition Our review of 11 transactions totaling $46,543,994 disclosed that DOT made a $47,870 payment for extra work performed by a consultant that it did not authorize before work began. Context During the fiscal year ended June 30, 2025, non-payroll expenditures totaled $105,024,824. We randomly selected ten payments to review, as well as one manual journal adjustment. The sample was not statistically valid. Questioned Costs $47,870 Effect Failure to comply with DOT’s policies regarding extra work performed by consultants may result in unauthorized costs. Cause A lack of management oversight contributed to this condition. Prior Audit Finding We have not previously reported this finding. Recommendation The Department of Transportation should strengthen internal controls over consultant payments for extra work. Views of Responsible Officials “We agree with this finding.”
Activities Allowed or Unallowed – Benefit Payments Program Name: Money Follows the Person Rebalancing Demonstration (MFP) (Assistance Listing 93.791) Federal Award Agency: United States Department of Health and Human Services Award Years: Federal Fiscal Years 2024 and 2025 Federal Award Number: 1LICMS300142 Background The Department of Social Services (DSS) is the designated single state agency to administer the Medicaid program in accordance with Title 42 U.S. Code of Federal Regulations (CFR) 431. Connecticut administers benefit payments for the Money Follows the Person Rebalancing Demonstration (MFP) program the same way it administers Medicaid benefit payments. Criteria Title 2 CFR Part 200.403 provides that to be allowable under federal awards, costs should be adequately documented. The DSS Provider Enrollment Agreement requires the medical provider to only submit claims for medical goods and services they provided to the MFP recipient. Condition Our review of 40 MFP benefit payments totaling $49,144, of which $36,858 was federally reimbursed, disclosed that one medical provider submitted a claim with $146 of services that the provider did not perform, of which $110 was federally reimbursed. Context During the fiscal year ended June 30, 2025, DSS processed $18,243,599 in MFP benefit payments and received $13,682,699 in federal reimbursement. The sample was not statistically valid. Questioned Costs We computed questioned costs of $110 by applying the applicable federal financial participation rate to the unallowed expenditures. Effect DSS received federal reimbursement for unallowed expenditures. Cause The medical provider billed for eight hours of services when they only performed two hours of services. Prior Audit Finding We have not previously reported this finding. Recommendation The Department of Social Services should conduct an audit of the medical provider in accordance with Section 17b-99 of the Connecticut General Statutes to ensure integrity of the Money Follows the Person Rebalancing Demonstration program. The Department of Social Services should recoup any improper payments issued to medical providers and refund the corresponding federal reimbursements to the Centers for Medicare and Medicaid Services. Views of Responsible Officials “The Department agrees with the finding. The improper payment has been recouped and the DSS Audit Division will open an audit of the provider.”
Activities Allowed or Unallowed – Individual Plans and Service Records Program Name: Money Follows the Person Rebalancing Demonstration (MFP) (Assistance Listing 93.791) Federal Award Agency: United States Department of Health and Human Services Award Years: Federal Fiscal Years 2024 and 2025 Federal Award Number: 1LICMS300142 Background The Department of Social Services (DSS) is the designated single state agency to administer the Money Follows the Person Rebalancing Demonstration (MFP) program. Connecticut administered certain aspects of MFP through several state agencies including the Department of Developmental Services (DDS). Criteria Title 2 U.S. Code of Federal Regulations (CFR) Part 200.403 provides that to be allowable under federal awards, costs should be adequately documented. Title 2 CFR Part 200.303 requires the non-federal entity to establish, document, and maintain effective internal controls over the federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the award. Procedure No. I.C.1.PR.002.a. of the DDS Operation Manual states that DDS should obtain agreements and approvals for the individual plan during the planning process. The case manager should document who participated in the planning process and obtain signatures on the individual plan. Participants typically include the recipient, parent, guardian, advocate, case manager, support brokers, private agency designee, and other DDS staff. Condition Our review of 25 MFP benefit payments totaling $11,000, of which $8,250 was federally reimbursed, disclosed that DDS did not have signatures of agreement and approval for six individual plans. Additionally, DDS could not obtain service records from one medical provider to support one $46 payment, for which DSS received $35 in federal reimbursement. Context During the fiscal year ended June 30, 2025, DSS processed $4,978,654 in MFP benefit payments on behalf of 36 DDS recipients. DSS received $3,733,990 in federal reimbursement. The sample was not statistically valid. Questioned Costs $0 Effect The lack of signatures to indicate agreement and approval of an individual plan by relevant participants increases the risk of inadequate services for the recipient. DSS received federal reimbursement for an unallowed expenditure. Cause Lack of management oversight contributed to the condition. Prior Audit Finding We have not previously reported this finding. Recommendation The Department of Developmental Services should strengthen internal controls to ensure it obtains the required signatures for the individual plan for all Money Follows the Person Rebalancing Demonstration recipients. The Department of Social Services should conduct an audit of the medical provider in accordance with Section 17b-99 of the Connecticut General Statutes to ensure integrity of the Money Follows the Person Rebalancing Demonstration program. Views of Responsible Officials Response provided by the Department of Developmental Services: “DDS agrees with the finding. The errors were attributed to current manual processes and case management oversight regarding documenting signatures when individual plan (IP) meetings are held remotely rather than in-person. Most of the deficiencies (5 of 6) were isolated to one case manager. The MFP division is small with 3-4 case managers, causing a higher error rate when extrapolated against the sample size. The missing support service records have been forwarded to the Department of Administrative Services for research. There are plans to improve the individual plan process to enhance internal controls through automation. In the interim, case managers and case manager supervisors will be reminded of the IP signature requirements.” Response provided by the Department of Social Services: “The Department agrees with this finding and the response provided by the Department of Developmental Services. Additional research is needed to determine whether the missing documentation was the provider's responsibility or was due to a billing issue. The Department of Developmental Services is coordinating with the Department of Administrative Services to research this further.”
Eligibility Program Name: Money Follows the Person Rebalancing Demonstration (MFP) (Assistance Listing 93.791) Federal Award Agency: United States Department of Health and Human Services Award Years: Federal Fiscal Years 2024 and 2025 Federal Award Number: 1LICMS300142 Background The Department of Social Services (DSS) uses several systems to administer the Money Follows the Person Rebalancing Demonstration (MFP) program. The My Community Choices web portal is the primary system that maintains data about MFP applicants and participants, including client start and end dates. The DSS eligibility management system maintains client eligibility determinations for the program. The Medicaid Management Information System (MMIS) processes medical services payments and provides financial reports for federal reimbursement claims. Since the My Community Choices web portal does not interface with other systems, DSS staff must manually input client MFP program start and end dates into the DSS eligibility management system. The DSS eligibility management system interfaces with MMIS daily. Criteria Section 6071(b)(2) of Public Law 109-171 defines an eligible individual for the MFP demonstration project as a person who, immediately before beginning participation in the MFP demonstration project, resides in an inpatient facility, receives Medicaid benefits for inpatient services, continues to require the level of care provided in an inpatient facility, and who resides in a qualified residence beginning on the initial date of participation in the demonstration project. Section 6071(b)(7) of Public Law 109-171 defines qualified expenditures by the state under its MFP demonstration project as home and community-based long-term care services for an eligible individual participating in the MFP demonstration project. However, this is only with respect to services furnished during the 12-month period beginning with the individual's discharge date from an inpatient facility. Title 2 U.S. Code of Federal Regulations (CFR) Part 200.403 provides that to be allowable under federal awards, costs should conform to any limitations or exclusions set forth in the federal award. Title 2 CFR Part 200.303 requires the non-federal entity to establish and maintain effective internal controls over the federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the award. Title 42 CFR Part 431.420 requires the state to comply with the terms and conditions of the MFP demonstration project. MFP terms and conditions require the state to ensure the availability of adequate resources for implementation and monitoring of the demonstration project including tracking participant enrollment, maintaining eligibility systems, and administering effective transition coordination. MFP terms and conditions require the state to develop and amend an operational protocol that details how the state will adhere to statutory and program requirements. Section B of the MFP Operational Protocol includes the following policies and procedures. • Determining MFP eligibility includes ensuring an individual’s annualized cost of care in the community is equal to or less than the annualized rate paid for residing in an institution. • The state will not provide an administrative hearing to an applicant for denied services due to the applicant’s care plan exceeding the allowable cost of care in the community. • The state will suspend MFP participation and services during any inpatient stay. Suspended MFP participants may continue MFP participation upon discharge from the inpatient facility. Condition We reviewed 40 MFP claims, totaling $49,144, of which $36,858 was federally reimbursed, to determine if DSS properly granted eligibility. Our review disclosed the following: 1. DSS did not terminate MFP participation for two clients. DSS processed $918 for the selected claims for these clients. DSS processed $184,088 in additional claims in fiscal year 2025 and $270,274 in claims in prior fiscal years for periods when these clients were no longer eligible under the MFP program. DSS should have ended participation on April 5, 2018, and July 30, 2020, respectively. 2. DSS processed $7,724 of ineligible MFP expenses for two clients during inpatient hospital or nursing facility stays ranging from 14 to 21 days. DSS did not properly track MFP participation dates for these clients in its systems. Additionally, DSS did not properly track participation dates for a third client for seven days of hospitalization. 3. DSS approved two applicant care plans that exceeded the cost of institutional care by $1,530 (19%) and $3,507 (39%) per month. 4. DSS did not perform or document a comparative cost analysis for one client to demonstrate that care plan costs did not exceed nursing facility costs. Context During the fiscal year ended June 30, 2025, DSS processed $18,243,599 in payments on behalf of 824 MFP clients and received $13,682,699 in federal reimbursement. The sample was not statistically valid. Questioned Costs We computed questioned cost of $347,253 by applying the applicable federal financial participation rate to the ineligible expenditures. Questioned costs were $144,548 for fiscal year 2025 and $202,705 for prior fiscal years. Effect DSS provided MFP benefits to ineligible individuals. DSS received federal reimbursement for unallowed expenditures. Cause The My Community Choices web portal did not interface with DSS eligibility and financial systems. DSS relied on staff to manually input client participation start and end dates in multiple systems. Management oversight did not identify input errors of client participation dates. DSS management overrode applicant care plan costs. The MFP Operational Protocol has no written procedures to override program policies or federal regulations. Prior Audit Finding We have not previously reported this finding. Recommendation The Department of Social Services should strengthen internal controls to ensure that only eligible recipients receive Money Follows the Person Rebalancing Demonstration services in accordance with federal laws, award terms and conditions, and the Money Follows the Person Operational Protocol. Views of Responsible Officials “The Department agrees in part with this finding. Condition #1: DSS agrees that participation end dates were not updated timely due to cross-system manual entry limitations. Reconciliation procedures and supervisory oversight will be strengthened. Condition #2: DSS agrees that participation suspensions were not consistently reflected across systems due to timing delays. Monitoring and real-time reconciliation controls will be enhanced. Condition #3: DSS agrees approved costs exceeded institutional thresholds in limited cases. Variances were clinically justified, reviewed, and authorized. DSS will strengthen documentation and internal protocols to ensure clearer policy alignment. Condition #4: DSS agrees that the documentation was incomplete in one instance. Internal review standards will be reinforced to ensure comparative cost analyses are consistently documented. Please note, the Department will not be returning the questioned costs associated with this finding. According to federal regulations, recoveries based on eligibility errors can only be pursued when identified by programs operating under Centers for Medicare and Medicaid Services’ (CMS) Payment Error Rate Measurement program, per section 1903(u) of the Social Security Act and regulations at Title 42 CFR Part 431, Subpart Q.” Auditors’ Concluding Comments The Department of Social Services should amend its MFP Operational Protocol and seek approval from the Centers of Medicare and Medicaid Services if the department plans to continue to use management overrides of care plan costs.
Finding Reference: 2025-002 Federal Agency: U.S. Department of Homeland Security Pass-Through Entity: California Governor's Office of Emergency Services Federal Program Title: Disaster Grants - Public Assistance (Presidentially Declared Disasters) Assistance Listing Number: 97.036 Federal Grant Number: FEMA 4482DR-CA-01387 FEMA 4482DR-CA-01680 FEMA 4482DR-CA-02974 FEMA 4482DR-CA-03269 FEMA-4482-DR-CA-PW-00265(2) FEMA-4482-DR-CA-PW06047(3932) FEMA DR-4683 FEMA DR-4699 Category of Finding: Activities Allowed or Unallowed Allowable Costs/Cost Principles Classification of Finding: Significant Deficiency in Internal Control over Compliance Instance of Noncompliance Criteria The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), 2 CFR §200.403 and §200.430, require that costs charged to federal awards be allowable, reasonable, allocable, and adequately supported. Payroll costs charged to federal programs must be based on accurate payroll records and may not be duplicated or claimed more than once for reimbursement. In addition, management is responsible for establishing and maintaining effective internal control over compliance to ensure federal awards are administered in accordance with applicable laws, regulations, and grant provisions. Condition During our audit, we selected a statistically valid sample of 40 payroll transactions and identified 5 duplicate payroll transactions that were included in amounts submitted for reimbursement under the program. Specifically, certain payroll costs were charged more than once to the federal program, resulting in unallowable costs being claimed for reimbursement. These duplicate charges were not identified or corrected by management prior to submission of reimbursement requests. The City subsequently performed a detailed review of the payroll charges included in the reimbursement submissions, identified duplicate payroll charges of $113,551, and reduced the reported expenditure in the Schedule of Expenditure of Federal Awards for the year ended June 30, 2025. Cause The condition was caused by ineffective internal controls over submission of reimbursement requests, including inadequate review procedures to ensure payroll costs were not duplicated prior to submission, lack of reconciliation between payroll records and reimbursement requests, and insufficient supervisory review over payroll charges included in the reimbursement requests. Identification of Repeat Finding This is not a repeat finding in the immediate prior audit period. Effect As a result of these control deficiencies, unallowable payroll costs were claimed for federal reimbursement. This noncompliance could result in the City being required to repay the federal awarding agency and increase the risk of additional unallowable costs being claimed in future periods if not corrected. Questioned Costs Known questioned costs totaling $113,551 were identified related to duplicate payroll charges included in the reimbursement submission for grant number FEMA-4482-DR-CA-PW06047(3932). Recommendations We recommend that the City strengthen internal controls over payroll cost allocation and reimbursement processes to ensure payroll costs are not duplicated; implement reconciliations between payroll records and reimbursement requests prior to submission; and provide additional training to personnel responsible for grant accounting on federal cost allowability requirements. View of Responsible Officials and Planned Corrective Action See separately prepared Corrective Action Plan.
Compliance Requirement: Allowable Costs/Cost Principles 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 Number and Title: 10.553 – School Breakfast Program 10.555 – National School Lunch Program Federal Award Number: 255GA324N1199 (Year: 2025) Questioned Costs: $7,474 Repeat of Prior Year Finding: FA 2024-001, FA 2023-004 Description: The policies and procedures of the School District were insufficient to provide adequate internal controls over the employee compensation process as it relates to the Child Nutrition Cluster. Background Information: 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 was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Agriculture. GaDOE is responsible for distributing funds to local educational agencies (LEAs) and overseeing the various CNC programs. CNC funds totaling $60,051,234.81 were expended and reported on the DeKalb 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 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. (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…” Furthermore, provisions included in the Uniform Guidance, Section 200.430 – Compensation-Personal Services prescribe standards for documentation of personnel expenses and state, in part, that “(a) … Costs for compensation are allowable to the extent that they satisfy… specific requirements… and that the total compensation for individual employees: (1) Is reasonable for the services rendered and conforms to the established written policy of the recipient or subrecipient consistently applied to both Federal and non-Federal activities; (2) Follows an appointment made in accordance with a recipient’s or subrecipient’s laws, rules or written policies and meets the requirements of Federal statute, where applicable; and (3) Is determined and supported as provided in paragraph (g)…, [as follows:] (g) 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 that provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the recipient or subrecipient…” Condition: A sample of 60 employees was randomly selected for testing using a non-statistical sampling approach. These employees were reviewed to determine if internal controls were properly functioning, and applicable compliance requirements were met. The following deficiencies were noted: • One employee was paid on the incorrect pay scale and thus was overpaid by $4,903. • Two employees were paid on the incorrect pay scale and thus were underpaid by $1,287. • Additional pay totaling $967 for 2 employees was incorrectly charged to the federal program. • Documentation of retrospective pay totaling $317 could not be located for 1 employee. Questioned Costs: Upon testing a sample of $1,643,657 in personnel services expenditures, known questioned costs of $7,474 were identified for payroll charges not supported by adequate documentation. Using the total personnel services expenditure population of $20,618,901 (excluding benefits payments), we project the likely questioned costs to be approximately $93,759. The following Assistance Listing Numbers were affected by known and likely questioned costs: 10.553 and 10.555. Cause: A lack of oversight by personnel in the Office of Federal Grants and Program Compliance led to noncompliance with the requirements of the Uniform Guidance in relation to charging of personnel costs to a federal program. Effect: The School District is not in compliance with the Uniform Guidance and GaDOE guidance. Failure to pay employees with CNC funds the appropriate amount and/or maintain documentation supporting those payments could result in the expenditure of funds for unallowable purposes. This may also expose the School District to unnecessary financial strains and shortages within the CNC funds as ED or GaDOE may require the School District to return funds associated with improperly documented expenditures. Recommendation: The School District should evaluate their internal control process related to the approval and retention of documentation to support employee compensation payments. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that CNC employees are paid appropriately. Furthermore, management should develop and implement a monitoring process to ensure that these procedures are functioning properly. Views of Responsible Officials: The District acknowledges the audit team’s findings regarding undocumented additional pay and the isolated instances of overpayment identified during the testing of School Food Nutrition program. While the District remains committed to absolute fiscal accuracy, we believe the following context is essential for a complete understanding of the program’s scale and the nature of the identified error. • Scale of Operations: The District’s School Food Nutrition program is a massive operation, serving over 90,000 students across 124 separate kitchens. This decentralized environment requires the management of approximately 900 personnel and a total salary expenditure of $20,618,901. • Statistical Significance vs. Actual Error: The audit identified actual errors totaling $7,474. While the District understands that federal auditing standards (Uniform Guidance) require this amount to be extrapolated across the entire $20.6M population-resulting in a projected error exceeding the $25,000 mandatory reporting threshold-it is important to note that the actual identified discrepancy represents only 0.036% of the program’s personnel budget. • Accuracy Rate: Even when utilizing the extrapolated figure of $25,000, the District maintains a 99.64% accuracy rate in payroll processing for this program. We believe this demonstrates a robust internal control environment, particularly given the complexities of managing 124 distinct points of service. • Disproportionate Reporting Thresholds: The District notes that the $25,000 reporting threshold is a fixed statutory limit that does not scale with the size of the Local Educational Agency (LEA). Consequently, a District of our size is held to a significantly more compressed margin of error (less than one-eighth of one percent) than a smaller district with fewer employees and sites. Auditor’s Concluding Remarks: While the questioned costs identified by auditors appear to be relatively small in the context of the School District’s overall School Nutrition expenditures, the amounts exceed the reporting threshold established by the Uniform Guidance. This threshold is designed to ensure consistent reporting of noncompliance across entities of all sizes. Given the information reflected above, we reaffirm our finding and will review the status of the finding during our next audit.
2025-001 Unallowable Costs CFDA No: 93.434 Program Name: Preschool Development Grants Award Number: 25FPDGCN-510841-01A Federal Agency: U.S. Department of Health and Human Services (HHS) Pass-Through Grantor: Arizona Department of Education Compliance Requirement: A. Activities Allowed or Unallowed, B. Allowable Costs/Cost Principles Questioned Costs: $1,034.75 Summary of Finding: Material weakness in internal controls over compliance and compliance Repeat Finding? No Condition During testing of expenses charged to the Preschool Development Grants program (PDG), Assistance Listing Number 93.434, we identified two of 33 expenses tested totaling $1,467.53 that were determined to be unallowable under the Federal award. A nonstatistical sample of 33 expenditures was selected for testing from the PDG program. The total sample amount tested was $164,654. Criteria Uniform Guidance 2 CFR §200.403 – Factors Affecting Allowability of Costs establishes that costs charged to a Federal award must meet the following criteria to be allowable: Be necessary and reasonable for the performance of the Federal award and be allocable to the award. Be adequately documented and consistent with the terms and conditions of the Federal award. Additionally, non-Federal entities must maintain financial management systems that ensure Federal award expenditures comply with Federal statutes, regulations, and the terms and conditions of the Federal award. (2 CFR §200.302 – Financial Management) The PDG was authorized under Section 9212 of the Every Student Succeeds Act (ESSA), Public Law 114-95, and funds must be used only for allowable program activities consistent with the grant’s objectives and federal cost principles. Cause Controls over the review and approval of expenditures charged to the Federal program were not sufficient to ensure that all costs incurred complied with Federal cost principles and program requirements prior to being charged to the grant. Effect As a result of the control deficiency, the District charged costs to the PDG program that did not meet Federal allowability requirements. This resulted in questioned costs totaling $1,467.53 and increases the risk that additional unallowable expenditures could be charged to the program without proper review. Recommendation We recommend that the District strengthen controls over the review and approval of expenditures charged to Federal programs by: Implementing procedures to ensure expenditures charged to the PDG B-5 program are reviewed for allowability prior to being charged to the grant. Providing training to personnel responsible for grant administration regarding Federal cost principles and allowable expenditures. Reviewing current-year expenditures charged to the program to determine whether additional unallowable costs were incurred
2025-002 – Activities Allowed or Unallowed, Allowable Costs/Cost Principles – Significant Deficiency in Internal Control over Compliance and Noncompliance Federal Agencies: Department of Agriculture Federal Assistance Listing Numbers: 10.182 Programs: Pandemic Relief Activities: Local Food Purchase Agreements with States, Tribes, and Local Governments Award/Pass-Through Entity Identifying Numbers: F4303 Criteria: The Uniform Guidance in 2 CFR §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 statues, regulations, and the terms and conditions of the federal award. Per 2 CFR §200.403(e), costs must be in accordance with Generally Accepted Accounting Procedures (GAAP) to be allowable under federal awards. Condition: During the testing of non-payroll related costs for the year ended June 30, 2025, two of 20 transactions selected for testing within the program were incurred in the year ended June 30, 2024. This practice is not in accordance with GAAP, which requires that costs be recorded in the period in which they are incurred. Both transactions were incurred and reported within the grant’s period of performance. Cause: The Organization did not have adequate policies and procedures in place to ensure that federal expenditures are properly accrued and recorded in the fiscal year in which the costs are actually incurred. Effect or Potential Effect: Failure to accrue costs in accordance with GAAP may result in expenditures being materially misstated on the schedule of expenditures of federal awards that could lead to inaccurate reporting to the federal agencies. Questioned Costs: Known Questioned Costs: $5,095 Likely Questioned Costs: $31,125 Context: This is a condition identified per review of the Organization’s compliance with specified requirements not using a statistically valid sample. Known questioned costs are $5,095 out of the total non-payroll related costs during the year ended June 30, 2025, which were $443,033. Identification as a Repeat Finding: Not a repeat finding. Recommendation: We recommend the Organization implement policies and procedures to accrue for federal expenditures in the period the costs were incurred to ensure costs are being recorded in accordance with GAAP and the schedule of expenditures of federal awards is representative of all federal expenditures incurred in the reporting year. Views of Responsible Officials: Management agrees with the finding. Management is formalizing and enhancing policies and procedures over cutoff and accruals.
Federal Agency: Federal Government Federal Program Name: Research & Development and Economic Development Cluster Assistance Listing Number: Multiple Federal Award Identification Number and Year: Multiple Pass-Through Agency: Multiple Pass-Through Number: Multiple Award Period: July 1, 2024 to June 30, 2025 Type of Finding: - Material Weakness in Internal Control over Compliance Criteria or specific requirement: 2 CFR 200.403: Factors affecting allowability of costs; 2 CFR 200.413: Direct costs; 2 CFR 200.414: Indirect costs, OSU Policy 4-0135. Per Uniform Guidance 2 CFR 200.303, nonfederal entities receiving federal awards are required to establish and maintain internal controls designed to reasonably ensure compliance with federal laws, regulations, and program compliance requirements. Condition: Oklahoma State University’s (OSU) policies were not consistently followed related to Professional Engineering Service (PES) rates charged by Oklahoma Aerospace Institute for Research and Education (OAIRE), a department within OSU. Questioned costs: Up to $2,853,832 of which approximately $935,974 occurred in FY2025. Of this $2,853,832, $1,333,596 was related to cost-reimbursable agreements, $1,159,037 to time and materials agreements, $221,613 to fixed price agreements, and $139,586 to undefined agreements. Context: OAIRE developed (PES) rates, which are the types of hourly rates typically used by contractors in time-and-materials type federal agreements. In some instances, OAIRE charged these fixed hourly rates for PES work in cost-reimbursable federal agreements, which resulted in OAIRE charging more than its actual costs incurred for such PES work. In addition, the PES rates were not consistent with OSU’s facilities and administration (F&A) rate agreement in that they included costs typically charged as indirect in its direct cost labor rates without justification and defining special circumstances when bidding contract rates. Certain labor rates were also calculated based on an understated number of available hours, which resulted in an overstated PES rate. Cause: Professional services rates were developed without documented review or attestation by subject matter experts in research administration or sponsored programs. Effect: Failure to adhere to costing principles may result in questioned costs and overbilling to sponsors. Repeat Finding: No Recommendation: We recommend that OSU should notify the applicable sponsors and federal agencies regarding the calculated questioned costs and make any necessary repayments or adjustments. Further, OSU should develop and document a process to ensure the PES rates are developed and billed in accordance with OSU Policy, applicable federal regulations, and the requirements of OSU’s Federal Agreements. Views of responsible officials: Management agrees with the finding and has developed a plan to correct the finding.
Improper Calculation of Modified Total Direct Cost (MTDC) Base for Indirect Cost Allocation Federal Programs Workforce Innovation and Opportunity Act Cluster ALN 17.258, 17.259, and 17.278 Federal Agency U.S. Department of Labor (DOL) Compliance Requirement Indirect Cost Finding Type Significant deficiency in Internal Control over Compliance Criteria The Department’s indirect cost calculations were required to comply with the applicable provisions of the Uniform Guidance and the Department’s negotiated indirect cost rate agreement (“NICRA”). Specifically: 2 CFR §200.68 defines Modified Total Direct Cost (“MTDC”) as including “all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $25,000 of each subaward,” and expressly excludes “the portion of each subaward in excess of $25,000.” 2 CFR §200.403 provides that costs charged to federal awards must be necessary, reasonable, allocable to the federal award, and must conform to any limitations or exclusions set forth in the Uniform Guidance or the federal award. 2 CFR §200.414 establishes the federal framework for indirect (F&A) costs and requires the use of the negotiated indirect cost rate methodology approved by the cognizant agency. The Department’s NICRA further established the approved indirect cost base as MTDC. Accordingly, when calculating indirect costs, the Department was required to apply its negotiated indirect cost rate to an MTDC base that excluded the portion of each subaward or subcontract in excess of $25,000. Condition The Department recorded indirect cost transactions using an incorrect Modified Total Direct Cost (MTDC) base for the year ended June 30, 2025. The approved indirect cost methodology establishes the base as total direct costs excluding subawards and subcontracts in excess of $25,000. However, the Department did not apply the $25,000 limitation when calculating the MTDC base and included the full amount of certain subgrants and subcontracts in the base used to allocate indirect costs. As a result, the MTDC base used by the Department to calculate indirect costs was overstated, which affected the allocation of indirect costs charged to the programs. Cause The deficiency occurred because the Department did not implement adequate review controls over the calculation and application of the Modified Total Direct Cost (MTDC) base used to allocate indirect costs. Specifically, the Department did not ensure that the MTDC base excluded the portion of subawards and subcontracts in excess of $25,000, as required by the Negotiated Indirect Cost Rate Agreement (NICRA) and Uniform Guidance. As a result, indirect costs were calculated using an incorrect cost base. Effect As a result of applying an incorrect Modified Total Direct Cost (MTDC) base, the Department overstated the cost base used to calculate indirect costs. This condition may have resulted in indirect costs being improperly allocated to federal programs. Consequently, amounts charged to federal awards may not comply with the limitations established in the Uniform Guidance and the Department’s Negotiated Indirect Cost Rate Agreement (NICRA). If not corrected, this condition increases the risk of misallocation of costs among programs and potential disallowance of indirect costs by the federal awarding agency. Questioned Costs The error was detected before the issuance of the basic financial statements and therefore, the transaction was adjusted and recorded correctly. Therefore, there is no questioned cost. Identification as a Repeated Finding This is not a repeat finding from the immediate previous audit. Recommendation We recommend that the Department strengthen its internal controls over the calculation and application of indirect costs to ensure compliance with the requirements of the Negotiated Indirect Cost Rate Agreement (NICRA) and Uniform Guidance. Specifically, the Department should establish procedures to verify that the Modified Total Direct Cost (MTDC) base is calculated in accordance with federal regulations, including the exclusion of the portion of subawards and subcontracts in excess of $25,000. The Department should also implement a formal supervisory review of the MTDC base and indirect cost calculations prior to charging indirect costs to federal programs. In addition, the Department should provide guidance or training to personnel responsible for grant accounting to ensure consistent application of NICRA requirements and federal cost principles. Views of responsible officials and planned corrective actions Management of the Department agrees with this finding. Refer to the corrective action plan on pages 114-119.
Federal Agency: 11 – Department of Commerce, 12 – Department of Defense, 15 – Department of the Interior, 16 – Department of Justice, 43 – National Aeronautics and Space Administration, 47 – National Science Foundation, 81 – Department of Energy, 84 – Department of Education, 93 – Department of Health and Human Services Federal Program Title: R&D Cluster and TRIO Cluster Assistance Listing Number: R&D and 84.TRIO Award Period: July 1, 2024, through June 30, 2025 Type of Finding: • Significant Deficiency in Internal Control over Compliance Criteria or Specific Requirement: In accordance with 2 CFR §200.403(a), costs charged to Federal awards must be necessary, reasonable, and allocable to the Federal award. Additionally, 2 CFR §200.309 requires costs to be incurred during the approved period of performance of the Federal award. Further, 2 CFR §200.302(a) requires non‑Federal entities to maintain financial management systems that provide for accurate, current, and complete disclosure of the financial results of each Federal award, and 2 CFR §200.303 requires non‑Federal entities to establish and maintain effective internal control over Federal awards. Condition/Context: The population sizes below are presented only for programs in which exceptions were identified for the applicable compliance test. Cash Disbursement Testing – TRIO Cluster (Control Finding Only): • For 2 of the 40 TRIO samples tested, the related expenses were allowable and incurred within the awards’ approved periods of performance; however, the expenses were improperly recorded in fiscal year 2025. Specifically, 1 expense related to fiscal year 2024, and 1 expense represented a prepayment for a fiscal year 2026 cost. The resulting misstatement to the Schedule of Expenditures of Federal Awards (SEFA) totaled $5,260, which is less than program materiality. Payroll Testing – R&D Cluster (Control Finding Only): • For 10 of the 40 R&D samples tested, timesheets were not submitted timely, resulting in variances between the payroll register and the recalculated gross wages for the applicable pay periods. No unallowable payroll costs were identified; however, controls over timely payroll documentation and reconciliation did not operate effectively. • For 1 of the 40 R&D samples tested, the timesheet was not signed by the supervisor, indicating that payroll review controls were not consistently applied. Questioned Costs: None. Effect: Although the costs tested were allowable and incurred within the approved periods of performance, improper period recognition and untimely or incomplete payroll documentation increase the risk that Federal expenditures are not recorded in the proper fiscal period and that Federal financial reporting is not accurate. Cause: The UEC’s internal controls were not designed or implemented to consistently ensure that expenditures are recorded in the proper fiscal period and that payroll documentation is submitted, reviewed, and approved timely. Repeat Finding: No. Recommendation: We recommend the UEC strengthen its controls over expenditure recognition to ensure costs are recorded in the appropriate fiscal period and enhance payroll review procedures to ensure timesheets are submitted and reviewed timely to support accurate payroll reporting. Views of Responsible Officials: Management agrees with the finding and has developed a plan to correct the finding.
U.S. Department of Agriculture (“USDA”) Passed through Colorado Department of Education National School Lunch Program (Child Nutrition Cluster) / ALN 10.555 Compliance Requirement: Reporting Significant Deficiency in Internal Control over Compliance and Other Non- Compliance Criteria: Federal regulations require that recipients of federal awards maintain adequate records to support amounts claimed for reimbursement. Under 2 CFR 200.403 and 2 CFR 200.302, costs must be adequately documented and supported, and financial management systems must provide accurate, current, and complete disclosure of the financial results of each federally funded program. Additionally, USDA program guidance requires entities to retain documentation supporting daily meal counts and reimbursement claims. Condition: During testing of National School Lunch Program reimbursements, the District was unable to provide adequate supporting documentation for a sample of meal reimbursement claims relating to sack lunches/field meals during the District’s football season. As a result, we were unable to verify that the reimbursement amounts claimed were fully supported and allowable under program requirements. Questioned Costs: Estimated questioned costs for which there is projected to be no support for totals $53,772, which is an extrapolation of the $6,140 that did not have support in the $48,798 we tested for a sample month, multiplied by the total National School Lunch Program expenditures of $427,357 in 2025. Context: A non-statistical sample of 1 month of reimbursements from the fiscal year were selected for testing. Effect: Because sufficient documentation was not available, the allowability and accuracy of certain National School Lunch Program reimbursements could not be fully substantiated. This resulted in questioned costs related to unsupported reimbursements. Cause: The District did not have a formalized process to ensure that all required supporting documentation for meal counts and reimbursement calculations was retained and centrally maintained. In addition, staff turnover and reliance on manual processes contributed to missing or incomplete records. Identification as a repeat finding: Not applicable. Recommendation: We recommend that the Entity strengthen internal controls over the National School Lunch Program by implementing formal procedures to ensure that daily meal counts, edit checks, and reimbursement calculations are properly documented, reviewed, and retained in accordance with federal requirements. Management should also ensure that reimbursement claims are reconciled to supporting records prior to submission. Views of Responsible Officials and Planned Corrective Action: The District agrees with the finding. See separate corrective action plan at page for planned corrective action.
Finding Number: 2025-008 State/Educational Agency(s): Arkansas Department of Education Pass-Through Entity: Not Applicable AL Number(s) and Program Title(s): 21.027 – COVID 19: Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) Federal Awarding Agency: U.S. Department of the Treasury Federal Award Number(s): SLFRP3627 Federal Award Year(s): 2021 Compliance Requirement(s) Affected: Allowable Costs / Cost Principles Type of Finding: Noncompliance and Significant Deficiency Repeat Finding: Not applicable Criteria: In accordance with 2 CFR § 200.403(g), costs must be adequately documented to be allowable under federal awards. Condition and Context: ALA staff selected five payments to literacy coaching contractors who provide services under the Literacy Empowerment Accountability Readiness Networking and School Safety (LEARNS) Act to determine if sufficient, appropriate documentation was maintained to support that reimbursements were made for allowable literacy coaching expenses. ALA review revealed the following: • Of the 32 schools that received literacy coaching services from a contractor, 3 were randomly selected for testing. The Agency did not have adequate supporting documentation, including a description of daily activities performed by the contracted coach (e.g., a daily log), for two of the three schools. Questioned costs for this contractor totaled $109,557. • Of the 22 schools that received literacy coaching services from a different contractor, 2 were randomly selected for testing. The Agency did not have adequate supporting documentation, including a description of daily activities performed by the coach (e.g., a daily log), for either of the schools. Questioned costs for this contractor totaled $36,000. Statistically Valid Sample: Not a statistically valid sample Questioned Costs: $145,557 – SLFRP3627 Cause: Discussion with Arkansas Department of Education (ADE) management indicates they were unaware of uniform guidance documentation requirements for costs charged to federal programs. In addition, the Agency did not have controls in place to ensure a review of documentation supporting invoices was properly performed prior to issuing payments. Effect: Payments to literacy coaching contractors may have been issued without the contractor performing the contractual obligations. Recommendation: ALA staff recommend the Agency strengthen controls by providing training to Agency personnel approving disbursements to literacy coaching contractors, as well as to literacy coaching contractors, to ensure all costs are adequately documented. Views of Responsible Officials and Planned Corrective Action: During the audit, initial evidence was submitted, including monthly and daily logs from vendor coaches to verify coaching activities. Additional documentation, including daily logs obtained from vendors, is available for review. Adjustments and recommendations that have resulted from this audit will be incorporated into future processes and requirements for vendor coaches, to further strengthen our oversight and ensure ongoing adherence to required standards. There are procedures put into place to monitor vendor adherence to scheduled coaching days, with vendors consistently held to a high standard and expectation to fully complete contracted days by requiring vendors to do the following: • Submit monthly evidence of coaching activities that align with contracted days. The Division Received monthly summaries from vendors detailing coaching support, activities, and specific dates when coaching was provided. • Conduct scheduled site visits with state content leaders • Complete monthly walkthroughs with school leaders, with consistency of walkthrough data being outcomes-based and providing tangible evidence that coaching actions directly supported the improvement of instructional programs. Data is collected through Jot Form and displayed on an Air Table Dashboard. This has been maintained since 2023. • Hold ongoing meetings with district staff to review outcomes and address improvement areas, ensuring fulfillment of literacy coaching contracts under Agency requirements Transparency and compliance remain a priority. Required documentation will continue to be accessible to support any future reviews. Anticipated Completion Date: Continuous. Contact Person: Greg Rogers Chief Fiscal Officer DESE 4 Capitol Mall, Room 204-A Little Rock, AR 72201 (501) 682-4475 Greg.Rogers@ade.arkansas.gov
Finding Number: 2025-010 State/Educational Agency(s): Arkansas Department of Commerce – Arkansas Economic Development Commission Pass-Through Entity: Not applicable AL Number(s) and Program Title(s): 21.029 – Coronavirus Capital Project Funds Federal Awarding Agency: U.S. Department of the Treasury Federal Award Number(s): CPFFN0186 Federal Award Year(s): 2022 Compliance Requirement(s) Affected: Allowable Cost/Cost Principles Type of Finding: Material Noncompliance Repeat Finding: Not applicable Criteria: In accordance with 2 CFR § 200.403(g), allowable costs must be adequately documented. Arkansas State Broadband Office (ASBO) Administrative Procedures require reimbursement requests to be specific to the project and to be for incurred costs documented by attached source documentation, such as receipts, vouchers, bills, invoices, etc. All subaward expenditures must be allowable, necessary, and reasonable for the proper and efficient administration of the grant; be allocable to the grant; be authorized or not prohibited under state or local laws; and conform to the limits of exclusions in federal laws and regulations. Condition and Context: ALA selected five broadband infrastructure projects, totaling $39,789,080, for testing, from a total of 20 broadband infrastructure projects totaling $127,227,854. During testing, ALA reviewed 247 invoices totaling $20,486,786 and identified issues with 212 invoices totaling $6,666,409. The invoices with issues did not have appropriate documentation to identify the items purchased, to support proof of payment by the subrecipient for the items, and/or to determine the expense was related to the specific project. Also, ALA discovered duplicate invoices and invoices associated with other projects. Many invoices had a combination of these various issues. Statistically Valid Sample: Not a statistically valid sample Questioned Costs: $6,666,409 Cause: ASBO management did not properly review invoices submitted by subrecipients for appropriate supporting documentation. Effect: Failure to obtain proper supporting documentation for invoices may result in the reimbursement of unallowable expenses. Recommendation: ALA staff recommend the Agency follow established procedures for review of reimbursement requests. Invoices should have appropriate source documentation enabling the reviewer to determine the cost meets the criteria for allowability. Views of Responsible Officials and Planned Corrective Action: ASBO respectfully notes that Treasury’s SLFRF and CPF Supplementary Broadband Guidance provides that ISPs receiving fixed amount subawards for broadband infrastructure projects are not required to comply with the cost principles of 2 CFR Part 200, Subpart E (see U.S. Department of the Treasury, SLFRF and CPF Supplementary Broadband Guidance, available at: https://home.treasury.gov/system/files/136/SLFRF-and-CPF-Supplementary-Broadband-Guidance.pdf) Further, the guidance states, “...[m]ore specifically, subawards that provide for a maximum payment amount that is calculated based on a reasonable estimate of actual cost (see 2 CFR 200.201(b)(1)) will be considered fixed amount subawards even if the subaward agreement also provides that payments to the ISP subrecipient will be limited to actual costs after review of evidence of costs.” Arkansas’ CPF subawards meet these criteria. In short, relative to the applicability of cost principles under the Uniform Guidance, U.S. Treasury treats Arkansas’ CPF subawards as fixed amount subawards, exempting cost principles. Accordingly, ALA’s citation to §200.403(g) under Subpart E is not directly applicable to Arkansas’ CPF Program. Nevertheless, while ASBO maintains that the cost principles standard noted above does not apply to the awards in question, the office conducted a detailed review of the invoices identified. That review determined the following: • A substantial portion of the invoices were specific to approved CPF projects and included subrecipient certification statements affirming project use. • Certain invoices flagged as insufficiently detailed included annotations or supporting documentation sufficient to trace costs to the relevant project. • Invoices identified as potential duplicates were, in several cases, attributable to mixed inventory usage (allowed under GAAP) or subsequent credit/refund adjustments. • A limited subset of invoices (approximately $47,047.79) may require further reconciliation due to a known calculation variance. This funding may be returned, if deemed necessary. ASBO does not concur that the invoices totaling $6,666,409 represent unallowable expenditures. Rather, the observation reflects differences in documentation presentation, invoice formatting, and inventory accounting practices. The office maintains that the costs were associated with eligible broadband infrastructure activities under CPF. Further, in accordance with 2 CFR § 200.201(b)(1), the CPF broadband projects reviewed were monitored through routine oversight and reporting. To strengthen documentation consistency and audit traceability, ASBO is implementing a standardized reimbursement checklist requiring clearer identification of project attribution and supporting documentation prior to approval. Anticipated Completion Date: June 30, 2026 Contact Person: Glen Howie State Broadband Director Arkansas State Broadband Office 1 Commerce Way Little Rock, AR 72202 (501) 683-6000 broadband@arkansas.gov
Significant Deficiencies Federal Program: U.S. Department of Treasury Pass-Through from Maryland Department of Labor Major Program: Coronavirus State and Local Fiscal Recovery Funds (21.027) Finding 2025 - 002: Transactions Improperly Recorded - Allowable Costs Criteria: 2 CFR Part 200.403(e) requires that costs should be determined in accordance with generally accepted accounting principles for such charges to be allowable under federal awards. Generally accepted accounting principles require expenses to be recognized when incurred. Prepaid annual services should be recognized ratably over the contract period. In addition, 2 CFR Part 200.334 requires recipients to maintain financial records sufficient to show compliance with federal statues, regulations, and terms and conditions of the award. Condition: During our audit we identified certain transactions that were improperly expensed in their entirety in the fiscal year. Context: A review of 40 disbursements totaling $570,943 noted three transactions totaling $4,291 that were improperly expensed entirely in the current year. A portion of these transactions should have been accrued as prepaid expenses. Cause: The three invoices were not properly reviewed for the effective term of the contract. Management therefore did not consider the portion of the contract that extended into the next fiscal year to determine which amounts should have been deferred into the upcoming year. Effect: Costs could be deemed unallowable by the awarding agency if not recorded in the proper period in accordance with generally accepted accounting principles. Questioned Costs: $2,182 of known costs charged to federal awards outside of the proper period. Recommendation: We recommend that management adequately review service contracts paying particular attention to the service period. When the contract extends into the subsequent fiscal year an adjustment should be made to reclassify as a prepaid any portion of the contract that falls outside the current fiscal year end. View of Responsible Officials and Planned Corrective Action: We are in agreement with the finding and will extra care to review service invoices to ensure expenses are allocated between periods properly.
FINDING 2025-002 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): FY2024, FY2025 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Other Matters Condition and Context An effective internal control system was not in place at the School Corporation to ensure compliance with the Allowable Costs/Cost Principles compliance requirement. Form 9 Expenditures The School Corporation submits a Form 9 to the Indiana Department of Education (IDOE) every six months. The expenditures reported on the Form 9 are used by the IDOE to calculate the School Corporation's indirect cost rate. The rate represents the percentage of indirect costs (overhead, administration) that can be recovered from federal grant funds, derived from the cost incurred in a previous fiscal year. As such, the amounts submitted to the IDOE in fiscal year 2022-2023 are to be used in the indirect costs computation for 2024-2025 and are tested to ensure they were recorded properly in the School Corporation's records as to the account or object codes. A test of 53 disbursement line items were sampled from the IDOE Form 9 submitted for 2022-2023 totaling $935,432 and 3 line items were not properly supported by the School Corporation's records. The School Corporation's ledger was filtered for the fund, account, and object code reported on the Form 9, and we determined 3 line item expense variances as follows: INDIANA STATE BOARD OF ACCOUNTS 17 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) There were 2 expense line items under reported on the Form 9 by a total of $1,604. There was 1 expense line item over reported on the Form 9 by $8. The lack of internal controls and noncompliance over the Form 9 expenditures was isolated to 2024-2025. School Corporation Expenditures - Indirect Cost Rate In a test of 50 School Corporation expenditures, we were unable to determine if 9 expenditures totaling $29,948.32 were posted to the proper account and object codes within the accounting records to ensure the underlying data used by the IDOE to calculate the indirect cost rate was accurate. Records to support these 9 expenditures could not be located for audit. The lack of internal controls and noncompliance over the School Corporation expenditures were 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). . . ." 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: . . . (g) Be adequately documented. . . ." 2 CFR 200.208(b) states in part: "The Federal awarding agency or pass-through entity may adjust specific Federal award conditions as needed . . ." Cause The School Corporation's management had not developed a system of internal controls that would have ensured compliance. The School Corporation did not ensure that supporting documentation was maintained and made available for audit, as related to the Allowable Costs/Cost Principles compliance requirement. Effect Without the proper implementation of an effectively designed system of internal controls, the School Corporation cannot ensure compliance with the Allowable Costs/Cost Principles compliance requirement. As a result, amounts reported to the oversight agency were not accurately reported. INDIANA STATE BOARD OF ACCOUNTS 18 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish a proper system of internal controls and develop policies and procedures to ensure the data submitted on the Form 9's and underlying expenditures are properly documented and retained for audit. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2025-003 Subject: Special Education Cluster (IDEA) - Level of Effort/Maintenance of Effort Federal Agency: Department of Education Federal Program: Special Education Grants to States Assistance Listings Number: 84.027 Federal Award Number and Year (or Other Identifying Number): 24611-036-PN01 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Matching, Level of Effort, Earmarking Audit Findings: Material Weakness, Other Matters Condition and Context An effective internal control system was not designed or implemented at the School Corporation to ensure compliance with requirements related to the grant agreement and the Matching, Level of Effort, Earmarking compliance requirement. Level of Effort - Maintenance of Effort Maintenance of Effort (MOE) is a district-level test that determines whether the School Corporation is providing a consistent level of financial support to public schools from year to year. This rule ensures that the School Corporation does not use special education funds to shore up reductions in state and local support for public education. The Indiana Department of Education (IDOE) performs the maintenance of effort calculation utilizing Form 9 information provided by the School Corporation from the prior year. As such, the amounts submitted to the IDOE in the prior year to be used in the computation are tested to ensure they were recorded properly in the School Corporation's records as to the account or object code. A test of 53 disbursement line items were sampled from the IDOE Form 9 submitted for fiscal year 2022-2023 totaling $935,432, and 3 line items were not properly supported by the School Corporation's records. The School Corporation's ledger was filtered for the fund, account, and object code reported on the Form 9, and we determined the 3 line item expense variances as follows: There were 2 expense line items under reported on the Form 9 by a total of $1,604. There was 1 expense line item over reported on the Form 9 by $8. INDIANA STATE BOARD OF ACCOUNTS 19 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The ineffective internal controls and noncompliance were isolated to the 2022-2023 Form 9 information used to calculate the MOE for the 2023-2024 grant award. 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: . . . (g) Be adequately documented. . . ." 2 CFR 200.208(b) states in part: "The Federal awarding agency or pass-through entity may adjust specific Federal award conditions as needed . . ." Cause The School Corporation's management had not developed a system of internal controls that would have ensured compliance. The School Corporation did not ensure that supporting documentation was maintained and made available for audit, as related to the Matching, Level of Effort, Earmarking compliance requirement. Effect Without the proper implementation of an effectively designed system of internal controls, the School Corporation cannot ensure compliance with the Matching, Level of Effort, Earmarking compliance requirement. As a result, amounts reported to the oversight agency were not accurately reported. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish a proper system of internal controls and develop policies and procedures to ensure the data submitted on the Form 9's and underlying expenditures are properly documented. 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: COVID-19 - Education Stabilization Fund - Allowable Costs/Cost Principles Federal Agency: Department of Education Federal Program: COVID-19 - Education Stabilization Fund Assistance Listings Numbers: 84.425D, 84.425U Federal Award Numbers and Years (or Other Identifying Numbers): S425D210013, S425U210013 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Allowable Costs/Cost Principles 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 2023-005. INDIANA STATE BOARD OF ACCOUNTS 22 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context The COVID-19 - Education Stabilization Fund (ESF) grant was established by the Coronavirus Aid, Relief and Economic Security (CARES) Act to respond to the Coronavirus outbreak and assist schools in creating healthy learning environments, return students to classrooms, and address local needs. The ESF grant was further funded by the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act and the American Rescue Plan (ARP) Act. The School Corporation did not have effective internal controls in place over the Allowable Costs/Cost Principles compliance requirement. A sample of 13 payroll claims paid from the School Corporation's ESF grant were selected for testing. Of the sample, 6 employee pay rates could not be verified to a School Board-approved, allowable hourly pay rate for a high dosage tutor position. High dosage tutors were paid anywhere from $20 to $77 an hour. The School Corporation was unable to provide documentation that the School Board approved a pay rate for the high dosage tutor positions during the audit period. The total amount paid to high dosage tutors during the audit period was $472,354, which were considered questioned costs. In addition, the School Corporation paid a consulting firm to provide general support to the finance department. The expenditures were deemed unallowable as there was no documentation available that the consultants were assisting the School Corporation in preventing, preparing for, and responding to COVID-19. The total amount expended to the consultant during the audit period was $514,156, which were considered questioned costs. The lack of internal controls and noncompliance were isolated to the costs noted above for the ESSER II and ESSER III grants. 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 the Federal awards that are renewed quarterly or annual, from the date of 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 23 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. (d) Be accorded consistent treatment. For example, a cost must not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. (e) Be determined in accordance with generally accepted accounting principles (GAAP), except, for State and local governments and Indian Tribes only, as otherwise provided for in this part. (f) Not be included as a cost or used to meet cost sharing requirements of any other federally-financed program in either the current or a prior period. See § 200.306(b). (g) Be adequately documented. See §§ 200.300 through 200.309. (h) Administrative closeout costs may be incurred until the due date of the final report(s). If incurred, these costs must be liquidated prior to the due date of the final report(s) and charged to the final budget period of the award unless otherwise specified by the Federal agency. All other costs must be incurred during the approved budget period. At its discretion, the Federal agency is authorized to waive prior written approvals to carry forward unobligated balances to subsequent budget periods. See § 200.308(g)(3). 2 CFR 200.430(i)(1) states in part: "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. . . ." INDIANA STATE BOARD OF ACCOUNTS 24 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 2 CFR 200.404 states: "A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. The question of reasonableness is particularly important when the non- Federal entity is predominantly federally-funded. In determining reasonableness of a given cost, consideration must be given to: (a) Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the non-Federal entity or the proper and efficient performance of the Federal award. (b) The restraints or requirements imposed by such factors as: sound business practices; arm's-length bargaining; Federal, state, local, tribal, and other laws and regulations; and terms and conditions of the Federal award. (c) Market prices for comparable goods or services for the geographic area. (d) Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-Federal entity, its employees, where applicable its students or membership, the public at large, and the Federal Government. (e) Whether the non-Federal entity significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award's cost." 34 CFR 76.731 states: "A State and a subgrantee shall keep records to show its compliance with program requirements." Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, 134 Stat. 1924 (2020) states in part: "For an additional amount for "Education Stabilization Fund".to remain available through September 30, 2022, to prevent, prepare for, and respond to coronavirus, domestically, or internationally . . ." Cause Payroll records were incomplete as the School Corporation was unable to provide documentation that all rates of pay were approved by the School Board. The School Corporation did not include the consultants above in the budget submitted as part of the grant application, and so the School Corporation did not get the required prior approval for the purchases. Effect Without proper documentation, the allowability of the ESF grant expenditures cannot be substantiated, creating a risk that unallowable costs may be charged to the federal grant. Additionally, we could not determine how the expenditures met the purpose of the program. Questioned Costs We identified $986,510 in known questioned costs as described above in the Condition and Context. INDIANA STATE BOARD OF ACCOUNTS 25 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommend that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure rates of pay are approved by the School Board and adequately documented and that costs are allowable. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
Finding 2025-002 – Indirect Cost Reimbursement Noncompliance with Federal Requirement Program: ALN # 84.282M Charter Schools Program Criteria or Specific Requirements In accordance with: •2 CFR §200.403, costs charged to federal awards must be allowable and based on actual activity; •2 CFR §200.414, indirect costs must be calculated by applying the approved rate to actual direct costs incurred; and •2 CFR §200.305(b), under the reimbursement method, federal funds must be drawn only for costs incurred. Condition The Organization requested and received $130,000 of indirect cost reimbursement during the fiscal year ended June 30, 2025. However, only $44,575 was supported by actual allowable direct costs incurred during the eligible period April 1, 2025 to June 30, 2025. The excess amount of $85,425 relates to expenditures applicable to a subsequent period. During the audit, management recorded this amount as a grant advance (liability) and did not recognize it as revenue or expense in the current year. Cause Use of budgeted amounts and lack of review controls. Effect Reimbursement requests exceeded allowable costs incurred during the period, resulting in noncompliance. Questioned Costs None, the excess was adjusted to a liability account. Context This exception was noted in 1 of 1 sample selected of indirect cost claims during the period. Recommendation We recommend that the Organization design and implement controls to ensure reimbursements are reviewed and based on actual costs. Views of Responsible Officials and Corrective Action Plan iLearn Schools, Inc. notes that the excess reimbursement of $85,425 was identified, properly recorded as a grant advance liability, and not recognized as revenue or expense in the current year. Going forward, all reimbursement requests will be based on actual allowable direct costs incurred. Management will establish written procedures for indirect cost recovery, implement a formal review and reconciliation process prior to submission, and provide staff training on Uniform Guidance requirements. These corrective actions will be in place for the fiscal year ending June 30, 2026.
Allowable Costs/Period of Performance Federal Program and Specific Federal Award Identification CFDA Title and Number 84.031 Higher Education Institution Aid Federal Award Year June 30, 2025 Federal Agencies U. S. Department of Education Pass-Through Entity Not applicable Criteria In accordance with Uniform Guidance §§ 200.403 and 200.309, costs charged to federal awards must be allowable, properly supported, and incurred during the approved period of performance. Adequate documentation must be maintained to support all expenditures. Conditions and Contexts During my testing, I noted the following: • Out of twenty-five (25) transactions tested, twelve (12) transactions included costs incurred outside the period of performance (before and/or after the fiscal year under audit); and • One (1) of twenty-five (25) transactions selected for testing, supporting documentation was not provided for audit review. Cause The University lacked effective controls to ensure that costs were incurred within the appropriate period of performance and that supporting documentation was retained and made available for audit. Questioned Costs For the purposes of this condition, I have not questioned any costs. Effect Costs may have been improperly charged to the federal program and may be unallowable. Additionally, the lack of supporting documentation limits the ability to determine the allowability and accuracy of expenditures. Repeat Finding No. Recommendation The University should strengthen controls to ensure that only costs incurred within the approved period of performance are charged to federal awards. Additionally, procedures should be implemented to ensure that all expenditures are supported by adequate documentation and are readily available for audit. Management’s Response The University acknowledges the finding related to expenditures recorded outside the approved period of performance and the missing supporting documentation for one transaction. We recognize that all federally funded costs must be both allowable and incurred within the designated performance period, and that proper documentation must be retained for audit purposes. Corrective Actions 1. Improved Period-of-Performance Verification: The University has strengthened its review procedures to ensure all expenses are confirmed as occurring within the applicable grant period before being charged the award. Both grants management and accounting staff now verify dates prior to posting. 2. Enhanced Documentation Requirements: A shared electronic repository is being used to ensure all supporting documents are uploaded and retained before any expenditure is approved. Transactions submitted without documentation are now automatically rejected. 3. Staff Training: Relevant staff have received targeted training on allowable-cost rules, documentation standards, and period-of-performance requirements under Uniform Guidance. 4. Ongoing Monitoring: Periodic internal reviews will be conducted to verify continued compliance and ensure that all costs charged to federal awards are timely, appropriate, and fully supported, and charged within the required time periods. The University believes these actions address the issues noted and will strengthen internal controls over federal expenditures moving forward.
2025-006 Allowability of Rental Assistance Payments - Unallowable Program Expenditure U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Continuum of Care Program—Assistance Listing No. 14.267 Hennepin County Contract HS00001366; Grant Period – Year ended June 30, 2025 Significant Deficiency in Internal Control over Compliance, Noncompliance Other Matter Criteria: 2 CFR 200.403(a) requires that costs charged to Federal awards be necessary, reasonable, and allocable to the performance of the Federal award. In addition, expenditures under the Continuum of Care Program must meet program allowability requirements. Cleaning costs are not explicitly identified as allowable rental assistance expenses under 24 CFR 578.51. Condition: One instance of unallowable program costs was noted during our testing of direct program expenses. Cause: Turnover within the accounting department during 2025 resulted in policies and procedures not being consistently followed. Effect: The questioned cost and related extrapolated costs may be disallowed. Context: A statistically valid sample of 40 rental assistance payment transactions totaling $52,138 was selected for testing from a population of 393 transactions totaling $561,523. The audit identified one transaction totaling $2,325 for cleaning costs paid to a landlord, which does not appear to be an allowable expenditure under the Continuum of Care Program. In addition, the cleaning costs exceeded one month’s rent. Total extrapolated questioned costs were $25,040. Known Questioned Costs: Total known questioned costs of $2,325. Identification of Repeat Finding: Not a repeat finding. Recommendation: We recommend that Agate Housing and Services, Inc. strengthen internal controls to ensure all expenditures charged to the Continuum of Care Program are allowable and comply with applicable federal and program requirements. Views of Responsible Officials and Planned Corrective Actions: Agate Housing and Services, Inc. agrees with the finding and is in the process of strengthening its controls over its review of program expenditures prior to submitting requests for reimbursement.
2025-006 – Allowable Costs/Cost Principles Federal program information: Funding agency: U.S. Department of Health and Human Services Title: Rural Health Outreach and Rural Network Development Program Assistance listing numbers: 93.912 Award year: 7/1/2024 – 6/30/2025 Criteria: According to 2 CFR Part 200.403, to be allowable under federal awards, costs must be adequately documented, be necessary and reasonable for the performance of the federal award, and be allocable thereto under the principles in 2 CFR Part 200, Subpart E. Additionally, according to 2 CFR Part 200.430, charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed, be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated, and comply with established accounting policies and practices of the entity. Condition: For the months of May and June 2025, SFRC allocated 100% of the payroll costs of two employees to two separate grants of this program. This resulted in the program being charged twice for the same payroll costs in these months. This error also increased the direct cost base of the program, which also caused indirect costs to be over-charged to the program. Context: Two of ten employees tested in this program. Questioned Costs: Payroll costs of $12,409 and indirect costs of $3,944. Cause: SFRC allocates payroll costs to its federal programs using journal entries. These journal entries are not being independently reviewed and approved prior to posting. Effect: The program was over-charged for payroll costs and indirect costs in fiscal year 2025. Auditor’s Recommendation: SFRC should implement a review and approval process for the journal entries posted to allocate payroll costs to its federal programs. Management’s Response: This was a one-time error when the checks and balances process did not take place because of the timing of notification of an extended grant. The May and June 2025 period was an overlap due to this extension, and normal processes were not followed. Management developed processes accepted by government funders, conducted training to a small group, and began implementation. Accounting staffing was not sufficient to fully train and implement. Contractors have been tasked with training and implementation during fiscal year 2026. Revised accounting staff structure will provide better on-going implementation and monitoring compliance.
8. Criteria or specific requirement (including statutory, regulatory, or other citation) Federal awards claimed on a reimbursement basis must be limited to allowable costs incurred during the period of performance. Recipients must maintain effective internal controls to ensure charges are accurate, supported, and compliant with federal requirements (2 CFR §200.303 – Internal controls; §200.302 – Financial management; §200.403 – Factors affecting allowability of costs; §200.405 – Allocable costs; §200.344 – Closeout). Under cash management principles, reimbursement must not exceed expenditures incurred. 9. Condition The District submitted an expenditure report for $19,165,569 for the quarter ending March 31, 2025, which included amounts that were properly obligated but not yet expended as of the report date. The District reported $14,638,097 in ESSER funds on the Schedule of Expenditures of Federal Awards (SEFA), resulting in an unsupported difference of $4,527,472. 10. Questioned Costs Questioned costs totaled $4,527,472. 11. Context The District claimed the remaining award amount in the March submission as the liquidation extension for the grant was no longer available. 12. Effect The submission of expenditure reports that include unexpended obligations may result in inaccurate financial reporting and misrepresentation of the District’s use of federal funds. This could impact cash management decisions and compliance monitoring by the pass-through entity. 13. Cause As the ESSER grant period approached expiration, management attempted to maximize remaining available funding by submitting reimbursement requests in advance of incurring related expenditures. The District did not have adequate controls in place to ensure that expenditures were incurred prior to requesting federal reimbursement, as required by program regulations. 14. Recommendation We recommend the District submit claims for reimbursement for expenditures that the District has incurred. 15. Management's response See Corrective Action Plan.
Federal agency: U.S. Department of Health and Human Services Federal program title: Block Grants for Community Mental Health Services FALN Number: 93.958 Pass-Through Agency: Illinois Department of Human Services Pass-Through Number(s): 45CDB04278 Award Period: July 1, 2024 – June 30, 2025 Type of Finding: Significant Deficiency in Internal Control over Compliance and Immaterial Noncompliance Criteria or specific requirement: A non-federal entity may charge only allowable costs incurred during the approved budget period of a federal award's period of performance and any costs incurred before the federal awarding agency or pass-through entity made the federal award that were authorized by the federal awarding agency or pass-through entity (2 CFR sections 200.308 200.309 and 200.403(h)). A period of performance may contain one or more budget periods. Condition: Costs outside of the period of performance were charged to the grant. Questioned costs: $5,521 Context: Four (4) of the eight (8) transactions selected for testing. Cause: Oversight. Effect: The Organization may allocate unallowable costs to the federal grant. Repeat Finding: The finding is a repeat of a finding in the prior year. Prior year finding number was 2024-002. Recommendation: Management should review and revise its process for allocating costs to federal grants to include additional layers of review and so that costs for which some or all are from outside of the period of performance, may be appropriately excluded from the federal grant. Views of responsible officials: There is no disagreement with the audit finding
Finding 2025-001: The Corporation for National and Community Service – Foster Grandparent/Senior Companion Cluster – ALN 94.011 and 94.016 – Significant Deficiency – Controls over Stipend Allocations Criteria: AmeriCorps Foster Grandparent Program guidelines limit stipends charged to the grant to $4.00 per hour, with any excess required to be funded by non-Federal sources. Internal controls must ensure that costs charged to Federal awards are allowable and properly allocated (2 CFR 200.303, 200.403, 200.405). Condition: We noted that volunteer stipends of $5.00 per hour were initially allocated to the AmeriCorps program. The portion in excess of the allowable allocation was removed and funded with non-Federal sources. Cause: Controls were not sufficient to ensure stipend rates were reviewed for compliance before being charged to the grant. Effect: Without proper review, unallowable costs may be charged to the AmeriCorps program and go undetected. Context: For the 18 out of 26 stipends tested, the allocation rate was not correct. Recommendation: Strengthen controls to ensure stipend rates are reviewed for compliance with AmeriCorps limits before allocation to the Federal award. Views of Responsible Officials: Management acknowledges the finding and agrees with the recommendation. Once notified of the stipend rate issue, management immediately corrected the allocation and ensured the unallowable portion was funded with non-Federal resources. To prevent future occurrences, SoFIA Management has reinforced controls by (1) requiring a compliance review of stipend rates before charging costs to the AmeriCorps award, (2) updating written procedures to reflect stipend limits, and (3) providing further training to program and finance staff. These measures will ensure that only allowable stipend costs are charged to the Federal program going forward. We are committed to maintaining strong fiscal controls and ensuring full compliance with all federal grant requirements.
Federal Agency: United State Department of Education Federal Program Name: Title II, Part A – Supporting Effective Instruction State Grants Special Education Cluster (IDEA) Title I A – Grants to Local Educational Agencies Assistance Listing Number: 84.367 84.027, 84.173 84.010 Federal Award Identification Number and Year: S367A240047-2024 H027A240064-2024, H173A240070-2024 S010A240049-2024 Pass-Through Agency: Wisconsin Department of Public Instruction Pass-Through Number(s): 2025 - 403619 - DPI - YIPPE - 342, 2025-403619-DPI-FLOW-341, 2025-403619-DPI-FLOW-341, 2025 - 403619 - DPI - FNC - 342, 2025-403619-DPI-ELIMG-348, 2025-403619-DPI-ELTAI-348, 2025-403619-DPI-PRESCH-347, 2025-403619-DPI-TI-A-141 Award Period: July 1, 2024, through June 30, 2025 Type of Finding: • Significant Deficiency in Internal Control over Compliance • Other Matters Criteria or specific requirement: In accordance with 2 CFR 200.303(a), the District must establish and maintain effective internal control over the federal award that provides reasonable assurance that the District entity is managing the federal award in compliance with federal statutes, regulations and the terms and conditions of the federal award. In accordance with 2 CFR 200.430(i), charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. Additionally, 2 CFR 200.403(g) requires that costs are adequately documented to be allowable under federal awards. Condition: During testing, instances were identified in which the semi-annual certifications utilized by the District to support time charged to federal awards completed and approved prior to the final claims. Title II, Part A – Supporting Effective Instruction State Grants (ALN 84.367) Three (3) of the 40 individuals selected for testing time was supported by a semi-annual certification that was not approved timely. The semi-annual certification was approved after the submission of the final reimbursement claim. This was not a statistically valid sample. Special Education Cluster (IDEA) (ALN 84.027, 84.173) Two (2) of the 40 individuals selected for testing time was supported by a semi-annual certification that was not approved timely. The semi-annual certification was approved after the submission of the final reimbursement claim. This was not a statistically valid sample. Title I-A – Grants to Local Educational Agencies (ALN 84.010) Three (3) of the 60 individuals selected for testing time was supported by a semi-annual certification that was not approved timely. The semi-annual certification was approved after the submission of the final reimbursement claim. This was not a statistically valid sample. Questioned costs: None Context: The District supports time charged to federal awards via semi-annual certifications which are approved by the grant administrator or the building principal. In order for a cost to be supported at the time of the final reimbursement, the semi-annual certifications should be approved by the grant administrator or the building principal. During the fiscal year under audit the collection and review of these certifications were delayed, resulting in some being collected after the final claim dates. Cause: From 2023 through 2025, the District experienced substantial turnover within the finance department, including management positions. Individuals in these roles lacked the necessary skills, knowledge, and experience to oversee day-to-day operations, resulting in delays in execution of controls and collection of required supporting time and effort reporting. Effect: Lack of timely collection and review of approved semi-annual could result in unallowable costs may be submitted for reimbursement. Repeat Finding: This is a repeat of prior year finding 2024-009 Recommendation: We recommend the District design and implement controls to ensure semi-annual time and effort certification are obtained and reviewed timely. Views of responsible officials: There is no disagreement with the audit finding.
Finding No. 2025-071 Federal Awarding Agency: USDHHS Impact: Significant Deficiency, Noncompliance AL Number and Title: 93.658 Foster Care - Title IV-E Federal Award Number: 2502AKFOST Applicable Compliance Requirement: Allowable Costs/Cost Principles, Special Tests and Provisions Condition: Deficiencies were identified in OCS's FY 25 foster care base rate setting methodology. Context: Foster care program base rates must be reviewed annually. Since 2013, OCS had been using a rate setting methodology recommended in a study conducted by Hornby Zeller Associates, Inc. The study was conducted for the State in response to the Mulgrew v. State of Alaska lawsuit which concluded that OCS’s foster care reimbursement system did not reflect the current financial needs of family foster homes in Alaska. The study recommended the following rate setting methodology: 1. The U.S. Department of Agriculture (USDA) report titled "Expenditures on Children by Families" should be used as a foundation for rate calculations. This data is supported by the Bureau of Labor Statistics Consumer Expenditure Survey’s actual historical costs and projections associated with caring for a child and presents data by different regions such as urban northeast, urban south, urban midwest, urban west, rural areas, and a national average. The Hornby Zeller study recommended using the national average cost data as the foundation for foster care rate setting. 2. Rates should be grouped as follows: 0 to 5 years, 6 to 11 years, and 12 years or older. 3. The USDA cost data should be adjusted for inflation using the U.S. Consumer Price Index (CPI) inflation calculator. 4. Rates should then be adjusted using the cost-of-living multiplier for Anchorage. 5. Given the large variances in the cost of living across Alaska, rates should also be adjusted using the geographic multipliers defined in the 2008 Alaska Geographical Differential Study utilized by Alaska for reimbursement of Medicaid services. In summary, the rate study recommended OCS calculate foster care base rates annually by starting with the national average table from the most recently available USDA report, adjust for inflation, apply the cost-of-living adjustment for Anchorage, and apply the geographic multipliers as appropriate for non-Anchorage communities. The audit identified that OCS’s foster care rate setting methodology for FY 25 deviated from the methodology recommended by the Hornby Zeller study and was unreasonable as follows: National multiplier used on regional cost data When calculating the FY 25 rates, OCS’s staff used the most recent USDA Expenditures on Children and Families report, which was for 2015. The report included several different cost tables such as urban northeast, urban south, urban midwest, urban west, rural areas, and the national average. OCS’s management chose to start the rate calculation by using the “urban west” cost data instead of the national average data. Auditors noted the urban west cost data was higher than the national average cost data. After adjusting for inflation, OCS management applied the Anchorage cost-of-living multiplier of 128.4 percent to the urban west data. This was not reasonable because the cost-of-living multiplier for Anchorage reflected Anchorage costs in relation to the national average. Using the multiplier with the urban west data unreasonably inflated the FY 25 rates. 2015 USDA cost data was adjusted for inflation starting from 2018 When calculating the FY 25 rates, OCS staff used the 2015 USDA cost data, which was the most current data available. However, staff then adjusted the 2015 data for inflation using CPI inflation rates beginning in 2018, which was the last time rates were adjusted. Because the USDA cost table was presented in 2015 dollars, the costs should have been adjusted to include inflation from 2016 onwards. Cause: As the FY 25 foster care base rate setting methodology was set by the Department of Law, OCS management could not explain why the national multiplier was used on regional data and why inflation was not calculated beginning in 2016. Supervisory review of the FY 25 rate setting calculations was not sufficient to identify and correct the deficiencies. Criteria: Title 45 CFR 75.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the grant awards. Per Title 2 CFR 200.403, to be allowable under federal awards, costs must be necessary and reasonable for the performance of the award, and be adequately documented. Per Title 2 CFR 200.404, a cost is reasonable if it does not exceed an amount that a prudent person would incur under the circumstances prevailing when the decision was made to incur the cost. In determining the reasonableness of a given cost, consideration must be given to several criteria including whether the cost is generally recognized as ordinary and necessary for the proper and efficient performance of the federal award and whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the State, the public at large, and the federal government. Effect: The rate setting deficiencies understated FY 25 foster care rates due to not fully adjusting for inflation, and overstated rates due to using a national multiplier on regional cost data. Questioned Costs: Indeterminate Recommendation: DFCS’s OCS director should ensure the foster care rate setting methodology is reasonable. Further, supervisory review procedures should be strengthened to identify and correct deficiencies. Views of Responsible Officials: DFCS disagrees with this finding. DFCS evaluated two foster care base rate proposals using the established Hornsby Zeller Methodology. The first option applied the traditional methodology and the second followed the same structure but incorporated Urban West regional expenditure data, which includes Alaska and eleven other western states as well as Hawaii. This change was implemented because Urban West data more accurately reflects Alaska’s high cost of living environment, whereas reliance on national averages has historically produced rates below Alaska’s true cost of care. Both options were reviewed with departmental legal counsel, who were involved in the original settlement, division leadership and the Commissioner’s Office. DFCS advanced the second option, resulting in an approximate 30% increase to foster care base rate stipends effective July 1,2025. DFCS disagrees with the conclusion that the cost-of-living (inflation) factor should be adjusted to include inflation from 2016 forward. When the 2018 Foster Care Base Rates were established, inflation up to that point was already incorporated into the rate calculation. The current rate-setting process correctly used the 2018 rates as the baseline, which already accounted for prior inflation. Adding inflation from 2016 again would result in doublecounting. DFCS disagrees with the conclusion that the rate-setting process did not follow the Hornsby Zeller methodology. The methodology was followed in full. As part of the rate analysis, DFCS applied the national average cost-of-living factor as outlined; however, the resulting amount did not adequately meet the needs of the children under the care and responsibility of the Department. DFCS is fiduciarily required to ensure that rates are sufficient to meet the actual needs of children in out-of-home care, and the national average input did not satisfy that obligation. To ensure the methodology produced accurate and appropriate results, DFCS utilized the Urban West index, an allowable and geographically relevant data source under the methodology. This adjustment did not change the methodology itself; it refined the underlying input to better reflect Alaska’s actual cost of living and support the intended purpose of the rate-setting process. Auditor’s Concluding Remarks: Management’s response did not persuade the auditor to revise the finding. OCS management’s response did not explain why the national multiplier was used on regional data and why inflation was not calculated beginning in 2016. We reaffirm the finding.
Finding No. 2025-030 Prior Audit Finding: 2024-036 Federal Awarding Agency: U.S. Department of Homeland Security (USDHS) Impact: Material Weakness, Material Noncompliance AL Number and Title: 97.036 Disaster Grants – Public Assistance (Presidentially Declared Disaster) (Disaster Grants) 97.036 Disaster Grants – COVID-19 Federal Award Number: 4413DRAKP00000001, 4533DRAKP00000001, 4585DRAKP00000001, 4672DRAKP00000001 Applicable Compliance Requirement: Allowable Costs/Cost Principles Condition: A review of 17 FY 25 Disaster Grants payments found that 15 payments (88 percent) lacked adequate supporting documentation. Context: FEMA provides public assistance funding to states for federally declared disaster mitigation and response. To be allowable under the Disaster Grants program, costs must be directly tied to the performance of eligible work, adequately documented, and necessary and reasonable to accomplish the work properly and efficiently. DMVA issues subawards to eligible applicants, including not-for-profits and local governments, and transfers funds to other State departments for disaster response. The State (DMVA) and Disaster Grants subrecipients may contract for services but must meet state and federal procurement requirements when doing so. Contracts must include the procurement provisions detailed in Title 2 CFR 200.327. Furthermore, contractors’ performance must be monitored to ensure compliance with the contract conditions. According to management within DMVA’s Division of Homeland Security and Emergency Management (DHSEM), due to the high number of State disasters and a lack of staff resources, DMVA hired contractors to help oversee the federal disaster projects by performing administrative duties typically conducted by DHSEM staff, including reviewing and approving subrecipient applications for funding, obtaining the required documents to ensure projects were administered in accordance with FEMA requirements, and processing subrecipient payment requests. There were 327 Disaster Grants payments totaling $325,318,285 during FY 25. The audit tested 17 Disaster Grant payments totaling $188,888,098, of which 15 were inadequately unsupported. Specifically, 11 payments were partially supported by procurement contracts that did not include all federal requirements and four were not fully supported by complete or signed contracts. Other errors included: one payment contained amounts for an unrelated project; five payments were not fully supported by invoices; one payment included a markup on a subcontractor’s work; one included an advance payment that lacked required supporting documentation; one payment included a completion bonus; and several payments were not identified as allowable costs in the approved project worksheets. Cause: Due to competing priorities and inadequate supervisory review procedures, DHSEM staff and contractors did not verify that the contracts issued by subrecipients included federal requirements and that documentation for the reimbursement of subrecipient costs was received. Furthermore, contracts for interagency projects were not obtained by DMVA staff or contractors to verify that the costs were within the contract scope or that the contracts included all federal requirements. The audit noted that Department of Health and Social Services (DHSS) submitted a signed Contract/Procurement Review Waiver declining to submit documentation to DMVA for review with the understanding that DHSS would assume all responsibility for the procurement and contracts. DHSEM contractors accepted the waiver and did no monitoring to ensure contracts complied with appropriate procurement processes and included all federally required clauses. Lack of adequate review of the payment requests and supporting documentation, including supervisory review, resulted in payments without adequate invoices or other source documentation. Lack of adequate project oversight resulted in a subrecipient not providing supporting documentation within the 60-day timeline for advance payments. Criteria: Title 2 CFR 200.403(g) requires costs to be adequately documented. FEMA’s guidance for administering the program is detailed in the Public Assistance Program and Policy Guide (PAPPG), which requires Disaster Grants contracts to include the procurement related provisions of Title 2 CFR 200.327 and Homeland Security Acquisition Regulation Class Deviation 15-01 clauses. PAPPG also requires costs to be adequately documented and directly tied to the performance of eligible work. Further, the PAPPG states that FEMA does not reimburse costs incurred under a cost plus a percent of cost contract. Annually, DHSEM management updates the State Administrative Plan for the federal disaster assistance program, which is a required document in each federally approved FEMA-State Agreement for presidentially declared disasters. The purpose of the plan is to identify the State’s roles, responsibilities, processes and procedures for administering FEMA’s Disaster Grants program. The plan requires DHSEM staff to obtain documentation to support all costs claimed and to perform a thorough review to ensure compliance with programmatic and eligibility requirements. The plan also outlines the requirements for advancing FEMA funds to a subrecipient; specifically, the subrecipient must report on the status of advance funds within 30 days of receipt and has up to 60 days to provide the appropriate summary forms and support cost documentation, i.e, invoices, timesheets, etc. If the summary forms and supporting documentation are not received within the time limits, the Plan requires that the State de-obligate remaining funds, recoup advance funds, and close the subrecipient’s project file. Title 2 CFR 200.303(a) requires the State to establish and maintain effective internal controls over federal awards that provide reasonable assurance that the State is managing federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. Effect: Inadequate documentation may result in unallowable costs. Noncompliance with federal regulations may result in the federal awarding agency imposing additional conditions or taking corrective action, including additional reporting requirements or withholding/terminating funding. Questioned Costs: Indeterminate Recommendation: DMVA’s DHSEM director should strengthen written procedures to ensure Disaster Grants contracts are obtained and reviewed for compliance with federal requirements. Furthermore, supervisory review procedures should be strengthened to ensure DHSEM staff and contractors obtain and review cost documentation to ensure subrecipient payment requests are allowable for the project and adequately supported. Views of Responsible Officials: Management agrees with this finding.
2025-001 Approval of Invoices (Material Weakness) Federal Agency: U.S. Department of Education Pass-through Agency: New Hampshire Department of Education Cluster/Program: COVID-19 – Education Stabilization Fund Assistance Listing Number: 84.425U Passed-through Identification: 20220810 Compliance Requirement: Activities Allowed or Unallowable and Allowable Costs / Cost Principles Type of Finding: Internal Control over Compliance – Material Weakness Criteria or Specific Requirement: Per 2 CFR 200.303, non-Federal entities are required to establish and maintain effective internal control over Federal awards that provides reasonable assurance that the entity is managing such awards in compliance with Federal statutes, regulations, and the terms and conditions of the award. These controls should be designed in accordance with established internal control frameworks and include appropriate supervisory review and approval processes. In addition, 2 CFR 200.403 requires that all costs charged to Federal awards be necessary, reasonable, and adequately documented. Adequate documentation includes evidence that expenditures were reviewed and approved by appropriate personnel to ensure allowability, allocability, and compliance with program requirements prior to payment. Condition: During our testing of expenditures, we identified two invoices totaling $818,074 that did not contain evidence of formal supervisory review and approval. Specifically, the invoices were not initialed, signed, or otherwise documented to demonstrate that a compliance review had been performed prior to payment. Although the School District has established procedures requiring review and approval of invoices, these procedures were not consistently followed. As a result, there was no documented evidence to support that the expenditures were reviewed for allowability, allocability, and compliance with applicable Federal requirements prior to disbursement. Cause: This deficiency appears to be the result of inconsistent adherence to established internal control procedures and a lack of effective monitoring to ensure that required review and approval controls are performed and documented. While a review process exists, it is not operating effectively in practice, and responsibilities for documenting approval may not be clearly enforced or consistently applied. Effect: As a result of the lack of documented supervisory review, the School District is unable to demonstrate that expenditures charged to the grant were evaluated for compliance with Federal requirements prior to payment. This control deficiency increases the risk that unallowable, unsupported, or noncompliant costs could be charged to the Federal program and not be detected in a timely manner. In addition, the absence of documented approval weakens the audit trail and reduces transparency and accountability over Federal expenditures, which may result in increased scrutiny from oversight agencies and the potential for questioned or disallowed costs. Questioned Costs: None. While a control deficiency was identified, our testing did not identify any instances of noncompliance or unallowable costs charged to the program. Identification as Repeat Finding: This is not a repeat finding. Recommendation: We recommend that the School District strengthen its internal controls over Federal expenditures by ensuring that all invoices charged to Federal programs are subject to a documented supervisory review and approval prior to payment. This review should include consideration of allowability, allocability, and compliance with program requirements. Evidence of such review should be consistently documented (e.g., signature, initials, or electronic approval) and retained in accordance with Federal record retention requirements. In addition, management should implement monitoring procedures to verify that established controls are operating effectively and consistently across all applicable transactions. Views of Responsible Officials: Management’s views and corrective action plan are included at the end of this report.
Department of Health and Human Services and Department of Treasury 2025-001 Coronavirus State and Local Fiscal Recovery Funds (Allowable Costs, Period of Performance, and Procurement) and Congressional Directives (Procurement) Criteria: Under 2 CFR 200.302 and 200.403, non-federal entities must maintain records sufficient to demonstrate that costs charged to Federal Awards are allowable, properly allocated and adequately supported. Under 2 CFR 200.309 costs must provide documentation that costs were incurred within the approved period of performance. Additional 2 CFR 200.317-200.327 requires entities to maintain documentation sufficient to support the procurement process for the use of Federal Awards. Condition: The Center did not maintain adequate documentation to support compliance with Federal requirements related to allowable costs, period of performance, and procurement standards. Allowable Costs – The Center provided grant allocation worksheets that show individual employees hours charged to the federal awards; however, the grant allocation worksheets did not include any employee or supervisor signatures to attest the hour allocations were accurate. Additionally, certain invoices had a portion of the total costs allocated to the federal award, but the Center could not substantiate the basis for the allocation. Period of Performance – The Center had charged costs to the federal award for costs incurred outside the period of performance as defined by the grant agreement but could not provide documentation that supported the grantor allowed charges to be made for costs incurred outside that period. Procurement – The Center entered a contract with a Company under the Simple Acquisition threshold for procurement but was unable to provide documentation that quotes were obtained from multiple qualified vendors. Cause: The Center did not have effective controls in place to ensure proper documentation was obtained and retained to support compliance with the federal award. Effect: Without adequate supporting documentation the Organization is unable to demonstrate its compliance with all requirements of the federal award. Questioned Costs: $175,389 out of $2,453,443 of total expenditures tested. Auditor’s Recommendation: We recommend The Center review and revise its documentation policies and procedures to ensure that compliance is met with regards to federal awards. Management Response: Management agrees with the finding and has collaborated with grant personnel to implement standardized personnel activity reporting and cost allocation documentation for all federal grants. The Center will strengthen controls to ensure that only allowable costs incurred within the approved grant period are charged to federal awards. In addition, procurement procedures have been revised to ensure compliance with 2 CFR $$ 200.317-200.327. Corrective actions have been implemented or are in progress and apply to all federal awards moving forward beginning in FY2026.
Statement of Condition: During the fiscal year ended June 30, 2025, the Organization charged indirect costs to the federal program at a rate of 8%, consistent with the grant agreement. However, the total amount of indirect costs charged exceeded the total allowable Management and General costs incurred in the Organization’s indirect cost pool. As a result, the Organization recorded excess indirect cost recovery of approximately $50,000, resulting in a surplus within a cost-reimbursement federal award. Criteria: Under Uniform Guidance (2 CFR §200.403 and §200.414), costs charged to a federal award must be: Allowable, Allocable, consistently applied Indirect costs must be supported by actual allowable costs incurred and may not exceed the underlying cost pool to which the rate is applied. Additionally, 2 CFR §200.303 requires non-federal entities to establish and maintain effective internal controls over federal awards to ensure compliance with federal statutes, regulations, and the terms and conditions of the award. Effect and Questioned Costs: At the time indirect costs were charged, allowable costs incurred were exceeded, resulting in a compliance issue under Allowable Costs / Cost Principles. Although the Organization subsequently obtained approval from the pass-through entity to retain and use the funds for specified purposes, the excess was not allowable as incurred, and the matter remains reportable as a compliance finding. Questioned costs of approximately $50,000 were identified; however, no repayment is required, provided the funds are used in accordance with the approval and related oversight requirements. Cause: The condition resulted from a combination of factors, including reclassification of certain vendors from subrecipients to contractors, which expanded the base of expenditures eligible for indirect cost allocation and increased indirect cost recovery without a corresponding increase in indirect expenses; and insufficient monitoring of indirect cost recovery following approval of an increased grant budget during a period of leadership transition, resulting in delayed identification of the imbalance between indirect recovery and actual indirect expenditures. Recommendations: We recommend that the Organization continue to adhere to the approved resolution with the pass-through entity regarding the use of excess indirect cost recovery, implement procedures to monitor indirect cost recovery relative to the underlying cost pool throughout the year, periodically reconcile indirect costs charged to actual management and general expenses incurred, enhance budgeting and forecasting processes to incorporate expected indirect cost recovery and ensure consistent application of the approved indirect cost rate in accordance with the grant agreement.
Statement of Condition: During testing of disbursements, we identified three instances in which expenditures were recognized in full in FY 2025 despite portions of the costs relating to services to be received in FY 2026. These items included: one multi-year subscription membership, and two additional expenditures with smaller prepaid components. In each instance, the Organization did not record a prepaid expense or allocate the costs between fiscal periods based on the period benefited. As a result, costs benefiting a period outside the fiscal year and outside the reporting period for FY 2025 federal expenditures were included in FY 2025 grant costs. Criteria: Under 2 CFR §200.403 and 2 CFR §200.405, costs charged to a federal award must be allowable, allocable, reasonable, incurred during the applicable period of performance and be allocable to a federal award in proportion to the relative benefits received. Additionally, 2 CFR §200.302 requires nonfederal entities to maintain financial management systems that provide for accurate and complete disclosure of the financial results of each federal award. Costs that benefit multiple accounting periods must be allocated to the periods benefited, regardless of the timing of cash disbursement. Effect and Questioned Costs: Federal expenditures reported for FY 2025 were overstated by $15,253, representing the portion of costs applicable to FY 2026. This resulted in noncompliance with Uniform Guidance requirements related to cost allocability and accurate financial reporting. Cause: The Organization did not have a formal process in place to identify and allocate prepaid or multiperiod costs to the appropriate fiscal periods for federal grant reporting purposes. Expenditures were recorded and charged to the federal award based on payment date rather than the period in which the costs were incurred and benefited the program. The lack of procedures to identify and allocate multi-period costs represents a deficiency in internal control over compliance, as controls were not designed or operating effectively to ensure that costs were charged to the appropriate fiscal period in accordance with Uniform Guidance. This deficiency did not rise to the level of a significant deficiency or material weakness, as the costs were otherwise allowable, within the period of performance, and the issue was limited to timing. Recommendations: We recommend that the Organization implement procedures to identify costs that benefit multiple accounting periods and allocate such costs to the appropriate fiscal years for both financial reporting and federal grant reporting purposes. Additionally, we recommend that the Organization record prepaid expenses at year end, as applicable, and ensure that only costs incurred and allocable to the fiscal year are included in federal expenditures and reported on the Schedule of Expenditures of Federal Awards.
Type of finding: Federal Award Situation: Material weakness; compliance with federal regulations. Program: ALN: 97.036 Program: Disaster Grants – Public Assistance Disaster Grants – Public Assistance Compliance Requirements: Reporting Prior-Year(s) Audit Finding(s): 2024-005, 2023-004, 2022-006 Questioned Costs: Not determined. Condition: The Municipality’s staff was unable to provide officially prepared and certified reports supporting compliance with the filing and submission requirements for reports and financial information, as established by federal award and regulatory agreements. Similarly, reconciliations were not provided between the information used to prepare the required and submitted reports and the formal data recorded in the Municipality’s official accounting system. Due to these conditions, compliance with the reporting requirements established by the federal grantor and effectiveness of related internal controls could not be verified. Context: The Municipality is required to submit quarterly progress reports to the state for each individual approved project worksheet. These progress reports consist of 10 questions that among other things report on the total amount of expenses incurred up to the reporting period, the estimated final cost of the project, percentage of completion, scope of work completion date, period of performance and the name and user category of the person that completed the report. As of June 30, 2025, the Municipality had 154 projects that were required to submit quarterly progress reports. Although the Municipality submitted to us the summary of these submitted reports, in excel, as they were extracted from the reporting platform, the Municipality did not submit for our review the individual reports, nor the accounting records that reconcile to these reports. Criteria: The state is required to make an accounting of eligible costs. Similarly, the subrecipient must make an accounting to the state. In submitting the accounting, the entity is required to certify that reported costs were incurred in performance of eligible work, that the approved work was completed, that the project in in compliance with the provisions of the State Agreement, all grants conditions were met, and the provisions for that project were made in accordance with the applicable payment provisions. Also, as established in the 2 CFR Section 200.302 (a) of the Uniform Guidance, the 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. In addition, 2 CFR Section 200.403, states that otherwise authorized by statue, costs must be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles, be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the non-Federal entity and be adequately documented. Cause: There is a lack of adequate knowledge and training among personnel assigned to the management and preparation of reports required by this federal award. Additionally, the Municipality did not demonstrate, nor did it provide evidence, that it has designed and implemented an adequate system of procedures and internal controls to monitor the activity, filing, and custody of reports, as required by the federal award and the pass-through entity. These deficiencies limit the Municipality’s ability to document and support compliance with the reporting requirements. Effect: These conditions expose the program to noncompliance with the reporting requirements established in the grant agreement. Furthermore, the Municipality may be at risk of the grantor questioning the allowability and use of federal funds. Auditor’s recommendation: The personnel or Department responsible should identify, compile, and retain all reports required under the grant agreement, including reconciliation with the Municipality’s official accounting records and subsidiary ledgers. Additionally, it is essential for the Municipality to develop, document, and implement a comprehensive training program, along with written guidelines and procedures, for all personnel involved, directly or indirectly, in the management of these federal funds. Views of Responsible officials and Corrective Actions: In response to the Auditor’s recommendations and as corrective action, the staff responsible or department will locate and document all required reports that were filed in accordance with the grant agreement requirements, including reconciliations with the Municipality’s official accounting subsidiary ledgers. Furthermore, the Municipality will design, document, establish, and provide the necessary training, along with written guidelines and procedures, to all personnel who work directly or indirectly with the management of these federal funds. In addition, the Municipality will implement periodic reviews and monitoring mechanisms to ensure ongoing compliance with reporting requirements and the accuracy of financial information related to federal funds. Audit Status: Unresolved
SIGNIFICANT DEFICIENCY; CRITERIA: 2 CFR §200.302(b)(5) requires non‑Federal entities to have written procedures to implement effective control over and accountability for all funds, including budgeting and financial management practices that allow the entity to relate financial results to project performance.; CONDITION: For the fiscal year ended June 30, 2025 the Town did not prepare or maintain project-level budgets for emergency response and recovery activities. ; EFFECT: Without project budgets, The Town lacks assurance that FEMA funds are spent in accordance with approved scopes of work and allowable cost principles under 2 CFR §200.403 and is unable to demonstrate effective financial oversight or compare actual expenditures to planned costs. This increases the risk of cost overruns, questioned costs, or ineligible expenditures, which may lead to FEMA deobligating funds or requiring repayment.; CAUSE: The Town did not have established internal processes requiring the development of project‑specific budgets for emergency FEMA awards. During the emergency response period, Town staff focused on operational activities, and no designated personnel were assigned responsibility for creating or monitoring project budgets.; RECOMMENDATION: The Town should implement written procedures requiring project‑specific budgets for all Federal awards, including FEMA emergency funding. The Town should also provide staff training to ensure personnel understand Federal grant budgeting requirements and are capable of preparing and maintaining compliant documentation.; VIEWS OF RESPONSIBLE OFFICIALS AND PLANNED CORRECTIVE ACTIONS: The Town of Spruce Pine agrees with this finding. Finance procedures will be updated to include project-level budgeting and recommended training for staff.
Condition: During the review of 100% of federal disbursements totaling $2,813,954 for Coronavirus State and Local Fiscal Recovery Fund, program disbursements were not expended in accordance with the Activities Allowed or Unallowed and Allowable Costs/Cost Principles as noted below: • One (1) purchase order in the amount of $108,728 did not have invoices or supporting documentation to determine if the project was allowable. This disbursement was approved in the BOCC meeting with no documentation. Cause of Condition: Policies and procedures have not been designed and implemented to ensure compliance with federal award requirements. Effect of Condition: This condition resulted in noncompliance with federal grant requirements and could result in loss of federal funds to the County. Recommendation: OSAI recommends the County gain an understanding of the requirements for this program and design and implement policies and procedures to ensure compliance with these requirements. Management Response: Chairman of the Board of County Commissioners and County Clerk: Creek County will work with all offices making sure that a proper invoice is attached on all purchase orders. Educating offices that there is a difference in a quote verses an invoice. The County Clerk will make sure that there are multiple eyes on the purchase orders to ensure that this is caught before payment is issued. Criteria: Title 2 CFR § 200.303(a) Internal Controls reads as follows: 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). Additionally, Title 2 CFR § 200.403 - Factors affecting allowability costs states in part, Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented.
2025-002. Allowable Costs/Cost Principles – (Excess Reimbursement Due to Inaccurate Final Expenditure Reporting) United States of Department of Education, Passed Through New York State, Department of Education: COVID-19: Elementary and Secondary School Emergency Relief Fund ALN: 84.425D Pass-through Entity Number: 5891-21-1490 COVID-19: American Rescue Plan - Elementary and Secondary School Emergency Relief ALN: 84.425U Pass-through Entity Number: 5880-21-1490 COVID-19: American Rescue Plan - Elementary and Secondary School Emergency Relief ALN: 84.425U Pass-through Entity Number: 5884-21-1490 Criteria: Per 2 CFR Part 200, specifically §§200.302 and 200.403, financial management systems must ensure that expenditures reported for federal awards are accurate, allowable, and properly supported. Costs charged to federal awards must be incurred and supported by underlying accounting records. Reports and reimbursement requests must be reconciled to the recipient’s accounting records. Additionally, guidance from the pass-through entity, New York State Education Department, requires that the Final Expenditure Report (FS-10F) reflect actual expenditures incurred, not outstanding obligations or encumbrances that have not been fully liquidated (e.g., purchase orders), and that districts revise or adjust claims as necessary if amounts differ from final expenditures. Condition: The District submitted Form FS-10F final expenditure reports that included amounts for open encumbrances that were not fully expended after the final reports’ submission; the cumulative expenditures in the District’s accounting records for two of the Education Stabilization Fund (ESF) grants (CRRSA ESSER II, pass-through entity number 5891-21-1490, and ARP ESSER III, pass-through entity number 5880-21- 1490) were less than the amounts claimed by the District on the FS-10Fs. The FS-10F for a third ESF grant (ARP SLR Learning Loss, pass-through entity number 5884-21-1490) included a duplicated amount for purchased services that was the result of a duplicated journal entry in the District’s accounting records. As a result, the expenditures reported on the FS-10F final expenditure reports exceeded the actual expenditures incurred and recorded by the District, and the District received reimbursements from the pass-through entity, New York State Education Department (NYSED) for expenditures it did not incur. Cause: The District lacked adequate internal controls and review procedures to ensure that FS-10F reports were based solely on actual, incurred expenditures, and reported amounts are subsequently reconciled to final general ledger balances in its accounting records. The District’s procedures for reviewing and approving journal entries failed to identify two erroneous entries. Additionally, there was a failure to implement procedures to monitor outstanding encumbrances included in the FS-10F and to communicate adjustments to the NYSED when those encumbrances were not ultimately realized as expenditures. Effect: As a result of the overstatement of expenditures on the FS-10F, the District received reimbursement in excess of allowable amounts. The District may be required to repay the excess funds received. Questioned costs: $52,798 for CRRSA ESSER II grant, $119,095 for ARP ESSER III grant, and $25,667 for ARP SLR Learning Loss grant. Context: For the CRRSA ESSER II grant, a payment of $72,906 to a vendor was charged to the grant in a prior year and included on the FS-10F filed in October 2023, the District subsequently determined that expenditure was not an allowable cost and corrected its accounting records; however, the District did not notify the NYSED of the change and the FS-10F was not revised to reflect this correction. Furthermore, there were $20,107 of expenditures recorded in the District’s accounting records that were not included in the FS- 10F; collectively, these two items resulted in the District reporting expenditures on the FS-10F for the CRRSA ESSER II grant that exceeded actual, allowable expenditures incurred by a net amount of $52,799. For the ARP ESSER III grant, the District included $6,400 related to an open purchase order for architectural and engineering fees on the FS-10F filed in October 2024. The purchase order was originally encumbered for $10,400; however, only $4,000 in actual expenditures were incurred, the remaining $6,400 balance was never expended as the project was completed with no additional invoices received from the engineering firm. Additionally, unliquidated payroll-related encumbrances at June 30, 2025, totaling $112,695 were included in the FS-10F; however, there were no actual expenditures incurred. For the ARP ALR Learning Loss grant, the District recorded a journal entry to reclassify the expenditure for a payment made to a vendor, but duplicated that amount in another journal entry recording expenditure to the grant. The duplicated amount was included in the FS-10F filed in October 2024. Identification of a Repeat Finding: This is not a repeat finding from the immediately prior audit. Recommendation: The District should strengthen its internal controls over grant reporting and reimbursement processes to ensure that expenditures reported on the FS-10F final expenditure reports are accurate, allowable, and fully supported by the accounting records. Journal entries affecting federal grants expenditures The District should perform a comprehensive reconciliation of the FS-10F to the general ledger prior to submission, and again after the grant period ends to confirm all reported amounts were ultimately expended, and establish a formal process to review and clear outstanding encumbrances included in grant reports, ensuring any amounts not realized as expenditures are removed or adjusted. Additionally, the District should develop procedures to identify and track subsequent adjustments, including reclassifications of unallowable costs, and ensure that such changes are timely communicated and corrected with the New York State Education Department, and to require documented supervisory review and approval of all final expenditure reports and their subsequent reconciliations with supporting documentation and final accounting records. Views of Responsible Officials of Auditee: The District acknowledges the finding related to the reporting of expenditures on the FS-10F and agrees that certain encumbrances and subsequently adjusted items were not properly reflected in the final expenditure submissions to the New York State Education Department (SED). The District notes that several of the identified items, including open purchase orders and payroll encumbrances, were initially included in the FS-10F in accordance with prior internal practice and interpretation of reporting guidance at the time of submission. In addition, the District acknowledges that certain post-submission adjustments, including reclassifications of unallowable costs and the liquidation of encumbrances, were not subsequently reflected through amended FS-10F filings. The District further recognizes that these conditions resulted in reporting discrepancies between the FS-10F submissions and actual expenditures incurred, leading to an overstatement of expenditures and excess reimbursement. The District has calculated the net obligation of $52,798.77 and intend to reimburse the NYSED for this amount.
Criteria: The Uniform Guidance requires the City to establish and maintain effective internal control over compliance for federal awards, including controls to reasonably ensure that costs charged to federal programs are allowable, properly supported, and comply with applicable federal requirements and the terms and conditions of the award. Under 2 CFR 200.403, costs charged to a federal award must be allowable, including that they be adequately documented and not be included as a cost or used to meet cost-sharing requirements of any other federally financed program in the current or a prior period. Condition: The City did not have adequately designed and implemented review controls over certain material project costs included in reimbursement requests submitted to the pass through agency. Our testing identified that the city submitted the same eligible project cost for reimbursement under two different federal grant awards, of which one was denied for reimbursement Cause: The City lacked sufficiently designed or effectively operating controls over the preparation, review, and approval of reimbursement requests for federal awards. In particular, the City’s controls did not include an effective reconciliation of expenditure detail by invoice, pay application, or other unique transaction identifier across open grant awards before submission of reimbursement requests. Effect: The absence of effective review controls over material project costs increases the risk that ineligible, unsupported, or incorrectly costs could be included in reimbursement requests without timely detection and correction. The duplicate submission was not reimbursed from both federal awards and therefore does not require repayment or adjustment of reimbursement requests. This deficiency is considered a material weakness in internal control over compliance for the Department of Transportation program.
Finding 2025-003 Duplicate expenditures charged to same grant Federal Program: Education Stabilization Fund – ESSER III ALN 84.425U Federal Agency: U.S. Department of Education Federal Award Year: 2021 Type of Finding: Significant Deficiency Noncompliance Criteria: In accordance with 2 CFR §200.403 (Factors affecting allowability of costs), costs charged to federal awards must be: Necessary and reasonable for the performance of the federal award; Allocable to the award; Consistent with policies and procedures applied uniformly to both federally financed and other activities; Adequately documented; and Conform to any limitations or exclusions set forth in the Uniform Guidance or the terms of the award. Condition: During our testing of expenditures charged to ESSER III, we identified costs that were not allowable under the Uniform Guidance (2 CFR Part 200) and the terms and conditions of the federal award. Specifically, payroll expenditures were charged twice to the grant for one payroll period. Cause and Effect: The condition appears to be the result of inadequate review procedures over expenditures charged to the federal program. Without proper internal controls, the District cannot prevent duplicate expenditures from being charged to a grant. Failure to properly review expenditures charged can result in noncompliance with federal requirements. Questioned Costs: The identified cost of $1,593 is less than 5 percent of the total program expenditures of $1,269,440. This is not considered a material noncompliance instance. Recommendation: We recommend the District establish and maintain proper review procedures for expenditures charged to grants prior to submission for reimbursement. Management’s views: Management agrees with the finding. See corrective action plan on page 95.
Allowable Costs/Cost Principles – Consultant Payments Program Name: Federal-State Partnership for Intercity Passenger Rail (Assistance Listing 20.326) Federal Award Agency: Department of Transportation Award Years: Federal Fiscal Years 2024 and 2025 Federal Award Number: 69A36524520310FSPCT Background The Department of Transportation (DOT) Consultant Design Administration Manual defines extra work as work the department orders beyond the scope of the agreement when such work is not reflected in the fee payments specified in the agreement. Criteria Title 2 U.S. Code of Federal Regulations (CFR) Part 200.317 requires that when conducting procurement transactions under a federal award, a state must follow the same policies and procedures it uses for procurements with non-federal funds. Title 2 CFR Part 200.403(c) and (g) provides that to be allowable under federal awards, costs must be consistent with established policies and procedures and adequately documented. The DOT Consultant Design Administration Manual requires consultants to obtain written authorization from the department before they begin any extra work; otherwise, DOT is not obligated to compensate the consultant for that work. Condition Our review of 11 transactions totaling $46,543,994 disclosed that DOT made a $47,870 payment for extra work performed by a consultant that it did not authorize before work began. Context During the fiscal year ended June 30, 2025, non-payroll expenditures totaled $105,024,824. We randomly selected ten payments to review, as well as one manual journal adjustment. The sample was not statistically valid. Questioned Costs $47,870 Effect Failure to comply with DOT’s policies regarding extra work performed by consultants may result in unauthorized costs. Cause A lack of management oversight contributed to this condition. Prior Audit Finding We have not previously reported this finding. Recommendation The Department of Transportation should strengthen internal controls over consultant payments for extra work. Views of Responsible Officials “We agree with this finding.”
Activities Allowed or Unallowed – Benefit Payments Program Name: Money Follows the Person Rebalancing Demonstration (MFP) (Assistance Listing 93.791) Federal Award Agency: United States Department of Health and Human Services Award Years: Federal Fiscal Years 2024 and 2025 Federal Award Number: 1LICMS300142 Background The Department of Social Services (DSS) is the designated single state agency to administer the Medicaid program in accordance with Title 42 U.S. Code of Federal Regulations (CFR) 431. Connecticut administers benefit payments for the Money Follows the Person Rebalancing Demonstration (MFP) program the same way it administers Medicaid benefit payments. Criteria Title 2 CFR Part 200.403 provides that to be allowable under federal awards, costs should be adequately documented. The DSS Provider Enrollment Agreement requires the medical provider to only submit claims for medical goods and services they provided to the MFP recipient. Condition Our review of 40 MFP benefit payments totaling $49,144, of which $36,858 was federally reimbursed, disclosed that one medical provider submitted a claim with $146 of services that the provider did not perform, of which $110 was federally reimbursed. Context During the fiscal year ended June 30, 2025, DSS processed $18,243,599 in MFP benefit payments and received $13,682,699 in federal reimbursement. The sample was not statistically valid. Questioned Costs We computed questioned costs of $110 by applying the applicable federal financial participation rate to the unallowed expenditures. Effect DSS received federal reimbursement for unallowed expenditures. Cause The medical provider billed for eight hours of services when they only performed two hours of services. Prior Audit Finding We have not previously reported this finding. Recommendation The Department of Social Services should conduct an audit of the medical provider in accordance with Section 17b-99 of the Connecticut General Statutes to ensure integrity of the Money Follows the Person Rebalancing Demonstration program. The Department of Social Services should recoup any improper payments issued to medical providers and refund the corresponding federal reimbursements to the Centers for Medicare and Medicaid Services. Views of Responsible Officials “The Department agrees with the finding. The improper payment has been recouped and the DSS Audit Division will open an audit of the provider.”
Activities Allowed or Unallowed – Individual Plans and Service Records Program Name: Money Follows the Person Rebalancing Demonstration (MFP) (Assistance Listing 93.791) Federal Award Agency: United States Department of Health and Human Services Award Years: Federal Fiscal Years 2024 and 2025 Federal Award Number: 1LICMS300142 Background The Department of Social Services (DSS) is the designated single state agency to administer the Money Follows the Person Rebalancing Demonstration (MFP) program. Connecticut administered certain aspects of MFP through several state agencies including the Department of Developmental Services (DDS). Criteria Title 2 U.S. Code of Federal Regulations (CFR) Part 200.403 provides that to be allowable under federal awards, costs should be adequately documented. Title 2 CFR Part 200.303 requires the non-federal entity to establish, document, and maintain effective internal controls over the federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the award. Procedure No. I.C.1.PR.002.a. of the DDS Operation Manual states that DDS should obtain agreements and approvals for the individual plan during the planning process. The case manager should document who participated in the planning process and obtain signatures on the individual plan. Participants typically include the recipient, parent, guardian, advocate, case manager, support brokers, private agency designee, and other DDS staff. Condition Our review of 25 MFP benefit payments totaling $11,000, of which $8,250 was federally reimbursed, disclosed that DDS did not have signatures of agreement and approval for six individual plans. Additionally, DDS could not obtain service records from one medical provider to support one $46 payment, for which DSS received $35 in federal reimbursement. Context During the fiscal year ended June 30, 2025, DSS processed $4,978,654 in MFP benefit payments on behalf of 36 DDS recipients. DSS received $3,733,990 in federal reimbursement. The sample was not statistically valid. Questioned Costs $0 Effect The lack of signatures to indicate agreement and approval of an individual plan by relevant participants increases the risk of inadequate services for the recipient. DSS received federal reimbursement for an unallowed expenditure. Cause Lack of management oversight contributed to the condition. Prior Audit Finding We have not previously reported this finding. Recommendation The Department of Developmental Services should strengthen internal controls to ensure it obtains the required signatures for the individual plan for all Money Follows the Person Rebalancing Demonstration recipients. The Department of Social Services should conduct an audit of the medical provider in accordance with Section 17b-99 of the Connecticut General Statutes to ensure integrity of the Money Follows the Person Rebalancing Demonstration program. Views of Responsible Officials Response provided by the Department of Developmental Services: “DDS agrees with the finding. The errors were attributed to current manual processes and case management oversight regarding documenting signatures when individual plan (IP) meetings are held remotely rather than in-person. Most of the deficiencies (5 of 6) were isolated to one case manager. The MFP division is small with 3-4 case managers, causing a higher error rate when extrapolated against the sample size. The missing support service records have been forwarded to the Department of Administrative Services for research. There are plans to improve the individual plan process to enhance internal controls through automation. In the interim, case managers and case manager supervisors will be reminded of the IP signature requirements.” Response provided by the Department of Social Services: “The Department agrees with this finding and the response provided by the Department of Developmental Services. Additional research is needed to determine whether the missing documentation was the provider's responsibility or was due to a billing issue. The Department of Developmental Services is coordinating with the Department of Administrative Services to research this further.”