Findings Citing § 200.403

Federal Program: ALN 10.536 CACFP Training Grants Category: Compliance/internal control significant deficiency Compliance requirements: Allowable costs / cost principles/procurement Record retention Condition: The procurement process was not adequately documented to demonstrate compliance with BGCPR's procurement policy. Criteria: 2 CFR § 200.318(a) requires recipients and subrecipients to maintain and use documented procurement procedures for procurement transactions under a Federal award or subaward, including the acquisition of property or services. These procedures must be consistent with applicable State, local, and tribal laws and regulations and the Federal procurement standards. 2 CFR § 200.318 (e) established that when appropriate for the procurement or use of common or shared goods and services, recipients and subrecipients are encouraged to enter into State and local intergovernmental agreements or inter-entity agreements for procurement transactions. These or similar procurement arrangements using strategic sourcing may foster greater economy and efficiency. Documented procurement actions of this type (using strategic sourcing, shared services, and other similar procurement arrangements) will meet the competition requirements of this part. 2 CFR § 200.318 (i) established that the recipient or subrecipient must maintain records sufficient to detail the history of each procurement transaction. These records must include the rationale for the procurement method, contract type selection, contractor selection or rejection, and the basis for the contract price. According to VI. Purchasing and Procurement of the BGCPR’s Fiscal Policies and Procedures, all requisitions, purchase orders, and invoices must be approved prior to the purchase commitment. For purchases between up to $1,000, quotations are not required; however, the Purchasing Department must obtain price information from the supplier. Every transaction should have a formal purchase order from BGCPR’s system. Further, 2 CFR §200.403(g) requires costs charged to Federal awards to be adequately documented. Moreover, pursuant to 2 CFR §200.334, recipients and subrecipients must retain all Federal award records, including financial records, supporting documentation, and statistical records, for a minimum of three years from the date of submission of the final financial report. If litigation, claims, or audit findings are initiated before the expiration of the retention period, the records must be retained until all such matters are resolved and final action has been taken. Context: For 2 samples tested, purchases were made without a formal purchase order generated from the system. In addition, 1 sample included merchandise received and paid in excess of the amount authorized in the purchase order. The purchase order was not amended. Cause: Program procurement personnel relied on the pass-through entity's procurement process and did not consistently maintain documentation required under BGCPR's internal procurement policy. Questioned cost: Amount is below the threshold to be considered a questioned cost. Effect or potential effect: Failure to consistently follow the entity’s procurement policy may result in unsupported or unauthorized purchases, payments exceeding approved amounts, and questioned costs if the expenditures are not properly authorized, documented, or determined to be allowable. Recommendation: Management should strengthen oversight of procurement activities and ensure that all procurement transactions are supported by documentation demonstrating compliance with BGCPR's procurement policies, including the use of formal purchase orders and adherence to authorized purchasing limits. Views of officials responsible: In order to avoid this situation happening in the future, instruction will be provided to all personnel emphasizing that every purchase should be made through a purchase order. This will ensure that we follow the BGCPR formal procedure and ensure better internal control is being followed. In addition, we will emphasize that no shipment should be received if such purchase is not in accordance with the specification disclosed in the purchase order. Anticipated Completion Date: September 30, 2026

FA 2025-001 Strengthen Controls over Expenditures Compliance Requirements: Activities Allowed or Unallowed Allowable Costs/Cost Principles Internal Control Impact: Material Weakness Compliance Impact: Material Noncompliance Federal Awarding Agency: U.S. Department of Education Pass-Through Entity: Georgia Department of Education AL Number and Title: 84.010 – Title I Grants to Local Educational Agencies Federal Award Numbers: S010A240010 (Year: 2025), S010A230010 (Year: 2024) Questioned Costs: $127,026 Repeat of Prior Year Findings: FA 2024-001, FA 2023-001, FA 2022-001 Description: The policies and procedures of the School District were insufficient to provide adequate internal controls over expenditures as it related to the Title I Grants to Local Educational Agencies program. Background Information: The Title I Grants to Local Educational Agencies (Title I) program is authorized under the Elementary and Secondary Education Act of 1965 to help local educational agencies (LEAs) improve teaching and learning in highpoverty schools in particular for children failing or most at-risk of failing, to meet challenging state academic standards. LEAs may operate targeted assistance programs in which children who are failing or most at-risk of failing may be served or schoolwide programs in which all children in eligible schools may be served. Title I funding is granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Education (ED), and GaDOE is responsible for distributing funds to LEAs and overseeing the expenditure of funds by LEAs. Title I funds totaling $621,294 were expended and reported on the Talbot County Board of Education’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2025. Criteria: As a recipient of federal awards, the School District is required to establish, document, and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Additionally, provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient… (g) Be adequately documented…” 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 non-Federal entity consistently applied to both Federal and non-Federal activities; (2) Follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies and meets the requirements of Federal statute, where applicable; and (3) Is determined and supported as provided in paragraph (i)…, [as follows:] (i) 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…” Condition: A sample of ten nonpersonal expenditures was randomly selected for testing using a nonstatistical sampling approach. These expenditures were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements were met. The following deficiencies were noted: • For three expenditures, evidence of review and approval was not reflected within the voucher package totaling $3,597. • For one expenditure, the amount recorded on the general ledger did not agree to supporting documentation resulting in a difference of $112. In addition, a sample of eleven employees was randomly selected for testing using a nonstatistical sampling approach. These employees were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements were met. The following deficiencies were noted: • For two employees, supporting documentation could not be provided to support payments totaling $126,674. • For one employee, the amount paid did not agree to the supporting documentation provided and resulted in an overpayment of $240. Questioned Costs: Upon testing a sample of $16,775 in nonpersonal services expenditures, known questioned costs of $112 were identified for expenditures not supported by adequate documentation. Using the total nonpersonal services expenditures population of $101,353, we project the likely questioned costs to be approximately $678. Upon testing a sample of $136,554 in personal services expenditures, known questioned costs of $126,914 were identified for expenditures not supported by adequate documentation. Using the total personal services expenditures population of $356,564, we project the likely questioned costs to be approximately $331,393. Cause: In discussing the deficiencies with the School District, they believe that these items are primarily due to improper documentation retention and oversight of approval processes. Effect: The School District was not in compliance with the Uniform Guidance and GaDOE guidance. Failure to ensure that expenditures and employee compensation payments associated with the Title I program are made for the appropriate amount and supported by appropriate documentation 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 Title I program fund as GaDOE may require the School District to return funds associated with improperly documented expenditures. Recommendation: The School District should evaluate their internal control processes regarding the retention of documentation to support expenditures and employee compensation payments. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that expenditures are appropriately documented and to ensure that Title I program 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: We concur with this finding.

FA 2025-002 Strengthen Controls over Expenditures Compliance Requirements: Activities Allowed or Unallowed Allowable Costs/Cost Principles Internal Control Impact: Material Weakness Compliance Impact: Material Noncompliance Federal Awarding Agency: U.S. Department of Education Pass-Through Entity: Georgia Department of Education AL Number and Title: COVID-19 – 84.425U – American Rescue Plan Elementary and Secondary School Emergency Relief Fund Federal Award Number: S425U210012 (Year: 2024) Questioned Costs: $20,040 Repeat of Prior Year Findings: FA 2024-002, FA 2023-002, FA 2022-002 Description: A review of expenditures charged to the Elementary and Secondary School Emergency Relief Fund Program revealed that the School District’s internal control procedures were not operating to ensure that expenditures were appropriately documented to support allowability. Background Information: On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways, including providing additional funding for local educational agencies (LEAs) navigating the impact of the COVID- 19 outbreak. Provisions included in Title VIII of the CARES Act created the Education Stabilization Fund to provide financial resources to educational entities to prevent, prepare for, and respond to the coronavirus. The CARES Act allocated $30.75 billion, the Coronavirus Response and Relief Supplemental Appropriations Act allocated an additional $81.9 billion, and the American Rescue Plan Act added $165.1 billion in funding to the Education Stabilization Fund. Multiple Education Stabilization Fund subprograms were created and allotted funding through the various COVID-19-related legislation. Of these programs, the Elementary and Secondary School Emergency Relief (ESSER) Fund was created to address the impact that COVID-19 has had, and continues to have, on elementary and secondary schools across the nation. ESSER funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Education (ED). GaDOE is responsible for distributing funds to LEAs and overseeing the expenditure of funds by LEAs. ESSER funds totaling $1,052,459 were expended and reported on the Talbot County School District’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2025. Criteria: As a recipient of federal awards, the School District is required to establish, document, and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “costs must meet the following criteria to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient… (g) Be adequately documented…” 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: All journal entries and general ledger adjustments impacting program expenditures were selected for testing. The following deficiencies were noted: • For one of the four items tested, appropriate evidence of review and approval was not maintained. • Sufficient supporting documentation was not provided for one journal entry posted to reverse expenditure activity. • For one journal entry used to record expenditures totaling $7,046 in the ESSER fund, sufficient supporting documentation could not be provided to determine the allowability of $889 of the expenditures moved to the program. In addition, a sample of eight employees was randomly selected for testing using a nonstatistical sampling approach. These employees were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements met. The following deficiencies were noted: • Evidence of properly designed and implemented controls over personal services expenditures could not be provided. • For seven employees, supporting documentation was not maintained to support salaries totaling $19,151. Questioned Costs: Upon testing a sample of $31,426 in personal services expenditures, known questioned costs of $19,151 were identified for expenditures not supported by adequate documentation. Using the total personal services expenditures population of $121,406, we project the likely questioned costs to be approximately $73,985. In addition, known questioned costs of $889 were identified for expenditures not supported by adequate journal entry documentation and were not tested as part of a sample; therefore, there are no related projected questioned costs. Cause: In discussing these deficiencies with the School District, they believe these issues are due to improper documentation retention and the need for updated policies and procedures. Effect: The School District was not in compliance with the Uniform Guidance and GaDOE guidance. Failure to ensure that documentation exists to support the allowability of payments from the ESSER program 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 ESSER program fund as GaDOE may require the School District to return funds associated with improperly documented expenditures. Recommendation: The School District should evaluate their current internal control processes related to ESSER program expenditures. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that all expenditures reflect evidence of review and approval and are supported by appropriate documentation. Furthermore, management should develop and implement a monitoring process to ensure that these procedures are functioning properly.

Compliance Over Allowable Costs/Activities Allowed U.S. Department of Education Title I ALN 84.010 Criteria: 2 CFR 200.405, costs must be allocable to a federal award. A cost is allocable if it is assignable to the award in accordance with the relative benefits received. Costs that benefit another program or activity may not be charged to a federal award. Additionally, the award agreement governing Title I requires that reimbursement requests be supported by adequate documentation evidencing that costs claimed are allowable, allocable, and in compliance with the terms and conditions of the federal award. Per 2 CFR 200.403, costs must be adequately documented to be allowable under federal awards. Condition: During our testing of Allowable Costs and Activities Allowed for Title I, we selected a sample of 77 transactions from the program’s population of expenditures for the year ended June 30, 2025. Of the 77 transactions tested, 2 exceptions were identified. For one transaction selected, professional service costs totaling $6,400 were charged to Title I that were incurred for and should have been charged to a separate, unrelated federal program. These costs do not benefit Title I and are therefore unallowable charges to this award. For one transaction selected, the School Board was unable to provide a reimbursement request to support costs of $1,350 claimed under the program. Cause: The $6,400 cross-charge of professional services costs appears to result from an error in cost allocation or coding, in which expenditures incurred for another program were incorrectly assigned to Title I. This indicates a deficiency in the School Board’s controls over the allocation of costs across federal programs. The unsupported reimbursement request of $1,350 indicates a deficiency in controls over the retention of supporting documentation for costs charged to the program. Effect: The misallocation of $6,400 in professional services costs to Title I resulted in unallowable costs being charged to the award. These costs provided no benefit to Title I and may be subject to disallowance by the federal awarding agency. The unsupported reimbursement request of $1,350 similarly represents a cost for which compliance with award requirements cannot be demonstrated. In aggregate, the 2 exceptions represent $7,750 in known questioned costs. Projecting the identified error rate of 2.6% (2 exceptions out of 77 transactions tested) to the full program population results in approximately $80,900 in likely questioned costs. Recommendation: We recommend that management strengthen controls over the allocation of costs to federal award programs to ensure that expenditures are charged only to the award that received the benefit of those costs, consistent with 2 CFR 200.405. Specifically, management should implement a review process to verify the accuracy of program costs coding prior to submission of reimbursement requests. Management should also refund or reclassify the $6,400 in professional service costs that were incorrectly charged to Title I. Additionally, management should implement controls to ensure that all reimbursement requests are supported by adequate documentation retained and available for audit. Repeat Finding: No. View of Responsible Officials: Beginning with FY2026, a new Federal Programs Supervisor/Director was hired by the Board, and a Fiscal Administrator was appointed on August 27, 2025. These new designees will ensure that all federal programs operate within their allowable costs, activities, procurement, suspension and debarment guidelines. Approved budgets will be reviewed and complied with as purchases are made and reviewed monthly thereafter.

Compliance Over Allowable Costs/Activities Allowed U.S. Department of Education Education Stabilization Fund ALN 84.425 Criteria: The award agreement governing ESSER requires that the School Board submit reimbursement requests supported by adequate documentation evidencing that costs claimed are allowed, allocable, and in compliance with terms and conditions of the federal award. Per 2 CFR 200.403, costs must be adequately documented to be allowable under federal awards. Condition: During our testing of Allowable Costs and Activities Allowed, we selected a sample of 77 transactions from ESSER’s population of expenditures for the year ended June 30, 2025. Of the 77 transactions, 2 instances were identified in which the School Board was unable to provide reimbursement requests to support the costs claimed under the program. The total dollar value of the unsupported transactions is $21,000. Cause: The School Board did not maintain adequate controls over the retention and organization of reimbursement request documentation supporting costs charged to the program. As a result, documentation necessary to demonstrate compliance with the award agreement’s reimbursement request requirements could not be located or provided to the auditors upon request. Effect: Without adequate documentation supporting reimbursement requests, the School Board cannot demonstrate that costs charged to ESSER are allowable under the terms and conditions of the federal award. This creates a risk that unallowable costs have been or may be claimed for federal reimbursement. The 2 unsupported transactions represent $21,000 in known questioned costs. Projecting the identified error rate of 2.6% (2 exceptions out of 77 transactions tested) to full program population results in approximately $63,000 in likely questioned costs, which may be subject to disallowance by the federal awarding agency. Recommendation: We recommend that management implement controls to ensure that all reimbursement requests submitted under federal award programs are retained in an organized manner and made readily available for audit. Management should also review the two reimbursement requests that could not be provided and attempt to obtain copies from internal records, the grant portal, or the applicable grantor/passthrough agency. If the reimbursement requests cannot be located, management should evaluate whether additional communication with the grantor or passthrough agency is necessary. Repeat Finding: No. View of Responsible Officials: Beginning with FY2026, a new Federal Programs Supervisor/Director was hired by the Board, and a Fiscal Administrator was appointed on August 27, 2025. These new designees will ensure that all federal programs operate within their allowable costs, activities, procurement, suspension and debarment guidelines. Approved budgets will be reviewed and complie with as purchases are made and reviewed monthly thereafter.

Condition During testing of cash disbursements, the audit team was unable to locate adequate supporting documentation for selected transactions sufficient to determine whether the costs charged were allowable and the activities were allowed under the applicable federal award(s). Documentation such as invoices, receipts, contracts, approvals, or evidence linking the expenditure to an allowable activity could not be located or provided by the Institute. Criteria Per 2 CFR § 200.403, costs charged to a federal award must be necessary, reasonable, and adequately documented. Per 2 CFR § 200.302 and § 200.334, non-federal entities must maintain financial records, including source documentation (e.g., invoices, receipts, canceled checks, time and effort records) that support the allowability, allocability, and reasonableness of costs charged to federal awards, and these records must be retained and readily accessible for a minimum of three years. Additionally, 2 CFR § 200.404 and § 200.405 require that costs be allocable and consistently applied to allowable program activities. Cause The Institute's recordkeeping and document retention practices did not ensure that supporting documentation for cash disbursements was consistently maintained, organized, or readily retrievable. This may be attributable to insufficient internal controls over document retention, lack of a centralized filing/records system, or turnover in staff responsible for maintaining disbursement records. Effect Without adequate supporting documentation, the Institute cannot demonstrate that disbursed funds were used for allowable costs and allowed activities in accordance with the terms of the federal award(s). This exposes the Institute to the risk of questioned costs, disallowed expenditures, required repayment to the funding agency, and potential findings of noncompliance in future audits. It also limits the Institute's ability to demonstrate accountability and stewardship over federal funds. Recommendation We recommend that the Institute strengthen internal controls over cash disbursements to ensure supporting documentation (invoices, receipts, approvals, and evidence of allowable activity) is obtained and retained for every transaction prior to disbursement. The Institute should implement a centralized, organized recordkeeping system (physical or electronic) for disbursement documentation, with clear responsibility assigned for maintenance and retrieval. The Institute should also provide training to relevant staff on documentation retention requirements under 2 CFR Part 200. Views of Responsible Officials and Planned Corrective Actions Management agrees with the finding and recommendation. The Institute recognizes that complete and readily retrievable supporting documentation is necessary to demonstrate the allowability, allocability, and reasonableness of costs charged to all awards. Management will strengthen its cash disbursement and record-retention procedures to ensure invoices, receipts, approvals, contracts, and other applicable supporting documentation are maintained for each transaction. The Institute implemented a centralized electronic recordkeeping process for cash disbursement documentation and assigned responsibility for maintaining and retrieving supporting records. Documentation supporting the expenditure and applicable approvals are retained with the transaction records. Relevant staff have been instructed on documentation and record-retention requirements applicable to federal awards. Management will hold an annual training at the beginning of the new fiscal year available to all Institute employees.

Finding 2025-061 Federal Program Name Special Education Cluster (IDEA) (COVID 19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.027A, 84.027X, 84.173A, and 84.173X Grant # H027A230096, H027A240096, H173A230099, H173A240099 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs $6,149,159 Criteria: Federal regulation, 2 CFR 200.332 (d), requires pass-through entities to monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. Federal regulation, 2 CFR 200.403(a) and (g), states costs are allowable when they are necessary and reasonable for the performance of the federal award and adequately documented. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office reimbursed Local Education Agencies (LEAs), which are generally schools or school districts, without receiving sufficient documentation to determine whether the claimed costs were allowable under the Special Education program. The office’s internal controls did not ensure adequate documentation was on file before issuing reimbursements. Questioned Costs: We question $6,149,159 in Special Education reimbursements that were not adequately supported at the time of payment. Additional unsupported reimbursements likely exist in the populations. Context: In fiscal years 2024 and 2025, the office paid over $89 million to LEAs based on reimbursement requests for the Special Education program. We tested 20 of the largest reimbursement requests, ten from each fiscal year, from different LEAs. Nine requests in fiscal year 2024, and one request in fiscal year 2025, lacked sufficient documentation to determine the allowability of the reimbursed expenditures. Testing exceptions included an absence of dates associated with the compensation, people, or positions for which reimbursement was sought, or details on how supplies or repairs related to the Special Education program. Effect: The office reimbursed schools for Special Education costs that were not adequately supported at the time of reimbursement. The office’s subrecipient monitoring procedures were not sufficient to comply with federal regulations. As a result, the office paid at least $6,149,159 in claims that may have included unallowable costs. Cause: Prior to early 2025, the office’s cash request reviews were minimal and focused primarily on comparing requests to budget line items. While budget comparisons provide some assurance of allowability, they are not sufficient on their own. For example, they do not confirm that personal service costs are for individuals who worked on the Special Education grant, or that work occurred within the period of performance of the grant. The office implemented a new cash request review process in early 2025. However, this change occurred during the audit period and does not address Special Education reimbursements already made. If the office continues to operate under its new procedures, this recommendation should be resolved. Recommendation: We recommend the Office of Public Instruction: A. Continue to use enhanced internal controls to ensure schools submit adequate documentation with reimbursement requests prior to payment. B. Reimburse schools only when documentation is sufficient to confirm that costs are allowable under the Special Education program. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.

Finding 2025-093 Federal Program Name Adoption Assistance – Title IV-E (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.659 Grant # 2401MTADPT and 2501MTADPT Compliance Requirement B. Allowable Costs/Cost Principles Type of Finding Material Weakness and Material Noncompliance Questioned Costs $76,348 Criteria: In combination, federal regulations, 45 CFR 1356.40(b)(3) and 45 CFR 1356.60(a)(1)(ii), permit federal matching funds to be used for adoption assistance payments when the adoption assistance agreement contains certain elements, including the duration of the agreement and nature and amount of payment. Federal regulation, 2 CFR 200.403, indicates 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. Federal regulation, 2 CFR 200.403(a), indicates one of the factors in determining this reasonableness is whether the cost is generally recognized as ordinary and necessary for the recipient's operation or the proper and efficient performance of the Federal award. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked internal controls to review daily subsidy rate changes when adoption agreements included multiple rates. As a result, the department overpaid adoption subsidies by more than $76,000 during the audit period. Questioned Costs: Based on the department's analysis of amount that should have been paid, we question $76,348 in federal subsidy payments made during the audit period. Additional questioned costs were identified outside the audit period. Context: The department made 74,232 subsidy payments during fiscal years 2024 and 2025, with the federal portion totaling approximately $32.2 million. We randomly selected a nonstatistical sample of 25 payments from fiscal years 2024 and 2025 and found two payments where the rate paid did not comply with the applicable adoption agreement. After we reported these errors, the department reviewed all payments made regarding 4,055 children with active subsidies during the audit period, including payments back to 2008. That review found overpayments for 37 children totaling more than $365 thousand in federal funds, and underpayments for 5 children totaling approximately $13.5 thousand. The federal portion of overpayments attributable to the audit period was approximately $76 thousand. The department returned $371 thousand dollars to the federal government in fiscal year 2026 for overpayments dating back to 2008 through 2026. Effect: The department did not comply with federal requirements to make adoption subsidy payments in accordance with signed adoption agreements. Some families were overpaid and others were underpaid, dating back to 2008. Cause: The department had no system to track instances where daily subsidy rates in adoption agreements were scheduled to change at a future date. Recommendation: We recommend the Department of Public Health and Human Services: A. Establish controls to track changes in daily subsidy rates throughout the adoption agreement period. B. Pay the daily subsidy rate in accordance with the signed adoption agreement. Views of Responsible Officials: The department concurs with the recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.

Finding 2025-094 Federal Program Name Children’s Health Insurance Program (CHIP) (COVID-19) Federal Awarding Agency U.S. Department of Health and Human Services (HHS) State Agency Department of Public Health and Human Services (department) ALN # 93.767 Grant # 2305MT3002, 2305MT5021, 2405MT5021, 2505MT5021 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles Type of Finding Material Weakness Questioned Costs Approximately $26,000 Criteria: Federal regulation, 2 CFR 200.403(a), requires expenditures to be necessary and reasonable for the performance of the federal award. Federal regulation, 42 CFR 457.402, defines child health assistance as payment for part or all of the cost of health benefits coverage for targeted low-income children. Federal regulation, 42 CFR 457.310(a), states that a targeted low-income child is a child who meets federal and state eligibility standards. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department did not take timely corrective action to resolve known data interface issues that were causing inaccurate eligibility information to be reported to the department’s contractor. These issues led to claims being paid for ineligible CHIP program participants. Questioned Costs: The department provided a list of payment adjustments for ineligible individuals. Using the Federal Medical Assistance Percentages (FMAP) rates in effect, we calculated the federal share of the adjustment and used that number to arrive at questioned costs of approximately $26,000. Context: The department uses a contractor to review and pay benefit claims. The contractor paid a total of $146.6 million in claims during the audit period. The contractor relies on eligibility information from the department’s system, provided through a system interface. The department found that the interface was not working properly, resulting in payments for ineligible individuals. At the end of the audit period, the interface issue was unresolved. After identifying the issue, the department reviewed claims and eligibility data to find all cases where claims were paid for ineligible individuals. They worked with the contractor to adjust these claims. In total, adjustments were made for 48 beneficiaries of approximately $26,000 in federal share. These adjustments occurred in fiscal year 2026, after the audit period. Effect: Without timely corrective action, the department risks paying claims for ineligible beneficiaries. The identified costs incurred for ineligible beneficiaries totaled about $26,000, but the amount could have been higher due to the timing of the department’s review and the nature of the issue. Cause: The department’s interface with the contractor did not function properly, resulting in payments for individuals who were not eligible for coverage. The department did annually review data to determine if benefits were paid to ineligible individuals, but it was not timely enough to resolve all issues during the audit period. Recommendation: We recommend the Department of Public Health and Human Services: A. Enhance internal controls to identify and correct payments for ineligible individuals timely. B. Continue to investigate and resolve the interface issue with the contractor to prevent future payments to ineligible individuals. Views of Responsible Officials: The department does not concur with this recommendation. The department indicates they identified an interface issue and promptly corrected the affected payments. Additionally, the department believes the errors were limited and immaterial to the financial statements, indicating if errors had been larger they would have been corrected prior to fiscal year end. The department states the interface issue was fully corrected in April 2026. Rebuttal of Views of Responsible Officials: We considered the department’s nonconcurrence with the recommendation. While the department did correct the affected payments and indicate that the interface issue was corrected, these corrections did not occur within the audit period. As such, our recommendation stands.

Finding 2025-102 Federal Program Name Disaster Grants – Public Assistance (Presidentially Declared Disasters) (COVID-19) Federal Awarding Agency U.S. Department of Homeland Security State Agency Department of Military Affairs (department) ALN # 97.036 Grant # 4508DRMTP00000001, 4608DRMTP00000001, 4623DRMTP00000001, 4655DRMTP00000001, 4726DRMTP00000001, 4745DRMTP00000001, 4801DRMTP00000001, 4813DRMTP00000001 Compliance Requirement B. Allowable Costs/Cost Principles M. Subrecipient Monitoring N. Special Tests and Provisions Type of Finding Material Weakness and Material Noncompliance Questioned Costs $7,814,126 in total questioned costs: $1,528,856 known and $6,285,270 likely. Criteria: Federal regulation, 2 CFR 200.403(c), requires costs to be consistent with policies and procedures applied uniformly to both federally financed and other activities of the recipient or subrecipient to be allowable. Federal regulation, 2 CFR 200.403(g), requires that costs be adequately documented to be allowable. Federal regulation, 2 CFR 200.332, requires pass-through entities to monitor subrecipient activities. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department lacked internal controls to ensure costs were supported and documented before making payments on Disaster Grant projects. We identified multiple subrecipient projects with unsupported or inadequately documented costs. Questioned Costs: We identified $7,814,126 in total questioned costs: $1,528,856 known and $6,285,270 likely. We calculated likely questioned costs by analyzing a selection of project invoices and found that 32% were supported and 68% were not. We then projected that 68% rate to the remaining project costs. Context: During the audit period, the department paid $53,947,993 to subrecipients for 187 projects across 8 disasters. We planned to test a nonrandom, nonstatistical sample of 19 projects but stopped after finding errors in 2 of the first 5 projects tested. The first project provided emergency protective measures during the COVID-19 public health emergency, primarily temporary medical staffing. The second project repaired and replaced more than 100 miles of fencing damaged by wildfire. Across the two projects, we identified known questioned costs via the following documentation errors: • $153,240 paid with no invoices on file. • $868,709 paid when the contract lacked personnel rates needed to calculate payment. • $33,962 paid when invoices lacked sufficient detail to support the payment. • $39,920 paid over the contract limit. • $345,213 paid for materials without a required contract or other procurement documentation showing the subrecipient had followed their procurement policy. • $87,813 for Tribal Employment Rights Office fees paid twice, once by the contractors and once by the Federal Emergency Management Agency (FEMA). Additionally, $6,285,270 in likely questioned costs stemmed from the same lack of personnel rates in the contract. Effect: The department did not comply with federal regulations, resulting in more than $7.8 million in questioned costs for the program. Cause: Both projects were fully validated and closed through FEMA's large project closeout and Validate As You Go (VAYGO) processes. The department is uncertain how the documentation gaps occurred and believes the completed validation indicates costs were reviewed and deemed allowable, even if certain documents were absent from the files at the time of the audit. In the instance where no contract was executed by the subrecipient when it should have been under the subrecipient’s procurement policy, the department and subrecipient believed no contract was needed because materials were purchased as the project progressed. However, even when each of the seven purchases is considered individually, five would require at least some procurement documentation, and two would require a formal contract based on dollar amount alone. Considered together as a single project to replace 100+ miles of fence, all purchases would have required a contract under the subrecipient's procurement policy. Recommendation: We recommend the Department of Military Affairs: A. Strengthen internal controls to ensure subaward costs are adequately supported and retain supporting documents, as required by federal regulations. B. Comply with federal regulations by paying only allowable project costs to subrecipients. Views of Responsible Officials: The department partially concurs with the recommendation. Management agrees there is an opportunity to improve project documentation retention. However, they reiterate the reviewed projects were validated and deemed allowable through both the department and FEMA. Rebuttal of Views of Responsible Officials: We considered the department’s partial concurrence. While the projects were closed and validated by both the department and FEMA, we are required to include closed projects within the scope of our audit procedures, as requested and required by FEMA. Closed projects must be adequately documented. As a result, our recommendation stands.

Finding 2025-067 Federal Program Name Education Stabilization Fund (ESF) (COVID 19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.425 Grant # S425D200006, S425U210006, S425D210006 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs $944,172 Criteria: Federal regulation, 2 CFR 200.332(e), requires pass-through entities to, “Monitor the activities of the subrecipient as necessary to ensure that the subrecipient complies with Federal statutes, regulations, and the terms and conditions of the subaward. The pass-through entity is responsible for monitoring the overall performance of a subrecipient to ensure that the goals and objectives of the subaward are achieved.” Federal regulation, 2 CFR 200.403(a) and (g), states costs are allowable when they are necessary and reasonable for the performance of the federal award and adequately documented. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award Condition: The office receives ESF funds under the Elementary and Secondary School Emergency Relief (ESSER) fund portion of the grant. The office reimbursed Local Education Agencies (LEAs), which are generally schools or school districts, without receiving sufficient documentation to determine whether claimed costs were allowable under the ESSER program. The office’s internal controls did not ensure adequate documentation was on file before issuing reimbursements. Questioned Costs: We question $944,172 in ESSER reimbursements we tested that were not adequately supported at the time of payment. Additional unsupported reimbursements likely exist in the populations. Context: In FY2024 and FY2025, the office paid over $230 million to schools based on reimbursement requests. We designed a randomly selected, non-statistical sample of 60 items to test controls and 40 items to test allowability. We tested the first 16 items and found 10 instances of non-compliance. Based on this error rate, we concluded there was a material weakness and material non-compliance and did not test the remaining sample items. The 10 items with errors, totaling $770,637, lacked one or more of the following: dates associated with compensation, identification of employees or positions covered, or explanation of how supplies or repairs related to the ESSER program. Absent this information, the office is unable to demonstrate the costs reimbursed are for allowable costs under the grant. The number and consistency of errors indicate a systemic problem. The office also provided funds to schools under ESSER as part of a separate Math Innovations program. Four schools were paid funds under this program during the audit period for a total of $347,095. As this program was new in the audit period, we looked at all the cash requests for the audit period and question an additional $173,535 in costs. These cash requests also lacked adequate documentation to support they were allowable under the grant. Repeat Finding: This is a repeat finding and was reported as Single Audit finding 2023-032 from the audit for the two fiscal years ended June 30, 2023. This was originally reported as Single Audit finding 2021-036 in the audit for the two fiscal years ended June 30, 2021. Effect: The office reimbursed schools for ESSER costs that were not adequately supported at the time of reimbursement. The office’s subrecipient monitoring procedures were not sufficient to comply with federal regulations. As a result, the office paid at least $944,172 in claims that could have been for unallowable activities or unallowed costs. Cause: This issue was originally communicated to the office in late fiscal year 2024, leaving only part of the audit period for the office to strengthen controls. Prior to early 2025, the office’s cash request reviews were minimal and focused primarily on comparing requests to budget line items. While budget comparisons provide some assurance of allowability, they are not sufficient on their own. For example, they do not confirm that personal service costs are for individuals who worked on the ESSER grant, or that work occurred within the period of performance of the grant. The office implemented a new cash request review process in early 2025. However, this change came after the audit period and does not address ESSER reimbursements already made. If the office continues to operate under their new procedures, this recommendation should be resolved. Recommendation: We recommend the Office of Public Instruction: C. Enhance internal controls to ensure schools submit adequate documentation with reimbursement requests prior to payment. D. Reimburse schools only when documentation is sufficient to confirm that costs are allowable under the program. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.

Finding 2025-069 Federal Program Name Education Stabilization Fund (ESF) (COVID-19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.425D and 84.425U Grant # S425D200006, S425U210006, S425D210006 Compliance Requirement B. Allowable Costs/Cost Principles Type of Finding Material Weakness and Material Noncompliance Questioned Costs $668,828 Criteria: Federal regulation, 2 CFR 200.403(c) and (g) states, that for costs to be allowable, they must be consistent with policies and procedures that apply uniformly to both federal-financed and other activities of the recipient. They also must be adequately documented. Federal regulation, 2 CFR 200.413(c), states that administrative and clerical staff salaries should normally be treated as indirect costs. Federal regulation, 2 CFR 200.430(g)(1) states that charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. The records must be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office charged salaries to the ESSER grant as direct costs for staff whose positions are normally recovered through indirect cost collections. Supporting documentation was not available to show that these staff worked directly on the grant. The office also applied an indirect cost rate to those direct salary charges, which is not permitted under federal regulations. Questioned Costs: In total, we question $668,828 in costs calculated as described below. Context: During the audit we noted the following situations: 1. Indirect cost overcharge: When indirect costs were moved out of the office’s indirect cost account, the amounts already allocated and charged to federal programs through the indirect cost fund were not reduced. This resulted in overcharging the ESSER program by an estimated $207,363 for indirect costs. We question costs in this amount. 2. Unallowable direct salary: Personal services costs for administrative and executive positions, including a Financial Manager, Budget Analyst, Chief Operating Officer, and Chief Information Officer, were moved from a non-federal funding source directly to the ESSER grant. No time-and-effort documentation was available to support these charges. We question these costs totaling $398,096. 3. Indirect cost rate applied to unallowable salary: The indirect cost rate was also applied to the salaries in item 2 above, effectively charging the federal government twice for a portion of the same costs. We question these additional costs totaling $63,370. Effect: The office did not comply with federal regulations, resulting in $668,828 in questioned costs. Questioned costs are based on actual amounts moved to the ESSER grant as well as the auditor’s calculation to prorate the federal share for the indirect costs that were removed from the indirect cost account. Cause: The office's internal controls were not sufficient to ensure that salaries and indirect costs charged to the ESSER grant were allowable and supported by adequate documentation. While the office indicated the administrative and executive positions worked on ESSER reports, presentations to community partners, and inquiries from schools, there was no documentation that supported this time and effort. The office has implemented time and effort controls; however, it was implemented subsequent to the ending of the ESSER program. Recommendation: We recommend the Office of Public Instruction: A. Strengthen internal controls over salaries and indirect costs to ensure only allowable and supported costs are charged to federal grants. B. Track and document time and effort on grants to support both direct and indirect charges, as required by federal regulations. Views of Responsible Officials: The office partially concurs with the recommendation as they noted administrative and management staff did work on the grant. Rebuttal of Views of Responsible Officials: We considered the office’s nonconcurrence. We agree that administrative and management staff could have direct charges to the grant as allowed under federal regulations. However, no time and effort documentation was provided to support these staff members worked directly on the grant to support the costs were allowable as a direct charge. As such, our recommendation stands.

Finding 2025-070 Federal Program Name Education Stabilization Fund (ESF) (COVID-19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.425U Grant # S425D200006, S425U210006, S425D210006 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles Type of Finding Material Weakness and Material Noncompliance Questioned Costs $393,231 Criteria: Per Federal regulation, 2 CFR 200.403(a), for costs to be allowable, they must be necessary and reasonable for the performance of the Federal award. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office receives ESF funds under the Elementary and Secondary School Emergency Relief (ESSER) fund portion of the grant and contracted with the University of Montana - Western for services to recruit and retain K–12 teachers. The office paid the contractor primarily based on estimated costs rather than actual services performed. One invoice also included a cost category not authorized by the contract. When the contractor later submitted an invoice based on the number of teachers participating in the programs, it did not fully account for prior estimate-based payments, resulting in an overpayment. Questioned Costs: We question $393,231 in costs based on the amount the contract was overpaid as calculated below. Context: The contract specified a flat fee per resident teacher, up to 60 teachers, plus certain administrative costs. Payments were to be progress-based, tied to services performed. The office paid $926,894, total, including $594,469 in prepayments based on estimates. A subsequent invoice showing total actual costs of $601,663 indicates the office overpaid by $325,231. The contract authorized payments for resident teacher compensation, teacher-leader stipends, and resident teacher tuition grants. However, the contractor also billed $68,000 for "tuition other," a category not authorized by the contract. Combined, these issues total $393,231 in questioned costs. Effect: The office made payments outside the contract terms and without supporting evidence of actual contractor costs, resulting in $393,231 in questioned costs. Cause: The office's internal controls were insufficient to ensure that contractor invoices reflected services actually performed or that payments were limited to cost categories authorized by the contract. Office staff indicated the $68,000 “tuition other” category was related to the contractor billing for fringe benefits for each participant. Recommendation: We recommend the Office of Public Instruction: A. Strengthen internal controls to ensure contractor payments are supported by documentation of services performed and are consistent with contract terms. B. Pay contractor invoices only for costs and categories explicitly allowed by the contract. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.

Finding 2025-071 Federal Program Name Education Stabilization Fund (ESF) (COVID-19) Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.425D and 84.425U Grant # S425D200006, S425U210006, S425D210006 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles Type of Finding Material Weakness and Material Noncompliance Questioned Costs $110,075 Criteria: Per Federal regulation, 2 CFR 200.403(a), for costs to be allowable, they must be necessary and reasonable for the performance of the federal award. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office receives ESF funds under the Elementary and Secondary School Emergency Relief (ESSER) portion of the grant. Under this grant, the office recorded expenditures for payments to schools twice for the same transaction. Staff made correcting journal entries intended to reverse duplicate transactions. However, the entries re-recorded the expenditures rather than eliminating them. Because the office requests federal reimbursement based on recorded expenditures, the federal government paid the same costs twice. Questioned Costs: Based on the journal that duplicated costs, we question costs of $110,075. Context: The office accrued payments to three schools related to school expenditures for the ESSER grant. They then paid the schools and reversed the accrual, which is the expected sequence of journal entries. However, a subsequent journal entry described as a reversal, instead recorded the expenditures a second time. Effect: The office is not in compliance with federal regulations, resulting in questioned costs of $110,075. Cause: Internal controls were not sufficient to prevent the office from recording the same expenditures twice. The reversal journals were completed by two separate accountants and the reviewer of the journals did not notice they were duplicate. Recommendation: We recommend the Office of Public Instruction: A. Strengthen internal controls to ensure costs are recorded only once. B. Ensure all transactions submitted for federal reimbursement reflect actual costs incurred on the federal award. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.

Finding 2025-035 Federal Program Name Formula Grants for Rural Areas and Tribal Transit Program (COVID-19) Federal Awarding Agency U.S. Department of Transportation State Agency Montana Department of Transportation (department) ALN # 20.509 Grant # MT-2018-011, MT-2020-003, MT-2020-013, MT-2022-022, MT-2023-004, MT-2023-005, MT-2023-011, MT-2024-009, MT-2024-015 Compliance Requirement B. Allowable Costs/Cost Principles M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs $ 170,922 Criteria: Federal regulation, 2 CFR 200.403, requires that costs charged to a federal award be necessary, reasonable, adequately documented, and consistent with the cost principles in 2 CFR 200 Subpart E. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department did not have adequate controls to ensure subrecipient costs charged to the Formula Grants for Rural Areas program were properly documented, resulting in payments that did not conform to federal cost principles. Questioned Costs: We identified $170,922 in known questioned costs. We questioned all project costs that appeared potentially unallowable or lacked adequate documentation based on the subrecipient’s descriptions. Of the total, $28,368 relates to nonprofit subrecipients and $142,553 relates to for-profit subrecipients. Because this was a systemic issue, additional questioned costs likely exist in reports we did not review. Context: Subrecipients report project costs to the department in quarterly financial reports, which staff review before approving reimbursement. We tested a random, nonstatistical sample of 40 of 280 nonprofit financial reports and 6 of 24 for-profit financial reports, focusing on costs that appeared potentially unallowable, miscategorized, or relatively significant in dollar amount. The sample identified inadequate documentation in five nonprofit reports and four for-profit reports. The following cost types lacked sufficient documentation to determine compliance with federal cost principles: Effect: Without adequate cost documentation, the department may have reimbursed unallowable costs with federal grant funds. Insufficient oversight also increases the risk that fraudulent expenses could be approved for payment. Cause: During the audit period, the department was short-staffed and a single employee reviewed all subrecipient financial reports. Subrecipient follow-up was handled by email or phone, and records of those communications were not retained with supporting documentation. The department began requiring subrecipients to submit supporting documentation with their financial reports in state fiscal year 2025. Recommendation: We recommend that the Montana Department of Transportation: A. Strengthen internal controls to ensure only allowable subrecipient costs are reimbursed. B. Require and retain documentation sufficient to demonstrate that subrecipient costs comply with federal cost principles. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.

Finding 2025-091 Federal Program Name Foster Care - Title IV-E (COVID-19) Federal Awarding Agency U.S. Health and Human Services State Agency Department of Public Health and Human Services (department) ALN # 93.658 Grant # 2401MTFOST, 2501MTFOST Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles Type of Finding Significant Deficiency Questioned Costs $63,876 Criteria: Federal regulation, 2 CFR 200.403(a) and (g), states costs are allowable when they are necessary and reasonable for the performance of the federal award and adequately documented. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The department reimburses subrecipients for Foster Care program administration and training expenditures. Department staff review subrecipient documentation before issuing reimbursements. In fiscal year 2024, a miscalculation was not detected through staff reviews, resulting in an overpayment to a subrecipient. Questioned Costs: Because costs were not supported, we question $63,876 in Foster Care reimbursements in fiscal year 2024 based on the mathematical error on the invoice. Context: We tested a nonstatistical random sample of 23 out of 222 transactions involving payments to subrecipients administering Title IV-E programs. One transaction included a mathematical error. This was an isolated incident. Repeat Finding: This is a repeat finding. Montana’s Single Audit reports for the two fiscal years ended June 30, 2023, finding #2023-057; for the two fiscal years ended June 30, 2021, finding #2021-061; and for the two fiscal years ended June 30, 2019, finding #2019-017 contained findings related to the allowability of subrecipient expenditures. Effect: The department's controls did not detect the calculation error before reimbursing the subrecipient, resulting in $63,876 in questioned costs in fiscal year 2024 and noncompliance with federal regulations. Cause: Per department personnel, the identified error was a mistake that was not caught by the department’s review of the supporting documentation submitted by the subrecipient. However, the department implemented new control procedures in fiscal year 2025 and no similar issues were identified in that time period. If the department continues to operate under its new procedures, this recommendation should be resolved. Recommendation: We recommend the Department of Public Health and Human Services continue applying its improved internal control procedures by consistently reviewing and approving subrecipient payment transactions in order to ensure the allowability of the reimbursements. Views of Responsible Officials: The department concurs with this recommendation. For additional information regarding the department’s planned corrective action see the Corrective Action Plan starting on page D-1.

Finding 2025-073 Federal Program Name Immunization Cooperative Agreements (COVID 19) Federal Awarding Agency U.S. Department of Health and Human Services (HHS) State Agency Department of Public Health and Human Services (department) ALN # 93.268 Grant # NH23IP922574 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles H. Period of Performance Type of Finding Material Weakness (A, B, and H) and Material Noncompliance (A and B) Scope Limitation (H) Questioned Costs $5,346,667 Criteria: During the audit period, federal regulations, 2 CFR 200.333 and 45 CFR 75.353, allowed the department to issue fixed-amount subawards up to the Simplified Acquisition Threshold, provided certain requirements were met. Federal regulation, 48 CFR 2.101, defined the Simplified Acquisition Threshold as $250,000, with exceptions not applicable to the department’s subawards. Federal regulation, 2 CFR 200.403(g) and (h), require costs to be adequately documented and incurred during the approved budget period to be allowable. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: In fiscal years 2024 and 2025, the department issued fixed amount subawards to counties for the Immunization Cooperative Agreements Program. Five counties in 2024 and six in 2025 each received subawards exceeding the $250,000 maximum allowed by federal regulations. Internal controls did not prevent or detect this noncompliance. Because the department used fixed amount subawards above the allowed threshold, it did not obtain support for counties’ incurred costs. Payments were based on quarterly deliverable reporting and the department has no support to demonstrate that payments were only for costs incurred during the correct period of performance for the federal awards that funded the subgrants. Questioned Costs: We question the federal share of all payments to subrecipients whose subawards exceeded the maximum allowed for fixed-amount subawards. Total questioned costs are $5,346,667. Context: The department has historically used fixed-amount subawards for this program, as amounts were usually small. During the audit period, increased funding due to the COVID-19 emergency led to larger subawards. For counties with subawards exceeding $250,000: • In 2024, initial subawards were below the threshold, but amendments raised them above the limit. Subawards ranged from about $360,000 to $823,000. • In 2025, all initial subawards exceeded the threshold, ranging from about $342,000 to $781,000. After we communicated the issue, department staff consulted their Centers for Disease Control (CDC) contact and were told that the federally approved budgets showed intended spending, including the use of fixed-amount subawards. Additionally, the department noted that its 2024 federal budget review did not raise any concerns with the department using fixed-amount subawards. As part of the audit, we tried to speak with the department’s CDC contact but were told they were unauthorized to speak with us. Additionally, we could not confirm if the subaward mechanism was reviewed as part of the 2024 federal review. We found that CDC guidance allowed some flexibilities in response to COVID-19, but did not waive the dollar limitation for fixed-amount subawards. Effect: The department did not comply with federal regulations for the Immunization Cooperative Agreements program, resulting in about $5.3 million in questioned costs. When fixed-amount subawards are used, accountability is based on performance and results, and there is no expected routine monitoring of the actual costs incurred by the subrecipient. Because the department used this method for awards exceeding the allowed threshold, it cannot show that payments were limited to costs incurred during the correct period of performance for the federal awards that funded the subgrants. As a result, we cannot determine if county costs were incurred during the appropriate period of performance. Cause: The department received increased federal funds during the COVID-19 emergency. Program management stated they overlooked the maximum limit for fixed-amount subawards. indicating a need for stronger internal controls. Department management believed the CDC budget approval meant the federal limit did not apply. Recommendation: We recommend the Department of Health and Human Services: A. Strengthen internal controls for the Immunization Cooperative Agreements Program to ensure all fixed-amount subawards are within the federal maximum. B. Only issue fixed-amount subawards under the allowed maximum or obtain a documented waiver from the Centers for Disease Control. Views of Responsible Officials: The department does not concur with this recommendation. All subawards, including those referenced in the finding, were explicitly listed in the federally approved budget documents and Notice of Award. These materials contained the subaward amounts that the auditors questioned and were formally reviewed and approved by the CDC. The approval included the fixed-amount subaward methodology and the department’s planned use of funds. The department also points to the technical review conducted by CDC, which identified no findings or compliance issues, and its consultation with CDC program officials to support its position. Rebuttal of Views of Responsible Officials: We considered the department’s nonconcurrence with the recommendation. As noted above, the department's CDC contact did not respond to our inquiry during the audit. Additionally, we were unable to confirm through review of other information that the limit on fixed-amount subawards was waived. As such, our recommendation stands.

Finding 2025-058 Federal Program Name Title I Grants to Local Educational Agencies Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (office) ALN # 84.010A Grant # S010A220026, S010A230026, S010A240026 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles M. Subrecipient Monitoring Type of Finding Material Weakness and Material Noncompliance Questioned Costs $174,111 Criteria: Federal regulation, 2 CFR 200.332 (d), requires pass-through entities to "Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved." Federal regulation, 2 CFR 200.403(a) and (g), states costs are allowable when they are necessary and reasonable for the performance of the federal award and adequately documented. Federal regulation, 2 CFR 200.303, requires non-Federal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The office reimbursed Local Education Agencies (LEA), which are generally school districts or schools, without receiving and reviewing sufficient documentation to determine whether costs were allowable. The schools are subrecipients of the federal Title I funds. Internal controls were not adequate to ensure proper documentation was received before payment. Questioned Costs: We question $174,111 in Title I payments that were reimbursed without adequate support. This represents the total dollar amount of the ten sample items with errors. Based on the number of errors found, the timeframe during which the office was notified of documentation deficiencies, we project total questioned costs exceed $26 million or approximately 25% of the aggregate total for fiscal years 2024 and 2025. Context: We selected a random nonstatistical sample of 60 reimbursements. We tested the first 26 items and found ten exceptions. Because the error rate indicated material noncompliance, we did not test the remaining 34 items. The ten exceptions are mainly related to missing dates associated with when compensation and benefits were earned. The number of errors indicates a systemic problem. The office made 3,111 reimbursement payments totaling $104,414,057 to schools in fiscal years 2024 and 2025. Approximately $99 million of these requests were related to compensation and benefit costs incurred by schools. Repeat Finding: This is a repeat finding and was reported as Single Audit finding 2023-038 in the audit for the two fiscal years ended June 30, 2023. Effect: The office reimbursed schools for Title I costs that were not adequately supported at the time of payment. This increases the risk that schools used Title I funds for unallowable activities or costs. Subrecipient monitoring procedures were not sufficient to comply with federal regulations. Cause: This issue was originally communicated to the office in late fiscal year 2024, leaving only part of the audit period for the office to strengthen controls. The office implemented a new cash request review process in early 2025. Prior to that change, cash request reviews were minimal and limited to comparing the approved budget categories to the school’s cash request. However, the office continues to note that not all schools submit adequate documentation. During the current period, the office continued to distribute funds to schools even when supporting documentation lacked detail to ensure the cash request was for authorized purposes and was reasonably necessary for performance of the Title I program. During testing, we noted some improvement in documentation for fiscal year 2025 salary and benefit costs. Should the office continue to obtain increased documentation for salary and benefit costs, this issue should be resolved. Recommendation: We recommend the Office of Public Instruction: A. Continue to strengthen internal controls to ensure schools submit adequate documentation with reimbursement requests before payment is made. B. Only reimburse schools when documentation is sufficient to demonstrate the cost is for an allowable purpose and was incurred within the subaward period. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.

Finding 2025-059 Federal Program Name Title I Grants to Local Educational Agencies Federal Awarding Agency U.S. Department of Education State Agency Office of Public Instruction (Office) ALN # 84.010A Grant # S010A220026, S010A230026, and S010A240026 Compliance Requirement A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles Type of Finding Material Weakness & Material Noncompliance Questioned Costs $1,104,982 Criteria: Federal regulation 2 CFR 200.403(a) and (g) states costs are allowable when they are necessary and reasonable for the performance of the federal award and adequately documented. Federal regulation 2 CFR 200.430 (g) states salaries and wages charged to a federal award must be based on records that accurately reflect the work performed. Paragraph 430(g)(1)(vii) (A) and (B) allows for budgeted estimates if the estimates produce reasonable approximations of the activity actually performed and significant changes are identified and entered into the records in a timely manner. Federal regulation 2 CFR 200.303 requires non-Federal entities to establish and maintain effective internal control over the Federal award that provides reasonable assurance that the entity manages the award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The Office of Public Instruction (OPI) controls were not adequate to ensure compliance with federal regulations related to personal service costs. Questioned Costs: We question $1,104,982 of costs. This is the total for personal services for Title I for the audit period, less any staff who indicated they worked all of their time on the program and further adjusted for staff time supported (that we tested) for April – June 2026 that was supported by agency records . Context: The office added a new internal control in April of 2025 requiring staff to track time for their time spent on each Federal program. However, this control was not in place for 21 months of the audit period and documentation for some staff’s work on Title I could not be provided after implementation of the control. Therefore, we question $1,104,982 of costs. Since the office was not tracking time spent on each Federal program for 21 months of the audit period and documentation for all requested staff after implementation of the new control could not be provided, this resulted in material noncompliance. Repeat Finding: This is a repeat finding and was reported as Single Audit finding 2023-034 in the audit for the two fiscal years ended June 30, 2023. Effect: The office lacked controls to ensure that only salary and benefit costs for time worked on Title I were charged to the award. There is insufficient support to show that personal services costs were allocated to the federal program where the work was performed, resulting in $1,104,982 in questioned costs. Cause: Before April 2025, the office had not implemented a control requiring staff to track time spent on each federal program. Without this control, employees did not complete periodic time and effort certifications, and time was not confirmed as allocated to the correct state and Federal programs. Staff time allocations relied solely on budget estimates. Recommendation: We recommend the Office of Public Instruction: A. Continue to use enhanced internal controls to ensure personal services costs are adequately documented and reflect actual time and effort for the Title I program. B. B. Allocate personal service costs based on support for actual time and effort on the Title I program, in accordance with federal regulations. Views of Responsible Officials: The office concurs with the recommendation. For additional information regarding the office’s planned corrective action see the Corrective Action Plan starting on page D-1.

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

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

Condition The Municipality could not provide sufficient and appropriate supporting documentation to substantiate the final use of $666,000 in Federal funds transferred from the Municipality’s FEMA program bank account to other municipal bank accounts. The Municipality was unable to provide adequate documentation identifying the specific purpose of the transfers or tracing the transferred Federal funds to their subsequent use. Therefore, based on the documentation available during the audit, the final use and disposition of the $666,000 could not be substantiated. Context During the fiscal year ended June 30, 2025, the Municipality transferred $666,000 from its FEMA program bank account to other municipal bank accounts through electronic bank transfers. Although the transfers represented a movement of Federal funds between accounts controlled by the Municipality, the records provided did not contain sufficient supporting documentation to identify the specific purpose of the transfers or to trace the funds to their subsequent use. The Municipality did not provide sufficient evidence to substantiate the final disposition of the transferred funds, including the related FEMA disaster, project, subaward, or subsequent program expenditures, as applicable. Program requirements require recipients and subrecipients to maintain sufficient records and supporting documentation to identify and trace Federal funds and demonstrate their use in accordance with applicable Federal requirements and the terms and conditions of the Federal award. Criteria Uniform Guidance, 2 CFR § 200.403, provides that costs charged to a Federal award must, among other requirements, be necessary and reasonable for the performance of the Federal award, allocable to the award, consistent with applicable policies and procedures, and adequately documented. Additionally, 2 CFR § 200.302 requires a non-Federal entity’s financial management system to provide for the identification and tracing of Federal awards to an adequate level of expenditures and to maintain records sufficient to demonstrate that Federal funds have been used in accordance with applicable Federal statutes, regulations, and the terms and conditions of the Federal award. Under 44 CFR §§ 206.201 and 206.203, the Public Assistance Program provides Federal assistance for eligible Emergency Work and Permanent Work, subject to applicable program requirements. Cause The Municipality did not have adequate controls and procedures to ensure that Federal funds transferred from the FEMA program bank account to other municipal accounts were properly documented, identified, and subsequently traced to their final use. Effect As a result, the Municipality could not substantiate the final use and disposition of $666,000 in Federal funds transferred from the FEMA program bank account based on the documentation provided during the audit. The lack of sufficient supporting documentation limited our ability to verify the relationship between the transferred Federal funds and the related FEMA program activities, projects, or expenditures. Questioned Cost $666,000 Recommendation We recommend that the Municipality strengthen its internal controls over Federal funds by establishing procedures to ensure that all transfers from FEMA program bank accounts to other municipal accounts are adequately documented and remain fully traceable to their final use.

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

Allowable Activities Federal Agency: Department of Agriculture Federal Program: Technical Assistance and Training Grant Assistance Listing Number: 10.761 Award Period: March 1, 2023 – September 30, 2024 Type of Finding: • Significant Deficiency in Internal Control over Compliance • Other Matter Criteria or specific requirement: 2 CFR 200.403 requires a cost be necessary and reasonable for performance of the award. Condition: One (1) of fifteen (15) disbursement transactions tested revealed a duplicate employee reimbursement charged to the federal award. The same supporting invoice was submitted and reimbursed through two separate expense reports in different months, resulting in duplicate reimbursement of $527.95. Questioned costs: None. Context: During testing of 15 disbursement transactions charged to the major program, we identified one instance in which an employee reimbursement was processed twice. The same invoice was included with two separately approved expense reports submitted in different months. Cause: The Organization's reimbursement review controls did not detect that the same expense had previously been submitted and reimbursed. Both expense reports were approved in accordance with established procedures, and the duplicate charge was not identified during the review process. Effect: As a result, expenditures charged to the federal award were overstated due to a duplicate reimbursement. Repeat finding: No. Recommendation: We recommend management evaluate the circumstances surrounding the duplicate reimbursement and assess whether enhancements to existing reimbursement review procedures are necessary to identify and prevent duplicate reimbursement requests from being processed and charged to federal awards. View of responsible officials: There is no disagreement with the audit finding.

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

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

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

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

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

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

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

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

FINDING 2025-020 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, 84.425W Federal Award Numbers (or Other Identifying Numbers): S425D200013, S425D210013, S425U210013, S425W210015 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 2023-009. Condition and Context The COVID-19 - Education Stabilization Fund (ESF) established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and further funded by the Coronavirus Response and Relief Supplemental Appropriations Act (CRSSA) and the American Rescue Plan (ARP) Act, was for the purpose of preventing, preparing for, or responding to the novel coronavirus. An effective internal control system was not in place at the School Corporation over payroll costs charged to grant funds. Payroll distribution reports were provided to the director responsible for the ESF grant compliance; however, documentation was not presented for audit as evidence of a review. Additionally, the following issues were detected: Vendor Disbursements The School Corporation was unable to provide supporting documentation for one vendor tested: LTIA, Inc. Although Memorandums of Understanding (MOUs) were initiated by the Treasurer, no evidence was provided to demonstrate that the MOUs were reviewed or approved by the School Board at the time of execution. Information provided was based on documentation generated by the School Corporation, including purchase orders, handwritten vendor claim forms, and copies of check payments. However, no itemized vendor invoices were submitted to substantiate the services provided or the payments made, nor to detail the nature of the services rendered. In addition, the School Corporation was unable to provide supporting documentation to verify student participation or substantiate any of the reported metrics associated with MOU agreements. This resulted in known questioned costs of $12,000. Payroll Records Out of 20 payroll transactions tested, the following errors were detected: INDIANA STATE BOARD OF ACCOUNTS 63 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued)  One employee's authorized pay rate was $30 per hour; however, the issued paycheck reflected $40 per hour.  One employee's authorized stipend was $5,000; however, the issued paycheck reflected a payment of $5,500.  Pay rates for three employees could not be verified as the School Corporation was unable to provide documentation of a School Board-approved pay rate.  Eight stipends could not be verified as the School Corporation was unable to provide documentation confirming the School Board approval.  These issues combined resulted in known questioned costs of $50,845. The combined vendor and payroll issues resulted in known questioned costs of $62,845. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 200.334 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." 2 CFR 200.1 states in part: "Questioned cost means a cost that is questioned by the auditor because of an audit finding: (1) Which resulted from a violation or possible violation of a statute, regulation, or the terms and conditions of a Federal award, including for funds used to match Federal funds; (2) Where the costs, at the time of the audit, are not supported by adequate documentation; or INDIANA STATE BOARD OF ACCOUNTS 64 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (3) Where the costs incurred appear unreasonable and do not reflect the actions a prudent person would take in the circumstances. (4) Questioned costs are not an improper payment until reviewed and confirmed to be improper as defined in OMB Circular A-123 appendix C. (See also the definition of Improper payment in this section)." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.430(i) states in part: "Standards for Documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE's definition of IBS); . . . (vii) Support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. . . ." Cause The School Corporation demonstrated weaknesses in documentation and compliance practices. Vendor contracts and payments lacked adequate supporting records, including evidence of the School Board approval for MOUs and itemized invoices. In addition, payroll records were incomplete, with missing documentation of the School Board approved pay rates limiting the ability to verify the accuracy and appropriateness of expenditures. INDIANA STATE BOARD OF ACCOUNTS 65 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without proper documentation, the allowability of grant expenditures cannot be substantiated, creating a risk that unallowable costs may be charged to the federal grant. In addition, incomplete payroll records prevent verification of compensation, heightening the risk of inaccurate payments, unsupported variances, and potential misuse of federal funds. Questioned Costs Questioned costs in the amount of $62,845 were identified as described in the Condition and Context. Recommendation To address these deficiencies, the School Corporation should strengthen documentation practices by ensuring all vendor contracts, MOUs, and invoices are properly reviewed, approved by the School Board, and retained. Payroll internal controls should be improved by reconciling authorized salary ordinances to actual pay rates, documenting hours worked, and retaining evidence of the School Board approval for all compensation. In addition, periodic monitoring and internal reviews should be implemented to verify adherence to federal grant requirements and School Corporation policies, thereby reducing the risk of noncompliance and enhancing accountability. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

Federal Agencies: U.S. Department of Agriculture Federal Program Names: Child and Adult Care Food Program Assistance Listing Numbers: 10.558 Pass-Through Agency: Commonwealth of Pennsylvania, Department of Education Pass-Through Number: 359-46-477-8 Award Period: July 1, 2024 through June 30, 2025 Type of Finding: • Material Weakness in Internal Control over Compliance and Other Matters Criteria: Under the Uniform Guidance, costs charged to a federal award must be necessary, reasonable, allocable, consistent with the entity’s established policies, incurred during the award period, and adequately documented. In accordance with 2 CFR 200.403 and 2 CFR 200.430, payroll costs are allowable only when they are properly authorized and supported by records that accurately reflect the work performed. Accordingly, employee hours, including personal time off and overtime, should be recorded and compensated in the appropriate period based on the related time and effort performed. Condition: As part of our audit procedures, we selected a sample of 60 payroll transactions for review. Our testing included examining employee human resource files, including signed W-4 and I-9 forms, approved pay rates, timesheets with supervisory approval, and related payroll reports. We recalculated hours and compensation based on approved pay rates and compared the results to the payroll reports. During our review, we noted that management did not record and compensate all employee hours in the appropriate period based on the time and effort performed. Specifically, two employees were not properly compensated for one day of personal time off and 1.12 hours of overtime related to the administration of the CBS Food Program. These amounts were subsequently adjusted and paid in a later period. Questioned Costs: None Cause: Management did not consistently maintain and enforce internal controls over payroll documentation, review, and follow-up to ensure that payroll amounts, including personal time off and overtime, were accurately calculated, approved, and paid in the correct period. Although payroll support was maintained and available for audit, the review process did not identify the compensation differences before payroll was finalized, and the errors were not corrected until a subsequent period. Effect: Without proper documentation, approval, and timely review of payroll calculations, the Organization may charge unallowable, inaccurate, or inadequately supported compensation to the federal program. Payroll changes and compensation amounts, including personal time off and overtime, could be processed without appropriate authorization or correction in the proper period, increasing the risk of errors, unauthorized transactions, noncompliance with Uniform Guidance compensation requirements, and potential questioned costs. Repeat Finding: No Recommendation: We recommend that management strengthen its payroll review controls to ensure that employee compensation, including personal time off and overtime, is accurately calculated, reviewed, approved, and paid in the appropriate period. The review should include comparing approved timesheets, pay rates, payroll reports, and any leave or overtime documentation before payroll is finalized. Management should also document its review and establish a follow-up process to identify and correct payroll discrepancies timely. Views of Responsible Officers and Corrective Action Plan: Please refer to Community Benefit Solutions dba CBS Food Program’s Corrective Action Plan.

Finding 2025-003 Allowable Costs/Cost Principles and Cash Management– Compliance and Internal control over Allowable Costs/Cost Principles and Cash Management Identification of the Federal Program: Assistance Listing Number: 97.030 Assistance Listing Title: Federal Emergency Management Agency (“FEMA”) Federal Agency: U.S. Department of the Homeland Security Federal Award Identification Number: DR 4750 Criteria: Pursuant to 2 CFR 200.403, Except where otherwise authorized by statute, costs must meet the following criteria to be allowable under Federal awards: a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient. d) Be accorded consistent treatment. 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. g) Be adequately documented. 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. Condition: During our review, we identified that $88,374 of expenditures had been reported under both the Highway Planning and Construction Program (HPC) and the Federal Emergency Management Agency (FEMA), resulting in duplicate reporting of the same expenditures. To correct the error, the City removed the duplicated expenditures from the FEMA program while retaining the expenditures within the HPC program. The City subsequently determined that the duplicated amount had been improperly claimed under FEMA and will be required to refund $88,374 to the applicable grantor. Cause: The City’s decentralized structure, in which consultants and individual departments manage federal awards, resulted in a lack of effective communication and coordination with the Finance Department regarding the tracking and reporting of federal expenditures. This, combined with the absence of adequate internal review procedures and a limited understanding of federal reporting requirements, resulted in duplicate payment of $88,374. Effect or Potential Effect: The lack of communication and internal review procedures resulted in the over claiming of $88,374. Questioned Costs: $88,374 Context: See condition above for the context of the finding. Identification as a Repeat Finding, If Applicable: None. Recommendation: We recommend perform frequent communication between the Finance Department and other departments in identifying federal programs. Additionally, we recommend the City review and revise their policies and procedures over financial reporting and grant management, and providing more training to both grant management and finance staff on identifying funding sources, allowable costs, and proper expenditure reporting. Views of Responsible Officials: Management concurs with the finding and agrees to implement necessary corrective procedures.

Finding 2025-008 – Allowable Costs/Cost Principles: Insufficient Documentation of Expenditure Review and Approval – Significant Deficiency in Internal Control Over Compliance; Agencies – Department of Education; Assistance Listing Numbers (ALN) - 84.356A; Program Name - Alaska Native Educational Programs; Award Year / Award Number – FY 2025, 2024, 2023 / Award #S356A220066; Criteria or Specific Requirement – 2 CFR 200.303 requires recipients of federal awards to establish and maintain effective internal control over federal awards to provide reasonable assurance that awards are managed in compliance with federal statutes, regulations, and the terms and conditions of the award. In addition, 2 CFR 200.403 requires costs charged to federal awards to be allowable, adequately documented, and consistent with applicable federal requirements and the terms and conditions of the award.; Condition – APU did not retain evidence that the required review and approval was performed over credit card-related transactions before the expenditures were charged to the federal award. There are other mitigating controls relating to the payment of expenses, including credit cards.; Cause – For credit card-related nonpayroll expenditures, management did not have sufficient procedures to ensure required reviews and approvals were consistently documented and retained before expenditures were charged to the federal award.; Effect or Potential Effect – Without documented approval, errors, unallowable costs, or noncompliance with federal program requirements may occur and not be detected timely.; Questioned Costs - None reported.; Context – The population selected for testing consisted of 41 nonpayroll expenditure transactions totaling $101,810, with a total population of nonpayroll expenses of $366,354. We identified exceptions in 9 transactions totaling $7,537, all of which related to credit card transactions.; Repeat Finding – This is not a repeat finding.; Recommendation - Management should strengthen controls over nonpayroll expenditures by ensuring all required reviews and approvals are documented and retained.; Views of Responsible Officials – Management concurs with the finding and is strengthening procedures to ensure expenditure reviews and approvals are documented and retained.

The County did not ensure 10 payments totaling $62,400 for the Public Health Emergency Preparedness Program were reviewed and approved by independent appropriate personnel Assistance Listings number(s) and name(s): 93.069 Public Health Emergency Preparedness Award number(s) and year(s): CTR055212 July 1, 2023 through June 30, 2024 CTR055212 July 1, 2024 through June 30, 2025 Federal agency: Department of Health and Human Services Pass-through grantor: Arizona Department of Health Services Compliance requirement(s): Allowable costs/cost principles Questioned costs: $62,400 Condition Contrary to federal regulations and the award terms issued by the Arizona Department of Health Services (ADHS), the County did not ensure appropriate personnel reviewed and approved Public Health Emergency Preparedness Program (Program) expenditures, ensure adequate documentation was maintained justifying the expenditures were necessary and reasonable for the Program’s purpose, and ensure that the time and effort charged to the Program were for allowable costs. Specifically, the County’s contracted health director inappropriately approved all 10 purchase orders we tested totaling $62,400 that authorized payments for his own contracted professional services. Additionally, the County did not require an independent appropriate review of these contracted services prior to payment. Finally, the County and contracted health director failed to maintain detailed documentation to describe what work the contracted health director performed and why it was necessary and reasonable for the Program’s performance. Although, the contracted health director prepared a “consulting log” to document how time was split between miscellaneous Greenlee County administrative duties, epidemiological services provided for Graham County for which the county receives reimbursement, and duties related to the Program’s administration, the descriptions were limited to 1 or 2 words and thus did not provide adequate supporting documentation to justify charges to the Program. Effect The chief financial officer’s decision to allow the contracted health director to approve his own charges for services and not require an independent appropriate review increased the risk that $62,400 may not have been spent in accordance with the award terms and conditions and federal regulations. It also increased the risk that those who were intended to benefit from the Program may not receive all the benefits they otherwise would have received. Consequently, the County may be required to return these monies to ADHS. In addition, because the County lacks adequate, detailed documentation to support the services provided, ADHS may not be able to rely on the information the County reported to effectively monitor the Program’s administration, including its compliance with federal requirements, ability to prevent and detect fraud, and evaluate the Program’s performance. This may result in additional oversight and monitoring by ADHS and could jeopardize future awards. Cause Although the County agreed to ADHS’ award terms, they did not have policies and procedures in place to ensure Program requirements were met. The County did not assign responsibility for independently reviewing Program expenditure documentation to ensure it was sufficiently detailed and costs were allowable. The County appointed a Program coordinator but did not assign responsibility for overseeing all aspects as required by the grant agreement, such as reviewing and approving charges for services provided to the County. Criteria The County’s grant award terms require the County to appoint a Public Health Emergency Preparedness coordinator to be responsible for overseeing all grant-related activities, budgets, and reports.1 Additionally, per 2 CFR §200.403(g), costs must be adequately documented to be allowable under federal awards. Federal guidelines require establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303). Additionally, federal internal control standards require the consideration of segregation of duties in designing internal control activities so that incompatible duties are segregated.2 Recommendations to the County 1. Discontinue the contracted health director’s permission to prepare and approve purchase orders and credit card transaction forms that authorize payments for his own contracted professional services and relevant miscellaneous expenses. 2. Strengthen its procedures to ensure that County personnel perform an independent review and approval of all Program expenditures to prevent potential conflicts and misuse of federal funds. 3. Strengthen internal controls associated with the Program to ensure that all time charged to the Program is supported by sufficiently detailed documentation. 1 Intergovernmental agreement with Arizona Department of Health Services (Contract No. CTR055212) 2 Standards for Internal Control in the Federal Government, Principle 10.21, May 2025. Views of responsible officials County management concurs with this finding. The County’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials regarding these recommendations. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.

2025-004- Activities Allowed or Unallowed; Allowable Costs/Cost Principles. Federal Agency: U.S. Department of Labor Federal Program Title: WIOA Cluster (WIOA Adult Program; WIOA Youth Activities; WIOA Dislocated Worker Formula Grants) ALN: 17.258, 17.259, 17.278 Award Identification Number: 23A55AY000015; AA-38542-22-55-A-32; AA-36332-21-55-A-32, 23A55AT000046; 23A55AW000038; 23A55AY000015 Pass-Through Agency: State of Nevada, Department of Employment, Training and Rehabilitation (DETR) Pass-Through Award Number and Period: PY23-A-01-WIOA; PY24-A-01-WIOA; PY23-Y-01-WIOA; PY24-Y-01-WIOA; PY23-DY-01-GR; PY23-DW-01-WIOA; PY24-DW-01- WIOA (All for the period 4/1/2023 – 6/30/2026) Type of Finding: Material Weakness in Internal Control over Compliance and Material Noncompliance Criteria or specific requirement: 2 CFR 200.430(i), Standards for Documentation of Personnel Expenses, requires that charges to federal awards for salaries and wages be based on records that accurately reflect the work performed, be supported by a system of internal control that provides reasonable assurance the charges are accurate, allowable, and properly allocated, and be incorporated into official records. 2 CFR 200.430(a) requires compensation to be reasonable and allocable, 2 CFR 200.403 requires costs to be adequately documented, and 2 CFR 200.303 requires effective internal \ control over federal awards. (WIOA Cluster — Activities Allowed / Allowable Costs, 2025 Compliance Supplement Part 4, ALNs 17.258/17.259/17.278.) Condition: As part of testing compliance with Activities Allowed or Unallowed and Allowable Costs/Cost Principles, audit procedures included reviewing payroll transactions charged to the WIOA Cluster and evaluating controls over payroll approval and labor cost allocation. Testing of payroll authorization identified that two of twenty-five employee timecards selected for testing lacked evidence of supervisory review and approval. In both instances, the timecards were approved only by the employee and no evidence of managerial review was maintained. Testing of payroll allocations further identified significant deficiencies in Nevadaworks’ labor distribution process. For eleven of twelve employees selected for detailed testing, management was unable to provide supporting documentation demonstrating how payroll costs were allocated among individual federal programs. Although payroll charges were recorded to specific grants in the accounting records, the amounts charged could not be reconciled to personnel activity records, allocation methodologies, or other supporting documentation sufficient to demonstrate that costs were properly assigned to benefiting programs. The condition was not isolated to a single employee or program and was determined to represent a breakdown in the Entity's payroll allocation and review processes affecting the WIOA Cluster as a whole. Questioned costs: $84,685 known; additional related questioned costs unknown. Context: Payroll represents 􀀁 pprox.. 16% of the total program expenditures and our sample represents 􀀁 pprox.. 10% of the payroll costs. Cause: Internal controls over payroll approval and labor distribution did not operate effectively during the fiscal year. Significant turnover within the finance and administrative functions contributed to the breakdown in established procedures. In addition, management had not implemented a formal process requiring periodic reconciliation of payroll allocations to supporting personnel activity information or documented supervisory review of allocation calculations. Effect: Nevadaworks was unable to demonstrate that payroll costs charged to the WIOA Cluster were properly authorized, supported, and allocated to benefiting federal programs. As a result, compliance with federal requirements governing allowable costs could not be verified. The lack of adequate supporting documentation resulted in known questioned costs exceeding the threshold for reporting and constitutes material noncompliance with federal program requirements. Repeat Finding: No. Recommendation: Management should implement formal payroll allocation procedures that clearly document the methodology used to allocate employee compensation among federal awards. Payroll allocations should be supported by contemporaneous records that accurately reflect work performed and should be reviewed periodically for reasonableness. In addition, all employee time records should be subject to documented supervisory review and approval prior to payroll processing. Views of responsible officials: There is no disagreement with the audit finding. Nevadaworks will strengthen payroll authorization and labor allocation procedures by requiring approved time records, documented grant allocations, supervisory review of payroll records, monthly reconciliation of payroll charges, and periodic reviews of allocation methodologies for compliance with federal requirements.

State Agency: Illinois Department of Children and Family Services (DCFS) Federal Agency: U.S. Department of Health and Human Services (USDHHS) Program Name: Temporary Assistance for Needy Families Foster Care – Title IV-E Adoption Assistance ALN and Program Expenditures: 93.558 ($593,881,225), 93.658 ($190,740,988), 93.659 ($114,759,333) Award Numbers: Various – see table of award numbers Federal Award Year: Various – see table of award numbers Questioned Costs: Cannot be determined Compliance Requirement: Activities Allowed/Unallowed Allowable Costs/Costs Principles Finding 2025-024: Failure to Provide Supporting Documentation for Payroll and Related Costs Condition Found: DCFS could not provide adequate supporting documentation to substantiate payroll and related costs claimed for federal reimbursement under the Foster Care – Title IV-E (Foster Care), Adoption Assistance, and Temporary Assistance for Needy Families (TANF) programs. On a weekly basis, DCFS employees complete and sign timesheets to report and certify their time. These timesheets are then reviewed and approved by the employee’s immediate supervisor. The supervisor approves the timesheets based on their knowledge of the employee’s hours worked during the pay period. Timesheets are scanned for archiving once a month by the payroll department. Timesheets are manually entered into the time reporting system (Employee Monthly Time Report) which is used to accumulate the costs related to each cost center. Cost pool data from the time reporting system is used to identify personal service expenditures attributable to DCFS’s State and federal programs and to calculate and allocate the related fringe benefit charges and indirect costs. During our testing of 40 direct payroll expenditures charged to the cost pools allocated to the Foster Care, Adoption Assistance, and TANF programs (totaling $159,725) during the year ended June 30, 2025, we noted the following: "See full report for chart/table." The timesheet for one employee (supporting cost pool payroll expenditures sampled of $3,338) could not be provided for testing. DCFS personnel stated they were unable to locate the timesheet for this employee for the sampled period. Upon further review, DCFS personnel noted timesheets were unable to be located for this employee and all employees within the same pay group (totaling 16 additional employees) for the entire fiscal year, resulting in approximately 403 missing timesheets (related to payroll, fringe benefits, and indirect costs included in the cost pool totaling $1,636,270, $1,389,016, and $726,519, respectively). As a result, the personal service (payroll and fringe benefit) expenditures, as well as related indirect costs, were not appropriately supported in accordance with the requirements of the applicable cost principles. Accordingly, the personal service expenditures and indirect costs were not allowable. The hours reported for one employee (with sampled personal services expenditures from the cost pool of $5,074) in the timekeeping system used to allocate personal services expenditures to Foster Care, Adoption Assistance, TANF, and other programs operated by the agency exceeded the hours reported on manual timesheets prepared by the employees and approved by supervisors. There were 2.5 unsupported hours reported in the timekeeping system resulting in unsupported personal service expenditures from the cost pool of $11. Additionally, we noted the controls to ensure required documentation is obtained to support payroll and related costs and maintained to evidence management approval of payroll information were not operating effectively. We also noted adequate internal controls have not been established to ensure the data included in the timekeeping system and used to allocate personal services expenditures to Foster Care, Adoption Assistance, TANF, and other programs operated by DCFS is consistent with the hours reported on manual timesheets prepared by the employees and approved by supervisor. Personal service (payroll and fringe benefit) expenditures and related indirect costs charged to the Foster Care, Adoption Assistance, and TANF programs for the year ended June 30, 2025, were as follows: "See full report for chart/table." Criteria or Requirement: 2 CFR 200.403 establishes principles and standards for determining costs for federal awards carried out through grants, cost reimbursement contracts, and other agreements with state and local governments. To be allowable under federal awards, costs must meet certain general criteria. Those criteria require, among other things, that the expenditure be adequately documented. According to 2 CFR 200.430(g), charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must be, among other things, supported by a system of internal control, comply with the established accounting policies and practices of the non-Federal entity, and support the distribution of the employee’s salary or wages amount across specific activities or cost objectives if the employee works on more than one federal award; an indirect cost activity and a direct cost activity; two or more indirect activities allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. In addition, 2 CFR 200.303 requires nonfederal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Effective internal controls should include procedures to ensure required documentation is obtained to support payroll and related costs and to maintain documentation evidencing management approval of payroll information. Cause: In discussing these conditions with DCFS officials, they stated these exceptions were due to human error and the limitations of keeping a complete file record for the paper-based overtime approval and timesheet process. Furthermore, management indicated that prior year correction action plans have not fully resolved this issue because the anticipated transition date of the payroll and timekeeping system has been delayed. Possible Asserted Effect: Failure to accurately document and maintain required timesheets results in noncompliance with federal regulations and unallowable costs. Repeat Finding: A similar finding was reported in the prior year audit as finding number 2024-023. (Finding code 2025-024, 2024-023) Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: We recommend DCFS review its current procedures and consider any changes necessary to ensure supporting documentation for payroll and related costs is maintained and accurately reflects work performed in accordance with the applicable federal regulations. Views of DCFS Officials: DCFS has improved communication with and the training of its timekeepers in order to ensure accurate and consistent timekeeping standards. DCFS has also instituted new quality control procedures to identify and correct errors. All timekeepers are required to submit timesheets for digital archive to ensure proper record retention. DCFS is also actively pursuing modernization efforts for both payroll and timekeeping, using timekeeping and payroll systems available from the Illinois Department of Central Management Services.

State Agency: Illinois Board of Higher Education (IBHE) Federal Agency: U.S. Department of Health and Human Services (USDHHS) Program Name: Child Care and Development Fund (CCDF) Cluster ALN and Program Expenditures: 93.575/93.596 ($424,695,722) Award Numbers: Various – see table of award numbers Federal Award Year: Various – see table of award numbers Questioned Costs: None Compliance Requirement: Subrecipient Monitoring Finding 2025-028 Inadequate Process to Communicate Award Information to Subrecipients Condition Found: IBHE does not have an adequate process in place to ensure required award information is accurately communicated to subrecipients of the Child Care Development Fund (CCDF) Cluster (CCDF Cluster) program. IBHE is responsible for coordinating program funding of certain subrecipients of the CCDF Cluster program. While IBHE uses a standard contract document for its agreements with subrecipients, the specific award information is manually input into each contract by program contracting personnel. During our testing of CCDF Cluster program subrecipient contracts under which federal funds were expended during the year ended June 30, 2025, we noted IBHE did not accurately communicate all required information to its subrecipients. Specifically, we noted the award communication included incorrect details as follows: "See full report for chart/table." Criteria or Requirement: 2 CFR 200.403 establishes principles and standards for determining costs for federal awards carried out through grants, cost reimbursement contracts, and other agreements with state and local governments. To be allowable under federal awards, costs must meet certain general criteria. Those criteria require, among other things, that the expenditure be adequately documented. According to 2 CFR 200.430(g), charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must be, among other things, supported by a system of internal control, comply with the established accounting policies and practices of the non-Federal entity, and support the distribution of the employee’s salary or wages amount across specific activities or cost objectives if the employee works on more than one federal award; an indirect cost activity and a direct cost activity; two or more indirect activities allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. In addition, 2 CFR 200.303 requires nonfederal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Effective internal controls should include procedures to ensure required documentation is obtained to support payroll and related costs and to maintain documentation evidencing management approval of payroll information. Cause: In discussing these conditions with DCFS officials, they stated these exceptions were due to human error and the limitations of keeping a complete file record for the paper-based overtime approval and timesheet process. Furthermore, management indicated that prior year correction action plans have not fully resolved this issue because the anticipated transition date of the payroll and timekeeping system has been delayed. Possible Asserted Effect: Failure to accurately document and maintain required timesheets results in noncompliance with federal regulations and unallowable costs. Repeat Finding: A similar finding was reported in the prior year audit as finding number 2024-023. (Finding code 2025-024, 2024-023) Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: We recommend DCFS review its current procedures and consider any changes necessary to ensure supporting documentation for payroll and related costs is maintained and accurately reflects work performed in accordance with the applicable federal regulations. Views of DCFS Officials: DCFS has improved communication with and the training of its timekeepers in order to ensure accurate and consistent timekeeping standards. DCFS has also instituted new quality control procedures to identify and correct errors. All timekeepers are required to submit timesheets for digital archive to ensure proper record retention. DCFS is also actively pursuing modernization efforts for both payroll and timekeeping, using timekeeping and payroll systems available from the Illinois Department of Central Management Services.

State Agency: Illinois Department of Human Services (IDHS) Federal Agency: U.S. Department of Health and Human Services (USDHHS) Program Name: Temporary Assistance for Needy Families Child Care and Development Fund (CCDF) Cluster ALN and Program Expenditures: 93.558 ($593,881,225), 93.575/93.596 ($424,695,722) Award Numbers: Various – see table of award numbers Federal Award Year: Various – see table of award numbers Questioned Costs: $535 (TANF Federal), $51,927 (TANF Maintenance of Effort (MOE)), $7,556 (CCDF Federal), $1,573 (CCDF MOE) Compliance Requirement: Activities Allowed/Unallowed, Allowable Costs/Cost Principles, Period of Performance, Special Test and Provision – Written Agreements as Part of Program Integrity and Accountability Finding 2025-031 Unallowable Costs Charged to the TANF and CCDF Cluster Programs Condition Found: IDHS could not provide documentation to support payments made on behalf of beneficiaries of the Temporary Assistance for Needy Families (TANF) and Child Care and Development Fund (CCDF) Cluster programs. The State of Illinois operates the Child Care Assistance Program (CCAP) which provides eligible families child care services at approved, licensed providers. IDHS also contracts with Child Care Resource and Referral (CCR&Rs) organizations who assist the State in coordinating and monitoring the activities of child care providers. Providers submit billings to IDHS or the CCR&R organizations detailing the name of the recipient of the services and the number of days for which services were received. Payments are made by IDHS directly to the child care provider on behalf of an eligible family based upon certifications prepared by the provider either manually or through a telephone verification system. Depending on the provider type, the certifications are subject to periodic monitoring procedures by IDHS or the CCR&R organizations as outlined in the approved State Plan. IDHS also is required to periodically review the monitoring activities performed by the CCR&R organizations. IDHS has not updated its monitoring procedures or frequency for the CCAP program since August 2020.During our testing of CCAP beneficiary payments claimed under the TANF program (40 payments totaling $535 in federal claims and $51,927 in MOE claims) and CCDF (40 payments totaling $7,556 in federal claims and $1,573 in MOE claims), we noted 40 TANF payments and 40 CCDF payments for which IDHS could not provide documentation supporting the services provided to eligible beneficiaries because: • For one payment for the TANF program and one payment for the CCDF Cluster program, the provider was allowed to certify services had been provided using the Illinois Child Care Telephone Billing System instead of using paper certificates to the State. We noted IDHS has not performed a monitoring review in 2025 or either of the previous two fiscal years to ensure billing information provided by the child care providers either in hard copy or through the Illinois Child Care Telephone Billing System is accurate. • For 39 payments for the TANF program and 39 payments for the CCDF Cluster program, the provider is monitored by a CCR&R organization and IDHS does not obtain source documentation for these payments. Rather, IDHS relies on the procedures performed by the CCR&R organizations and performs an on-site review of the CCR&R organizations once every three years. We noted only one of the 16 CCR&R organizations were subject to monitoring procedures during the year ended June 30, 2025. We also noted IDHS does not have adequate controls in place to ensure billing information from providers is accurate and the related child care payments made were appropriate given IDHS does not obtain source documentation (certified attendance records) for child care billings as stated in section 10.1.4(e) of the CCDF State Plan and did not obtain them for our audit procedures. As a result, we have identified these items as unallowable costs which were reported and claimed to federal programs as follows: "See full report for chart/table." Additionally, during our testing of 33 CCDF subrecipient payments (totaling $58,594,511) we noted a payment of $52,702,921 to a subrecipient to advance fund the Smart Start Workforce Grant (SSWG) program. The SSWG program is intended to provide stable, ongoing funds to cover costs and invest in quality without burdening families by raising tuition or co-pays. The advance payment made in September 2024 to the subrecipient was paid from federal award number 2101ILCD6 which had a period of performance from October 1, 2020 through September 30, 2024 (obligation period ended September 30, 2023) and State agreement number FCSDI05951 which had a term of July 1, 2024 through June 30, 2025. IDHS was unable to provide documentation supporting that the subrecipient had expended the advance payment prior to the end of the federal period of performance (9/30/2024) or evidence an extension of the federal period of performance had been extended since the agreement under which this funding was expended was executed after the obligation period ended (9/30/2023). Upon further review, we noted an additional $5,268,079 in subrecipient payments were made under these awards during State fiscal year 2025. Criteria or Requirement: 2 CFR 200.403 establishes principles and standards for determining costs for federal awards carried out through grants, cost reimbursement contracts, and other agreements with state and local governments. To be allowable under federal awards, costs must meet certain general criteria. Those criteria require, among other things, that each expenditure must be necessary, reasonable, and supported by adequate documentation. Additionally, 45 CFR 98.67 requires lead agencies to expend and account for CCDF funds in accordance with their own laws and procedures, and for fiscal control and accounting procedures to be sufficient to permit the tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of those laws and procedures. IDHS CCAP Policy Memo 07.10.01 requires the agency to perform monitoring reviews over all Child Care Resource and Referrals (CCR&Rs), site administered, and non-contracted child care providers who participate in the IDHS Child Care Assistance Program. These reviews are conducted to ensure that services billed to the Department are adequately documented and contractual obligations are fulfilled. Section 10.1.3(b) of the approved CCDF State Plan for federal fiscal years 2025-2027 states the Lead Agency performs random audits of CCDF subrecipients annually where expenditures of CCDF funds are reviewed to ensure they are supported and allowable. Section 10.1.4(e) of the approved CCDF State Plan for federal fiscal year 2025-2027 states billings are supported by legible attendance/sign-in sheets. The OMB Compliance Supplement, dated November 2025, states supplemental funds provided under the American Rescue Plan Act (Public Law No. 117-2) have specific obligation and liquidation timeframes. Obligations must be made by the end of federal fiscal year 2023 (September 30, 2023) and must be liquidated by the end of federal fiscal year 2024 (September 30, 2024). 2 CFR 200.303 requires non-Federal entities receiving Federal awards to establish and maintain internal control designed to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements. Effective internal controls should be designed to ensure that supporting documentation for CCAP payments is obtained and maintained. Effective internal controls should also be designed to ensure that billing information provided by providers is complete and accurate. Finally, effective internal controls should also be designed to ensure program funds are obligated and liquidated within required timeframes for each specific CCDF grant award. Cause: In discussing these conditions with IDHS officials, management stated inadequate oversight and monitoring of the period of performance resulted in IDHS not requesting an extension when necessary. IDHS management also stated additional time was necessary to implement corrective action related to the monitoring performed for providers using the telephone billing system. IDHS management stated they disagree with the finding regarding inadequate monitoring procedures for other providers and believe their procedures are consistent with the approved State Plan. Possible Asserted Effect: Failure to maintain documentation supporting CCAP payments and to adequately monitor participating childcare providers increases the risk that funds are expended for unallowable purposes. Failure to obligate and liquidate CCDF funding in accordance with program regulations results in noncompliance with period of performance requirements. These conditions result in unallowable costs for the TANF and CCDF programs. Repeat Finding: A similar finding was reported in the prior year audit as finding number 2024-011. (Finding Code 2025-031, 2024-011, 2023-014). Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: We recommend IDHS strengthen its internal controls to ensure all payments made to CCAP providers are supported by adequate and verifiable underlying documentation. We also recommend IDHS evaluate its criteria for and frequency of monitoring of child care providers to ensure adequate supporting documentation is available for billed services. Furthermore, we recommend IDHS obligate and liquidate CCDF grant funding in accordance with the applicable period of performance. Views of IDHS Officials: The Department partially accepts the recommendation. The Department accepts the recommendation to obligate and liquidate CCDF grant funding within the applicable period of performance and to strengthen internal controls related to CCAP payments. The Department has already begun implementing corrective action. The Department does not agree that an evaluation of the criteria for monitoring childcare providers is necessary. The Department has been and will continue operating in accordance with the federally approved monitoring procedures for fiscal years 2025 through 2027. The Department does not agree with the calculation indicating that 40 CCDF and 40 TANF federal claims were unsupported. Based on the Department’s review, the finding applies to only one unsupported federal claim for TANF and CCDF, and the entire federal grant amount is not impacted. Auditors’ Comment: As discussed in the finding above, IDHS did not provide certified attendance records for any of the CCDF payments sampled in our testing because they rely on supporting organizations to monitor providers and, in turn, monitor those supporting organizations on a cyclical basis (every three years). IDHS has not updated its risk assessments or evaluated the nature and frequency of monitoring processes in response to increased risk in the CCDF Cluster program.

State Agency: Illinois Department of Human Services (IDHS) Federal Agency: U.S. Department of Health and Human Services (USDHHS) Program Name: Temporary Assistance for Needy Families ALN and Program Expenditures: 93.558 ($593,881,225) Award Numbers: Various – see table of award numbers Federal Award Year: Various – see table of award numbers Questioned Costs: $240,573 Compliance Requirement: Eligibility Finding 2025-033 Improper TANF Beneficiary Payments Condition Found: IDHS made improper payments to beneficiaries of the Temporary Assistance for Needy Families (TANF) program. During our testing of 50 TANF program beneficiary payments (with total payments sampled of $24,885), we noted one beneficiary (with a sampled payment of $674) incorrectly included an ineligible child in the standard payment determination. As a result of the determination error, the beneficiary received incorrect beneficiary payments. The full standard payment used was $1,067, when the correct full standard payment that should have been used was $910. This resulted in an overpayment to the beneficiary of $157. Total payments made to this beneficiary under the TANF program totaled $4,294 during the year ended June 30, 2025. We also noted one TANF beneficiary payment sampled (totaling $307) that was improperly calculated due to a diverted income system error. Diverted income occurs in dependent eligible only TANF cases where an ineligible working adult in the household has income which is allocated to the eligible members of the household to determine the overall TANF program benefit payment. The State’s benefit system was erroneously excluding the ineligible working adult in the diverted income calculation potentially resulting in an overpayment of TANF benefits on cases with diverted income. As a result of this error, the monthly payment made to this one beneficiary was overstated by $52. Total payments made to this one beneficiary under the TANF program were $1,798 for the year ended June 30, 2025. In response to the error identified in our testing, IDHS identified benefit payments paid during the year ended June 30, 2025 for 732 beneficiaries (totaling $1,124,389) were calculated using diverted income. The system calculation error related to these benefit payments resulted in total TANF overpayments of $240,573 during the year ended June 30, 2025. The payment errors identified above had not been corrected by IDHS or refunded to USDHHS (if required) as of the date we communicated our findings to IDHS (August 27, 2026). We further noted IDHS did not establish control procedures at an adequate level of precision to ensure TANF program benefits were accurately calculated based on the beneficiary’s case file supporting documentation. Payments made to beneficiaries of the TANF cash assistance program totaled $51,125,066 during the year ended June 30, 2025. Criteria or Requirement: 2 CFR 200.403 establishes principles and standards for determining costs for federal awards carried out through grants, cost reimbursement contracts, and other agreements with state and local governments. To be allowable under federal awards, costs must meet certain general criteria. Those criteria require, among other things, that each expenditure must be necessary, reasonable, and supported by adequate documentation. In accordance with the OMB Compliance Supplement, dated November 2025, IDHS is required to determine eligibility in accordance with eligibility requirements defined in the approved State Plan. The current State Plan requires payments to be made to eligible beneficiaries in accordance with payment levels established within the State Plan. Further, the State Plan requires an excluded or ineligible individual’s income to be considered in the calculation of the payment level of the TANF unit. In addition, 2 CFR 200.303 requires nonfederal entities to, among other things, establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Effective internal controls should include establishing internal control at an appropriate level of precision to identify and correct benefit payment errors in a timely manner. Cause: In discussing these conditions with IDHS officials, management stated the exceptions noted were due to not securing or uploading supporting documentation adequately and case actions not being thoroughly reviewed. Furthermore, IDHS management indicated that implementation of prior year corrective action plans for system enhancements was delayed because of competing priorities resulting from Federal House Resolution 1 which required benefit changes and greatly impacted the timing of eligibility system enhancements. Possible Asserted Effect: Failure to properly calculate benefit payments may result in unallowable costs being charged to the TANF program. Repeat Finding: A similar finding was reported in the prior year audit as finding number 2024-010. (Finding Code 2025-033, 2024-010, 2023-016) Statistical Sampling: The sample was not intended to be, and was not, a statistically valid sample. Recommendation: We recommend IDHS review its current process for calculating beneficiary payments and consider changes necessary to ensure payments are properly calculated and paid. Views of IDHS Officials: The Department accepts the recommendation. IDHS will review its current process for calculating beneficiary payments and make changes necessary to ensure payments are properly calculated and paid. Temporary Assistance for Needy Families (TANF) training was provided in 2026 to address policies and procedures. Additionally, monthly communications have been established by the Associate Director for the Office of Family and Community Resource Centers (FCRCs) to ensure TANF reviews are prioritized and findings are addressed. Finally, agency leadership has scheduled needed system enhancements.

Federal Agency: National Science Foundation Federal Program Name: Research and Development Cluster Assistance Listing Number: 47.076 Federal Award Identification Number and Year: R&D - 2025 Award Period: June 1, 2024 to May 31, 2025 Type of Finding: • Significant Deficiency in Internal Control over Compliance • Other Matters Criteria or specific requirement: The Code of Federal Regulations 2 CFR Part 200, Subpart E, requires that expenses be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principals (200.403(a)) and allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to the Federal award or cost objective in accordance with relative benefits received (200.405). Condition: We noted that one out of 8 items selected for period of performance was incorrectly coded to an R&D grant. Questioned costs: $100 Context: The University's review and internal controls over R&D grant charges did not identify an expense that had been incorrectly coded. Cause: The University’s processes and controls did not ensure that all expenses charged to R&D grants were valid R&D expenditures. Effect: An incorrect amount of R&D expenditures was drawn down. Repeat Finding: No Recommendation: We recommend that the University review its procedures around review and approval of R&D expenditures to ensure that only valid expenditures are reported. Views of responsible officials: There is no disagreement with the audit finding.

Federal Agency: National Science Foundation Federal Program Name: Research and Development Cluster Assistance Listing Number: 47.076 Federal Award Identification Number and Year: R&D - 2025 Award Period: June 1, 2024 to May 31, 2025 Type of Finding: • Significant Deficiency in Internal Control over Compliance • Other Matters Criteria or specific requirement: The Code of Federal Regulations 2 CFR Part 200, Subpart E, requires that expenses be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principals (200.403(a)) and allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to the Federal award or cost objective in accordance with relative benefits received (200.405). Condition: We noted that one out of 8 items selected for period of performance was incorrectly coded to an R&D grant. Questioned costs: $100 Context: The University's review and internal controls over R&D grant charges did not identify an expense that had been incorrectly coded. Cause: The University’s processes and controls did not ensure that all expenses charged to R&D grants were valid R&D expenditures. Effect: An incorrect amount of R&D expenditures was drawn down. Repeat Finding: No Recommendation: We recommend that the University review its procedures around review and approval of R&D expenditures to ensure that only valid expenditures are reported. Views of responsible officials: There is no disagreement with the audit finding.

Criteria: Federal regulations require non-federal entities to maintain records that adequately support allowable costs and program activities. Specifically, 2 CFR 200.302 requires financial management systems to provide accurate, current, and complete disclosure of financial results, and 2 CFR 200.403 requires that costs charged to federal awards be allowable, reasonable, and adequately documented. HRSA program requirements further require health centers to maintain patient-level documentation to support reported encounters and costs. Condition: During audit testing of patient eligibility and sliding fee scale application, supporting documentation of income was not available for 25 of 40 patients sampled. As a result, the health center was unable to demonstrate that the sliding fee discounts were appropriately determined in accordance with program requirements. Cause: Per HRSA and UDS requirements, FQHC’s must determine patient eligibility for the sliding fee discount based on income and family size, and retain documentation to support income verification for each patient applying for the discount. Effect: As a result, the health center is in noncompliance with HRSA sliding fee discount program requirements, which represents a material weakness in internal control over compliance and results in an increased risk that patients received sliding fee discounts for which they were not eligible or that eligible patients were improperly classified, and that Uniform Data System (UDS) data related to patient income levels and sliding fee discount utilization may be materially misstated. Questioned Costs: Questioned costs could not be determined due to the lack of supporting documentation for the affected patients. Recommendation: We recommend that management reinforce policies requiring documentation of income and family size before applying sliding fee discounts, implement periodic review of patient files to ensure compliance, provide staff training, and accountability measures for intake procedures, and consider adding monitoring on a quarterly basis to ensure ongoing adherence.

Finding 2025.003 – Period of Performance – Significant Deficiency and Noncompliance Assistance Listing Number 14.267 - Continuum of Care, U.S. Department of Housing and Urban Services, Pass-Through Entity: State of Connecticut Department of Housing, Award Number: 24DOH0901CX, Pass-Through Entity: United Way of Southeastern Connecticut, Award Number: 21DOH1001DA Criteria A non-federal entity may charge only allowable costs incurred during the approved budget period of a federal award's period of performance that was authorized by the federal awarding agency or pass-through entity (2 CFR sections, 200.308, 200.309 and 200.403(h)). Condition Certain expenses were charged to the grant that were not properly obligated prior to the end of the grant period. Purchase orders were issued without placing the actual order, or the item was ordered after the period of performance concluded. Cause The Council did not have adequate policies, procedures and controls in place to ensure compliance with the requirements regarding period of performance. Effect or Potential Effect Inadequate controls over period of performance led to expenses charged to the grant that were not incurred during the required period of performance. Questioned Costs $2,113 Context We selected 5 expenditures for testing over the period of performance requirement. Out of the 5 expenditures tested, we noted 2 instances where expenditures were not spent or obligated appropriately in the right grant period. Identification as a Repeat Finding This is not a repeat finding. Recommendation We recommend that management implement additional controls and policies over period of performance. Staff who purchase items with grant funds should have additional training on period of performance requirements. Views of Responsible Officials TVCCA recognizes the validity of this finding. TVCCA is strengthening its period-of-performance controls by training all staff with purchasing authority, and finance staff, on grant deadlines, obligation definitions, and allowable spend-down periods. Internal controls will be enhanced by incorporating quarterly cutoff testing into the month-end close checklist. Additionally, cutoff testing results will be monitored quarterly as part of the quarter-end review process.

2025-001 Misappropriation of Funds Material Weakness in Internal Control Condition: Subsequent to the close of the fiscal year, the Authority was notified by its banking institution of potentially fraudulent activity involving disbursements made to a company owned by an employee of the Authority. Upon investigation, management determined that the employee, who had access to the Authority’s check issuance process, directed $155,706 in payments to an entity they owned and controlled. These payments were not for legitimate goods or services. The disbursements were charged across multiple accounts, including both federal and non-federal program expenditures. The federal program expenditures were charged to the Public and Indian Housing program. Context: The fraudulent activity was identified by the Authority’s bank through transaction monitoring and reported to management. The employee was subsequently terminated, criminally charged, and has pled guilty. The Authority is seeking restitution; however, specific repayment terms have not yet been finalized as of the date of this report. Criteria: Under 2 CFR 200.303, the Authority must establish and maintain effective internal controls over federal awards that provide reasonable assurance of compliance with federal statutes, regulations, and the terms and conditions of the awards. 2 CFR 200.403 requires that costs charged to federal awards be necessary, reasonable, and allocable. Additionally, 24 CFR 990.108 limits Public Housing Operating Fund expenditures to eligible operating expenses necessary for the operation of public housing. Payments made to a company owned by an employee for which no goods or services were received do not meet these allowability requirements. Cause: The Authority did not maintain adequate segregation of duties or sufficient monitoring controls over the vendor setup, invoice processing, and check issuance functions. Specifically, one individual had authority to create vendors, approve invoices, and issue checks without independent review or secondary approval. At the time the fraud occurred, disbursement activity was not subject to an independent secondary review of the overall check run, including the listing of payees and amounts, which could have identified payments issued to an unauthorized or fictitious vendor. Effect: Unauthorized payments totaling $155,706 were made over the nineteen-month period, resulting in a misstatement of both federal and non-federal expenditures. As a result, certain federal program costs were unallowable under 2 CFR 200.403 and 24 CFR 990.108. These expenditures include $115,850 of questioned costs charged to the Public and Indian Housing program during the fiscal year. Auditor’s Recommendations: The Authority should strengthen internal controls over the accounts payable and disbursement process by segregating duties between vendor setup, invoice approval, and check issuance; implementing a dual-approval process for new vendors and all check disbursements; conduct independent reviews of payment reports; and review all expenditures charged to federal programs to identify and reimburse any unallowable costs. Management Response: See Corrective Action Plan.

Finding 2025-003: Allowable Activities and Costs – Internal Control and Compliance Deficiencies (Noncompliance and Significant Deficiency) Criteria: Per 2 CFR 200.303 and 2 CFR 200.403, non-federal entities must establish and maintain effective internal controls over federal awards and ensure that costs charged to federal programs are allowable, properly documented, and in accordance with the terms and conditions of the grant. Condition: During our testing of grant expenditures, we identified the following deficiencies related to allowable activities and costs: - None of the invoices and request forms tested had sign-offs showing review and approval before the grant packet was submitted to the state for reimbursement. - - Indirect costs are required to be calculated at 10% of each invoice per the grant agreement. However, invoice packets 15 and 23 did not have indirect costs calculated at the required rate. For payroll costs, proper supporting documentation was not provided. Cause: The deficiencies noted were due to a lack of established procedures to ensure all grant-related expenditures are properly reviewed, authorized, and supported prior to submission for reimbursement. In some cases, staff turnover and oversight contributed to the errors. Effect: Failure to maintain adequate internal controls and documentation over grant expenditures increases the risk of unallowable costs being charged to the grant, noncompliance with grant terms, and potential disallowance of costs by the granting agency. Recommendation: We recommend the entity implement procedures to ensure that all grant request packets are reviewed and approved by appropriate personnel prior to submission, that indirect costs are accurately calculated in accordance with grant terms, and that all payroll costs are supported by appropriate documentation such as timesheets. Additionally, all amounts billed should be reconciled to supporting documentation before submission. Management’s Response: We will establish and maintain effective internal controls over federal awards and ensure that costs charged to federal programs are allowable, properly documented, and in accordance with the terms and conditions of the grant.

2025-003 Period of Performance (repeat of finding 2024-005) Program Information Federal Organization U.S Department of Health and Human Services Assistance Listing Numbers 93.224 & 93.527 Health Center Program Cluster Award Numbers H80CS00513, H8FCS41684, H8GC48547, H8LCS51197 Criteria [X] Compliance Finding [ ] Significant Deficiency [X] Material Weakness Title 2 CFR 200.403(h) requires that costs be incurred in the approved budget period for the applicable awards and Title 2 CFR 200.403(e) requires that those costs be determined according to generally accepted accounting principles (GAAP). Condition The Organization’s federal expenditures include costs for goods and/or services outside of the approved budget periods for the awards. Cause The Organization’s internal controls over compliance did not include consideration of when the goods were received or services were performed compared to the budget periods for the awards. Lack of understanding of GAAP and the requirements of accrual basis accounting allowed expenditures outside of the applicable budget periods to be claimed as current federal expenditures. Effect The Organization may allocate unallowable costs to the federal awards. Questioned Costs $194,142 (of which $61,155 was previously reported in finding 2025-002 above). Context In a sample of forty transactions, we noted five included expenditures for goods or services that were not provided in the current period. $117,887 of expenditures charged to the program were for goods or services related to future periods. $76,255 of expenditures charged to the program were for goods or services related to previous periods. Recommendation We recommend management personnel authorized to approve expenditures of federal awards be limited to those who have a basic understanding of GAAP and the relationship between the accrual basis of accounting and the period of performance requirements. Views of responsible officials and planned corrective action Management is in agreement with this finding and will take corrective action as outlined below.

2025-003 Period of Performance (repeat of finding 2024-005) Program Information Federal Organization U.S Department of Health and Human Services Assistance Listing Numbers 93.224 & 93.527 Health Center Program Cluster Award Numbers H80CS00513, H8FCS41684, H8GC48547, H8LCS51197 Criteria [X] Compliance Finding [ ] Significant Deficiency [X] Material Weakness Title 2 CFR 200.403(h) requires that costs be incurred in the approved budget period for the applicable awards and Title 2 CFR 200.403(e) requires that those costs be determined according to generally accepted accounting principles (GAAP). Condition The Organization’s federal expenditures include costs for goods and/or services outside of the approved budget periods for the awards. Cause The Organization’s internal controls over compliance did not include consideration of when the goods were received or services were performed compared to the budget periods for the awards. Lack of understanding of GAAP and the requirements of accrual basis accounting allowed expenditures outside of the applicable budget periods to be claimed as current federal expenditures. Effect The Organization may allocate unallowable costs to the federal awards. Questioned Costs $194,142 (of which $61,155 was previously reported in finding 2025-002 above). Context In a sample of forty transactions, we noted five included expenditures for goods or services that were not provided in the current period. $117,887 of expenditures charged to the program were for goods or services related to future periods. $76,255 of expenditures charged to the program were for goods or services related to previous periods. Recommendation We recommend management personnel authorized to approve expenditures of federal awards be limited to those who have a basic understanding of GAAP and the relationship between the accrual basis of accounting and the period of performance requirements. Views of responsible officials and planned corrective action Management is in agreement with this finding and will take corrective action as outlined below.