Findings Citing § 200.413

Finding 2023-001 - Significant Deficiency, Compliance Federal Assistance Listing Number. 21.027 U.S. Department Of Treasury State and Local Fiscal Recovery Funds – Allowable Costs Criteria: According to 2 CFR 200.430(i)(1)(vii) “Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must:….(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….”. Additionally, according to 2 CFR 200.413(a) “Cost incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect (F&A) costs.” Condition: In our nonstatistical sample of 13 allowable cost selections we identified 2 payments that covered payroll costs that were not supported by sufficient documentation of time and effort for one employee. For select administrative employees for which time was allocated to the grant, the use of a fringe benefits rate included the allocation of rent built into the rate when rent was already billed as a direct cost. Context: Monthly payroll was billed to EnterpriseKC and to the grant by a related organization based on the time and effort tracked by the related organization for that month; however, it was noted that one employee’s full salary was billed to the grant and the time and effort spent on grant-related activities was less than full-time, with remaining time being spent on non-Federal award activities. Based on the employee’s time spent on the grant related activities the employee’s payroll costs billed to the grant for the 2 months evaluated was overbilled to the grant by $10,416. The related organization also billed EnterpriseKC and the grant for administrative employees’ time using an hourly billing rate that was determined by using the employees’ salaries divided by the standard hours worked plus an estimate of fringe benefits that ranged from 25% to 32%. The fringe benefits rate included allocation of rent expense which was already separately billed by the related organization as a direct cost. The actual fringe benefit rate excluding the rent was approximately 24% which resulted in estimated overbillings to the grant for the 2 months reviewed totaling $149. Effect: As a result of the overbillings noted, the grant expenditures were overstated by $10,565 for the questioned costs identified. Questioned Costs: Known questioned costs totaled $10,565. Additional likely questioned costs totaled $39,937 and were determined by allocating the percentage of known questioned costs as a percentage of the total costs included in the sample tested from the related organization multiplied by the total costs incurred with the related organization. It was not considered appropriate to project questioned costs to the remaining population of costs as the questioned costs were isolated to payroll related costs. Cause: EnterpriseKC did not have internal controls in place with sufficient precision to detect errors related to overbilling payroll costs to the grant. Further, EnterpriseKC did not have controls in place to ensure that direct costs billed to the grant were not duplicated by also being included in the payroll fringe rate. Identification Of Repeat Finding: This is not a repeat finding. Recommendation: We recommend that EnterpriseKC should ensure that any payroll costs for each individual employee allocated to the grant are supported by appropriate time and effort. We recommend that EnterpriseKC ensure that its billing rate for administrative employees only includes allocable fringe benefits and does not including any costs already separately billed as a direct cost. Views Of Responsible Officials (Unaudited): Management will implement a comprehensive time tracking review process that also extends to reviewing time for employees that choose to work remotely and will ensure that time not allocated to the grant is not included in the costs allocated to the grant. Management will revise the fringe benefit rate that gets charged to the hourly rates to ensure that none of the costs included in the fringe benefits are also direct expenses billed to the grant. The unallowable costs will be redirected to other allowable grant costs in 2024. Anticipated Completion Date: September 2024 Contact Person: Jay Konomos, Pillar Leader

Finding 2023-001 - Significant Deficiency, Compliance Federal Assistance Listing Number. 21.027 U.S. Department Of Treasury State and Local Fiscal Recovery Funds – Allowable Costs Criteria: According to 2 CFR 200.430(i)(1)(vii) “Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must:….(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….”. Additionally, according to 2 CFR 200.413(a) “Cost incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect (F&A) costs.” Condition: In our nonstatistical sample of 13 allowable cost selections we identified 2 payments that covered payroll costs that were not supported by sufficient documentation of time and effort for one employee. For select administrative employees for which time was allocated to the grant, the use of a fringe benefits rate included the allocation of rent built into the rate when rent was already billed as a direct cost. Context: Monthly payroll was billed to EnterpriseKC and to the grant by a related organization based on the time and effort tracked by the related organization for that month; however, it was noted that one employee’s full salary was billed to the grant and the time and effort spent on grant-related activities was less than full-time, with remaining time being spent on non-Federal award activities. Based on the employee’s time spent on the grant related activities the employee’s payroll costs billed to the grant for the 2 months evaluated was overbilled to the grant by $10,416. The related organization also billed EnterpriseKC and the grant for administrative employees’ time using an hourly billing rate that was determined by using the employees’ salaries divided by the standard hours worked plus an estimate of fringe benefits that ranged from 25% to 32%. The fringe benefits rate included allocation of rent expense which was already separately billed by the related organization as a direct cost. The actual fringe benefit rate excluding the rent was approximately 24% which resulted in estimated overbillings to the grant for the 2 months reviewed totaling $149. Effect: As a result of the overbillings noted, the grant expenditures were overstated by $10,565 for the questioned costs identified. Questioned Costs: Known questioned costs totaled $10,565. Additional likely questioned costs totaled $39,937 and were determined by allocating the percentage of known questioned costs as a percentage of the total costs included in the sample tested from the related organization multiplied by the total costs incurred with the related organization. It was not considered appropriate to project questioned costs to the remaining population of costs as the questioned costs were isolated to payroll related costs. Cause: EnterpriseKC did not have internal controls in place with sufficient precision to detect errors related to overbilling payroll costs to the grant. Further, EnterpriseKC did not have controls in place to ensure that direct costs billed to the grant were not duplicated by also being included in the payroll fringe rate. Identification Of Repeat Finding: This is not a repeat finding. Recommendation: We recommend that EnterpriseKC should ensure that any payroll costs for each individual employee allocated to the grant are supported by appropriate time and effort. We recommend that EnterpriseKC ensure that its billing rate for administrative employees only includes allocable fringe benefits and does not including any costs already separately billed as a direct cost. Views Of Responsible Officials (Unaudited): Management will implement a comprehensive time tracking review process that also extends to reviewing time for employees that choose to work remotely and will ensure that time not allocated to the grant is not included in the costs allocated to the grant. Management will revise the fringe benefit rate that gets charged to the hourly rates to ensure that none of the costs included in the fringe benefits are also direct expenses billed to the grant. The unallowable costs will be redirected to other allowable grant costs in 2024. Anticipated Completion Date: September 2024 Contact Person: Jay Konomos, Pillar Leader

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - Per 2 CFR Subpart E- Cost Principles Part 200.403 (g) states that except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards "(g) Be adequately documented." Per Part 200.413 (a) Direct costs are those costs that can be identified specifically with a particular final cost objective. Condition - The Special Education District prepared, and the cognizant agency approved, a grant budget that included $637,216 of salaries for learning loss, summer enrichment and after school programs (run by member districts). The Special Education District claimed grant expenditures for payments to member districts as salaries. Questioned Costs - Unknown. Context - The Special Education District budgeted and claimed salaries on grant expenditure reports however these expenditures were not salaries incurred directly by the Special Education District, but rather payments to member districts. The grant agreement stipulated that "no subcontracts or sub-grants are allowed without prior written approval of the State Superintendent of Education. If subcontracts or sub-grants are allowed, then all project responsibilities are to be retained by the grantee to ensure compliance with the terms and conditions of the grant. All subcontracts and sub-grants must be documented and must have the prior written approval of the State Superintendent of Education. Approval of subcontracts and sub-grants shall be subject to the same criteria as are applied to the original proposal/application. " Effect - Grant expenditures claimed as salaries on the expenditure reports were payments to member districts which no invoice, representations, or documented by the member districts to the Special Education District as to how the funds were used. Cause - The Special Education District disbursed funds, without documentation, to member districts. Recommendation - We recommend that in the future the Special Education District prepare grant budgets that align with the expected grant expenditures and that expenditures be adequately documented as to the use of funds. Management's response - Management does not agree with this finding. Management reached out to the cognizant agency which provided the following response - "The ESSER III Cooperative grant was state set-aside funds that were originally awarded to ISBE. ISBE determined that to meet the stipulations of Learning Loss-Summer Enrichment-After School Program reservations, the most efficient way to reach the maximum number of students would be through the cooperatives providing for their member districts. Henry-Stark County Special Education District met those requirements and fulfilled their financial obligations by providing evidence-based activities through their member districts"

Criteria or specific requirement (including statutory, regulatory, or other citation) - Per 2 CFR Subpart E- Cost Principles Part 200.403 (g) states that except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards "(g) Be adequately documented." Per Part 200.413 (a) Direct costs are those costs that can be identified specifically with a particular final cost objective. Condition - The Special Education District prepared, and the cognizant agency approved, a grant budget that included $637,216 of salaries for learning loss, summer enrichment and after school programs (run by member districts). The Special Education District claimed grant expenditures for payments to member districts as salaries. Questioned Costs - Unknown. Context - The Special Education District budgeted and claimed salaries on grant expenditure reports however these expenditures were not salaries incurred directly by the Special Education District, but rather payments to member districts. The grant agreement stipulated that "no subcontracts or sub-grants are allowed without prior written approval of the State Superintendent of Education. If subcontracts or sub-grants are allowed, then all project responsibilities are to be retained by the grantee to ensure compliance with the terms and conditions of the grant. All subcontracts and sub-grants must be documented and must have the prior written approval of the State Superintendent of Education. Approval of subcontracts and sub-grants shall be subject to the same criteria as are applied to the original proposal/application. " Effect - Grant expenditures claimed as salaries on the expenditure reports were payments to member districts which no invoice, representations, or documented by the member districts to the Special Education District as to how the funds were used. Cause - The Special Education District disbursed funds, without documentation, to member districts. Recommendation - We recommend that in the future the Special Education District prepare grant budgets that align with the expected grant expenditures and that expenditures be adequately documented as to the use of funds. Management's response - Management does not agree with this finding. Management reached out to the cognizant agency which provided the following response - "The ESSER III Cooperative grant was state set-aside funds that were originally awarded to ISBE. ISBE determined that to meet the stipulations of Learning Loss-Summer Enrichment-After School Program reservations, the most efficient way to reach the maximum number of students would be through the cooperatives providing for their member districts. Henry-Stark County Special Education District met those requirements and fulfilled their financial obligations by providing evidence-based activities through their member districts"

2023-039 Oregon Health Authority Ensure program payroll costs are incurred only for program staff Federal Awarding Agency: U.S. Department of Agriculture Assistance Listing Number and Name: 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Federal Award Numbers and Years: 237OROR7W1003, 2023; 237OROR7W1006, 2023 Compliance Requirement: Allowable Costs/Cost Principles Type of Finding: Significant Deficiency; Noncompliance Prior Year Finding: N/A Questioned Costs: $18,002 (known) Criteria: 2 CFR 200.413(b) Federal regulations permit costs charged directly to a Federal award, such as compensation of employees who work on that award and their related fringe benefit costs. Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) management is responsible for ensuring employees with payroll related costs charged directly to the Federal award are employees who work on that award. From a population of 550 monthly payroll costs for 57 employees, we randomly selected a sample of 25 to verify monthly time was approved by management and employees directly work on the WIC award. We found one employee who should not have recorded payroll costs to the WIC program, as the employee was on a job rotation outside the program. The employee’s time was properly approved, but the review did not identify the costs were charged to program. We reviewed all payroll related costs for the employee and identified questioned costs of $7,970 for fiscal year 2023. We expanded our review and identified two additional employees who were charging their time to the WIC program inappropriately, resulting in total actual questioned costs of $18,002. We recommend program management implement additional internal controls over payroll related costs to ensure all costs charged to the program are related to employees who work directly on the award.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - During the fiscal years June 30, 2018 to June 30, 2023, the University incurred unallowed expenditures for a federal grant that were not identified by the internal controls in place over the grant program. According to 2 CFR § 200.413, Direct Costs, direct costs are those costs that can be directly assigned to a direct cost activity with a high degree of accuracy. In addition, according to 2 CFR § 200.516, Audit Findings, the auditor must report known fraud affecting a federal award as well as known questioned costs that are greater than $25,000 for a federal program which is not audited as a major program, as an audit finding. Condition- From fiscal year 2018 through 2023, the University was not able to support that expenses paid from a federal grant for salary, benefits, and travel and other expense reimbursements for an adjunct faculty member were related to allowable activities to eligible clients under the terms of the grant agreement due to false reporting by the adjunct faculty member. More specifically, the adjunct faculty member misrepresented that services were or would be provided per the terms of the grant to eligible clients. In addition, the adjunct faculty member provided false reporting of the impact of services provided to the clients and utilized fraudulent documentation as evidence for their work performed. As a result, the University was reimbursed for expenses by the grant related to services that were not provided or were unallowable. Cause - Lack of oversight and insufficient review of work performed of adjunct faculty member. Effect- The University was reimbursed federal grant monies for work that was not performed under the terms and conditions of the grant award. Questioned costs - For fiscal years 2018 to 2023, questioned costs totaled $209,101. Identification as a repeat finding - Not applicable – this matter is not a repeat finding Recommendation - We recommend the University, along with the internal audit function, continue to emphasize with staff existing job responsibilities, the critical task of secondary reviews and thoroughness of those reviews. The reviews should include ensuring compliance with grant terms and conditions, as well as adequate documentation is provided and maintained to support the federal expenditure and the secondary reviews.

Criteria or specific requirement (including statutory, regulatory, or other citation) - Per 2 CFR Subpart E- Cost Principles Part 200.403 (g) states that except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards "(g) Be adequately documented." Per Part 200.413 (a) Direct costs are those costs that can be identified specifically with a particular final cost objective. Condition - The Special Education District prepared, and the cognizant agency approved, a grant budget that included $637,216 of salaries for learning loss, summer enrichment and after school programs (run by member districts). The Special Education District claimed grant expenditures for payments to member districts as salaries. Questioned Costs - Unknown. Context - The Special Education District budgeted and claimed salaries on grant expenditure reports however these expenditures were not salaries incurred directly by the Special Education District, but rather payments to member districts. The grant agreement stipulated that "no subcontracts or sub-grants are allowed without prior written approval of the State Superintendent of Education. If subcontracts or sub-grants are allowed, then all project responsibilities are to be retained by the grantee to ensure compliance with the terms and conditions of the grant. All subcontracts and sub-grants must be documented and must have the prior written approval of the State Superintendent of Education. Approval of subcontracts and sub-grants shall be subject to the same criteria as are applied to the original proposal/application. " Effect - Grant expenditures claimed as salaries on the expenditure reports were payments to member districts which no invoice, representations, or documented by the member districts to the Special Education District as to how the funds were used. Cause - The Special Education District disbursed funds, without documentation, to member districts. Recommendation - We recommend that in the future the Special Education District prepare grant budgets that align with the expected grant expenditures and that expenditures be adequately documented as to the use of funds. Management's response - Management does not agree with this finding. Management reached out to the cognizant agency which provided the following response - "The ESSER III Cooperative grant was state set-aside funds that were originally awarded to ISBE. ISBE determined that to meet the stipulations of Learning Loss-Summer Enrichment-After School Program reservations, the most efficient way to reach the maximum number of students would be through the cooperatives providing for their member districts. Henry-Stark County Special Education District met those requirements and fulfilled their financial obligations by providing evidence-based activities through their member districts"

Criteria or specific requirement (including statutory, regulatory, or other citation) - Per 2 CFR Subpart E- Cost Principles Part 200.403 (g) states that except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards "(g) Be adequately documented." Per Part 200.413 (a) Direct costs are those costs that can be identified specifically with a particular final cost objective. Condition - The Special Education District prepared, and the cognizant agency approved, a grant budget that included $637,216 of salaries for learning loss, summer enrichment and after school programs (run by member districts). The Special Education District claimed grant expenditures for payments to member districts as salaries. Questioned Costs - Unknown. Context - The Special Education District budgeted and claimed salaries on grant expenditure reports however these expenditures were not salaries incurred directly by the Special Education District, but rather payments to member districts. The grant agreement stipulated that "no subcontracts or sub-grants are allowed without prior written approval of the State Superintendent of Education. If subcontracts or sub-grants are allowed, then all project responsibilities are to be retained by the grantee to ensure compliance with the terms and conditions of the grant. All subcontracts and sub-grants must be documented and must have the prior written approval of the State Superintendent of Education. Approval of subcontracts and sub-grants shall be subject to the same criteria as are applied to the original proposal/application. " Effect - Grant expenditures claimed as salaries on the expenditure reports were payments to member districts which no invoice, representations, or documented by the member districts to the Special Education District as to how the funds were used. Cause - The Special Education District disbursed funds, without documentation, to member districts. Recommendation - We recommend that in the future the Special Education District prepare grant budgets that align with the expected grant expenditures and that expenditures be adequately documented as to the use of funds. Management's response - Management does not agree with this finding. Management reached out to the cognizant agency which provided the following response - "The ESSER III Cooperative grant was state set-aside funds that were originally awarded to ISBE. ISBE determined that to meet the stipulations of Learning Loss-Summer Enrichment-After School Program reservations, the most efficient way to reach the maximum number of students would be through the cooperatives providing for their member districts. Henry-Stark County Special Education District met those requirements and fulfilled their financial obligations by providing evidence-based activities through their member districts"

2023-039 Oregon Health Authority Ensure program payroll costs are incurred only for program staff Federal Awarding Agency: U.S. Department of Agriculture Assistance Listing Number and Name: 10.557 Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Federal Award Numbers and Years: 237OROR7W1003, 2023; 237OROR7W1006, 2023 Compliance Requirement: Allowable Costs/Cost Principles Type of Finding: Significant Deficiency; Noncompliance Prior Year Finding: N/A Questioned Costs: $18,002 (known) Criteria: 2 CFR 200.413(b) Federal regulations permit costs charged directly to a Federal award, such as compensation of employees who work on that award and their related fringe benefit costs. Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) management is responsible for ensuring employees with payroll related costs charged directly to the Federal award are employees who work on that award. From a population of 550 monthly payroll costs for 57 employees, we randomly selected a sample of 25 to verify monthly time was approved by management and employees directly work on the WIC award. We found one employee who should not have recorded payroll costs to the WIC program, as the employee was on a job rotation outside the program. The employee’s time was properly approved, but the review did not identify the costs were charged to program. We reviewed all payroll related costs for the employee and identified questioned costs of $7,970 for fiscal year 2023. We expanded our review and identified two additional employees who were charging their time to the WIC program inappropriately, resulting in total actual questioned costs of $18,002. We recommend program management implement additional internal controls over payroll related costs to ensure all costs charged to the program are related to employees who work directly on the award.

2022-001 Federal Agency: U.S. Department of Agriculture Federal Program Title: Supplemental Nutrition Assistance Program CFDA Number: 10.561 Award Period: December 1, 2019 through September 30, 2023 Type of Finding: ? Material Weakness in Internal Control over Financial Reporting and Compliance Criteria or specific requirement: The Code of Federal Regulations 2 CFR 200.413(a) requires that direct costs be identified specifically with a particular final cost objective, such as a federal award, or other internally or externally funded activity, or be directly assigned to such activities relatively easily with a high degree of accuracy. Condition: During our testing, we noted reimbursement requests were prepared using grant budgets rather than direct costs incurred. Management was unable to determine direct costs related to general and payroll disbursements. As a result, proper revenue recognition could not be determined for financial reporting purposes. Questioned Costs: None Cause: Internal controls have not been implemented to specifically track direct costs incurred under specific grant agreements. Effect: The Organization cannot determine direct costs incurred under the grant with a high degree of accuracy. Reimbursement requests do not accurately reflect direct costs incurred by the Organization. Repeat Finding: This is not a repeat finding. Recommendation: We recommend the Organization develop procedures to track expenditures of federal awards using the class system within their ERP. All invoices for general disbursements paid with federal awards should be reviewed and approved by a grants manager prior to payment and coded to the general ledger by the accounting department. In addition, we recommend implementing procedures to ensure that payroll expenses charged to the grant are based on actual time and effort. Timesheets should be prepared by staff performing grant functions, reviewed and approved by a grants manager, and coded to the general ledger by the accounting department. Views of responsible officials: Management agrees with the finding.

2022-001 Federal Agency: U.S. Department of Agriculture Federal Program Title: Supplemental Nutrition Assistance Program CFDA Number: 10.561 Award Period: December 1, 2019 through September 30, 2023 Type of Finding: ? Material Weakness in Internal Control over Financial Reporting and Compliance Criteria or specific requirement: The Code of Federal Regulations 2 CFR 200.413(a) requires that direct costs be identified specifically with a particular final cost objective, such as a federal award, or other internally or externally funded activity, or be directly assigned to such activities relatively easily with a high degree of accuracy. Condition: During our testing, we noted reimbursement requests were prepared using grant budgets rather than direct costs incurred. Management was unable to determine direct costs related to general and payroll disbursements. As a result, proper revenue recognition could not be determined for financial reporting purposes. Questioned Costs: None Cause: Internal controls have not been implemented to specifically track direct costs incurred under specific grant agreements. Effect: The Organization cannot determine direct costs incurred under the grant with a high degree of accuracy. Reimbursement requests do not accurately reflect direct costs incurred by the Organization. Repeat Finding: This is not a repeat finding. Recommendation: We recommend the Organization develop procedures to track expenditures of federal awards using the class system within their ERP. All invoices for general disbursements paid with federal awards should be reviewed and approved by a grants manager prior to payment and coded to the general ledger by the accounting department. In addition, we recommend implementing procedures to ensure that payroll expenses charged to the grant are based on actual time and effort. Timesheets should be prepared by staff performing grant functions, reviewed and approved by a grants manager, and coded to the general ledger by the accounting department. Views of responsible officials: Management agrees with the finding.

Finding 2022-007 93.268 - Immunization Cooperative Agreements Criteria CFR 200.413(a) states “Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.” Condition Indirect costs were classified as direct costs to the program. Cause In the County’s general ledger, certain indirect costs are classified as personnel services expenditures. When completing the quarterly reports, these were not identified and separately classified as indirect costs. Effect By improperly classifying indirect costs as direct costs, the County may exceed the indirect cost limits outlined by the grant agreement. Questioned Costs $12,891 Recommendations The County should correctly identify costs as indirect costs. Views of Responsible Officials The County is working toward a higher level of staff training for Federal grant work, better review is also included in future grant reporting goals.

Finding 2022-007 93.268 - Immunization Cooperative Agreements Criteria CFR 200.413(a) states “Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.” Condition Indirect costs were classified as direct costs to the program. Cause In the County’s general ledger, certain indirect costs are classified as personnel services expenditures. When completing the quarterly reports, these were not identified and separately classified as indirect costs. Effect By improperly classifying indirect costs as direct costs, the County may exceed the indirect cost limits outlined by the grant agreement. Questioned Costs $12,891 Recommendations The County should correctly identify costs as indirect costs. Views of Responsible Officials The County is working toward a higher level of staff training for Federal grant work, better review is also included in future grant reporting goals.

Finding 2022-007 93.268 - Immunization Cooperative Agreements Criteria CFR 200.413(a) states “Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.” Condition Indirect costs were classified as direct costs to the program. Cause In the County’s general ledger, certain indirect costs are classified as personnel services expenditures. When completing the quarterly reports, these were not identified and separately classified as indirect costs. Effect By improperly classifying indirect costs as direct costs, the County may exceed the indirect cost limits outlined by the grant agreement. Questioned Costs $12,891 Recommendations The County should correctly identify costs as indirect costs. Views of Responsible Officials The County is working toward a higher level of staff training for Federal grant work, better review is also included in future grant reporting goals.

Finding 2022-009 93.323 - Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) Criteria CFR 200.413(a) states “Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.” Condition Indirect costs were classified as direct costs to the program. Cause: In the County’s general ledger, certain indirect costs are classified as personnel services expenditures. When completing the quarterly reports, these were not identified and separately classified as indirect costs. Effect By improperly classifying indirect costs as direct costs, the County may exceed the indirect cost limits outlined by the grant agreement. Questioned Costs $7,855 Recommendations: The County should correctly identify costs as indirect costs. Views of Responsible Officials The County is implementing proper controls over policies, procedures, training, and review processes especially where these relate to Federal grant projects. Through this educational endeavor the County will correctly be able to identify costs as indirect versus direct.

Finding 2022-009 93.323 - Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) Criteria CFR 200.413(a) states “Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.” Condition Indirect costs were classified as direct costs to the program. Cause: In the County’s general ledger, certain indirect costs are classified as personnel services expenditures. When completing the quarterly reports, these were not identified and separately classified as indirect costs. Effect By improperly classifying indirect costs as direct costs, the County may exceed the indirect cost limits outlined by the grant agreement. Questioned Costs $7,855 Recommendations: The County should correctly identify costs as indirect costs. Views of Responsible Officials The County is implementing proper controls over policies, procedures, training, and review processes especially where these relate to Federal grant projects. Through this educational endeavor the County will correctly be able to identify costs as indirect versus direct.

FINDING 2022-003 DYER COUNTY SCHOOL DEPARTMENT HAD DEFICIENCIES IN THE USE OF EPIDEMIOLOGY AND LABORATORY CAPACITY FOR INFECTIOUS DISEASES (ELC) GRANT FUNDS, WHICH RESULTED IN QUESTIONED COSTS (A. ? Noncompliance Under Government Auditing Standards and OMB Uniform Guidance; B. - Internal Control ? Significant Deficiency Under Government Auditing Standards and OMB Uniform Guidance) Entity Dyer County, Tennessee ? School Department Repeat Finding Number N/A Assistance Listings # 93.323 Assistance Listings Title Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) Federal Agency Department of Health and Human Services State Pass-Through Agency Department of Education Grant/Contract No. N/A Federal Award Year 2022 Finding Type Noncompliance and Internal Control ? 93.323 Compliance Requirement Allowable Cost/Cost Principles Known Questioned Costs $63,589 The school department was awarded an Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) (FAL No. 93.323) made available from the American Rescue Plan Act of 2021, passed through the Tennessee Department of Education. We audited the ELC grant as a major federal program in compliance with Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). As part of our audit procedures, we tested a sample of 32 disbursement items for the period July 1, 2021, through June 30, 2022. Based on our test work, we noted the following deficiencies, which are the result of a lack of management oversight: A. On July 26, 2021, the following administrative staff received bonuses paid with ELC funds as direct grant costs: Director of Schools $27,688; Business and Finance Manager $11,886; Special Education Director $8,037; Federal Projects Bookkeeper $4,126 Federal Projects Bookkeeper (former) $4,126; Payroll Bookkeeper $3,863; Accounts Payable/Receivable Bookkeeper $3,863; for a total of $63,589. Section 200.413 of the Uniform Guidance provides that administrative and clerical staff should normally be treated as indirect costs; however, direct charging of these costs may be appropriate only if all of the following conditions are met: 1. Administrative or clerical services are integral to a project or activity; 2. Individuals involved can be specifically identified with the project or activity; 3. Such costs are explicitly included in the budget or have prior written approval of the federal awarding agency; and 4. The costs are not recovered as indirect costs. We were not provided with adequate documentation to support these payments as direct costs. The services provided by the administrative staff do not appear to be integral to the ELC grant; the individuals were not specifically identified to the project; and the bonuses were not explicitly included in the budget, nor did they have prior written approval of the federal awarding agency. At the time the bonuses were paid, the ELC grant documentation listed the following as allowable direct uses of funds: salaries, benefits, and contract costs of nurses; travel reimbursed at .47 per mile; contracts with academic institutions, private laboratories, or other healthcare entities to process test kits; supplies and equipment for testing; minor construction for safer testing locations; costs associated with operating alternate/pop-up sites; costs for running mass testing programs; and shipping, postage, printing, and duplicating costs. Updated guidance for the ELC grant was issued on August 2, 2021. Per the updated guidance, when determining allowable costs, grant recipients were referred to the cost principles regulation found in 45 CFR Part 75 Subpart E ? Cost Principles which states that allowable costs should be necessary and reasonable for the performance of the federal award, be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the entity, and be adequately documented. It further states that costs are reasonable if they do not exceed that which would be incurred by a prudent person under the circumstance. These bonuses do not appear to be reasonable and necessary for the performance of the award, are not consistent with other grants and programs of the school system and were not properly documented. B. Duties were not adequately segregated concerning the bonus payments associated with ELC grant funds. The bonuses paid to the administrative staff were not specifically approved by the grantor or the board of education. The board of education did approve a budget amendment on February 1, 2022, allowing bonuses under this grant program totaling $141,519, which included $62,295 for nurses and transportation and maintenance staff; however, the board of education was not given a breakdown of who received a bonus and the individual amounts. It should be noted that the current chairman of the board of education advised that he was unaware the director of schools received amounts in excess of her contract. As a result, the director of schools authorized a bonus payment to herself without prior approval of the board of education. As a result of the deficiencies noted above, we have questioned the cost of the bonuses for administrative staff totaling $63,589 for the period July 1, 2021, through June 30, 2022. RECOMMENDATION The board of education should determine the propriety and reasonableness of the bonus payments paid to the administrative staff from ELC funds. The board should take steps to resolve the questioned costs. Duties should be properly segregated. The director of schools should not approve her own bonus payments. MANAGEMENT?S RESPONSE ? DIRECTOR OF SCHOOLS We disagree with this finding. With regard to the matters referenced in section A of the draft finding, we take issue with the allegations that the bonuses paid to the administrative staff were not explicitly included in the grant budget, the individuals receiving the bonuses were not identified to the grantor and the grantor did not approve of the bonus payments, all of which are absolutely false. Section 200.407 of the Uniform Guidance provides: "Under any given Federal award, the reasonableness and allocability of certain items of costs may be difficult to determine. In order to avoid subsequent disallowance or dispute based on unreasonableness or nonallocability, the non-Federal entity may seek the prior written approval of the cognizant agency for indirect costs or the Federal awarding agency in advance of the incurrence of special or unusual costs." On June 14, 2021, the Dyer County School's ELC grant application was approved by the grantor in the amount of $1,021,466.91. The approved budget for the grant expressly included bonus payments in the amount of $63,589.14 to the Administrators, Director, and other related personnel for duties and responsibilities related to the implementation and administration of the COVID Testing program. See Exhibit A, approved grant budget for Account Number: 72130-Other Student Support, Line-Item Number: 188-Bonus Payments in the amount of $63,589.14. Not only were the administrative bonus payments specifically approved by the grantor in the budget, but the grantor was also provided with the names and exact amounts paid to each member of the administrative staff when the system requested and thereafter received reimbursement from the grantor for those payments. See Exhibit B, Statement of Expenditures and Encumbrances dated August 30, 2021, which was submitted to the grantor. When your office first raised this issue, we immediately confirmed that it was proper for ELC grant funds to be used to pay bonuses to the administrative staff for duties and responsibilities related to the implementation and administration of the program. See Exhibit C, email to Wendy Smith, Business and Finance Manager for the school system, dated August 29, 2022, from Kristi Steele, Director of Mental Health, Tennessee Department of Education, which provides: ?ELC funding can be used to pay stipends/salaries for individuals such as coordinated school health coordinators, district level administrators, etc. who manage the grant and who have been handling COVID response to their districts.? Your staff auditor, who was copied on the email from Ms. Steel, then asserted that the administrative staff was required under the grant to keep timesheets documenting the time spent related to the implementation and administration of COVID response for the school system. Exhibit D is an email dated August 30, 2022, from Jennifer Sanchez, Public Health Administrator II (Project Manager), Tennessee Department of Health, confirming the timesheets were not, in fact, a requirement for the payment of bonuses under the grant. Moreover, Maryanne Durksi, Executive Director, Office of Local Finance, Tennessee Department of Education has advised: ?the approved application in ePlan, with the stipends clearly in the narrative, should be documentation that these were approved by the state.? As a result of the foregoing, we believe the allegations in section A of the draft audit finding are without merit and should be removed from your final audit. With regards to the matters in section B of the draft finding, we take issue with the allegations that the bonuses paid to the administrative staff for the extra duties and responsibilities related to the implementation and administration of the ELC grant were not approved by the grantor or the board of education. The grantor's approval of the payments to the administrative staff in connection with the grant was discussed above and such will not be repeated again. We agree with you that Mr. Jeremy Gatlin, the current chairman of the board of education, has advised that he was not aware that the Director was one of the individuals who received bonus payments under the grant, but we find it curious that your draft finding does not also mention the very relevant additional information provided to your office by Mr. Keith Anderson, who was the chairman of the board of education at the time the ELC application was submitted, approved by the state and payments made to the administrative staff. See Exhibit E, statement of Keith Anderson, confirming that in May of 2021 he had a telephone conversation with Mrs. Wendy Smith regarding the grant application, that he was aware of and gave his approval regarding the employees eligible to receive a stipend due to extra duties associated with the COVID response program, including, but not limited to, the administrative, financial staff and the Director of Schools, the amounts of stipend each would receive in each group, and the percentages of salaries the stipend would equal. As you noted, the board of education approved the budget amendment regarding the ELC Grant on February 1, 2022. The budget amendment accurately reflects that the stipends paid under the grant to the administrative staff was transferred to the proper accounts, as approved in the grant budget, account 72130, line item 188 ? Other Student Support. We agree with you that the board of education was not provided a breakdown of who received a bonus and the individual amounts at the time the budget amendment was adopted. Any future bonus payments to members of the administrative staff will be approved by the board prior to disbursement to ensure that duties are? adequately segregated. We believe the methodology used for determining the amount of bonus payments to each group of employees/SROs involved with the implementation and management of the COVID response program and the allocation of such funds among the various individuals based on their program responsibilities was reasonable, but we defer to the board of education's response, set forth below, to address your recommendation that the board determine the propriety and reasonableness of the bonus payments paid to the administrative staff from ELC funds. MANAGEMENT?S RESPONSE ? DR. JEREMY GATLIN, BOARD OF EDUCATION CHAIRMAN The board disagrees with this finding. The board agrees with the response provided by the Director, as set forth above. The board believes it was appropriate to utilize a portion of the ELC grant funds to provide bonus payments to the administrative staff for the additional duties and responsibilities required to manage and administer the COVID response program for the benefit of approximately 4,000 students and employees of the school system over the term of the grant. Section 200.430(6) of the Uniform Guidelines provides: Reasonableness. Compensation for employees engaged in work on Federal awards will be considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the non-Federal entity. The bonus payments provided to the members of the administrative staff to manage the COVID response program were reasonable because the payments were determined based on the additional program responsibilities required of each of them in a manner that is consistent with the amounts paid to them for similar work in other activities on behalf of the school system. Going forward, any bonus payments provided to members of the administrative staff will be approved by the board before the funds are disbursed to ensure that duties are adequately segregated. AUDITOR?S COMMENT The budget for the ELC grant submitted to the Tennessee Department of Education did include $63,589 budgeted to Other Student Support ? Bonus Payments; however, the narrative description stated that it included ?SRO?s, Administrators, Director, and other related personnel.? There were no SRO?s paid from this line-item, and the director of schools was not specifically mentioned. Director in this instance could have implied the director of the program administering the grant. The only personnel paid from this budget line were the director of schools and six other administrative staff members. The narrative appears misleading and would not be sufficient to give prior explicit approval for these types of bonuses. The response of the director of schools? quotes Section 200.407 of the Uniform Guidance which provides: " ? the non-Federal entity may seek the prior written approval of the cognizant agency for indirect costs or the Federal awarding agency in advance of the incurrence of special or unusual costs." It should be noted the budget submitted for bonus payments was made to the Tennessee Department of Education which is a non-federal entity. The Federal awarding agency for this award is the U.S. Department of Education. Regardless of the matter of whether or was not there was proper approval to pay bonuses, there still must be proper documentation to support that the person was actually entitled to receive the bonus. Uniform Guidance Section 200.430(i) states ?Standards of 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 include: ? (vii) Support the distribution of the employee?s salary or wage among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and a non-federal award, an indirect cost activity and a direct cost activity, two or more indirect activities??. The school department has not provided us with any documented evidence to support that these individuals performed any work on this federal award. Without any supporting documentation of actual work performed on the grant by these individuals, we cannot attest these individuals were entitled to receive a bonus. Auditors were told by the former chairman of the Board of Education that he gave verbal approval of the bonuses; however, without any written documentation, we cannot attest that this happened. Furthermore, the former chairman has no authority on his own to approve bonus payments. The Board of Education, as a whole, would need to vote in order to grant such approval. As mentioned in the finding, the board of education did approve a budget amendment on February 1, 2022. However, it is important to note that this amendment occurred approximately seven months after the bonuses were paid and makes no mention of bonuses being paid to anyone or the amounts these individuals received. The explanation of the amendment states, ?these funds will be used to reimburse a portion of General Purpose funds already budgeted for line items for? Administrative Financial Staff for salary associated with the responsibilities related to duties under the ELC Grant?? Therefore, from the evidence presented to us, it is not clear that the Board of Education, as a whole, even knew these bonuses were paid until reported in our finding and the budget amendment itself does not provide adequate support for the proper approval of these payments as bonuses. The response of the Board of Education references Section 200.430(b) of the Uniform Guidelines provides: Reasonableness. Compensation for employees engaged in work on Federal awards will be considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the non-Federal entity. While bonuses paid with local funds typically do not require a timesheet, Section 200.430(i) states ?Standards of Documentation of Personnel Expenses. (1) charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed...?, In order for us to determine if these bonuses were reasonable and allowable, there must be documented proof that the administrative personnel receiving the bonuses actually devoted their time to administering the grant. We have not been presented with any documented evidence that the administrative staff spent any time on this grant. Furthermore, these administrative staff members were not paid bonuses for any of the hours they devoted to the other federal grants received by the school department. Therefore, the paying of bonuses associated with the ELC grant was inconsistent with the other grants received by the Board of Education. Additionally, the director of schools is employed through a contract between the director of schools and the board of education for the period January 5, 2021, through June 30, 2023, which states that the duties of the director of schools will generally be performed during normal business hours, but it is expressly agreed that the duties will require her to work during times other than normal business hours. The contract makes no mention of bonuses, and it appears anything beyond normal business hours is already included in her contract amount. Therefore, it is questionable if the director?s contract allows for the payment of a bonus.

Finding 2022-007 93.268 - Immunization Cooperative Agreements Criteria CFR 200.413(a) states “Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.” Condition Indirect costs were classified as direct costs to the program. Cause In the County’s general ledger, certain indirect costs are classified as personnel services expenditures. When completing the quarterly reports, these were not identified and separately classified as indirect costs. Effect By improperly classifying indirect costs as direct costs, the County may exceed the indirect cost limits outlined by the grant agreement. Questioned Costs $12,891 Recommendations The County should correctly identify costs as indirect costs. Views of Responsible Officials The County is working toward a higher level of staff training for Federal grant work, better review is also included in future grant reporting goals.

Finding 2022-007 93.268 - Immunization Cooperative Agreements Criteria CFR 200.413(a) states “Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.” Condition Indirect costs were classified as direct costs to the program. Cause In the County’s general ledger, certain indirect costs are classified as personnel services expenditures. When completing the quarterly reports, these were not identified and separately classified as indirect costs. Effect By improperly classifying indirect costs as direct costs, the County may exceed the indirect cost limits outlined by the grant agreement. Questioned Costs $12,891 Recommendations The County should correctly identify costs as indirect costs. Views of Responsible Officials The County is working toward a higher level of staff training for Federal grant work, better review is also included in future grant reporting goals.

Finding 2022-007 93.268 - Immunization Cooperative Agreements Criteria CFR 200.413(a) states “Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.” Condition Indirect costs were classified as direct costs to the program. Cause In the County’s general ledger, certain indirect costs are classified as personnel services expenditures. When completing the quarterly reports, these were not identified and separately classified as indirect costs. Effect By improperly classifying indirect costs as direct costs, the County may exceed the indirect cost limits outlined by the grant agreement. Questioned Costs $12,891 Recommendations The County should correctly identify costs as indirect costs. Views of Responsible Officials The County is working toward a higher level of staff training for Federal grant work, better review is also included in future grant reporting goals.

Finding 2022-009 93.323 - Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) Criteria CFR 200.413(a) states “Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.” Condition Indirect costs were classified as direct costs to the program. Cause: In the County’s general ledger, certain indirect costs are classified as personnel services expenditures. When completing the quarterly reports, these were not identified and separately classified as indirect costs. Effect By improperly classifying indirect costs as direct costs, the County may exceed the indirect cost limits outlined by the grant agreement. Questioned Costs $7,855 Recommendations: The County should correctly identify costs as indirect costs. Views of Responsible Officials The County is implementing proper controls over policies, procedures, training, and review processes especially where these relate to Federal grant projects. Through this educational endeavor the County will correctly be able to identify costs as indirect versus direct.

Finding 2022-009 93.323 - Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) Criteria CFR 200.413(a) states “Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy.” Condition Indirect costs were classified as direct costs to the program. Cause: In the County’s general ledger, certain indirect costs are classified as personnel services expenditures. When completing the quarterly reports, these were not identified and separately classified as indirect costs. Effect By improperly classifying indirect costs as direct costs, the County may exceed the indirect cost limits outlined by the grant agreement. Questioned Costs $7,855 Recommendations: The County should correctly identify costs as indirect costs. Views of Responsible Officials The County is implementing proper controls over policies, procedures, training, and review processes especially where these relate to Federal grant projects. Through this educational endeavor the County will correctly be able to identify costs as indirect versus direct.

FINDING 2022-003 DYER COUNTY SCHOOL DEPARTMENT HAD DEFICIENCIES IN THE USE OF EPIDEMIOLOGY AND LABORATORY CAPACITY FOR INFECTIOUS DISEASES (ELC) GRANT FUNDS, WHICH RESULTED IN QUESTIONED COSTS (A. ? Noncompliance Under Government Auditing Standards and OMB Uniform Guidance; B. - Internal Control ? Significant Deficiency Under Government Auditing Standards and OMB Uniform Guidance) Entity Dyer County, Tennessee ? School Department Repeat Finding Number N/A Assistance Listings # 93.323 Assistance Listings Title Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) Federal Agency Department of Health and Human Services State Pass-Through Agency Department of Education Grant/Contract No. N/A Federal Award Year 2022 Finding Type Noncompliance and Internal Control ? 93.323 Compliance Requirement Allowable Cost/Cost Principles Known Questioned Costs $63,589 The school department was awarded an Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) (FAL No. 93.323) made available from the American Rescue Plan Act of 2021, passed through the Tennessee Department of Education. We audited the ELC grant as a major federal program in compliance with Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). As part of our audit procedures, we tested a sample of 32 disbursement items for the period July 1, 2021, through June 30, 2022. Based on our test work, we noted the following deficiencies, which are the result of a lack of management oversight: A. On July 26, 2021, the following administrative staff received bonuses paid with ELC funds as direct grant costs: Director of Schools $27,688; Business and Finance Manager $11,886; Special Education Director $8,037; Federal Projects Bookkeeper $4,126 Federal Projects Bookkeeper (former) $4,126; Payroll Bookkeeper $3,863; Accounts Payable/Receivable Bookkeeper $3,863; for a total of $63,589. Section 200.413 of the Uniform Guidance provides that administrative and clerical staff should normally be treated as indirect costs; however, direct charging of these costs may be appropriate only if all of the following conditions are met: 1. Administrative or clerical services are integral to a project or activity; 2. Individuals involved can be specifically identified with the project or activity; 3. Such costs are explicitly included in the budget or have prior written approval of the federal awarding agency; and 4. The costs are not recovered as indirect costs. We were not provided with adequate documentation to support these payments as direct costs. The services provided by the administrative staff do not appear to be integral to the ELC grant; the individuals were not specifically identified to the project; and the bonuses were not explicitly included in the budget, nor did they have prior written approval of the federal awarding agency. At the time the bonuses were paid, the ELC grant documentation listed the following as allowable direct uses of funds: salaries, benefits, and contract costs of nurses; travel reimbursed at .47 per mile; contracts with academic institutions, private laboratories, or other healthcare entities to process test kits; supplies and equipment for testing; minor construction for safer testing locations; costs associated with operating alternate/pop-up sites; costs for running mass testing programs; and shipping, postage, printing, and duplicating costs. Updated guidance for the ELC grant was issued on August 2, 2021. Per the updated guidance, when determining allowable costs, grant recipients were referred to the cost principles regulation found in 45 CFR Part 75 Subpart E ? Cost Principles which states that allowable costs should be necessary and reasonable for the performance of the federal award, be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the entity, and be adequately documented. It further states that costs are reasonable if they do not exceed that which would be incurred by a prudent person under the circumstance. These bonuses do not appear to be reasonable and necessary for the performance of the award, are not consistent with other grants and programs of the school system and were not properly documented. B. Duties were not adequately segregated concerning the bonus payments associated with ELC grant funds. The bonuses paid to the administrative staff were not specifically approved by the grantor or the board of education. The board of education did approve a budget amendment on February 1, 2022, allowing bonuses under this grant program totaling $141,519, which included $62,295 for nurses and transportation and maintenance staff; however, the board of education was not given a breakdown of who received a bonus and the individual amounts. It should be noted that the current chairman of the board of education advised that he was unaware the director of schools received amounts in excess of her contract. As a result, the director of schools authorized a bonus payment to herself without prior approval of the board of education. As a result of the deficiencies noted above, we have questioned the cost of the bonuses for administrative staff totaling $63,589 for the period July 1, 2021, through June 30, 2022. RECOMMENDATION The board of education should determine the propriety and reasonableness of the bonus payments paid to the administrative staff from ELC funds. The board should take steps to resolve the questioned costs. Duties should be properly segregated. The director of schools should not approve her own bonus payments. MANAGEMENT?S RESPONSE ? DIRECTOR OF SCHOOLS We disagree with this finding. With regard to the matters referenced in section A of the draft finding, we take issue with the allegations that the bonuses paid to the administrative staff were not explicitly included in the grant budget, the individuals receiving the bonuses were not identified to the grantor and the grantor did not approve of the bonus payments, all of which are absolutely false. Section 200.407 of the Uniform Guidance provides: "Under any given Federal award, the reasonableness and allocability of certain items of costs may be difficult to determine. In order to avoid subsequent disallowance or dispute based on unreasonableness or nonallocability, the non-Federal entity may seek the prior written approval of the cognizant agency for indirect costs or the Federal awarding agency in advance of the incurrence of special or unusual costs." On June 14, 2021, the Dyer County School's ELC grant application was approved by the grantor in the amount of $1,021,466.91. The approved budget for the grant expressly included bonus payments in the amount of $63,589.14 to the Administrators, Director, and other related personnel for duties and responsibilities related to the implementation and administration of the COVID Testing program. See Exhibit A, approved grant budget for Account Number: 72130-Other Student Support, Line-Item Number: 188-Bonus Payments in the amount of $63,589.14. Not only were the administrative bonus payments specifically approved by the grantor in the budget, but the grantor was also provided with the names and exact amounts paid to each member of the administrative staff when the system requested and thereafter received reimbursement from the grantor for those payments. See Exhibit B, Statement of Expenditures and Encumbrances dated August 30, 2021, which was submitted to the grantor. When your office first raised this issue, we immediately confirmed that it was proper for ELC grant funds to be used to pay bonuses to the administrative staff for duties and responsibilities related to the implementation and administration of the program. See Exhibit C, email to Wendy Smith, Business and Finance Manager for the school system, dated August 29, 2022, from Kristi Steele, Director of Mental Health, Tennessee Department of Education, which provides: ?ELC funding can be used to pay stipends/salaries for individuals such as coordinated school health coordinators, district level administrators, etc. who manage the grant and who have been handling COVID response to their districts.? Your staff auditor, who was copied on the email from Ms. Steel, then asserted that the administrative staff was required under the grant to keep timesheets documenting the time spent related to the implementation and administration of COVID response for the school system. Exhibit D is an email dated August 30, 2022, from Jennifer Sanchez, Public Health Administrator II (Project Manager), Tennessee Department of Health, confirming the timesheets were not, in fact, a requirement for the payment of bonuses under the grant. Moreover, Maryanne Durksi, Executive Director, Office of Local Finance, Tennessee Department of Education has advised: ?the approved application in ePlan, with the stipends clearly in the narrative, should be documentation that these were approved by the state.? As a result of the foregoing, we believe the allegations in section A of the draft audit finding are without merit and should be removed from your final audit. With regards to the matters in section B of the draft finding, we take issue with the allegations that the bonuses paid to the administrative staff for the extra duties and responsibilities related to the implementation and administration of the ELC grant were not approved by the grantor or the board of education. The grantor's approval of the payments to the administrative staff in connection with the grant was discussed above and such will not be repeated again. We agree with you that Mr. Jeremy Gatlin, the current chairman of the board of education, has advised that he was not aware that the Director was one of the individuals who received bonus payments under the grant, but we find it curious that your draft finding does not also mention the very relevant additional information provided to your office by Mr. Keith Anderson, who was the chairman of the board of education at the time the ELC application was submitted, approved by the state and payments made to the administrative staff. See Exhibit E, statement of Keith Anderson, confirming that in May of 2021 he had a telephone conversation with Mrs. Wendy Smith regarding the grant application, that he was aware of and gave his approval regarding the employees eligible to receive a stipend due to extra duties associated with the COVID response program, including, but not limited to, the administrative, financial staff and the Director of Schools, the amounts of stipend each would receive in each group, and the percentages of salaries the stipend would equal. As you noted, the board of education approved the budget amendment regarding the ELC Grant on February 1, 2022. The budget amendment accurately reflects that the stipends paid under the grant to the administrative staff was transferred to the proper accounts, as approved in the grant budget, account 72130, line item 188 ? Other Student Support. We agree with you that the board of education was not provided a breakdown of who received a bonus and the individual amounts at the time the budget amendment was adopted. Any future bonus payments to members of the administrative staff will be approved by the board prior to disbursement to ensure that duties are? adequately segregated. We believe the methodology used for determining the amount of bonus payments to each group of employees/SROs involved with the implementation and management of the COVID response program and the allocation of such funds among the various individuals based on their program responsibilities was reasonable, but we defer to the board of education's response, set forth below, to address your recommendation that the board determine the propriety and reasonableness of the bonus payments paid to the administrative staff from ELC funds. MANAGEMENT?S RESPONSE ? DR. JEREMY GATLIN, BOARD OF EDUCATION CHAIRMAN The board disagrees with this finding. The board agrees with the response provided by the Director, as set forth above. The board believes it was appropriate to utilize a portion of the ELC grant funds to provide bonus payments to the administrative staff for the additional duties and responsibilities required to manage and administer the COVID response program for the benefit of approximately 4,000 students and employees of the school system over the term of the grant. Section 200.430(6) of the Uniform Guidelines provides: Reasonableness. Compensation for employees engaged in work on Federal awards will be considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the non-Federal entity. The bonus payments provided to the members of the administrative staff to manage the COVID response program were reasonable because the payments were determined based on the additional program responsibilities required of each of them in a manner that is consistent with the amounts paid to them for similar work in other activities on behalf of the school system. Going forward, any bonus payments provided to members of the administrative staff will be approved by the board before the funds are disbursed to ensure that duties are adequately segregated. AUDITOR?S COMMENT The budget for the ELC grant submitted to the Tennessee Department of Education did include $63,589 budgeted to Other Student Support ? Bonus Payments; however, the narrative description stated that it included ?SRO?s, Administrators, Director, and other related personnel.? There were no SRO?s paid from this line-item, and the director of schools was not specifically mentioned. Director in this instance could have implied the director of the program administering the grant. The only personnel paid from this budget line were the director of schools and six other administrative staff members. The narrative appears misleading and would not be sufficient to give prior explicit approval for these types of bonuses. The response of the director of schools? quotes Section 200.407 of the Uniform Guidance which provides: " ? the non-Federal entity may seek the prior written approval of the cognizant agency for indirect costs or the Federal awarding agency in advance of the incurrence of special or unusual costs." It should be noted the budget submitted for bonus payments was made to the Tennessee Department of Education which is a non-federal entity. The Federal awarding agency for this award is the U.S. Department of Education. Regardless of the matter of whether or was not there was proper approval to pay bonuses, there still must be proper documentation to support that the person was actually entitled to receive the bonus. Uniform Guidance Section 200.430(i) states ?Standards of 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 include: ? (vii) Support the distribution of the employee?s salary or wage among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and a non-federal award, an indirect cost activity and a direct cost activity, two or more indirect activities??. The school department has not provided us with any documented evidence to support that these individuals performed any work on this federal award. Without any supporting documentation of actual work performed on the grant by these individuals, we cannot attest these individuals were entitled to receive a bonus. Auditors were told by the former chairman of the Board of Education that he gave verbal approval of the bonuses; however, without any written documentation, we cannot attest that this happened. Furthermore, the former chairman has no authority on his own to approve bonus payments. The Board of Education, as a whole, would need to vote in order to grant such approval. As mentioned in the finding, the board of education did approve a budget amendment on February 1, 2022. However, it is important to note that this amendment occurred approximately seven months after the bonuses were paid and makes no mention of bonuses being paid to anyone or the amounts these individuals received. The explanation of the amendment states, ?these funds will be used to reimburse a portion of General Purpose funds already budgeted for line items for? Administrative Financial Staff for salary associated with the responsibilities related to duties under the ELC Grant?? Therefore, from the evidence presented to us, it is not clear that the Board of Education, as a whole, even knew these bonuses were paid until reported in our finding and the budget amendment itself does not provide adequate support for the proper approval of these payments as bonuses. The response of the Board of Education references Section 200.430(b) of the Uniform Guidelines provides: Reasonableness. Compensation for employees engaged in work on Federal awards will be considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the non-Federal entity. While bonuses paid with local funds typically do not require a timesheet, Section 200.430(i) states ?Standards of Documentation of Personnel Expenses. (1) charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed...?, In order for us to determine if these bonuses were reasonable and allowable, there must be documented proof that the administrative personnel receiving the bonuses actually devoted their time to administering the grant. We have not been presented with any documented evidence that the administrative staff spent any time on this grant. Furthermore, these administrative staff members were not paid bonuses for any of the hours they devoted to the other federal grants received by the school department. Therefore, the paying of bonuses associated with the ELC grant was inconsistent with the other grants received by the Board of Education. Additionally, the director of schools is employed through a contract between the director of schools and the board of education for the period January 5, 2021, through June 30, 2023, which states that the duties of the director of schools will generally be performed during normal business hours, but it is expressly agreed that the duties will require her to work during times other than normal business hours. The contract makes no mention of bonuses, and it appears anything beyond normal business hours is already included in her contract amount. Therefore, it is questionable if the director?s contract allows for the payment of a bonus.

Criteria: Title 2 of the Code of Federal Regulations (2 CFR), Part 200, Subpart E defines and discusses the federal cost principles that apply to federal awards administered by nonprofit organizations. The applicable sections of these cost principes are as follows: • 2 CFR 200.403 Factors affecting allowability of costs • 2 CFR 200.404 Reasonable costs • 2 CFR 200.405 Allocable costs • 2 CFR 200.413 Direct costs • 2 CFR 200.414 Indirect (F&A) costs Condition: The following were noted as related to compliance with allowable costs, cost allocation and federal cost principles: • Internal control on time spent by employees related to administrative functions or other indirect cost activities has not been properly designed or implemented. • All employee time, including employees and professional services contractors are being recorded directly to programs. Time spent on indirect activities is not being properly identified or properly allocated to programs. • A portion of time of the Operations Manager (Chief Executive of the Organization) is spent related to administrative time or other indirect cost activities. However, none of that time has been identified or charged as indirect costs. • The time card for the Operations Manager (Chief Executive of the Organization) is not reviewed or approved by a board member or other senior executive of the Organization. • The accounting services of AIRS is being provided by a third-party outsourced accountant. The costs related to these services were improperly recorded as direct personnel costs to the program rather than properly classified as indirect costs. • Payroll taxes, employee benefits and other allowable employee related expenses were allocated to the program in a manner that does not accurately reflect the relative benefits received. These costs were allocated to the program as a percentage of total payroll costs, however, the percentage used exceeds that actual percentage of these costs as a percentage of total payroll costs. • A reasonable, consistent and uniform cost allocation methodology has not been properly designed or implemented. Costs that benefit both federal programs, non-federal programs and indirect costs are not being allocated properly across and to federal programs, non-federal programs and indirect costs in a reasonable, consistent and uniform manner. • Certain direct costs charged to the program were not based on actual costs incurred and the amounts charged were not adequately supported. • Indirect costs were not properly identified and segregated from direct costs. • Allowable indirect costs were not charged to the federal program. Cause: AIRS accounting staff and senior management do not appear to have a full and complete understanding of Uniform Guidance or of the applicable federal cost principles. Management has not properly applied the applicable federal costs principles in 2 CFR, Part 200, Subpart E to the costs charged to the federal program. Effect: Payroll costs and allowable employee related expenses, certain direct costs, allocable direct costs and indirect costs were not properly charged to the federal program. In order to estimate the questioned costs, the auditor, with the assistance of management, developed a costs allocation methodology that charges costs to the federal program in a reasonable, consistent and uniform manner in compliance with the costs principles contained in 2 CFR, Part 200, Subpart E. The primarily characteristics of this methodology are as follows: • Based upon discussions with management, review of the job description, roles and responsibilities of the Operations Manager and using prior experience and comparison to similar nonprofit organizations; an estimate of the percentage of time spent by the Operations Manager related to administration and other indirect activities was developed. • The time for the outsourced accounting services provider was removed from direct personnel costs and charged to indirect costs. • After the above revisions were made, the auditor assisted management in reallocating payroll costs across all federal and nonfederal programs and to indirect costs in a reasonable, consistent and uniform manner. • Allowable payroll taxes, benefits and other employee related expense charges were estimated using the actual percentage of these expenses as a percentage of total allowable payroll costs. • Non-allocable direct costs were charged to the program at the actual amount of those costs incurred. • Allocable direct costs charges were estimated by allocating those costs to the federal program on the basis of allowable payroll costs charged to program as a percentage of total allowable payroll costs (percentage of payroll methodology). This methodology is in compliance with the requirements of 2 CFR 200.405 and appears to produce a result that reasonably estimates the proportional benefit of these costs to all federal and non-federal programs, and to indirect cost activities. • Indirect costs were estimated and charged to the program using the 10% de minimis indirect cost rate as defined in 2 CFR 200.414. Questioned Costs: Using the methodology described above, the auditor has estimated total federal expenditures allowable to the program of $247,119. However, AIRS has charged federal expenditures of $272,781 to the program. Therefore, the estimated questioned costs related to this program are $25,662. Repeat Finding from Prior Year: No Recommendation: Senior management and accounting personnel should create procedures to ensure that direct program costs are charged at the actual amounts incurred, develop a payroll cost allocation methodology, and an allocable direct cost allocation methodology that ensures that costs are reasonably, consistently and uniformly charged to and across all federal and non-federal programs and to indirect costs relative to the proportional benefit of those costs, and in compliance with the applicable federal cost principles in 2 CFR, Part 200, Subpart E. Management and the board should consider providing senior management, accounting personnel and applicable program personnel additional training and education related to the proper application of and compliance with the federal costs principles as defined in 2 CFR, Part 200, Subpart E. Management and the board may also want to consider engaging a third-party CPA or other accounting professional who has extensive prior skills, knowledge and experience related to Uniform Guidance and federal cost principles. Views of Responsible Officials: Management concurs with this audit finding.

Criteria: Title 2 of the Code of Federal Regulations (2 CFR), Part 200, Subpart E defines and discusses the federal cost principles that apply to federal awards administered by nonprofit organizations. The applicable sections of these cost principes are as follows: • 2 CFR 200.403 Factors affecting allowability of costs • 2 CFR 200.404 Reasonable costs • 2 CFR 200.405 Allocable costs • 2 CFR 200.413 Direct costs • 2 CFR 200.414 Indirect (F&A) costs Condition: The following were noted as related to compliance with allowable costs, cost allocation and federal cost principles: • Internal control on time spent by employees related to administrative functions or other indirect cost activities has not been properly designed or implemented. • All employee time, including employees and professional services contractors are being recorded directly to programs. Time spent on indirect activities is not being properly identified or properly allocated to programs. • A portion of time of the Operations Manager (Chief Executive of the Organization) is spent related to administrative time or other indirect cost activities. However, none of that time has been identified or charged as indirect costs. • The time card for the Operations Manager (Chief Executive of the Organization) is not reviewed or approved by a board member or other senior executive of the Organization. • The accounting services of AIRS is being provided by a third-party outsourced accountant. The costs related to these services were improperly recorded as direct personnel costs to the program rather than properly classified as indirect costs. • Payroll taxes, employee benefits and other allowable employee related expenses were allocated to the program in a manner that does not accurately reflect the relative benefits received. These costs were allocated to the program as a percentage of total payroll costs, however, the percentage used exceeds that actual percentage of these costs as a percentage of total payroll costs. • A reasonable, consistent and uniform cost allocation methodology has not been properly designed or implemented. Costs that benefit both federal programs, non-federal programs and indirect costs are not being allocated properly across and to federal programs, non-federal programs and indirect costs in a reasonable, consistent and uniform manner. • Certain direct costs charged to the program were not based on actual costs incurred and the amounts charged were not adequately supported. • Indirect costs were not properly identified and segregated from direct costs. • Allowable indirect costs were not charged to the federal program. Cause: AIRS accounting staff and senior management do not appear to have a full and complete understanding of Uniform Guidance or of the applicable federal cost principles. Management has not properly applied the applicable federal costs principles in 2 CFR, Part 200, Subpart E to the costs charged to the federal program. Effect: Payroll costs and allowable employee related expenses, certain direct costs, allocable direct costs and indirect costs were not properly charged to the federal program. In order to estimate the questioned costs, the auditor, with the assistance of management, developed a costs allocation methodology that charges costs to the federal program in a reasonable, consistent and uniform manner in compliance with the costs principles contained in 2 CFR, Part 200, Subpart E. The primarily characteristics of this methodology are as follows: • Based upon discussions with management, review of the job description, roles and responsibilities of the Operations Manager and using prior experience and comparison to similar nonprofit organizations; an estimate of the percentage of time spent by the Operations Manager related to administration and other indirect activities was developed. • The time for the outsourced accounting services provider was removed from direct personnel costs and charged to indirect costs. • After the above revisions were made, the auditor assisted management in reallocating payroll costs across all federal and nonfederal programs and to indirect costs in a reasonable, consistent and uniform manner. • Allowable payroll taxes, benefits and other employee related expense charges were estimated using the actual percentage of these expenses as a percentage of total allowable payroll costs. • Non-allocable direct costs were charged to the program at the actual amount of those costs incurred. • Allocable direct costs charges were estimated by allocating those costs to the federal program on the basis of allowable payroll costs charged to program as a percentage of total allowable payroll costs (percentage of payroll methodology). This methodology is in compliance with the requirements of 2 CFR 200.405 and appears to produce a result that reasonably estimates the proportional benefit of these costs to all federal and non-federal programs, and to indirect cost activities. • Indirect costs were estimated and charged to the program using the 10% de minimis indirect cost rate as defined in 2 CFR 200.414. Questioned Costs: Using the methodology described above, the auditor has estimated total federal expenditures allowable to the program of $247,119. However, AIRS has charged federal expenditures of $272,781 to the program. Therefore, the estimated questioned costs related to this program are $25,662. Repeat Finding from Prior Year: No Recommendation: Senior management and accounting personnel should create procedures to ensure that direct program costs are charged at the actual amounts incurred, develop a payroll cost allocation methodology, and an allocable direct cost allocation methodology that ensures that costs are reasonably, consistently and uniformly charged to and across all federal and non-federal programs and to indirect costs relative to the proportional benefit of those costs, and in compliance with the applicable federal cost principles in 2 CFR, Part 200, Subpart E. Management and the board should consider providing senior management, accounting personnel and applicable program personnel additional training and education related to the proper application of and compliance with the federal costs principles as defined in 2 CFR, Part 200, Subpart E. Management and the board may also want to consider engaging a third-party CPA or other accounting professional who has extensive prior skills, knowledge and experience related to Uniform Guidance and federal cost principles. Views of Responsible Officials: Management concurs with this audit finding.