FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
Program: AL 20.509 – Formula Grants for Rural Areas – Allowability & Subrecipient Monitoring Grant Number & Year: NE-2019-013-00, Performance End FFY 2023; NE-2022-019-00, Performance End FFY 2024 Federal Grantor Agency: U.S. Department of Transportation Criteria: Per 2 CFR § 1201.1 (January 1, 2023), the U.S. Department of Transportation adopted the Uniform Administrative Requirements, Cost Principles, and Audit Requirements set forth at Title 2 CFR part 200. 2 CFR § 200.403 (January 1, 2023) requires costs to be reasonable, necessary, and adequately documented. A good internal control plan requires procedures to be in place to ensure compliance with Federal and State requirements. 2 CFR § 200.332(d) (January 1, 2023) requires the pass-through entity to do the following: Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. 2 CFR § 200.430(i)(1) (January 1, 2023) states the following, in relevant part: Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; * * * * (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards . . . . 2 CFR § 200.431(b) (January 1, 2023) states the following, in relevant part: Leave. The cost of fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, family-related leave, sick leave, holidays, court leave, military leave, administrative leave, and other similar benefits, are allowable if all of the following criteria are met: * * * * (2) The costs are equitably allocated to all related activities, including Federal awards . . . . 2 CFR § 200.467 (January 1, 2023) states the following: Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award. Per 2 CFR § 200.405(a) (January 1, 2023), “A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received.” Condition: The Agency lacked adequate documentation to support that payments were for allowable activities and in accordance with allowable cost principles. A similar finding was noted in the prior audit. Repeat Finding: 2022-057 Questioned Costs: $82,967 known (NE-2019-013-00 $82,121; NE-2022-019-00 $846) Statistical Sample: No Context: During the fiscal year, the Agency paid 58 subrecipients a total of $10,974,293. We selected 24 payments to subrecipients for testing. The Agency performed financial reviews for subrecipients; however, the reviews tested did not always include all necessary supporting documentation. When additional documentation was needed, we gave the Agency the opportunity to obtain additional support from the subrecipient; however, adequate support was not always obtained or able to be provided. Our random sample included an operating assistance reimbursement to North Fork Area Transit (NFAT). As identified in both the prior Single audit and a separate letter sent to the Agency, dated August 7, 2023, reimbursements for questionable expenditures were made to NFAT during the period April 1, 2022, to November 30, 2022. The former NFAT director was alleged to have committed fraud during this period. Our current testing included the reimbursement for NFAT’s August 2022 expenditures. The payment tested reimbursed NFAT $201,438 in Federal dollars. Of that amount, $78,348 was questioned, as follows: • NFAT was reimbursed $21,665 for nonoperating personnel when the timesheets supporting the time worked were all copies of the same timesheet. • NFAT was reimbursed $29,072 for operating personnel hours worked that did not appear reasonable. We noted nine employees whose hours for the four-week period were between 234.6 to 321.12 hours. This averages from 58.65 to 80.28 hours per week for each employee. Such large weekly averages give rise to concerns about not only the reasonableness and necessity of these payments but also possible compliance issues with labor standards – not to mention safety issues for riders. This was also identified in the letter dated August 7, 2023, in which employees were identified as working excessive overtime. An additional $376 was questioned, as the number of work hours for which one employee received compensation did not agree to those listed on his timesheet. • NFAT was reimbursed $12,874 for vendor payments that never appear to have cleared the bank. Invoices and checks were provided to support the maintenance expenses reimbursed; however, the checks provided never cleared the bank. This was also identified in the letter dated August 7, 2023, which noted that the Director appeared to have written the checks but not paid the vendors. • NFAT was reimbursed $14,361 for a duplicate payment. An invoice and check were provided to support the reimbursement of an insurance expense; however, this same expense was also submitted and reimbursed by the Agency in NFAT’s September 2022 request for reimbursement. We also noted issues with 12 of the 24 subrecipient payments tested, amounting to $4,619 in questioned costs, due to the following: • For eight subrecipients tested, documentation was inadequate to support that personnel charges were allowable and in accordance with Federal cost principles, resulting in questioned costs of $2,705. Specifically, we noted the following: o Payments for employee leave was not equitably allocated based on time worked. o One subrecipient had wages reimbursed based on budgeted amounts. o One subrecipient was reimbursed for health insurance for two employees who had elected to receive wages in lieu of such insurance. o One subrecipient requested reimbursement for wages that did not agree with the amount paid to employees. • For six subrecipients tested, questioned costs of $1,914 were identified due to inadequate support for capital and nonoperating costs. Questioned costs included the following: o One subrecipient was reimbursed for carpet adhesive that was later returned to the store. The subrecipient reimbursed the Director for the purchase of the carpet adhesive on her personal credit card, but the Agency was unable to identify a subsequent reimbursement request that reduced the amount sought for the returned items. Additionally, the subrecipient paid the Director for travel to another state to purchase the carpet adhesive, which not only could have been obtained from a more nearby merchant but also was ultimately returned. o Unreasonable travel reimbursements were noted. Among those was reimbursement for costs incurred by the subrecipient’s Director to travel to a meeting of an unaffiliated organization’s Board of Directors upon which she served as a member. That travel to attend a separate Board meeting was unrelated to the transit program. o A subrecipient was reimbursed for fees related to obtaining a trademark, which appears to have been a marketing expense that was not approved by the Federal awarding agency. o One subrecipient was reimbursed for an administrative fee that was not supported. The payment tested included a 7% administrative fee that was not specified in the agreement. o One subrecipient was reimbursed for unreasonable items, such as Christmas décor and Christmas candy. o One subrecipient was reimbursed for bookkeeping expenses; however, the subrecipient did not provide documentation to support that the amount allocated for that purpose was reasonable. Based on the sample tested, we estimate the potential dollars at risk for the fiscal year to be $501,670, as detailed below: See Schedule of Findings and Questioned Costs for chart/table. Cause: Procedures were inadequate to ensure that costs were in accordance with Federal requirements. Effect: Increased risk for errors or misuse of funds. Recommendation: We recommend the Agency strengthen subrecipient monitoring procedures. We further recommend the Agency improve procedures to ensure expenditures are allowable and in accordance with Federal regulations. Management Response: NDOT concurs with the findings and has revised reimbursement guidelines for subrecipients, clarifying allowed expenses and required documentation. Over the next 6-12 months, NDOT will conduct training sessions with subrecipients and collaborate with internal auditors on compliance matters. The establishment of the “Federal Oversight” unit within the Transit Section aims to improve monitoring, consistency, and compliance with federal requirements for all subrecipients.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. INDIANA STATE BOARD OF ACCOUNTS 19 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The School Corporation had not designed or implemented a system of internal controls to ensure that program costs incurred by the FSMC were supported by proper documentation and were allowable prior to payment. Due to the lack of internal controls, the following errors were noted: In a test of 44 transactions, 22 transactions (50%) totaling $6,641 did not have proper documentation to support that the expenses were for the benefit of the food service program and in conformance with the cost principles. 1. Of the 5 transactions totaling $764, were for food and supply purchases paid for by the FSMC and then invoiced to the School Corporation for reimbursement. The vendor invoices supporting these purchases could not be provided for audit. 2. Of the 15 transactions totaling $5,532, were for FSMC employee payroll, fringe benefits, stipends, and other miscellaneous expenses. Proper supporting documentation could not be provided for audit for these transactions. 3. Of the 2 transactions, were determined to be unallowable expenses, as noted below: a. An Amazon purchase of $27 was for decorations that were shipped to a home residence. The FSMC stated the decorations were for a ceremony for the opening of the School Corporation's weight room. b. The FSMC purchased Visa gift cards totaling $318 that were gifted to FSMC staff. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or INDIANA STATE BOARD OF ACCOUNTS 20 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in manner suitable for contract cost determination and verification. (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 2 CFR 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (g) Be adequately documented. . . ." 2 CFR 200.445(a) states: "Costs of goods or services for personal use of the non-Federal entity's employees are unallowable regardless of whether the cost is reported as taxable income to the employees." 2 CFR 200.467 states: "Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, required supporting documentation could be provided to verify costs paid to the FSMC were allowable and in conformance with the cost principles. In addition, unallowable costs were paid. INDIANA STATE BOARD OF ACCOUNTS 21 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs Known questioned costs of $6,641 were identified as explained in the Condition and Context. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure all costs are adequately documented and for the benefit of the food service program. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
Program: AL 20.509 – Formula Grants for Rural Areas – Allowability & Subrecipient Monitoring Grant Number & Year: NE-2019-013-00, Performance End FFY 2023; NE-2022-019-00, Performance End FFY 2024 Federal Grantor Agency: U.S. Department of Transportation Criteria: Per 2 CFR § 1201.1 (January 1, 2023), the U.S. Department of Transportation adopted the Uniform Administrative Requirements, Cost Principles, and Audit Requirements set forth at Title 2 CFR part 200. 2 CFR § 200.403 (January 1, 2023) requires costs to be reasonable, necessary, and adequately documented. A good internal control plan requires procedures to be in place to ensure compliance with Federal and State requirements. 2 CFR § 200.332(d) (January 1, 2023) requires the pass-through entity to do the following: Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward; and that subaward performance goals are achieved. 2 CFR § 200.430(i)(1) (January 1, 2023) states the following, in relevant part: Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; * * * * (vii) Support the distribution of the employee’s salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. (viii) Budget estimates (i.e., estimates determined before the services are performed) alone do not qualify as support for charges to Federal awards . . . . 2 CFR § 200.431(b) (January 1, 2023) states the following, in relevant part: Leave. The cost of fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, family-related leave, sick leave, holidays, court leave, military leave, administrative leave, and other similar benefits, are allowable if all of the following criteria are met: * * * * (2) The costs are equitably allocated to all related activities, including Federal awards . . . . 2 CFR § 200.467 (January 1, 2023) states the following: Costs of selling and marketing any products or services of the non-Federal entity (unless allowed under § 200.421) are unallowable, except as direct costs, with prior approval by the Federal awarding agency when necessary for the performance of the Federal award. Per 2 CFR § 200.405(a) (January 1, 2023), “A cost is allocable to a particular Federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received.” Condition: The Agency lacked adequate documentation to support that payments were for allowable activities and in accordance with allowable cost principles. A similar finding was noted in the prior audit. Repeat Finding: 2022-057 Questioned Costs: $82,967 known (NE-2019-013-00 $82,121; NE-2022-019-00 $846) Statistical Sample: No Context: During the fiscal year, the Agency paid 58 subrecipients a total of $10,974,293. We selected 24 payments to subrecipients for testing. The Agency performed financial reviews for subrecipients; however, the reviews tested did not always include all necessary supporting documentation. When additional documentation was needed, we gave the Agency the opportunity to obtain additional support from the subrecipient; however, adequate support was not always obtained or able to be provided. Our random sample included an operating assistance reimbursement to North Fork Area Transit (NFAT). As identified in both the prior Single audit and a separate letter sent to the Agency, dated August 7, 2023, reimbursements for questionable expenditures were made to NFAT during the period April 1, 2022, to November 30, 2022. The former NFAT director was alleged to have committed fraud during this period. Our current testing included the reimbursement for NFAT’s August 2022 expenditures. The payment tested reimbursed NFAT $201,438 in Federal dollars. Of that amount, $78,348 was questioned, as follows: • NFAT was reimbursed $21,665 for nonoperating personnel when the timesheets supporting the time worked were all copies of the same timesheet. • NFAT was reimbursed $29,072 for operating personnel hours worked that did not appear reasonable. We noted nine employees whose hours for the four-week period were between 234.6 to 321.12 hours. This averages from 58.65 to 80.28 hours per week for each employee. Such large weekly averages give rise to concerns about not only the reasonableness and necessity of these payments but also possible compliance issues with labor standards – not to mention safety issues for riders. This was also identified in the letter dated August 7, 2023, in which employees were identified as working excessive overtime. An additional $376 was questioned, as the number of work hours for which one employee received compensation did not agree to those listed on his timesheet. • NFAT was reimbursed $12,874 for vendor payments that never appear to have cleared the bank. Invoices and checks were provided to support the maintenance expenses reimbursed; however, the checks provided never cleared the bank. This was also identified in the letter dated August 7, 2023, which noted that the Director appeared to have written the checks but not paid the vendors. • NFAT was reimbursed $14,361 for a duplicate payment. An invoice and check were provided to support the reimbursement of an insurance expense; however, this same expense was also submitted and reimbursed by the Agency in NFAT’s September 2022 request for reimbursement. We also noted issues with 12 of the 24 subrecipient payments tested, amounting to $4,619 in questioned costs, due to the following: • For eight subrecipients tested, documentation was inadequate to support that personnel charges were allowable and in accordance with Federal cost principles, resulting in questioned costs of $2,705. Specifically, we noted the following: o Payments for employee leave was not equitably allocated based on time worked. o One subrecipient had wages reimbursed based on budgeted amounts. o One subrecipient was reimbursed for health insurance for two employees who had elected to receive wages in lieu of such insurance. o One subrecipient requested reimbursement for wages that did not agree with the amount paid to employees. • For six subrecipients tested, questioned costs of $1,914 were identified due to inadequate support for capital and nonoperating costs. Questioned costs included the following: o One subrecipient was reimbursed for carpet adhesive that was later returned to the store. The subrecipient reimbursed the Director for the purchase of the carpet adhesive on her personal credit card, but the Agency was unable to identify a subsequent reimbursement request that reduced the amount sought for the returned items. Additionally, the subrecipient paid the Director for travel to another state to purchase the carpet adhesive, which not only could have been obtained from a more nearby merchant but also was ultimately returned. o Unreasonable travel reimbursements were noted. Among those was reimbursement for costs incurred by the subrecipient’s Director to travel to a meeting of an unaffiliated organization’s Board of Directors upon which she served as a member. That travel to attend a separate Board meeting was unrelated to the transit program. o A subrecipient was reimbursed for fees related to obtaining a trademark, which appears to have been a marketing expense that was not approved by the Federal awarding agency. o One subrecipient was reimbursed for an administrative fee that was not supported. The payment tested included a 7% administrative fee that was not specified in the agreement. o One subrecipient was reimbursed for unreasonable items, such as Christmas décor and Christmas candy. o One subrecipient was reimbursed for bookkeeping expenses; however, the subrecipient did not provide documentation to support that the amount allocated for that purpose was reasonable. Based on the sample tested, we estimate the potential dollars at risk for the fiscal year to be $501,670, as detailed below: See Schedule of Findings and Questioned Costs for chart/table. Cause: Procedures were inadequate to ensure that costs were in accordance with Federal requirements. Effect: Increased risk for errors or misuse of funds. Recommendation: We recommend the Agency strengthen subrecipient monitoring procedures. We further recommend the Agency improve procedures to ensure expenditures are allowable and in accordance with Federal regulations. Management Response: NDOT concurs with the findings and has revised reimbursement guidelines for subrecipients, clarifying allowed expenses and required documentation. Over the next 6-12 months, NDOT will conduct training sessions with subrecipients and collaborate with internal auditors on compliance matters. The establishment of the “Federal Oversight” unit within the Transit Section aims to improve monitoring, consistency, and compliance with federal requirements for all subrecipients.