Finding Text
FINDING 2024-001
Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles,
Special Tests and Provisions - Non-Profit School Food Service Accounts
Federal Agency: Department of Agriculture
Federal Programs: School Breakfast Program, National School Lunch Program,
Summer Food Service Program for Children
Assistance Listings Numbers: 10.553, 10.555, 10.559
Federal Award Numbers and Years (or Other Identifying Numbers): SY 2022-2023, SY 2023-2024
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Special
Tests and Provisions - Non-Profit School Food Service Accounts
Audit Findings: Significant Deficiency, Other Matters
Condition and Context
The School Corporation had not properly designed or implemented a system of internal controls,
which would include appropriate segregation of duties, that would likely be effective in preventing, or
detecting and correcting, noncompliance related to expenditures charged to the food service program fund.
Indirect costs are those expenditures that benefit multiple programs, including the Child Nutrition
Cluster that can be partially allocated to the program. To charge indirect costs, the School Corporation
must apply for an indirect cost rate from the Indiana Department of Education (IDOE) each year. Indirect
cost rates are calculated by the IDOE Office of School Finance utilizing the School Corporation's semiannual
School Financial Report referred to as the Form 9.
The School Corporation performed transfers out of the School Lunch fund for the allocated portion
of the food service's utility service costs through the process of an indirect cost calculation performed by
the School Corporation for the year ended June 30, 2024. The School Corporation had not applied or
received approval from the IDOE to utilize an indirect cost rate. The total amount charged to the School
Lunch fund for these costs totaled $275,724 for the year ended June 30, 2024. This amount was considered
questioned costs.
The lack of internal controls and noncompliance was isolated to the year ended June 30, 2024, and
indirect costs noted above.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
(a) Establish and maintain effective internal control over 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). . . ."
INDIANA STATE BOARD OF ACCOUNTS
16
SCHOOL CITY OF MISHAWAKA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
2 CFR 200.403 states in part:
"Except where otherwise authorized by statute, costs must meet the following general criteria
in order to be allowable under Federal awards:
(a) Be necessary and reasonable for the performance of the Federal award and be
allocable thereto under these principles.
(b) Conform to any limitations or exclusions set forth in these principles or in the Federal
award as to types or amount of cost items. . . .
(g) Be adequately documented. . . ."
2 CFR 200.332(b)(4) states:
"Indirect cost rate:
(i) An approved indirect cost rate negotiated between the subrecipient and the Federal
Government. If no approved rate exists, a pass-through entity must determine the
appropriate rate in collaboration with the subrecipient. The indirect cost rate may be
either:
(A) An indirect cost rate negotiated between the pass-through entity and the
subrecipient. These rates may be based on a prior negotiated rate between a different
pass-through entity and the subrecipient, in which case the pass-through entity is not
required to collect information justifying the rate but may elect to do so; or
(B) The de minimis indirect cost rate."
Cause
A proper system of internal controls was not designed by management of the School Corporation.
The School Corporation calculated and charged an indirect cost rate to the food service program but did
not seek approval from the IDOE by completing an application to obtain and use an indirect cost rate.
Effect
Noncompliance with the grant agreement and the compliance requirement resulted in questioned
costs and could result in the repayment of federal funds.
Questioned Costs
Known questioned costs of $275,724 were identified as detailed in the Condition and Context.
Recommendation
We recommended the School Corporation's management establish a proper system of internal
controls to ensure that the disbursements are for the benefit of the school lunch program and comply with
the Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Special Tests and Provisions -
Non-Profit School Food Service Accounts compliance requirements.
INDIANA STATE BOARD OF ACCOUNTS
17
SCHOOL CITY OF MISHAWAKA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.