FINDING 2024-003
Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles
Federal Agency: Department of Agriculture
Federal Programs: School Breakfast Program, National School Lunch Program,
Summer Food Service Program for Children
Assistance Listings Numbers: 10.553, 10.555, 10.559
Federal Award Numbers and Years (or Other Identifying Numbers): 2022-2023, 2023-2024
Pass-Through Entity: Indiana Department of Education
Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles
Audit Findings: Material Weakness, Modified Opinion
Repeat Finding
This is a repeat finding from the immediately prior audit report. The prior audit finding number was
2022-002.
Condition and Context
An effective internal control system was not designed or implemented at the School Corporation
related to food service management company claims, food service payroll benefit claims, and food service
payroll to ensure compliance with requirements related to the grant agreement and the Activities Allowed
or Unallowed and the Allowable Costs/Cost Principles compliance requirements.
Food Service Management Company
The School Corporation had not designed nor implemented a system of internal controls to
ensure that program costs were supported by proper documentation, were allowable, and were
only for the operation of the food service program.
INDIANA STATE BOARD OF ACCOUNTS
21
GARY COMMUNITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
The School Corporation entered into a cost reimbursement contract, dated July 1, 2020, with
a food service management company (FSMC). Four invoices for payment to the FSMC, which
totaled $885,477, were selected for testing. Supporting documentation was presented for only
$760,332 of the costs invoiced. Due to the lack of supporting documentation, the Indiana State
Board of Accounts was unable to determine if the remaining costs paid, $125,145, were
allowable expenditures. The costs that were not properly documented were considered
questioned costs.
Additionally, in the supporting documentation presented for audit, sales tax was erroneously
paid totaling $862. These unallowable costs were considered questioned costs.
Payroll
In fiscal year 2023-2024, the School Corporation's CTE Coordinator was assigned a new role,
Food Service Director/Inventory Coordinator, which included compensation paid out of the
Child Nutrition Cluster grant funds. The new role began in May 2024. The Food Service
Director did not maintain documentation of time spent on federal program and nonfederal
program activities. The total paid to the Food Service Director from the School Lunch fund
without proper documentation was $4,358. The costs that were not properly documented were
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
(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 a manner suitable for contract cost determination and verification;
INDIANA STATE BOARD OF ACCOUNTS
22
GARY COMMUNITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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 220.7(e) states in part:
". . . the School Food Authority shall, with respect to participating schools under its jurisdiction:
(1)
(i) Maintain a nonprofit school food service;
(ii) . . . use all revenues received by such food service only for the operation or
improvement of that food service . . ."
7 CFR 210.14(a) states in part:
"Nonprofit school food service. School food authorities shall maintain a nonprofit school food
service. Revenues received by the nonprofit school food service are to be used only for the
operation or improvement of such food service, except that, such revenues shall not be used
to purchase land or buildings, unless otherwise approved by FNS, or to construct buildings.
. . ."
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 200.430(i) states in part:
"Standards for documentation of Personnel Expenses (1) Charges to Federal awards for
salaries and wages must be based on records that accurately reflect the work performed.
These records must:
INDIANA STATE BOARD OF ACCOUNTS
23
GARY COMMUNITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(i) Be supported by a system of internal control which provides reasonable assurance
that the charges are accurate, allowable, and properly allocated;
(ii) Be incorporated into the official records of the non-Federal entity;
(iii) Reasonably reflect the total activity for which the employee is compensated by the
non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per
the IHE's definition of IBS); . . .
(vii) Support the distribution of the employee's salary or wages among specific activities
or cost objectives if the employee works on more than one Federal award; a Federal
award and non-Federal award; an indirect cost activity and a direct cost activity; two
or more indirect activities which are allocated using different allocation bases; or an
unallowable activity and a direct or indirect cost activity. . . ."
Cause
A proper system of internal controls over the invoices paid to the FSMC and payroll paid to the
Food Service Director were not properly designed or implemented by management. The School
Corporation did not receive complete documentation from the FSMC to support the amounts invoiced and
did not ensure the Food Service Director maintained a record of actual time spent on child nutrition duties.
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 $130,365 were identified as detailed in the Condition and Context.
Recommendation
We recommended that the School Corporation's management design and implement a system of
internal controls to ensure that disbursement documentation will be obtained, retained, and made available
for audit and that the disbursements comply with the Activities Allowed or Unallowed and the Allowable
Costs/Cost Principles compliance requirements.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.