FINDING 2025-002 Subject: Child Nutrition Cluster - Internal Controls Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program Assistance Listings Numbers: 10.553, 10.555 Federal Award Numbers and Years (or Other Identifying Numbers): FY 2024, FY 2025 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Eligibility, Special Tests and Provisions - Non-Profit School Food Service Accounts Audit Finding: Material Weakness INDIANA STATE BOARD OF ACCOUNTS 14 BATESVILLE COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 with the Eligibility and the Special Tests and Provisions - Non-Profit School Food Service Accounts compliance requirements. Eligibility Any child enrolled in a participating school who meets the applicable program's definition of "child," may receive meals under the applicable program. In the case of the National School Lunch Program and the School Breakfast Program, children belonging to households meeting nationwide income eligibility requirements may receive meals at no charge or at reduced price. Children who have been determined ineligible for free or reduced-price school meals pay the full price, set by the School Food Authority, for their meals. Children attending meal service sites of the Summer Food Service Program receive their meals at no charge. As a general rule, a child's eligibility for free or reduced-price meals under a Child Nutrition Cluster program may be established by the submission of an annual application or a statement which furnishes such information as family income and family size. Local educational agencies, institutions, and sponsors then determine eligibility by comparing the data reported by the child's household to published income eligibility guidelines. Additionally, a child may be direct-certified. For a direct certification, annual eligibility determinations are based on the child's household receiving benefits under the Supplemental Nutrition Assistance Program, the Food Distribution Program on Indiana Reservations, the Head Start Program (ALN 93.600), or, under most circumstances, the Temporary Assistance for Needy Families program (ALN 93.558). A household may furnish documentation of its participation in one of these programs, or the school, institution, or sponsor may obtain the information directly from the state or local agency that administers these programs. Certain foster, runaway, homeless, and migrant children are categorically eligible for free school lunches and breakfasts. Direct-certified households do not need to complete an application. Free and reduced-price applications were completed online. The information entered in the applications was then automatically uploaded into the School Corporation's child nutrition software system. The software system calculated a student's eligibility for free and reducedprice meals based on the parameters within the system. The system parameters were entered by the Food Service Director, without a documented review or oversight process to ensure the parameters entered were accurate. Additionally, there was not a review process in place to ensure that the eligibility determinations made by the software system were in compliance with the requirements of the programs. School Food Accounts The School Corporation did not have internal controls in place to ensure that federal reimbursements received by electronic funds transfers (EFT) for meals served were properly credited to the School Lunch fund. The Treasurer was responsible for posting federal reimbursements to the School Lunch fund without an oversight, review, or approval process in place to ensure they were properly posted. The lack of internal controls was systemic throughout the audit period. INDIANA STATE BOARD OF ACCOUNTS 15 BATESVILLE COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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). . . ." Cause Management of the School Corporation had not established a proper system of internal controls over income parameters entered annually into the food service software or over the verification of free and reduced-price applications. Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, errors. Management of the School Corporation had established a proper system of internal controls over non-EFT receipts; however, a proper system of internal controls had not been established for EFT receipts. Without the proper implementation of an effectively designed system of internal controls over EFT receipts, the internal control system cannot be capable of effectively preventing, or detecting and correcting, errors. 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. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation implement policies and procedures to ensure that eligibility determinations are made properly and that federal reimbursements for meals served are credited to the School Lunch fund. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.