FINDING 2024-008 Subject: Special Education Cluster (IDEA) - Earmarking and Level of Effort Federal Agency: Department of Education Federal Programs: Special Education Grants to States, COVID-19 - Special Education Grants to States, Special Education Preschool Grants Assistance Listings Numbers: 84.027, 84.027X, 84.173 Federal Award Numbers and Years (or Other Identifying Numbers): 21611-045-PN01, 22611-045-PN01, 22611-045-ARP, 22619-045-PN01 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Matching, Level of Effort, Earmarking 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 2022-008. Condition and Context An effective internal control system was not in place at the School Corporation to ensure compliance with requirements related to the grant agreement and the earmarking requirements of the Matching, Level of Effort, Earmarking compliance requirement. INDIANA STATE BOARD OF ACCOUNTS 31 NORTH LAWRENCE COMMUNITY SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Earmarking The nonpublic proportionate share of expenditures for the 21611-045-PN01, 22611-045-PN01, 22611-045-ARP, and 22619-045-PN01 grant awards could not be verified for proper classification and do not meet the proportionate share requirement. In addition, 22611-045-PN01, 22611-045-ARP, and 22619-045-PN01 could not be verified as having any nonpublic expenses. The funds associated with these grants were, in some cases, comingled and/or overspent with multiple grant years and not adjusted properly. These errors were not corrected during the audit period. The nonpublic proportionate share of expenditures was determined by applying a percentage to the nonpublic school budgeted expenditures. These were the amounts reported to the Indiana Department of Education (IDOE). As such, we were unable to identify if the minimum amount per grant award was expended and properly reported to the IDOE as required. Level of Effort - Maintenance of Effort Maintenance of effort is a district-level test that determines whether the School Corporation is providing a consistent level of financial support to public schools from year-to-year. This rule ensures that the School Corporation does not use Special Education funds to shore up reductions in state and local support for public education. The IDOE performs the maintenance of effort calculation utilizing Form 9 information provided by the School Corporation from the prior year. As such, the amounts submitted to the IDOE in the prior year to be used in the computation are tested to ensure they were recorded properly in the School Corporation's records as to the account and object code. In fiscal years 2021-2022 and 2022-2023, 60 transactions were tested each year to ensure the disbursements were posted to the proper account and object code. For 30 of the 60 transactions selected in 2021-2022, as well as 47 of the 60 transactions selected in 2022-2023, appropriate supporting documentation was not provided for audit. As a result, 77 disbursements could not be verified as to whether they were posted to the proper account or object code. In addition, 60 disbursement line items were sampled from the IDOE Form 9 for both 2021-2022 and 2022-2023, to ensure the amounts agreed to the ledger. A total of 21 of the 60 disbursement line items in 2021-2022 and 2 of the 60 disbursement line items in 2022-2023 could not be traced to the ledger. Therefore, we were unable to determine if the disbursements for 23 disbursement line items were posted to the proper account or object code. 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). . . ." INDIANA STATE BOARD OF ACCOUNTS 32 NORTH LAWRENCE COMMUNITY SCHOOLS 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: . . . (g) Be adequately documented. . . ." 2 CFR 200.208(b) states in part: "The Federal awarding agency or pass-through entity may adjust specific Federal award conditions as needed . . ." 511 IAC 7-34-7(b) states: "The public agency, in providing special education and related services to students in nonpublic schools must expend at least an amount that is the same proportion of the public agency total subgrant under 20 U.S.C. 1411(f) as the number of the nonpublic school students with disabilities, who are enrolled by their parents in nonpublic schools within its boundaries, is to the total number of students with disabilities of the same age range." Cause Due to turnover of staffing in both the Special Education personnel and the School Corporation's administrative office and recordkeeping issues, the School Corporation's management had not developed a system of internal controls that would have ensured compliance, or that supporting documentation would have been maintained and made available for audit, as related to the Matching, Level of Effort, Earmarking compliance requirement. Effect Without the proper implementation of an effectively designed system of internal controls, the School Corporation cannot ensure compliance with the level of effort - maintenance of effort and earmarking requirements. As a result, amounts reported to the oversight agency were not accurately reported. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure nonpublic proportionate share funds are appropriately allocated to the individual school based on expenses charged directly on behalf of that school. Supporting documentation for these expenses should be retained for audit. In addition, proper recordkeeping should be maintained to ensure compliance with the level of effort - maintenance of effort and earmarking requirements. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.