FA 2023-001 Improve/Strengthen Controls over Expenditures Compliance Requirements: Activities Allowed or Unallowed Allowable Costs/Cost Principles Period of Performance Procurement and Suspension and Debarment Internal Control Impact: Material Weakness Compliance Impact: Material Noncompliance Federal Awarding Agency: U.S. Department of Education Pass-Through Entity: Georgia Department of Education Assistance Listing Number and Title: 84.371C – Comprehensive Literacy Development Federal Award Number: S371C190016-19A (Years: 2017-21) Questioned Costs: $124,399.84 Repeat of Prior Year Finding: FA 2022-002 Description: A review of expenditures and journal entries related to the Comprehensive Literacy Development program revealed that the School District’s internal control procedures were not operating to ensure that appropriate reviews and approvals occurred and the School District’s procurement procedures were followed. Background Information: The Comprehensive Literacy Development Program (CLD) was authorized under Sections 2222-2225 of the Elementary and Secondary Education Act of 1965 to create a comprehensive literacy program to advance literacy skills, including pre-literacy skills, reading, and writing, for children from birth to grade 12, with an emphasis on disadvantaged children, including children living in poverty, English learners, and children with disabilities. CLD funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Education (ED). GaDOE is responsible for distributing funds to local educational agencies (LEAs) and overseeing the expenditure of funds by LEAs. CLD funds totaling $802,825.69 were expended and reported on the Burke County Board of Education’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2023. Criteria: As a recipient of federal awards, the School District is required to establish and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “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, (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity… (g) Be adequately documented, (h) Cost must be incurred during the approved budget period…” Additionally, provisions included in the Uniform Guidance, Section 200.318 – General Procurement Standards state in part that “(a) the non-Federal entity must use its own documented procurement procedures which reflect applicable State, local, and tribal laws and regulations and… (b) non-Federal entities must maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders.” In addition, provisions included in the Uniform Guidance, Section 200.320 – Methods of Procurement to Be Followed provide guidance for procurement through small purchase procedures and state “If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources.” Condition: Auditors performed a review of various expenditure activity associated with the CLD program to determine if appropriate internal controls were implemented and applicable compliance requirements were met. The following deficiencies were identified: • A sample of 60 expenditures was randomly selected for testing using a non-statistical sampling approach. Evidence of review and approval was not reflected for 11 expenditures, and adequate evidence of receipt was not maintained for 14 expenditures. • A sample of two journal entries was randomly selected for testing using a non-statistical sampling approach. Evidence of review to ensure that the activity was allowable and occurred during the period of performance was not reflected for either journal entry tested. • A sample of 43 procurement transactions was randomly selected for testing using a nonstatistical sampling approach. Four procurement transactions did not reflect evidence of supervisory review and approval, and the School District could not provide evidence that an adequate number of rate or price quotations were obtained from qualified sources for 13 small purchase procurements reviewed. Questioned Costs: Upon testing a sample of $157,184.97 in procurement transactions, known questioned costs of $124,399.84 were identified for expenditures that did not follow the School District’s procurement procedures. Using the total population of $743,095.26 in procurement transactions, we project the likely questioned costs to be approximately $588,102.87. Cause: The School District did not maintain evidence of review and approval of expenditures, journal entries, and procurement transactions as a result of oversight. Small purchase procurement transactions did not follow the School District’s procurement policy because the Federal Programs Directors was unaware that it was necessary to follow these procedures for the purchase of instructional materials. Effect or Potential Effect: The School District is not in compliance with the Uniform Guidance and GaDOE guidance. Failure to review expenditures for allowability, and journal entries for allowability and period of performance compliance exposes the School District to unnecessary risk of error and misuse of federal funds. In addition, failure to appropriately follow applicable procurement procedures exposes the School District to unnecessary risk of error and misuse of federal funds. Lastly, this deficiency could lead to the return of grant funds associated with unallowable expenditures. Recommendation: The School District should review current internal control procedures related to the CLD program. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that all expenditures, journal entries, and procurement transactions reflect evidence of review for associated compliance requirements. In addition, expenditure voucher packages should contain all required components. Furthermore, the School District should evaluate and improve internal control procedures to ensure that required procurement methods are properly identified and followed and required procurement documentation is properly identified, safeguarded, and retained. Management should develop a monitoring process to ensure that these procedures are operating appropriately. Views of Responsible Officials: We concur with this finding. The finding states evidence of review and approval was not reflected for 11 expenditures. While 11 invoices were not approved by the Director in charge of the grant, 10 were approved by the building level Principal or Central Office Director and the Superintendent, and 1 was approved by the Superintendent. Additionally, all expenditures charged to the grant were submitted to the Georgia Department of Education for review and approval for reimbursement of expenditures. All expenditures were approved and reimbursed. The finding states adequate evidence of receipt was not maintained for 14 expenditures. While packing slips weren’t provided for 14 voucher packages, 13 of the packages were reviewed and approved for payment by the Director in charge of the grant, and 1 was approved by the Principal and Superintendent. Approval for payment isn’t granted unless items are received. The finding states evidence of review to ensure that the activity was allowable and occurred during the period of performance was not reflected for 2 journal entries. The journal entry to record indirect costs in the amount of $3,572 did not exceed the indirect costs budgeted amount of $20,000 included in the grant budget submitted by the School District and approved by the Georgia Department of Education. While not approved by the Director in charge of the grant, the journal entry was accurate and properly recorded indirect costs. Additionally, the journal entry was submitted to the Georgia Department of Education for review and approval for reimbursement of expenditures. As stated above, all expenditures were approved and reimbursed. The journal entry to reverse salary and benefit accruals is an annual, standard journal entry utilized for operational efficiency and best practice to reverse salary and benefit accruals that are required under Generally Accepted Accounting Principles. While not approved by the Director in charge of the grant, the journal entry was appropriate and necessary to ensure expenditures were accurately recorded in the proper accounting period and only included reversals related to personnel the Director approved to be paid from the grant. The finding states 3 procurement transactions did not reflect evidence of supervisory review and approval. While 3 transactions included invoices that were not approved by the Director in charge of the grant, 2 invoices were approved by the building level Principal and the Superintendent, and 1 was approved by the Superintendent. All 3 of the transactions included purchase orders that were properly approved by the Director in charge of the grant. Auditor’s Concluding Remarks: Under the Uniform Guidance, auditees are required to implement internal controls over federal awards. Upon completing procedures over internal controls associated with the Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Period of Performance, and Procurement and Suspension and Debarment compliance requirements, auditors obtained an understanding of internal controls put in place and subsequently tested those controls. Auditors noted that the internal controls described by the School District were not in place for the transactions identified. Based on this information, we reaffirm our finding and will review the status of the finding during our next audit.