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FINDING 2023-008 Subject: COVID-19 - Education Stabilization Fund - Activities Allowed or Unallowed Federal Agency: Department of Education Federal Program: COVID-19 - Education Stabilization Fund Assistance Listings Numbers: 84.425D, 84.425U, 84.425C, 84.425W Federal Award Numbers and Years (or Other Identifying Numbers): S425D200013, S425D210013, S425U210013, S425C200018, S425W210015 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Activities Allowed or Unallowed Audit Finding: Material Weakness Condition and Context The COVID-19 - Education Stabilization Fund (ESF) established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and further funded by the Coronavirus Response and Relief Supplemental Appropriations Act (CRSSA), and the American Rescue Plan (ARP) Act, was for the purpose of preventing, preparing for, or responding to the novel coronavirus. An effective internal control system was not in place at the School Corporation over payroll costs charged to grant funds. Payroll distribution reports were provided to the director responsible for the ESF grant compliance; however, documentation was not presented for audit as evidence of a review. The lack of internal controls was a systemic issue throughout the audit period. INDIANA STATE BOARD OF ACCOUNTS 33 SOUTH BEND 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 The School Corporation did not establish or implement an effective internal control system over payroll processes to ensure compliance with federal grant requirements. Specifically, payroll charges to the ESF were not subject to a documented secondary review by a knowledgeable individual. Payroll distribution reports were provided to a secondary individual; however, the reports were not reviewed. Effect Because adequate internal controls were not in place, there was an increased risk that unallowable or unsupported payroll costs could be charged to the ESF. The absence of a documented secondary review reduced the School Corporation's ability to ensure that payroll expenditures were accurate, properly supported, and compliant with federal grant requirements. The lack of internal controls may lead to noncompliance, potential repayment obligations, and increased scrutiny from oversight agencies. Questioned Costs There were no questioned costs identified. Recommendation The School Corporation should establish and implement an internal control system over payroll processes to ensure compliance with federal grant requirements. This includes developing formal procedures for documenting payroll charges to federal programs, review and approval processes by a second knowledgeable individual, and maintaining records to support all payroll expenditures. Staff involved in payroll and grant management should receive necessary support and resources regarding federal documentation standards and allowable cost principles. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.