FINDING 2023-009 Subject: COVID-19 - Education Stabilization Fund - Allowable Costs/Costs Principles 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: Allowable Costs/Costs Principles Audit Findings: Material Weakness, Other Matters Condition and Context The COVID-19 - Education Stabilization Fund 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. Based on information obtained during the audit, the scope of testing was expanded to include additional transactions in order to assess compliance with federal grant requirements. The expanded testing was necessary to obtain sufficient evidence regarding the allowability and documentation of grant expenditures. The following issues were noted during testing: Vendor Disbursements The School Corporation was unable to provide supporting documentation for three vendors tested: Mamas Against Violence, LTIA, and Kingdom Life. Although Memorandums of Understanding (MOUs) were initiated by the Treasurer, no evidence was provided to demonstrate that the MOUs were reviewed or approved by the School Board at the time of execution. Information provided was based on documentation generated by the School Corporation, including purchase orders, handwritten vendor claim forms, and copies of check payments. However, no itemized vendor invoices were submitted to substantiate the services provided or the payments made, nor to detail the nature of the services rendered. In addition, the School Corporation was unable to provide supporting documentation to verify student participation or substantiate any of the reported metrics associated with the MOU agreements. Payroll Records Out of ten additional payroll transactions tested, three employee pay rates could not be verified. One employee's pay rate did not agree with the salary ordinance, and the School Corporation was unable to provide documentation confirming School Board approval of the rate. The second employee's compensation could not be traced to specific work performed, as neither an hourly rate nor the number of hours worked was documented. The third employee's authorized salary was $30 per hour; however, the issued paycheck reflected $20 per hour. These issues combined resulted in known questioned costs of $38,400. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: INDIANA STATE BOARD OF ACCOUNTS 35 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (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). . . ." 2 CFR 200.334 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for the Federal awards that are renewed quarterly or annual, from the date of submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." 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: (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. . . ." INDIANA STATE BOARD OF ACCOUNTS 36 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Cause The School Corporation demonstrated weaknesses in documentation and compliance practices. Vendor contracts and payments lacked adequate supporting records, including evidence of the School Board approval for MOUs and itemized invoices. The School Board approved pay rates, hours worked, and reconciliation of authorized salaries to amounts paid, limiting the ability to verify the accuracy and appropriateness of expenditures. Effect Without proper documentation, the allowability of grant expenditures cannot be substantiated, creating a risk that unallowable costs may be charged to the federal grant. In addition, incomplete payroll records prevent verification of compensation, heightening the risk of inaccurate payments, unsupported variances, and potential misuse of federal funds. Questioned Costs Questioned costs in the amount of $38,400 were identified as described in the Condition and Context. Recommendation To address these deficiencies, the School Corporation should strengthen documentation practices by ensuring all vendor contracts, MOUs, and invoices are properly reviewed, approved by the School Board, and retained. Payroll internal controls should be improved by reconciling authorized salary ordinances to actual pay rates, documenting hours worked, and retaining evidence of the School Board approval for all compensation. In addition, periodic monitoring and internal reviews should be implemented to verify adherence to federal grant requirements and School Corporation policies, thereby reducing the risk of noncompliance and enhancing accountability. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.