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FINDING 2025-003 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): FY2024, FY2025 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Eligibility Audit Finding: Significant Deficiency Condition and Context The School Corporation had not properly implemented effective internal controls, which would include segregation of duties, that would likely be effective in preventing, or detecting and correcting, noncompliance. Activities Allowed or Unallowed, Allowable Costs/Cost Principles During both the 2023-2024 and the 2024-2025 fiscal years, the School Corporation made payments to one vendor for E-Funds via wire transactions that were automatically debited from their account without review prior to payment. Additionally, these transactions were not included within the Allowance of Claims reports presented to and approved by the School Board. The lack of internal controls was isolated to these specific E-Fund transactions with this vendor. Eligibility For the 2023-2024 fiscal year, the School Corporation was unable to provide documentation that internal control activities were properly implemented over the initial Direct Certification CNP data abstract that was compiled at the beginning of the school year. Due to this, it could not be determined if internal controls were operating effectively. Additionally, subsequent reports generated only included students who had changes in status and did not include those pulled during the initial data abstract. The lack of internal controls was isolated to Direct Certifications during the 2023-2024 fiscal year. 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 18 NORTHWESTERN SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Cause A proper system of internal controls was not implemented by management of the School Corporation. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect 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, material noncompliance. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls, including policies and procedures that would provide segregation of duties to ensure appropriate reviews, approvals, and oversight are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.