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FINDING 2025-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Special Tests and Provisions - Non-Profit School Food Service Accounts Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, Summer Food Service Program for Children Assistance Listings Numbers: 10.553, 10.555, 10.559 Federal Award Numbers and Years (or Other Identifying Numbers): FY 2023-2024, FY 2024-2025 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Special Tests and Provisions - Non-Profit School Food Service Accounts Audit Finding: Material Weakness Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-003. Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC) during the audit period. Per the contract with the FSMC, detailed cost documentation must be submitted monthly to support what the School Corporation was charged for each cost, charge, or expense. An oversight or review process was not in place to ensure the FSMC expenditures were supported by proper detail documentation, were allowable, and only for the operation of the food service program. The FSMC provided summary level invoices with support for vendor invoices and a detailed ledger reports of expenses. However, the Food Service Director only reviewed the summary level invoice. INDIANA STATE BOARD OF ACCOUNTS 23 SCHOOL CITY OF EAST CHICAGO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Had the Food Service Director reviewed the detailed records provided, the School Corporation would have noted the detailed ledger reports provided did not agree to the summary level amount invoiced and that detailed payroll records were not provided. When requested for audit, the FSMC did provide detailed ledger reports of expenses that materially agreed to the total invoiced for the audit period and provided detailed payroll records as requested. The lack of internal controls were systemic issues throughout the audit period. 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 Management had not developed an adequate system of internal controls to ensure complete and accurate detailed cost documentation was provided to support monthly invoices. Effect Without an effective review of the detailed records, federal expenditures could be unallowable, which the funding agency could potentially recover. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish a proper system of internal controls to ensure complete and accurate detailed cost documentation was provided to support monthly invoices prior to payment. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.