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FINDING 2025-003 Subject: Special Education Cluster (IDEA) - Earmarking Federal Agency: Department of Education Federal Programs: COVID-19 - Special Education Grants to States; COVID-19 - Special Education Preschool Grants Assistance Listings Numbers: 84.027X, 84.173X Federal Award Numbers and Years (or Other Identifying Numbers): 22611-004-ARP, 22619-004-ARP Pass-Through Entity: Indiana Department of Education Compliance Requirement: Matching, Level of Effort, Earmarking Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation did not have internal controls in place to ensure that the School Corporation complied with the earmarking requirements. The School Corporation did not have adequate procedures in place to ensure that the required level of expenditures for nonpublic school students with disabilities was met for school. The School Corporation did not obtain a waiver from the Indiana Department of Education (IDOE) for the 22611-004-ARP and 22619-004-ARP grant awards. The amount expended for proportionate share was less than the total amount required by the IDOE. The lack of internal controls and noncompliance was isolated to the 22611-004-ARP and 22619-004-ARP grant awards. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: INDIANA STATE BOARD OF ACCOUNTS 20 COMMUNITY SCHOOLS OF FRANKFORT 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 200.403 states in part: "Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (g) Be adequately documented. . . ." 511 IAC 7-34-7(b) states: "The public agency, in providing special education and related services to students in nonpublic schools must expend at least an amount that is the same proportion of the public agency total subgrant under 20 U.S.C. 1411(f) as the number of nonpublic school students with disabilities, who are enrolled by their parents in nonpublic schools within its boundaries, is to the total number of students with disabilities of the same age range." Cause A proper system of internal controls was not designed by management of the School Corporation. Expenditures for nonpublic students were not properly tracked or expended as required. 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. As such, the School Corporation was not able to provide adequate documentation to support that nonpublic proportionate share expenditure requirements were met as required by the grant agreement. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the School Corporation. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure nonpublic proportionate share funds are appropriately allocated based on expenses and supporting documentation for the expenses are retained for audit. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.