Finding Text
FINDING 2025-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, Summer Food Service Program for Children, Fresh Fruit and Vegetable Program Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582 Federal Award Numbers and Years (or Other Identifying Numbers): 2023-2024, 2024-2025 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-003. INDIANA STATE BOARD OF ACCOUNTS 22 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The FSMC incurred costs on behalf of the School Corporation and invoiced the School Corporation for reimbursement of those costs. 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. In a test of 41 transactions, 13 transactions totaling $1,585 either did not have proper documentation to support that the expenses were for the benefit of the food service program or were not in conformance with the cost principles as follows: A $33 meal reimbursement for the FSMC Director and two new employees from a local restaurant for a training session was determined to be unallowable. A $21 supply purchase transaction could not be supported by a detailed invoice. Payroll, fringe benefits, stipends, and other miscellaneous were identified as operating administrative fees; however, proper supporting documentation for the 11 transactions totaling $1,531 could not be provided. The items noted above were all considered questioned costs. The lack of internal controls and noncompliance 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). . . ." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in a manner suitable for contract cost determination and verification; INDIANA STATE BOARD OF ACCOUNTS 23 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." 7 CFR 220.7(e) states in part: ". . . the School Food Authority shall, with respect to participating schools under its jurisdiction: . . . (i) Maintain a nonprofit school food service; (ii) . . . use all revenues received by such food service only for the operation or improvement of that food service . . ." 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. . . ." Cause An oversight or review process was not in place to ensure the FSMC expenditures were supported by proper detail documentation, were allowable, and were only for the operation of the food service program prior to payment. Effect Material noncompliance with the grant agreement and compliance requirements could cause federal expenditures to be unallowable, which the funding agency could potentially recover. Questioned Costs We identified $1,585 in known questioned costs as noted above in the Condition and Context. 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. INDIANA STATE BOARD OF ACCOUNTS 24 LAKE RIDGE SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.