FINDING 2025-002 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): FY24, FY25 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Eligibility, Procurement and Suspension and Debarment Audit Finding: Material Weakness Repeat Finding This is a repeat finding from the prior audit report for Eligibility, finding number 2023-005, and a partial repeat finding from the prior audit report for Procurement and Suspension and Debarment, finding number 2023-006. Condition and Context The School Corporation had not properly designed or implemented an effective system of internal controls, which would include segregation of duties, that would likely be effective in preventing, or detecting and correcting, material noncompliance. Eligibility Any child enrolled in a participating school or summer camp, who meets the applicable program's definition of "child," may receive meals under applicable programs. A child belonging to households meeting nationwide income eligibility requirements may receive meals at no charge or at a reduced price. Children that have been determined ineligible for free or reduced-price meals pay the full price for their meals. A child's eligibility for free and reducedpriced meals under a Child Nutrition Cluster program may be established by the submission of an annual application or statement which furnished such information as family income and family size. The School Corporation determines eligibility by comparing the data reported by the child's household to published income eligibility guidelines. Annual eligibility determinations may also be based on the child's household receiving benefits under SNAP, FDPIR, the Head Start Program, or, under most circumstances, the TANF program. A household may furnish documentation of its participation in one of those programs, or the School Corporation may obtain the information directly from the state or local agency that administers those programs. Certain foster, runaway, homeless, and migrant children are categorically eligible for free school lunches and breakfasts. Direct certified households do not need to complete an application. INDIANA STATE BOARD OF ACCOUNTS 18 METROPOLITAN SCHOOL DISTRICT OF SOUTHWEST ALLEN COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) One employee uploaded the Direct Certification reports from the state into the software system without a documented oversight or review process in place to ensure directly certified students were properly processed. Suspension and Debarment Prior to entering into subawards and covered transactions with federal award funds, recipients are required to verify that such contractors and subrecipients are not suspended, debarred, or otherwise excluded. "Covered transactions" include, but are not limited to, contracts for goods and services awarded under a nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking the SAMs exclusions, collecting a certification from that vendor, or adding a clause or condition to the covered transaction with that vendor. The School Corporation did not have internal controls in place over suspension and debarment. The Food Service Director verified that vendors were not suspended or debarred, but there was no evidence of a second review. The lack of internal controls over eligibility and suspension and debarment were systemic 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 A proper system of internal controls was not designed or implemented by management of the School Corporation, which would include segregation of key functions. 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 design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. INDIANA STATE BOARD OF ACCOUNTS 19 METROPOLITAN SCHOOL DISTRICT OF SOUTHWEST ALLEN COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the School Corporation design and implement 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.