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FINDING 2025-002 Subject: Child Nutrition Cluster - 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): FY2024, FY2025 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Other Matters Condition and Context An effective internal control system was not in place at the School Corporation to ensure compliance with the Allowable Costs/Cost Principles compliance requirement. Form 9 Expenditures The School Corporation submits a Form 9 to the Indiana Department of Education (IDOE) every six months. The expenditures reported on the Form 9 are used by the IDOE to calculate the School Corporation's indirect cost rate. The rate represents the percentage of indirect costs (overhead, administration) that can be recovered from federal grant funds, derived from the cost incurred in a previous fiscal year. As such, the amounts submitted to the IDOE in fiscal year 2022-2023 are to be used in the indirect costs computation for 2024-2025 and are tested to ensure they were recorded properly in the School Corporation's records as to the account or object codes. A test of 53 disbursement line items were sampled from the IDOE Form 9 submitted for 2022-2023 totaling $935,432 and 3 line items were not properly supported by the School Corporation's records. The School Corporation's ledger was filtered for the fund, account, and object code reported on the Form 9, and we determined 3 line item expense variances as follows: INDIANA STATE BOARD OF ACCOUNTS 17 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) There were 2 expense line items under reported on the Form 9 by a total of $1,604. There was 1 expense line item over reported on the Form 9 by $8. The lack of internal controls and noncompliance over the Form 9 expenditures was isolated to 2024-2025. School Corporation Expenditures - Indirect Cost Rate In a test of 50 School Corporation expenditures, we were unable to determine if 9 expenditures totaling $29,948.32 were posted to the proper account and object codes within the accounting records to ensure the underlying data used by the IDOE to calculate the indirect cost rate was accurate. Records to support these 9 expenditures could not be located for audit. The lack of internal controls and noncompliance over the School Corporation expenditures were a systemic issue 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). . . ." 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. . . ." 2 CFR 200.208(b) states in part: "The Federal awarding agency or pass-through entity may adjust specific Federal award conditions as needed . . ." Cause The School Corporation's management had not developed a system of internal controls that would have ensured compliance. The School Corporation did not ensure that supporting documentation was maintained and made available for audit, as related to the Allowable Costs/Cost Principles compliance requirement. Effect Without the proper implementation of an effectively designed system of internal controls, the School Corporation cannot ensure compliance with the Allowable Costs/Cost Principles compliance requirement. As a result, amounts reported to the oversight agency were not accurately reported. INDIANA STATE BOARD OF ACCOUNTS 18 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish a proper system of internal controls and develop policies and procedures to ensure the data submitted on the Form 9's and underlying expenditures are properly documented and 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.