2024-015 Inability to Test Compliance and Adequacy of Federal Grant Expenditures (Material Weakness) Federal Agency: All Pass-through Agency: New Hampshire Department of Education Cluster/Program: All Assistance Listing Numbers: All Compliance Requirement: All Type of Finding: Internal Control over Compliance – Material Weakness Noncompliance could not be determined due to the scope limitation Criteria or Specific Requirement: In accordance with 2 CFR 200.302(b)(3), Financial Management, recipients of federal funds must maintain records that adequately identify the source and application of funds for federally funded activities. These records must contain information pertaining to Federal awards, authorizations, financial obligations, unobligated balances, assets, expenditures, income and interest, and must be supported by source documentation. In addition, per 2 CFR 200.303, Internal Controls, recipients must establish and maintain effective internal control over federal awards to ensure compliance with federal statutes, regulations, and the terms and conditions of the award. Lastly, per 2 CFR 200.334, Record Retention Requirements, recipients of federal funds must retain financial and programmatic records, supporting documents, statistical records, and all other records pertinent to a federal award for a period of three years from the date of submission of the final expenditure report. Condition: The School District informed the audit engagement team that it was unable to locate all required documentation necessary to support expenditures and demonstrate compliance with federal program requirements. As a result, we were unable to test compliance with Federal program requirements, and expenditures reported on the Schedule of Expenditures of Federal Awards (SEFA) could not be fully supported or reconciled to the School District’s financial records. This limitation prevented us from completing the required testing over major programs. In addition, while the audit engagement team was able to trace reported federal revenue amounts to records maintained by the New Hampshire Department of Education, the School District was unable to provide sufficient supporting documentation to verify expenditures at the individual grant level. Furthermore, the School District’s grants fund was adjusted, or “plugged,” in total so that aggregate revenues agreed to aggregate expenditures; however, detailed balances were not maintained or reconciled by individual federal award. As a result, the School District could not demonstrate that revenues and expenditures were accurately recorded and matched to the specific grants from which they originated. Cause: The School District lacks a consistent, centralized process for retaining and organizing documentation related to federal program expenditures and compliance requirements. In addition, accounting records were not maintained at a sufficient level of detail to track activity by individual grant award. High staff turnover and the absence of clear written procedures contributed to the unavailability of records and the use of unsupported year-end adjustments to reconcile grant activity. Effect: Because required supporting documentation was unavailable, we were unable to obtain sufficient appropriate audit evidence to support compliance with federal requirements for the affected programs. Consequently, we were unable to determine whether certain transactions were allowable, properly allocated, and in compliance with the applicable grant requirements. Additionally, the inability to reconcile grant revenues and expenditures at the individual award level increases the risk of inaccurate reporting, improper use of restricted funds, missed reimbursement opportunities, and noncompliance with grant terms and conditions. This represents material noncompliance and may result in questioned costs, repayment obligations, or other remedial actions by the granting agencies. Questioned Costs: Unable to determine. We cannot quantify questioned costs because no testing could be performed, and the scope limitation affects all reported federal expenditures. Identification as Repeat Finding: As identified in Schedule III, Summary Schedule of Prior Audit Findings, this is a repeat of finding 2023-001. Recommendation: We recommend that the School District establish and enforce stronger internal controls over Federal grants management and document retention. This should include implementing a centralized digital storage system, maintaining separate accounting records for each individual grant award, performing periodic reconciliations of revenues and expenditures by grant, and eliminating unsupported balancing entries used to force aggregate funds into agreement. In addition, the School District should provide regular staff training on federal documentation requirements and adopt written policies and procedures that clearly assign responsibility for grant accounting, reconciliation, and record retention. These steps will help ensure that all required documentation is consistently maintained, grant activity is accurately reported, and records are readily accessible for audit and monitoring purposes. Views of Responsible Officials: Management’s views and corrective action plan are included at the end of this report.