FINDING 2024-007 Subject: Title I Grants to Local Educational Agencies - Eligibility Federal Agency: Department of Education Federal Program: Title I Grants to Local Educational Agencies Assistance Listings Number: 84.010 Federal Award Numbers and Years (or Other Identifying Numbers): S010A210014, S010A220014, S010A230014 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Eligibility Audit Findings: Material Weakness, Other Matters Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2022-007. Condition and Context Internal control is generally defined as a process affected by an entity's oversight body, management, and other personnel that provides reasonable assurance that the entity will achieve its objectives. For federal awards, nonfederal entities, such as the School Corporation, are required to establish and maintain internal control over federal awards to provide reasonable assurance that the entity will comply with applicable federal statutes, regulations, and the terms and conditions of its awards. INDIANA STATE BOARD OF ACCOUNTS 44 SCOTT COUNTY SCHOOL DISTRICT 2 SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Internal control is not a single event, but an ongoing process that operates through five integrated components: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. Each component must function effectively, and the components must operate together in an integrated manner, for an internal control system to be effective. Deficiencies in the internal control system were identified across the five components and are described below. Control Environment The School Corporation had not established a strong foundation for an effective internal control system. There was no demonstrated emphasis on the importance of internal controls or on compliance with federal program requirements. Risk Assessment The School Corporation had not defined objectives necessary to identify risks or determine risk tolerances. Management did not identify, analyze, or respond to risks that could affect the achievement of objectives, including risks arising from significant changes to operations or the potential for fraud. Control Activities The School Corporation had not established an effective system of internal controls to ensure that proper documentation was retained for audit. Summary data of nonpublic enrollment and poverty status were verbally provided to the School Corporation by the participating nonpublic school. The summary data should have been accompanied by supporting documentation. The School Corporation did not retain any supporting documentation for fiscal year 2022-2023 or 2023-2024 nonpublic school enrollment and poverty data. Information and Communication The School Corporation had not established adequate communication methods or practices to ensure that reliable information was identified, captured, and communicated to the appropriate internal and external parties. Monitoring The School Corporation did not perform ongoing or periodic evaluations to determine whether internal controls were operating effectively or to identify needed improvement. In addition, the School Corporation did not have a process in place to track or to follow-up on corrective actions written in response to audit findings. The lack of internal controls and the failure to retain supporting documentation for nonpublic enrollment and poverty figures were systemic issues throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: INDIANA STATE BOARD OF ACCOUNTS 45 SCOTT COUNTY SCHOOL DISTRICT 2 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 200.334 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for the Federal awards that are renewed quarterly or annual, from the date of submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." 34 CFR 200.78(a)(1) states: "After reserving funds, as applicable, under § 200.77, including funds for equitable services for private school students, their teachers, and their families, an LEA must allocate funds under this subpart to school attendance areas and schools, identified as eligible and selected to participate under section 1113(a) or (b) of the ESEA, in rank order on the basis of the total number of public school children from low-income families in each area or school." Cause The School Corporation had not implemented an effective system of internal controls. Changes in key financial personnel, along with insufficient employee training, contributed to processes and procedures not being properly developed or consistently followed. Additionally, management had not established a system of internal controls that would have ensured compliance, or that supporting documentation would have been retained and made available for audit. The Director of Grants relied on verbal nonpublic information from the nonpublic director and assistance and did not implement procedures to verify, collect, or maintain the detailed supporting records for the nonpublic data. Effect Because the five components of internal control were not properly designed or implemented, the School Corporation's internal control system could not be effective. As a result, general and fraud-related risks, as well as risks arising from significant operational changes, could negatively impact the School Corporation. Existing internal control deficiencies may continue undetected, and additional weaknesses may exist without being identified. Additionally, the School Corporation was unable to demonstrate the accuracy and completeness of the nonpublic school enrollment and poverty data used for 2022-2023 and 2023-2024. The absence of supporting documentation limited the ability to verify compliance with program requirements and increased the risk of reporting errors and misallocation of program resources. INDIANA STATE BOARD OF ACCOUNTS 46 SCOTT COUNTY SCHOOL DISTRICT 2 SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation establish and implement a system of internal controls and provide training on the system of internal controls to its employees. Additionally, we recommended the School Corporation establish and implement an effective system of internal controls to ensure that required supporting documentation for nonpublic school enrollment and poverty status be obtained and retained. Procedures could include requiring participating nonpublic schools to provide detailed student lists and corresponding poverty (socioeconomic) status as part of the data submission. Management should ensure that all documentation provided is securely maintained and readily available for audit and for verification of compliance with program requirements. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.