FA 2025-002 Strengthen Controls over Expenditures Compliance Requirements: Activities Allowed or Unallowed Allowable Costs/Cost Principles Internal Control Impact: Material Weakness Compliance Impact: Material Noncompliance Federal Awarding Agency: U.S. Department of Education Pass-Through Entity: Georgia Department of Education AL Number and Title: COVID-19 – 84.425U – American Rescue Plan Elementary and Secondary School Emergency Relief Fund Federal Award Number: S425U210012 (Year: 2024) Questioned Costs: $20,040 Repeat of Prior Year Findings: FA 2024-002, FA 2023-002, FA 2022-002 Description: A review of expenditures charged to the Elementary and Secondary School Emergency Relief Fund Program revealed that the School District’s internal control procedures were not operating to ensure that expenditures were appropriately documented to support allowability. Background Information: On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways, including providing additional funding for local educational agencies (LEAs) navigating the impact of the COVID- 19 outbreak. Provisions included in Title VIII of the CARES Act created the Education Stabilization Fund to provide financial resources to educational entities to prevent, prepare for, and respond to the coronavirus. The CARES Act allocated $30.75 billion, the Coronavirus Response and Relief Supplemental Appropriations Act allocated an additional $81.9 billion, and the American Rescue Plan Act added $165.1 billion in funding to the Education Stabilization Fund. Multiple Education Stabilization Fund subprograms were created and allotted funding through the various COVID-19-related legislation. Of these programs, the Elementary and Secondary School Emergency Relief (ESSER) Fund was created to address the impact that COVID-19 has had, and continues to have, on elementary and secondary schools across the nation. ESSER funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Education (ED). GaDOE is responsible for distributing funds to LEAs and overseeing the expenditure of funds by LEAs. ESSER funds totaling $1,052,459 were expended and reported on the Talbot County School District’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2025. Criteria: As a recipient of federal awards, the School District is required to establish, document, and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls. Provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “costs must meet the following criteria 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. (c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the recipient or subrecipient… (g) Be adequately documented…” Furthermore, provisions included in the Uniform Guidance, Section 200.430 – Compensation–Personal Services prescribe standards for documentation of personnel expenses and state, in part, that “(a) … Costs for compensation are allowable to the extent that they satisfy… specific requirements… and that the total compensation for individual employees: (1) Is reasonable for the services rendered and conforms to the established written policy of the recipient or subrecipient consistently applied to both Federal and non-Federal activities; (2) Follows an appointment made in accordance with a recipient’s or subrecipient’s laws, rules or written policies and meets the requirements of Federal statute, where applicable; and (3) Is determined and supported as provided in paragraph (g)…, [as follows:] (g) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control that provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the recipient or subrecipient…” Condition: All journal entries and general ledger adjustments impacting program expenditures were selected for testing. The following deficiencies were noted: • For one of the four items tested, appropriate evidence of review and approval was not maintained. • Sufficient supporting documentation was not provided for one journal entry posted to reverse expenditure activity. • For one journal entry used to record expenditures totaling $7,046 in the ESSER fund, sufficient supporting documentation could not be provided to determine the allowability of $889 of the expenditures moved to the program. In addition, a sample of eight employees was randomly selected for testing using a nonstatistical sampling approach. These employees were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements met. The following deficiencies were noted: • Evidence of properly designed and implemented controls over personal services expenditures could not be provided. • For seven employees, supporting documentation was not maintained to support salaries totaling $19,151. Questioned Costs: Upon testing a sample of $31,426 in personal services expenditures, known questioned costs of $19,151 were identified for expenditures not supported by adequate documentation. Using the total personal services expenditures population of $121,406, we project the likely questioned costs to be approximately $73,985. In addition, known questioned costs of $889 were identified for expenditures not supported by adequate journal entry documentation and were not tested as part of a sample; therefore, there are no related projected questioned costs. Cause: In discussing these deficiencies with the School District, they believe these issues are due to improper documentation retention and the need for updated policies and procedures. Effect: The School District was not in compliance with the Uniform Guidance and GaDOE guidance. Failure to ensure that documentation exists to support the allowability of payments from the ESSER program could result in the expenditure of funds for unallowable purposes. This may also expose the School District to unnecessary financial strains and shortages within the ESSER program fund as GaDOE may require the School District to return funds associated with improperly documented expenditures. Recommendation: The School District should evaluate their current internal control processes related to ESSER program expenditures. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that all expenditures reflect evidence of review and approval and are supported by appropriate documentation. Furthermore, management should develop and implement a monitoring process to ensure that these procedures are functioning properly.