FA 2025-002 Strengthen Controls over Expenditures Compliance Requirement: Activities Allowed or Unallowed Allowable Costs/Cost Principles Internal Control Impact: Significant Deficiency Compliance Impact: Nonmaterial Noncompliance Federal Awarding Agency: U.S. Department of Agriculture Pass-Through Entity: Georgia Department of Education AL Numbers and Titles: 10.553 – School Breakfast Program 10.555 – National School Lunch Program Federal Award Number: 255GA324N1199 (Year: 2025) Questioned Costs: $36,927 Description: A review of expenditures charged to the Child Nutrition Cluster revealed that the School District’s internal control procedures were not operating to ensure that expenditures were appropriately documented to support allowability. Background Information: The Child Nutrition Cluster (CNC) is comprised of various programs that are intended to assist states in administering and overseeing food service program operators that provide healthful, nutritious meals to eligible children in public and non-profit private schools, residential child care institutions, and summer programs. This Cluster of programs also fosters healthy eating habits in children by providing fresh fruits and fresh vegetables to children attending elementary and secondary schools and encourages the domestic consumption of nutritious agricultural commodities. CNC funding is granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Agriculture, and GaDOE is responsible for distributing funds to local educational agencies (LEAs) and overseeing the various CNC programs. CNC funds totaling $7,409,597.87 were expended and reported on the Wayne County Board of Education’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…” In addition, provisions included in the Uniform Guidance, Section 200.404 – Reasonable Costs state, “A cost is reasonable if it does not exceed an amount that a prudent person would incur under the circumstances prevailing when the decision was made to incur the cost. In determining the reasonableness of a given cost, consideration must be given to the following: (a) Whether the cost is generally recognized as ordinary and necessary for the recipient’s or subrecipient’s operation or the proper and efficient performance of the Federal award; (b) The restraints or requirements imposed by such factors as sound business practices; arm’s-length bargaining; Federal, State, local, tribal, and other laws and regulations; and terms and conditions of the Federal award; … (d) Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the recipient or subrecipient, its employees, its students or membership (if applicable), the public at large, and the Federal Government; and (e) Whether the cost represents a deviation from the recipient’s or subrecipient’s established written policies and procedures for incurring costs.” 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: A sample of 14 employees was randomly selected for testing using a nonstatistical sampling approach. Personal services expenditures for these employees were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements were met. The following deficiencies were noted: • One employee was paid $82 that was incorrectly charged to the federal program due to a data entry error, although the employee did not perform work under the program. • Eleven employees were paid $36,109 based on wage rates that were not documented in the Board-approved salary scales. Additionally, a sample of 5 journal entries was randomly selected for testing using a nonstatistical sampling approach to determine if the activity was allowable. The following deficiencies were noted: • Four journal entries contained no evidence of supervisory review. • One journal entry used to record expenditures totaling $737 in the CNC funds lacked sufficient supporting documentation to determine the allowability of the expenditures charged to the program. Questioned Costs: Upon testing a sample of $273,398 in personal services expenditures, known questioned costs of $36,190 were identified for payroll charges that were unallowable and not supported by adequate documentation. Using the total personal services expenditures population of $1,656,202 (excluding benefits payments), we project the likely questioned costs to be approximately $218,742. The following Assistance Listing Numbers were affected by known and likely questioned costs: 10.553 and 10.555. Additionally, upon testing a sample of $105,720 in journal entries and general ledger adjustments impacting program expenditures, known questioned costs of $737 were identified as not supported by adequate documentation for allowability of expenditures moved to the program. Using the total journal entries and general ledger adjustments to program expenditures population of $307,015, we project the likely questioned costs to be approximately $2,141. The following Assistance Listing Numbers were affected by known and likely questioned costs: 10.553 and 10.555. Cause: In discussing these deficiencies with the School District, they believe these issues are due to the lack of management oversight related to one employee being miscoded for one pay period resulting in unallowable cost to the program. Also, the School District lack of a separate salary schedule needed for the summer feeding months/additional hurricane payments was due to the School District historically reporting wage rates for summer feeding months year after year and was unaware that the board had not formally approved these wage rates. Lastly with regards to journal entries, the School District believes these issues are due to the lack of management oversight and improper documentation retention to support journal entries. Effect: The School District was not in compliance with the Uniform Guidance provisions related to the Child Nutrition Cluster. Failure to ensure that documentation exists to support the allowability of payments from the CNC funds may expose the School District to unnecessary financial strains and shortages as GaDOE may require the School District to return funds associated with improperly documented and unallowable expenditures. Recommendation: The School District should review current internal control procedures related to CNC 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. In addition, the School District should implement a monitoring process to ensure that all expenditures are compliant and are following the School District’s purchasing and employee compensation policies and procedures and controls are operating appropriately. Views of Responsible Officials: We concur with this finding.