FINDING 2022-002 Subject: Child Support Enforcement - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Health and Human Services Federal Program: Child Support Enforcement Assistance Listings Number: 93.563 Federal Award Number and Year (or Other Identifying Number): FY2022 Pass-Through Entity: Indiana Department of Child Services Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context Clerk's Incentive Fund The Clerk Incentive fund is a separate statutorily created fund held at the local County level and represents 22.2 percent of the total incentive funds received by the County. These funds are available for the use of the County Clerk which must be used to improve the efficiency and effectiveness of the Title IV-D program in the County. A Deputy Court Clerk was hired in 1999 to work solely for the County Clerk's Title IV-D Child Support office. From the date of hire, the salary of this employee was paid out of the County's General fund. Beginning in 2016, and through the current audit period, the County paid the employee's salary solely from Fund 8899, the Clerk's Incentive Fund. During the audit period, wages, and benefits, totaling $68,693, were paid out of the Clerk's Incentive Fund. Although salaries and benefits of employees performing Title IV-D duties are an allowable expense of incentive funds, incentive funds must be used to supplement and not supplant existing program funding. Due to the County paying the Deputy Court Clerk's wages and benefits entirely from the Clerk's Incentive Fund, incentive funds were then used to supplant instead of supplement existing program funding. Indirect Costs Indirect costs are expenses that are incurred by other County offices and departments, which indirectly benefit the County Title IV-D offices. Indirect expenses are allocated to the County Title IV-D offices through an indirect Cost Allocation Plan (CAP), which is submitted by the County to the Child Support Bureau of the Indiana Department of Child Services (DCS). Indirect costs charged are based on two-year prior expenditures; therefore, indirect costs charged in 2022 were based on expenditures from 2020. A sample of 25 indirect cost expenditures, totaling $27,077, from the department cost pools from the Cost Allocation Plan (CAP) was selected for testing. For 3 of the 25 expenditures examined, the County was unable to provide the vendor contract; therefore, we were unable to verify if the correct rate for the contract payment was charged. In addition, the County did not have written procedures for determining the allowability of costs in accordance with Subpart E of 2 CFR 200. The lack of internal controls and noncompliance were systemic issues 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). . . ." 45 CFR 305.35(a) states: "A State must expend the full amount of incentive payments received under this part to supplement, and not supplant, other funds used by the State to carry out IV-D program activities or funds for other activities approved by the Secretary which may contribute to improving the effectiveness or efficiency of the State's IV-D program, including cost-effective contracts with local agencies, whether or not the expenditures for the activity are eligible for reimbursement under this part." Indiana Code 31-25-4-23(c) states: "The amount that a county receives and the terms under which the incentive payment is paid must be in accordance with relevant federal statutes and the federal regulations promulgated under the statutes. However, amounts received as incentive payments may not, without the approval of the county fiscal body, be used to increase or supplement the salary of an elected official. The amounts received as incentive payments must be used to supplement, rather than take the place of, other funds used for Title IV-D program activities." 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: (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 . . . (g) Be adequately documented. . . ." 2 CFR 200.302(b) states in part: "The financial management system of each non-Federal entity must provide for the following: . . . (7) Written procedures for determining the allowability of costs in accordance with subpart E of this part and the terms and conditions of the Federal award." Cause A proper system of internal controls over child support enforcement expenditures was not designed by management of the County. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the County's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As a result, direct costs associated with one individual's salary paid form the incentive fund were used to supplant not supplement the Child Support program. In addition, expenses within the cost application plan could be verified as accurate. INDIANA STATE BOARD OF ACCOUNTS 19 VIGO COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the County. Questioned Costs Known questioned costs in the amount of $68,693 were identified as detailed in the Condition and Context. Recommendation We recommended that management of the County establish a proper system of internal controls and develop policies and procedures to ensure all expenses paid out of incentive funds supplement the Title IV-D program, and that costs included within the cost allocation plan have adequate supporting documentation to support the amount paid. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.