FINDING 2022-003 DYER COUNTY SCHOOL DEPARTMENT HAD DEFICIENCIES IN THE USE OF EPIDEMIOLOGY AND LABORATORY CAPACITY FOR INFECTIOUS DISEASES (ELC) GRANT FUNDS, WHICH RESULTED IN QUESTIONED COSTS (A. ? Noncompliance Under Government Auditing Standards and OMB Uniform Guidance; B. - Internal Control ? Significant Deficiency Under Government Auditing Standards and OMB Uniform Guidance) Entity Dyer County, Tennessee ? School Department Repeat Finding Number N/A Assistance Listings # 93.323 Assistance Listings Title Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) Federal Agency Department of Health and Human Services State Pass-Through Agency Department of Education Grant/Contract No. N/A Federal Award Year 2022 Finding Type Noncompliance and Internal Control ? 93.323 Compliance Requirement Allowable Cost/Cost Principles Known Questioned Costs $63,589 The school department was awarded an Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) (FAL No. 93.323) made available from the American Rescue Plan Act of 2021, passed through the Tennessee Department of Education. We audited the ELC grant as a major federal program in compliance with Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). As part of our audit procedures, we tested a sample of 32 disbursement items for the period July 1, 2021, through June 30, 2022. Based on our test work, we noted the following deficiencies, which are the result of a lack of management oversight: A. On July 26, 2021, the following administrative staff received bonuses paid with ELC funds as direct grant costs: Director of Schools $27,688; Business and Finance Manager $11,886; Special Education Director $8,037; Federal Projects Bookkeeper $4,126 Federal Projects Bookkeeper (former) $4,126; Payroll Bookkeeper $3,863; Accounts Payable/Receivable Bookkeeper $3,863; for a total of $63,589. Section 200.413 of the Uniform Guidance provides that administrative and clerical staff should normally be treated as indirect costs; however, direct charging of these costs may be appropriate only if all of the following conditions are met: 1. Administrative or clerical services are integral to a project or activity; 2. Individuals involved can be specifically identified with the project or activity; 3. Such costs are explicitly included in the budget or have prior written approval of the federal awarding agency; and 4. The costs are not recovered as indirect costs. We were not provided with adequate documentation to support these payments as direct costs. The services provided by the administrative staff do not appear to be integral to the ELC grant; the individuals were not specifically identified to the project; and the bonuses were not explicitly included in the budget, nor did they have prior written approval of the federal awarding agency. At the time the bonuses were paid, the ELC grant documentation listed the following as allowable direct uses of funds: salaries, benefits, and contract costs of nurses; travel reimbursed at .47 per mile; contracts with academic institutions, private laboratories, or other healthcare entities to process test kits; supplies and equipment for testing; minor construction for safer testing locations; costs associated with operating alternate/pop-up sites; costs for running mass testing programs; and shipping, postage, printing, and duplicating costs. Updated guidance for the ELC grant was issued on August 2, 2021. Per the updated guidance, when determining allowable costs, grant recipients were referred to the cost principles regulation found in 45 CFR Part 75 Subpart E ? Cost Principles which states that allowable costs should be necessary and reasonable for the performance of the federal award, be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the entity, and be adequately documented. It further states that costs are reasonable if they do not exceed that which would be incurred by a prudent person under the circumstance. These bonuses do not appear to be reasonable and necessary for the performance of the award, are not consistent with other grants and programs of the school system and were not properly documented. B. Duties were not adequately segregated concerning the bonus payments associated with ELC grant funds. The bonuses paid to the administrative staff were not specifically approved by the grantor or the board of education. The board of education did approve a budget amendment on February 1, 2022, allowing bonuses under this grant program totaling $141,519, which included $62,295 for nurses and transportation and maintenance staff; however, the board of education was not given a breakdown of who received a bonus and the individual amounts. It should be noted that the current chairman of the board of education advised that he was unaware the director of schools received amounts in excess of her contract. As a result, the director of schools authorized a bonus payment to herself without prior approval of the board of education. As a result of the deficiencies noted above, we have questioned the cost of the bonuses for administrative staff totaling $63,589 for the period July 1, 2021, through June 30, 2022. RECOMMENDATION The board of education should determine the propriety and reasonableness of the bonus payments paid to the administrative staff from ELC funds. The board should take steps to resolve the questioned costs. Duties should be properly segregated. The director of schools should not approve her own bonus payments. MANAGEMENT?S RESPONSE ? DIRECTOR OF SCHOOLS We disagree with this finding. With regard to the matters referenced in section A of the draft finding, we take issue with the allegations that the bonuses paid to the administrative staff were not explicitly included in the grant budget, the individuals receiving the bonuses were not identified to the grantor and the grantor did not approve of the bonus payments, all of which are absolutely false. Section 200.407 of the Uniform Guidance provides: "Under any given Federal award, the reasonableness and allocability of certain items of costs may be difficult to determine. In order to avoid subsequent disallowance or dispute based on unreasonableness or nonallocability, the non-Federal entity may seek the prior written approval of the cognizant agency for indirect costs or the Federal awarding agency in advance of the incurrence of special or unusual costs." On June 14, 2021, the Dyer County School's ELC grant application was approved by the grantor in the amount of $1,021,466.91. The approved budget for the grant expressly included bonus payments in the amount of $63,589.14 to the Administrators, Director, and other related personnel for duties and responsibilities related to the implementation and administration of the COVID Testing program. See Exhibit A, approved grant budget for Account Number: 72130-Other Student Support, Line-Item Number: 188-Bonus Payments in the amount of $63,589.14. Not only were the administrative bonus payments specifically approved by the grantor in the budget, but the grantor was also provided with the names and exact amounts paid to each member of the administrative staff when the system requested and thereafter received reimbursement from the grantor for those payments. See Exhibit B, Statement of Expenditures and Encumbrances dated August 30, 2021, which was submitted to the grantor. When your office first raised this issue, we immediately confirmed that it was proper for ELC grant funds to be used to pay bonuses to the administrative staff for duties and responsibilities related to the implementation and administration of the program. See Exhibit C, email to Wendy Smith, Business and Finance Manager for the school system, dated August 29, 2022, from Kristi Steele, Director of Mental Health, Tennessee Department of Education, which provides: ?ELC funding can be used to pay stipends/salaries for individuals such as coordinated school health coordinators, district level administrators, etc. who manage the grant and who have been handling COVID response to their districts.? Your staff auditor, who was copied on the email from Ms. Steel, then asserted that the administrative staff was required under the grant to keep timesheets documenting the time spent related to the implementation and administration of COVID response for the school system. Exhibit D is an email dated August 30, 2022, from Jennifer Sanchez, Public Health Administrator II (Project Manager), Tennessee Department of Health, confirming the timesheets were not, in fact, a requirement for the payment of bonuses under the grant. Moreover, Maryanne Durksi, Executive Director, Office of Local Finance, Tennessee Department of Education has advised: ?the approved application in ePlan, with the stipends clearly in the narrative, should be documentation that these were approved by the state.? As a result of the foregoing, we believe the allegations in section A of the draft audit finding are without merit and should be removed from your final audit. With regards to the matters in section B of the draft finding, we take issue with the allegations that the bonuses paid to the administrative staff for the extra duties and responsibilities related to the implementation and administration of the ELC grant were not approved by the grantor or the board of education. The grantor's approval of the payments to the administrative staff in connection with the grant was discussed above and such will not be repeated again. We agree with you that Mr. Jeremy Gatlin, the current chairman of the board of education, has advised that he was not aware that the Director was one of the individuals who received bonus payments under the grant, but we find it curious that your draft finding does not also mention the very relevant additional information provided to your office by Mr. Keith Anderson, who was the chairman of the board of education at the time the ELC application was submitted, approved by the state and payments made to the administrative staff. See Exhibit E, statement of Keith Anderson, confirming that in May of 2021 he had a telephone conversation with Mrs. Wendy Smith regarding the grant application, that he was aware of and gave his approval regarding the employees eligible to receive a stipend due to extra duties associated with the COVID response program, including, but not limited to, the administrative, financial staff and the Director of Schools, the amounts of stipend each would receive in each group, and the percentages of salaries the stipend would equal. As you noted, the board of education approved the budget amendment regarding the ELC Grant on February 1, 2022. The budget amendment accurately reflects that the stipends paid under the grant to the administrative staff was transferred to the proper accounts, as approved in the grant budget, account 72130, line item 188 ? Other Student Support. We agree with you that the board of education was not provided a breakdown of who received a bonus and the individual amounts at the time the budget amendment was adopted. Any future bonus payments to members of the administrative staff will be approved by the board prior to disbursement to ensure that duties are? adequately segregated. We believe the methodology used for determining the amount of bonus payments to each group of employees/SROs involved with the implementation and management of the COVID response program and the allocation of such funds among the various individuals based on their program responsibilities was reasonable, but we defer to the board of education's response, set forth below, to address your recommendation that the board determine the propriety and reasonableness of the bonus payments paid to the administrative staff from ELC funds. MANAGEMENT?S RESPONSE ? DR. JEREMY GATLIN, BOARD OF EDUCATION CHAIRMAN The board disagrees with this finding. The board agrees with the response provided by the Director, as set forth above. The board believes it was appropriate to utilize a portion of the ELC grant funds to provide bonus payments to the administrative staff for the additional duties and responsibilities required to manage and administer the COVID response program for the benefit of approximately 4,000 students and employees of the school system over the term of the grant. Section 200.430(6) of the Uniform Guidelines provides: Reasonableness. Compensation for employees engaged in work on Federal awards will be considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the non-Federal entity. The bonus payments provided to the members of the administrative staff to manage the COVID response program were reasonable because the payments were determined based on the additional program responsibilities required of each of them in a manner that is consistent with the amounts paid to them for similar work in other activities on behalf of the school system. Going forward, any bonus payments provided to members of the administrative staff will be approved by the board before the funds are disbursed to ensure that duties are adequately segregated. AUDITOR?S COMMENT The budget for the ELC grant submitted to the Tennessee Department of Education did include $63,589 budgeted to Other Student Support ? Bonus Payments; however, the narrative description stated that it included ?SRO?s, Administrators, Director, and other related personnel.? There were no SRO?s paid from this line-item, and the director of schools was not specifically mentioned. Director in this instance could have implied the director of the program administering the grant. The only personnel paid from this budget line were the director of schools and six other administrative staff members. The narrative appears misleading and would not be sufficient to give prior explicit approval for these types of bonuses. The response of the director of schools? quotes Section 200.407 of the Uniform Guidance which provides: " ? the non-Federal entity may seek the prior written approval of the cognizant agency for indirect costs or the Federal awarding agency in advance of the incurrence of special or unusual costs." It should be noted the budget submitted for bonus payments was made to the Tennessee Department of Education which is a non-federal entity. The Federal awarding agency for this award is the U.S. Department of Education. Regardless of the matter of whether or was not there was proper approval to pay bonuses, there still must be proper documentation to support that the person was actually entitled to receive the bonus. Uniform Guidance Section 200.430(i) states ?Standards of Documentation of Personnel Expenses. (1) charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must include: ? (vii) Support the distribution of the employee?s salary or wage among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and a non-federal award, an indirect cost activity and a direct cost activity, two or more indirect activities??. The school department has not provided us with any documented evidence to support that these individuals performed any work on this federal award. Without any supporting documentation of actual work performed on the grant by these individuals, we cannot attest these individuals were entitled to receive a bonus. Auditors were told by the former chairman of the Board of Education that he gave verbal approval of the bonuses; however, without any written documentation, we cannot attest that this happened. Furthermore, the former chairman has no authority on his own to approve bonus payments. The Board of Education, as a whole, would need to vote in order to grant such approval. As mentioned in the finding, the board of education did approve a budget amendment on February 1, 2022. However, it is important to note that this amendment occurred approximately seven months after the bonuses were paid and makes no mention of bonuses being paid to anyone or the amounts these individuals received. The explanation of the amendment states, ?these funds will be used to reimburse a portion of General Purpose funds already budgeted for line items for? Administrative Financial Staff for salary associated with the responsibilities related to duties under the ELC Grant?? Therefore, from the evidence presented to us, it is not clear that the Board of Education, as a whole, even knew these bonuses were paid until reported in our finding and the budget amendment itself does not provide adequate support for the proper approval of these payments as bonuses. The response of the Board of Education references Section 200.430(b) of the Uniform Guidelines provides: Reasonableness. Compensation for employees engaged in work on Federal awards will be considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the non-Federal entity. While bonuses paid with local funds typically do not require a timesheet, Section 200.430(i) states ?Standards of Documentation of Personnel Expenses. (1) charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed...?, In order for us to determine if these bonuses were reasonable and allowable, there must be documented proof that the administrative personnel receiving the bonuses actually devoted their time to administering the grant. We have not been presented with any documented evidence that the administrative staff spent any time on this grant. Furthermore, these administrative staff members were not paid bonuses for any of the hours they devoted to the other federal grants received by the school department. Therefore, the paying of bonuses associated with the ELC grant was inconsistent with the other grants received by the Board of Education. Additionally, the director of schools is employed through a contract between the director of schools and the board of education for the period January 5, 2021, through June 30, 2023, which states that the duties of the director of schools will generally be performed during normal business hours, but it is expressly agreed that the duties will require her to work during times other than normal business hours. The contract makes no mention of bonuses, and it appears anything beyond normal business hours is already included in her contract amount. Therefore, it is questionable if the director?s contract allows for the payment of a bonus.