Finding Text
FINDING 2023-004
Subject: Child Nutrition Cluster - Allowable Costs/Cost Principles
Federal Agency: Department of Agriculture
Federal Programs: School Breakfast Program, National School Lunch Program,
Summer Food Service Program for Children
Assistance Listings Numbers: 10.553, 10.555, 10.559
Federal Award Numbers and Years (or Other Identifying Numbers): FY2022, FY2023
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Allowable Costs/Cost Principles
Audit Findings: Material Weakness, Other Matters
Condition and Context
Direct costs charged to the Child Nutrition Cluster are to be allowable costs made in compliance
with the Allowable Costs/Cost Principles compliance requirement. In general, to be allowable under federal
awards, a cost must be necessary and reasonable, conform to any limitations, be consistent with policies
and procedures that apply uniformly to all activities, be accorded consistent treatment, not be included as
a cost or used to meet cost-sharing or matching requirements of another federal program, and be
adequately documented.
A sample of 40 food service program claims were selected for testing to verify the expenditures
were in conformance with the applicable cost principes. Of the 40 claims tested, 10 claims contained errors.
For these 10 claims, the invoice section in which the purchase price did not match the bid price was
abstracted for further review. Upon further review, it was determined that 59 individual items were not
charged in accordance with contracted prices. As a result, the School Corporation was over-charged $523.
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). . . ."
2 CFR 200.403 states in part:
"Except where otherwise authorized by statute, cost 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.
(c) Be consistent with policies and procedures that apply uniformly to both federally
financed and other activities of the non-Federal entity. . . .
(g) Be adequately documented. . . ."
Cause
A proper system of internal controls was not designed by management of the School Corporation.
Embedded within a properly designed and implemented internal control system should be internal controls
consisting of policies and procedures. Policies reflect the School Corporation'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, the School Corporation was overcharged for multiple items.
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 School Corporation.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that management of the School Corporation establish a proper system of
internal controls and develop policies and procedures to ensure costs are adequately documented and
charged and the approved or agreed upon rates.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.