FINDING 2023-004
Subject: COVID-19 - Education Stabilization Fund - Allowable Costs/Costs Principles
Federal Agency: Department of Education
Federal Program: COVID-19 - Education Stabilization Fund
Assistance Listings Numbers: 84.425D, 84.425U
Federal Award Numbers: S425D210013, S425U210013
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Allowable Costs/Cost Principles
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
The Elementary and Secondary School Emergency Relief (ESSER) Fund provided funding to
States and school districts to combat the effects of the coronavirus pandemic, help safely reopen and
sustain the safe operation of schools, and to address the impact of the coronavirus pandemic on the nation's
students. States were required to subgrant a portion of their ESSER allocation to local educational
agencies (LEA). Prior to LEAs receiving their respective subgrants, LEAs were required to complete an
application for ESSER funding, which was submitted to the Indiana Department of Education, the passthrough
entity for approval. The application included a district level budget identifying how the LEA intended
to spend program funds. Per the School Corporation's approved application, program funding was
budgeted for salaries and respective benefits, counseling services, and supplies.
A sample of 40 payroll claims charged to the ESSER program for which reimbursement was
received during the audit period was selected for testing to verify the expenditures were in conformance
with the applicable cost principles. Of the 40 payroll claims tested, 21 payroll claims were determined to
be for payroll adjustments into the ESSER II fund. For all 21 payroll adjustments, totaling $1,509,248, there
was not adequate supporting documentation to determine to where the payroll was originally paid, to whom
the original payment was made, and at what amount the original payment was made. The total amount of
the 21 payroll claims/adjustments, $1,509,248, was determined to be questioned costs.
Due to the lack of documentation for the payroll adjustments into the ESSER II fund, all adjustments
were reviewed. A review of the additional adjustments resulted in an additional $114,353 of payroll charges
in which there was not adequate supporting documentation to determine to where the payroll was originally
paid, to whom the original payment was made, and at what amount the original payment was made. The
$114,353 was determined to be questioned costs.
In addition, the School Corporation requested a total reimbursement of $3,342,940 in payroll costs
from its ESSER allocation during the audit period. However, expenditures per the ledger for payroll and
benefits totaled $2,995,014. As a result, the School Corporation over requested and received $347,926 for
payroll expenditures that cannot be substantiated. The $347,926 was determined to be questioned costs.
The lack of internal controls was a systemic issue throughout the audit period. The noncompliance
was isolated to the payroll adjustments and additional payroll noted above.
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, 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. . . ."
34 CFR 76.700 states: "A State and a subgrantee shall comply with § 76.500, the State plan,
applicable statutes, regulations, and approved applications, and shall use Federal funds in accordance with
those statutes, regulations, plan, and applications."
Indiana Department of Education ESSER III Application Walk Through states in part:
". . . Please budget the appropriate items in the district budget. Be sure to include all requested
items or activities in the budgeted total and include sufficient detail in the narrative boxes below.
Be sure to provide sufficient detail for IDOE to determine the reasonableness, allowability, and
necessity of the proposed activity. You may include additional documentation in the
Attachments section of the Summary Page . . ."
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, costs were reimbursed that did not have adequate documentation to ensure
compliance with the compliance requirement.
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
Known questioned costs of $1,971,527 were identified as detailed in the Condition and Context.
Recommendation
We recommended that management of the School Corporation establish a proper system of
internal controls and develop policies and procedures to ensure costs and adjustments are adequately
documented.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.