FINDING 2023-002
Subject: COVID-19 - Education Stabilization Fund - Subrecipient Monitoring
Federal Agency: Department of Education
Federal Program: COVID-19 - Education Stabilization Fund
Assistance Listings Number: 84.425U
Federal Award Number and Year (or Other Identifying Number): S425U210013
Compliance Requirement: Subrecipient Monitoring
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
The School Corporation had not properly designed or implemented a system of internal controls,
which would include appropriate segregation of duties, that would likely be effective in preventing, or
detecting and correcting, material noncompliance related to the COVID-19 - Education Stabilization Fund
(ESF) funds passed through to subrecipients.
The School Corporation received and passed through to subrecipients $420,500 of ESF funds.
The School Corporation is to clearly identify the award and applicable requirements to the subrecipients,
evaluate the risk of noncompliance related to the subrecipients to determine appropriate monitoring of the
subaward, and monitor the activities of the subrecipients to ensure that the subaward is used for authorized
purposes, complies with the terms and conditions of the subaward, and achieves performance goals.
The School Corporation did not enter into an agreement with the subrecipients. As such there is
no agreement between the School Corporation and the subrecipients that clearly identifies the award as a
subaward or includes all the required data elements. In addition, the School Corporation did not have any
policies or procedures in place to evaluate the subrecipients' risk of noncompliance or to monitor the activity
of the subrecipients. Per inquiry of the School Corporation, it was determined an evaluation of the risk of
noncompliance for the subrecipients was not completed, nor did the subrecipients' files support any such
evaluation.
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 200.332 states:
"All pass-through entities must:
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(a) Ensure that every subaward is clearly identified to the subrecipient as a subaward and
include the following information at the time of the subaward and if any of these data
elements change, include the changes in subsequent subaward notification. When some
of this information is not available, the pass-through entity must provide the best
information available to describe the Federal award and subaward. Required information
includes:
(1) Federal award identification.
(i) Subrecipient name (which must match the name associated with its unique entity
identifier);
(ii) Subrecipient's unique entity identifier;
(iii) Federal Award Identification Number (FAIN);
(iv) Federal Award Date (see the definition of Federal award date in § 200.1 of this
part) of award to the recipient by the Federal agency;
(v) Subaward Period of Performance Start and End Date;
(vi) Subaward Budget Period Start and End Date;
(vii) Amount of Federal Funds Obligated by this action by the pass-through entity to
the subrecipient;
(viii) Total Amount of Federal Funds Obligated to the subrecipient by the pass-through
entity including the current financial obligation;
(ix) Total Amount of the Federal Award committed to the subrecipient by the passthrough
entity;
(x) Federal award project description, as required to be responsive to the Federal
Funding Accountability and Transparency Act (FFATA);
(xi) Name of Federal awarding agency, pass-through entity, and contact information
for awarding official of the Pass-through entity;
(xii) Assistance Listings number and Title; the pass-through entity must identify the
dollar amount made available under each Federal award and the Assistance Listings
Number at time of disbursement;
(xiii) Identification of whether the award is R&D; and
(xiv) Indirect cost rate for the Federal award (including if the de minimis rate is charged)
per § 200.414.
(2) All requirements imposed by the pass-through entity on the subrecipient so that the
Federal award is used in accordance with Federal statutes, regulations and the terms
and conditions of the Federal award;
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(3) Any additional requirements that the pass-through entity imposes on the subrecipient
in order for the pass-through entity to meet its own responsibility to the Federal
awarding agency including identification of any required financial and performance
reports;
(4) (i) An approved federally recognized indirect cost rate negotiated between the
subrecipient and the Federal Government. If no approved rate exists, the pass-through
entity must determine the appropriate rate in collaboration with the subrecipient, which
is either:
(A) The negotiated indirect cost rate between the pass-through entity and the
subrecipient; which can be based on a prior negotiated rate between a different PTE
and the same subrecipient. If basing the rate on a previously negotiated rate, the passthrough
entity is not required to collect information justifying this rate, but may elect to
do so;
(B) The de minimis indirect cost rate.
(ii) The pass-through entity must not require use of a de minimis indirect cost rate if
the subrecipient has a Federally approved rate. Subrecipients can elect to use
the cost allocation method to account for indirect costs in accordance with
§ 200.405(d).
(5) A requirement that the subrecipient permit the pass-through entity and auditors to have
access to the subrecipient's records and financial statements as necessary for the
pass-through entity to meet the requirements of this part; and
(6) Appropriate terms and conditions concerning closeout of the subaward. . . .
(b) Evaluate each subrecipient's risk of noncompliance with Federal statutes,
regulations, and the terms and conditions of the subaward for purposes of determining
the appropriate subrecipient monitoring described in paragraphs (d) and (e) of this
section, which may include consideration of such factors as:
(1) The subrecipient's prior experience with the same or similar subawards;
(2) The results of previous audits including whether or not the subrecipient
receives a Single Audit in accordance with Subpart F of this part, and the
extent to which the same or similar subaward has been audited as a major
program;
(3) Whether the subrecipient has new personnel or new or substantially changed
systems; and
(4) The extent and results of Federal awarding agency monitoring (e.g., if the
subrecipient also receives Federal awards directly from a Federal awarding
agency).
(c) Consider imposing specific subaward conditions upon a subrecipient if appropriate
as described in § 200.208.
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(d) Monitor the activities of the subrecipient as necessary to ensure that the subaward
is used for authorized purposes, in compliance with Federal statutes, regulations, and
the terms and conditions of the subaward; and that subaward performance goals are
achieved. Pass-through entity monitoring of the subrecipient must include:
(1) Reviewing financial and performance reports required by the pass-through
entity.
(2) Following-up and ensuring that the subrecipient takes timely and appropriate
action on all deficiencies pertaining to the Federal award provided to the
subrecipient from the pass-through entity detected through audits, on-site
reviews, and written confirmation from the subrecipient, highlighting the status
of actions planned or taken to address Single Audit findings related to the
particular subaward.
(3) Issuing a management decision for applicable audit findings pertaining only to
the Federal award provided to the subrecipient from the pass-through entity
as required by § 200.521.
(4) The pass-through entity is responsible for resolving audit findings specifically
related to the subaward and not responsible for resolving crosscutting findings.
If a subrecipient has a current Single Audit report posted in the Federal Audit
Clearinghouse and has not otherwise been excluded from receipt of Federal
funding (e.g., has been debarred or suspended), the pass-through entity may
rely on the subrecipient's cognizant audit agency or cognizant oversight
agency to perform audit follow-up and make management decisions related to
cross-cutting findings in accordance with section § 200.513(a)(3)(vii). Such
reliance does not eliminate the responsibility of the pass-through entity to issue
subawards that conform to agency and award-specific requirements, to
manage risk through ongoing subaward monitoring, and to monitor the status
of the findings that are specifically related to the subaward.
(e) Depending upon the pass-through entity's assessment of risk posed by the
subrecipient (as described in paragraph (b) of this section), the following monitoring
tools may be useful for the pass-through entity to ensure proper accountability and
compliance with program requirements and achievement of performance goals:
(1) Providing subrecipients with training and technical assistance on programrelated
matters; and
(2) Performing on-site reviews of the subrecipient's program operations;
(3) Arranging for agreed-upon-procedures engagements as described in
§ 200.425.
(f) Verify that every subrecipient is audited as required by Subpart F of this part when
it is expected that the subrecipient's Federal awards expended during the respective
fiscal year equaled or exceeded the threshold set forth in § 200.501.
(g) Consider whether the results of the subrecipient's audits, on-site reviews, or other
monitoring indicate conditions that necessitate adjustments to the pass-through entity's
own records.
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(h) Consider taking enforcement action against noncompliant subrecipients as
described in § 200.339 of this part and in program regulations."
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 did not properly evaluate the subrecipients risk of
noncompliance or adequately monitor the subrecipients.
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, including segregation of duties, to evaluate the subrecipients risk of noncompliance and
adequately monitor the subrecipients. Additionally, policies and procedures should be implemented to
ensure appropriate reviews, approvals, and oversight are taking place, as needed, to evaluate and monitor
its subrecipients.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.