Finding Text
FINDING 2023-007
Subject: COVID-19 - Education Stabilization Fund - Equipment and Real Property Management
Federal Agency: Department of Education
Federal Program: COVID-19 - Education Stabilization Fund
Assistance Listings Numbers: 84.425C, 84.425D, 84.425U
Federal Award Numbers and Years (or Other Identifying Numbers): S425C200018, S425D200013,
S425D210013, S425U210014
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Equipment and Real Property Management
Audit Findings: Material Weakness, Modified Opinion
INDIANA STATE BOARD OF ACCOUNTS
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SCHOOL CITY OF EAST CHICAGO
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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, noncompliance related to the purchase of equipment with federal award dollars.
A property record or capital asset listing is required to be maintained for all equipment purchased
with the COVID-19 - Education Stabilization Fund grant award. Equipment to be included in the listing is
that which exceeds the School Corporation's capital asset threshold. The School Corporation's capital
asset policy identifies a capital asset as an item which cost at or above $1,000.
The School Corporation hired a third party to maintain a capital asset listing along with completing
a physical inventory bi-annually. When compiling the capital asset listing, the third party used a capital
asset threshold at or above $5,000, which excluded all equipment purchased, totaling $916,205, with the
COVID-19 - Education Stabilization Fund award (program). As such, the School Corporation did not
maintain a capital asset listing with the equipment purchased with program funds, the School Corporation
could not have conducted a physical inventory bi-annually as required and could not properly maintain and
safeguard the equipment as required.
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 200.313(d) states in part:
". . .
(1) Property records must be maintained that include a description of the property, a serial
number or other identification number, the source of dunking for the property
(including the FAIN), who holds title, the acquisition date, cost of the property,
percentage of Federal participation in the project costs for the Federal award
under which the property was acquired, the location, use and condition of the
property, and any ultimate disposition data including the date of disposal and
sales price of the property.
(2) A physical inventory of the property must be taken and the results reconciled with the
property records at least once every two years.
(3) A control system must be developed to ensure adequate safeguards to prevent loss,
damage, or theft of the property. Any loss, damage, or theft must be investigated.
INDIANA STATE BOARD OF ACCOUNTS 33
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(4) Adequate maintenance procedures must be developed to keep the property in good
condition. . . ."
Cause
A proper system of internal controls was not designed by management of the School Corporation,
which would include segregation of key functions. 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 equipment purchased was not properly added to the capital asset listing
and a bi-annual inventory was not properly completed.
Noncompliance with the grant agreement and the compliance requirement could result in the loss
of federal funds 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 asset records include all assets.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.