Finding Text
FINDING 2023-004
Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles
Federal Agency: Department of Agriculture
Federal Programs: School Breakfast Program, National School Lunch Program
Assistance Listings Numbers: 10.553, 10.555
Federal Award Numbers and Years (or Other Identifying Numbers): FY 22, FY 23
Pass-Through Entity: Indiana Department of Education
Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles
Audit Findings: Material Weakness, Other Matters
Repeat Finding
This is a repeat finding for Allowable Costs/Cost Principles from the prior audit report. The prior
audit finding number was 2021-002.
Condition and Context
Reimbursement for meals served is not based on costs; it is determined solely by applying the
applicable meals times rates formula. A School Corporation can use its entire reimbursement payment for
any combination of allowable operating and administrative costs. Therefore, expenditures charged to the
food service program fund (fund 800) are to be for the benefit of the food service program and in
conformance with applicable cost principles.
Forty vendor claims were selected for testing to ensure the identified internal control of one
employee prepares the claim and a second knowledgeable individual reviews the claim prior to payment
was in place and operating effectively. For two of the forty vendor claims tested, one employee prepared
and approved the claim without a review or oversight process by a second knowledgeable employee. In
addition, one of the two claims was approved without supporting documentation.
An additional forty claims were selected to ensure the expenditures were for the benefit of the food
service program. For the forty claims tested, the following issues were noted:
Seven claims, as detailed below, were for unallowable activities and unallowable costs.
One claim was for the purchase of gift cards for staff gifts totaling $905.
INDIANA STATE BOARD OF ACCOUNTS
25
METROPOLITAN SCHOOL DISTRICT OF SOUTHWEST ALLEN COUNTY
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Two claims were refunds of prepaid lunch account balances totaling $1,790.
Two claims were reimbursements to an employee for staff breakfasts totaling $110.
One claim was for the purchase of medication totaling $8.
One claim was for the purchase of uniforms totaling $50, which included no supporting
documentation for the purchase.
Eight claims included the payment of sales tax totaling $85.
Due to the noncompliance identified above, an additional twenty-one claims paid to one employee
were judgmentally selected for testing. For the additional twenty-one claims tested, the following errors
were noted:
One claim was for the purchase of a back brace shipped to an employee's house totaling
$31.
Twelve claims included the payment of sales tax totaling $195.
In addition, all refunds not already selected for testing were reviewed. A total of sixty-seven
additional refunds of prepaid lunch account balances were identified and determined to be incorrectly made
from Fund 800. The total amount of the additional refunds was $6,476.
The total amount of unallowed activities and unallowable costs charged to the School Lunch fund
was $9,650. This amount was considered questioned costs.
The lack of effective 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). . . ."
7 CFR 220.7(e)(1) states in part:
". . . the School Food Authority shall, with respect to participating schools under its jurisdiction:
. . .
(ii) . . . use all revenues received by such food service only for the operation or improvement
of that food service . . ."
INDIANA STATE BOARD OF ACCOUNTS
26
METROPOLITAN SCHOOL DISTRICT OF SOUTHWEST ALLEN COUNTY
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
7 CFR 210.14(a) states in part: ". . . Revenues received by the nonprofit school food service are
to be used only for the operation or improvement of such food service, except that, such revenues shall not
be used to purchase land or buildings, unless otherwise approved by FNS, or to construct buildings. . . ."
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. . . ."
Cause
A proper system of internal controls, which would include segregation of key functions, 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 that were not necessary and reasonable for the performance of the federal
award were paid for with federal funds.
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 $9,650 were identified as detailed in the Condition and Context.
Recommendation
We recommended the School Corporation's management establish a proper system of internal
controls and develop policies and procedures to ensure costs are for the benefit of the food service program
and 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.