FINDING 2023-007
Subject: Title I Grants to Local Educational Agencies - Allowable Costs/Cost Principles
Federal Agency: Department of Education
Federal Program: Title I Grants to Local Educational Agencies
Assistance Listings Number: 84.010
Federal Award Numbers and Years (or Other Identifying Numbers): S010A190014, S010A200014,
S010A210014, S010A220014
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Allowable Costs/Cost Principles
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, noncompliance.
Due to the lack of internal controls, the School Corporation had the following errors for payroll
expenditures:
1. Two employees' gross payroll and benefits were reimbursed from the grant; however, their
duties were not for the Title I program which resulted in questioned costs of $61,266.
2. One employee's gross payroll was split-funded between Title I and another School
Corporation fund. There were no time and effort records to substantiate the gross payroll
amount charged to the grant which resulted in questioned costs of $60,121.
3. One employee was overpaid per the contracted amount which resulted in questioned costs
of $8,945.
The School Corporation determined in May 2023 that the two employees' payroll and benefits were
being charged to the grant when they should not have been and corrected the issue in its financial software
system, making the correction back to July 1, 2022. The School Corporation, however, failed to notify the
Indiana Department of Education that the School Corporation had been over reimbursed.
The School Corporation received reimbursement for several gross payroll expenditures from one
Title I grant fund. The School Corporation later made journal entries to move these gross payroll expenditures
to another grant fund and received reimbursement again for those same gross payroll expenditures.
As the School Corporation received reimbursement twice for the same gross payroll expenditures, the
second reimbursement of the expenditures was considered questioned costs. The total amount of questions
costs was $99,117.
Total known questioned costs of $229,449 as detailed above represent 25 percent of the total
federal expenditures for Title I.
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, 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."
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, costs were reimbursed that were not for Title I purposes, not supported by
time and effort logs, overpaid, and reimbursed twice for the same expenditures. In addition, overpayment
of reimbursements received were retained by the School Corporation.
Noncompliance with the grant agreement and the compliance requirement could result in the loss
of future federal funds to the School Corporation.
Questioned Costs
Known questioned costs of $229,449 were identified in the Condition and Context.
Recommendation
We recommended that management of the School Corporation design and implement a proper
system of internal controls, including policies and procedures that would provide segregation of duties to
ensure appropriate reviews, approvals, and oversight are taking place to ensure compliance.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.