Finding Text
FINDING 2023-003
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,
Summer Food Service Program for Children
Assistance Listings Numbers: 10.553, 10.555, 10.559
Federal Award Numbers and Years (or Other Identifying Numbers): FY 2022, FY 2023
Pass-Through Entity: Indiana Department of Education
Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles
Audit Findings: Material Weakness, Other Matters
Condition and Context
For the Child Nutrition Cluster, the reimbursement for meals served is not based on costs; it is
determined solely by applying the applicable meals rates formula. However, the School Corporation can
use its entire reimbursement payment for any combination of allowable operating and administrative costs.
All expenditures from the reimbursement payment must also be reasonable and allocable. The purchase
of capital expenditures, those expenditures which are over $5,000 or more for an item that is to be used for
general purposes for multiple years, must have approval by the Indiana Department of Education (IDOE)
prior to purchase.
In fiscal year 2022-2023, the School Corporation purchased two pieces of equipment, each over
$5,000, without approval from the IDOE. The first piece of equipment was a liftgate in the amount of $6,906,
and the second piece of equipment was a vehicle in the amount of $7,500. The total amount of $14,406
was considered questioned costs.
In addition, the School Corporation did not have an allowable costs policy outlining the School
Corporation's processes and policies with regards to costs charged to federal grants.
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). . . ."
INDIANA STATE BOARD OF ACCOUNTS
20
WABASH CITY SCHOOLS
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
2 CFR 200.439(b) states in part:
"The following rule of allowability must apply to equipment and other capital expenditures: . . .
(2) Capital expenditures for special purpose equipment are allowable as direct costs,
provided that items with a unit cost of $5,000 or more have the prior written approval
of the Federal awarding agency or pass-through entity. . . ."
2 CFR 200.302(b) states in part:
"The financial management system of each non-Federal entity must provide for the following
. . .
(7) Written procedures for determining the allowability of costs in accordance with subpart
E of this part and the terms and conditions of the Federal award."
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 such, equipment was purchased without prior approval from the IDOE.
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
Questioned costs in the amount of $14,406 were identified as noted 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 that equipment purchased over $5,000 is
approved by the IDOE prior to purchase.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.