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FINDING 2022-002 Subject: Child Nutrition Cluster - Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, COVID-19 - School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program Assistance Listings Numbers: 10.553, 10.555 Federal Award Numbers and Years (or Other Identifying Numbers): FY20/21, FY21/22 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context An effective system of internal controls was not in place at the School Corporation to ensure compliance with requirements related to the grant agreement and the Allowable Costs/Cost Principles compliance requirements. The School Corporation entered into a cost reimbursement contract with a food service management company (FSMC). The School Corporation did not maintain supporting documentation for any payments made to the FSMC during the audit period. Forty individual line items from the FSMC monthly invoices were selected for testing. The School Corporation had to reach out to the vendors to obtain the required documentation for the items selected for testing. Supporting documentation could not be provided for three of the line items. Due to the lack of supporting documentation, we were unable to determine if the remaining costs paid were allowable expenditures. The lack of internal controls and noncompliance were systemic issues throughout the audit period. INDIANA STATE BOARD OF ACCOUNTS 17 METROPOLITAN SCHOOL DISTRICT OF NORTH POSEY COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in a manner suitable for contract cost determination and verification; (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." Cause Management had not established a system of internal controls that would have ensured compliance or that supporting documentation would have been maintained and made available for audit related to the grant agreement and the Allowable Costs/Cost Principles compliance requirement. Effect The failure to retain and provide appropriate supporting documentation prevented the determination of the School Corporation's compliance with the compliance requirement listed above. INDIANA STATE BOARD OF ACCOUNTS 18 METROPOLITAN SCHOOL DISTRICT OF NORTH POSEY COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish a system of internal controls to ensure that documentation will be maintained and made available for audit and comply with the grant agreement and the Allowable Costs/Cost Principles compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.