Finding Text
FINDING 2022-005 Subject: COVID-19 ? Education Stabilization Fund ? Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Education Federal Program: COVID-19 ? Education Stabilization Fund Assistance Listing Number: 84.425D, 84.425U Federal Award Numbers and Years (or Other Identifying Numbers): S425D200013, S425U200013 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Material Noncompliance Criteria: 2 CFR 200.303 states in part: "The non-Federal entity must: (b) 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: (c) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles. (d) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items. . . . (h) Be adequately documented. . . . Condition: An effective internal control system was not in place at the School Corporation to ensure compliance with the requirements related to the grant agreement and the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. Cause: (a) The School Corporation planned to utilize a portion of the grant funds for chiller repairs and included the costs in the award budget. The School Corporation subsequently also received insurance proceeds for a portion of the repair costs. (b) The School Corporation's management had not designed or implemented internal controls over payroll disbursements which would have ensured compliance with the compliance requirements listed above. Effect: (a) The School Corporation received a grant payment for expenses that were subsequently also recovered from insurance proceeds. Therefore, the school has overdrawn ARP ESSER funds by that amount. Noncompliance with the grant agreement and the compliance requirements could result in the future loss of funds to the School Corporation. (b) The failure to establish an effective internal control system over payroll disbursements could enable material noncompliance to go undetected. Noncompliance with the grant agreement and the compliance requirements listed above could have resulted in the loss of funds to the School Corporation. Questioned Costs: Known questioned costs of $106,755 were identified. Context: (a) During allowable cost testing for vendor disbursements, we noted a portion of ARP ESSER funds were utilized to repair the chiller at the middle and high schools. The School Corporation incurred a total of approximately $284,000 in chiller repair costs between September 2021 and May 2022 and requested reimbursement for those expenditures from ARP ESSER funds in full. In October 2021, the School Corporation received an insurance claim check in the amount of $106,755 to cover a portion of the repair costs. The School Corporation did not deduct the amount received through insurance from the amount requested for reimbursement from federal funds, resulting in an overpayment of federal funds during the audit period. (b) Additionally, the School Corporation had not properly designed or implemented internal controls over recording transactions for payroll and fringe benefit disbursements to ensure the accuracy and classification of the payroll disbursements. Payroll disbursements make up approximately 45% of the program costs charged to the Education Stabilization Fund. One employee was responsible for processing payroll. Payroll reports were submitted to the School Board and Treasurer for review and approval; however, the reports only provided a total gross amount paid from each fund. The reports did not list the employees who were paid from the fund. In March 2021, the Treasurer implemented a review of the payroll distribution report, which is broken out by fund and individual employee. The lack of controls related to payroll disbursements was isolated to the 2020-2021 year. Identification as a repeat finding, if applicable: No Recommendation: (a) We recommend management ensure any insurance proceeds or non-federal sources of funding are applied first to costs incurred before charging the costs to federal awards. (b) We recommend management continue to document controls surrounding payroll disbursement through review of the payroll distribution report each pay period. Views of Responsible Officials: Management agrees with the finding and has prepared a corrective action plan.