Finding 504485 (2024-003)

Finding 2024-003, 2023-002: Allowable Activities – Chart of Accounts and Budget Monitoring Program Name: Title I Grants to Local Educational Agencies – Assistance Listing 84.010 Awarding Agency: U.S. Department of Education, passed through Michigan Department of Education Finding Type: Material Weakness on Internal Controls over Compliance and Material Noncompliance Questioned Cost Amount: $27,350 Context / Criteria: Transactions need to be recorded based on the Michigan School Accounting Manual. The manual has the appropriate account classification with regard to account code dimensions (fund, function, and object code). Condition: During our review of revenue and expenditures, we noted transactions are not being recorded to the appropriate revenue and expense accounts based on the Michigan School Accounting Manual for fund, function, and object code. These inconsistencies could have affected the filing of Federal Expenditure Reports and caused budget-to-actual differences that could have been undetected by management. Additionally, cash receipts for notes payable were posted in General Fund but the related proceeds were posted in Debt Service Fund for debt unrelated to tax levies. Cause / Effect: The School District did not have adequate controls in place to ensure transactions were being recorded to the proper accounts based on fund, function, and object code. The lack of consistency caused unnecessary variations between the accounting records and supporting documentation. Inconsistent or improper use of the State Chart of Accounts could also cause errors or misstatements when comparing to approved budgets and filing final expenditure reports. The School District did not have adequate controls in place to ensure transactions were being recorded to the proper accounts based on fund, function, and object code. During our audit of Title I, Grants to Local Educational Agencies, we noted expenditures for purchased services charged to social work services (function 216) in the amount of $27,350 with no corresponding budgeted expenditures for this function. We noted instructional staff (function 227) had a budgeted expenditure amount of $42,574 but no expenditure was charged to this function. The lack of consistency caused unnecessary variations between the accounting records and supporting documentation. Inconsistent or improper use of the State Chart of Accounts could also cause errors or misstatements when comparing to approved budgets and filing final expenditure reports. Recommendation: We recommend the School District review the Michigan School Accounting Manual and follow the guidelines for recording transactions with appropriate account classifications. Views of Responsible Officials and Corrective Actions: Management agrees with the finding. See accompanying Corrective Action Plan.