Finding 505560 (2023-005)

FINDING 2023-005 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 Listings Number: 84.425 Federal Award Number and Year (or Other Identifying Number): S425V200013 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context On December 17, 2021, the School Corporation paid all School Corporation employees who had been employed with the School Corporation during the 2020-2021 school year and for 120 days a School Board approved retention bonus. The across-the-board stipends were paid without justification or documentation that provided for additional duties or work performed on which to base the stipends. The total amount of stipends paid, $822,750, were considered questioned costs. INDIANA STATE BOARD OF ACCOUNTS 29 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The lack of internal controls and noncompliance were isolated to the stipend payments noted above. 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. . . ." Indiana Department of Education's ESSER II Frequently Asked Questions (FAQs) states in part: "12. Can ESSER II funds be used for staff stipends? . . . While across the board stipends are not permitted (as "universal" or "across the board" does not in and of itself demonstrate sufficient documentation), LEAs may pay staff for COVID-related work that has been documented. Most, if not all, staff likely had extra responsibilities as well as time and effort to respond to the pandemic. ESSER funds can be used to pay staff for that work and LEAs are responsible for documenting (with internal controls) that this work occurred. This is consistent with guidance on all salary and stipend payments with all federal funds. . . ." 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. INDIANA STATE BOARD OF ACCOUNTS 30 MICHIGAN CITY AREA SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 did not have adequate documentation to ensure compliance with the compliance requirement. 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 Known questioned costs of $822,750 were identified as detailed 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 costs are adequately documented. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report. Auditor's Response Per the Indiana Department of Education's ESSER II Frequently Asked Questions as stated above in the listed "criteria," across the School Board stipends are not permitted and LEAs may pay staff for COVID-related work that has been documented. We reaffirm our finding and will review the status of the finding during our next audit.