FA 2022-001 Strengthen Controls over Expenditures
Compliance Requirement: Activities Allowed or Unallowed
Allowable Costs/Cost Principles
Procurement and Suspension and Debarment
Internal Control Impact: Material Weakness
Compliance Impact: Material Noncompliance
Federal Awarding Agency: U.S. Department of Education
Pass-Through Entity: Georgia Department of Education
AL Number and Title: COVID-19 – 84.425D – Elementary and Secondary
School Emergency Relief Fund
Federal Award Number: S425D210012 (Year: 2021)
Questioned Costs: $189,893
Description:
The policies and procedures of the School District were insufficient to provide adequate internal
controls over expenditures as it relates to the Elementary and Secondary School Emergency Relief Fund
program.
Background:
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways, including providing additional funding for local educational agencies (LEAs) navigating the impact of the COVID-19 outbreak.
Provisions included in Title VIII of the CARES Act created the Education Stabilization Fund to provide financial resources to educational entities to prevent, prepare for, and respond to coronavirus. The CARES Act allocated $30.75 billion, the Coronavirus Response and Relief Supplemental Appropriations Act allocated an additional $81.9 billion, and the American Rescue Plan Act added $165.1 billion in funding to the Education Stabilization Fund. Multiple Education Stabilization Fund subprograms were created and allotted funding through the various COVID-19-related legislation. Of these programs, the Elementary and Secondary School Emergency Relief (ESSER) Fund was created to address the impact that COVID-19 has had, and continues to have, on elementary and secondary schools across the nation.
ESSER funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Education (ED). GaDOE is responsible for distributing funds to LEAs and overseeing the expenditure of funds by LEAs. ESSER funds totaling $2,439,337 were expended and reported on the Dodge County Board of Education’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal
year 2022.
Criteria:
As a recipient of federal awards, the School District is required to establish and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 – Internal Controls.
Provisions included in the Uniform Guidance, Section 200.403 – Factors affecting Allowability of Costs state that “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 amounts of cost items, (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity … (g) Be adequately documented…”
Additionally, provisions included in the Uniform Guidance, Section 202.403 – Reasonable Costs state that “a cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. The question of reasonableness is particularly important when the non-Federal entity is predominantly federally-funded. In determining reasonableness of a given costs, consideration must be given to: (a) Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the non-Federal entity or the proper and efficient performance of the Federal award. (b) The constraints or requirements imposed by such factors as: sound business practices; arm’s-length bargaining; Federal, state, local, tribal, and other laws and regulations; and terms and conditions of the Federal award… (d) Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-Federal entity, its employees, where applicable its students or membership, the public at large, and the Federal Government. € Whether the non-Federal entity significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award’s cost.”
Furthermore, provisions included in the Uniform Guidance, Section 200.318 – General Procurement standards state that “the non-Federal entity must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations… for the acquisition of property or services required under a Federal award or subaward…”
Moreover, to assist school districts in improving their financial management systems and associated compliance over federal programs, GaDOE published the Financial Management for Georgia Local Units of Administration (FMGLUA), manual. The FMGLUA manual requires that LEAs submit a budget as part of each federal program’s Consolidated Application process. The program budget reflects details regarding the manner in which each school district intends to expend the program funds. The Consolidated Application, including the budget, for each program must be reviewed and approved by GaDOE personnel before the LEA is authorized to expend program funds. Amendments to the budget are to be submitted to and approved by GaDOE when a school district intends to spend funds in a manner not initially reported.
Lastly, LEA personnel must also provide for specific assurances related to the ESSER program within the Consolidated Application system. These assurances are reflected in the Uniform Guidance,
Section 200.415 – Required Certifications, and include provisions that require LEAs “to assure that expenditures are proper and in accordance with the terms and conditions of the Federal award and approved project budgets…”
Condition:
Auditors performed a review of expenditure activity associated with the ESSER program to determine if appropriate internal controls were implemented and applicable compliance requirements were met. The following deficiencies were identified:
• Testing revealed that expenditures totaling $173,893 were not appropriately approved by GaDOE through the Consolidated Application system. Further, the expenditures were not submitted for approval on an amended budget as of the end of audit fieldwork.
• Testing revealed that a payment was made to the janitorial company utilized by the School District to provide “retention” bonuses to janitorial contractors who were not employees of the School District. These individuals were assigned to work within the School District by the private janitorial company. Per review of the contract in place during the fiscal year under review, it was noted that these bonuses represented amounts in excess of the agreed upon price. Furthermore, the School District does not have the authority or ability to retain these individuals as they were not employees of the School District and contract provisions requiring the individuals to remain employed by the janitorial company and in the service of the School District for a stated period of time was not reflected within the associated contract. Therefore, expenditures totaling $16,000 were not considered to be reasonable and necessary for the performance of the ESSER program and deemed unallowable.
Questioned Costs:
Known questioned costs of $189,893 were identified for expenditures that were not incurred for a necessary and reasonable purpose and did not follow the School District’s and/or GaDOE’s policies and procedures. These known questioned costs related to expenditures that were not tested as part of a sample, and therefore, should not be projected to a population to determine likely questioned costs.
Cause:
In discussing these deficiencies with management, they stated that they believed that any expenditures not previously approved on the Consolidated Application were still allowable provided that budget amendments were submitted and approved by the GaDOE prior to the end of the grant period. Additionally, they stated that they were not aware that contract amendments should be initiated prior to expending funds in excess of the stated contract rates.
Effect:
The School District is not in compliance with the Uniform Guidance, ED, or GaDOE guidance related to
the ESSER program. Failure to ensure that appropriate policies and procedures are followed when expending federal funds may expose the School District to unnecessary financial strains and shortages as GaDOE may require the School District to return funds associated with unallowable expenditures.
Recommendation:
The School District should review current internal control procedures related to ESSER program expenditures. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that expenditures are appropriately approved by the GaDOE through the Consolidated Application process and to ensure that expenditures are in line with provisions reflected in the associated contract and or/contract amendments, prior to the expending of federal program funds. In addition, the School District should implement a monitoring process to ensure that all expenditures are compliant with the School District's and GaDOE’s policies and procedures.
Views of Responsible Officials:
We concur with this finding.