Finding Text
FINDING 2024-003
Subject: Child Nutrition Cluster - Allowable Costs/Cost Principles
Federal Agency: Department of Agriculture
Federal Programs: School Breakfast Program, National School Lunch Program
Assistance Listings Numbers: 10.553, 10.555
Federal Award Number and Year (or Other Identifying Number): FY 2024
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Allowable Costs/Cost Principles
Audit Findings: Material Weakness, Modified Opinion
Repeat Finding
This is a repeat finding from the immediately prior audit report. The prior audit finding number was
2022-003.
Condition and Context
An effective internal control system 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 requirement.
During the audit period, there was not an approved salary ordinance for noncertified staff for
fiscal year 2023-2024. Of the nine paychecks selected for testing, three did not have hourly rates approved
by the governing body. It was further determined that all noncertified staff employees did not have the
hourly rates approved by the governing body for 2023-2024. Therefore, we were not able to determine if
the amounts paid to these employees were appropriate.
The lack of internal controls and noncompliance was limited to payroll disbursements of noncertified
employees during 2024.
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. . . ."
2 CFR 200.430(g)(1) states in part:
"Charges to Federal awards for salaries and wages must be based on records that accurately
reflect the work performed. These records must:
(i) Be supported by a system of internal control that provides reasonable assurance that
the charges are accurate, allowable, and properly allocated;
(ii) Be incorporated into the official records of the recipient or subrecipient;
(iii) Reasonably reflect the total activity for which the employee is compensated by the
recipient or subrecipient, not exceeding 100 percent of compensated activities (for
IHEs, this is the IBS);
(iv) Encompass federally-assisted and all other activities compensated by the recipient or
subrecipient on an integrated basis but may include the use of subsidiary records as
defined in the recipient's or subrecipient's written policy;
(v) Comply with the established accounting policies and procedures of the recipient or
subrecipient (See paragraph (i)(1)(ii) of this section for treatment of incidental work
for IHEs.); and . . .
(vii) Support the distribution of the employee's salary or wages among specific activities
or cost objectives if the employee works on more than one Federal award; a Federal
award and non-Federal award; an indirect cost activity and a direct cost activity; two
or more indirect activities allocated using different allocation bases; or an unallowable
activity and a direct or indirect cost activity.
(viii) Budget estimates (meaning, estimates determined before the services are performed)
alone do not qualify as support for charges to Federal awards, but may be used for
interim accounting purposes, provided that:
(A) The system for establishing the estimates produces reasonable approximations
of the activity performed;
(B) Significant changes in the related work activity (as defined by the recipient's or
subrecipient's written policies) are promptly identified and entered into the records.
Short-term (such as one or two months) fluctuations between workload categories do
not need to be considered as long as the distribution of salaries and wages is reasonable
over the longer term; and
(C) The recipient's or subrecipient's system of internal controls includes processes to
perform periodic after-the-fact reviews of interim charges made to a Federal award
based on budget estimates. All necessary adjustments must be made so that the
final amount charged to the Federal award is accurate, allowable, and properly allocated.
(ix) Because practices vary as to the activity constituting a full workload (for example, the
Institutional Base Salary (IBS) for IHEs), records may reflect categories of activities
expressed as a percentage distribution of total activities.
(x) It is recognized that teaching, research, service, and administration are often
inextricably intermingled in an academic setting. Therefore, a precise assessment of
factors contributing to costs is not required when IHEs record salaries and wages
charged to Federal awards . . ."
Cause
Management had not established an effective system of internal controls that would have ensured
compliance with the grant agreement and the Allowable Costs/Cost Principles compliance requirement.
Effect
The failure to establish an effective internal control system enabled material noncompliance to go
undetected. Noncompliance with the grant agreement and the Allowable Costs/Cost Principles compliance
requirement could have resulted in the loss of federal funds to the School Corporation.
Questioned Costs
The total of known questioned costs was $219,188.
Recommendation
We recommended that the School Corporation's management establish an effective system of
internal controls to ensure compliance and comply with the grant agreement and Allowable Costs/Cost
Principles compliance requirement. An internal control system, including segregation of duties, should be
designed and operate effectively to provide reasonable assurance that material noncompliance with the
grant agreement or a compliance requirement of a federal program will be prevented, or detected and
corrected, on a timely basis. In order to have an effective internal control system, it is important to have
proper segregation of duties. This is accomplished by making sure proper oversight, reviews, and
approvals take place and to have a separation of functions over certain activities related to the program.
The fundamental premise of segregation of duties is that an individual or small group of individuals should
not be in a position to initiate, approve, undertake, and review the same activity.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.