The District did not have adequate internal controls and did not comply with allowable activities and allowable costs requirements.
Assistance Listing Number and Title: 84.425, COVID-19 Education Stabilization Fund
Federal Agency Name: U.S. Department of Education
Federal Award/Contract Number: N/A
Pass-through Entity Name: Office of Superintendent of Public Instruction
Pass-through Award/Contract Number: 84.425D-120577; 84.425D-140538; 84.425D-141605; 84.425D-144003; 84.425D-144536; 84.425D-145069; 84.425D CEP BK;
84.425R CEP LNCH;
84.425R ESSER BKFST;
84.425U-137272; 84.425U-138288; 84.425U-140032; 84.425U-140661; 84.425U-142142; 84.425U-142513; 84.425U-144909; 84.425W-459563
Known Questioned Cost Amount: $6,847,834
Prior Year Audit Finding: N/A
Background
The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In fiscal year 2023, the District spent a total of $9,024,475 of its ESF awards. This included $3,854,220 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), $256,118 in the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 – Emergency Assistance to Non-Public Schools (CRRSA EANS/EANS I) subprogram (84.425R), $4,912,093 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $2,044 in the American Rescue Plan Elementary and Secondary School Emergency Relief – Homeless Children and Youth (ARP-HCY) subprogram (84.425W).
Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls.
Federal regulations also establish principles and standards for determining allowable direct and indirect costs for federal awards. Additionally, federal regulations and the Office of Superintendent of Public Instruction require all costs charged to the program to comply with program requirements and recipients to support this compliance with proper documentation that demonstrates costs are allowable.
Description of Condition
The District did not have adequate internal controls to ensure all expenditures it charged to the program were supported with documentation demonstrating the costs were for allowable activities. Our audit found the District charged $6,847,834 to the ESF program including amounts originally coded to other local, state and federal programs in its accounting system that it transferred to ESF programs through journal entries, plus related ESF indirect costs. However, these journal entries lacked supporting documentation to identify specific expenditures charged to ESF and the District could not demonstrate that the costs from other programs were allowable and complied with ESF program requirements.
We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance.
Cause of Condition
The District experienced staff turnover and current staff could not locate support for journal entries that former employees prepared to demonstrate costs transferred and charged to the ESF programs were supported, approved, and for allowable costs.
Effect of Condition and Questioned Costs
We found the District requested and received reimbursement for $6,050,517 in direct costs and $802,417 in indirect costs that lacked support to demonstrate costs were allowable. Without support identifying specific expenditures charged to the program, the District cannot demonstrate compliance with program requirements and we cannot confirm that costs were allowable, so we are questioning these costs.
Federal regulations require the State Auditor’s Office to report known questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the District has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures.
Recommendation
We recommend the District improve its controls to ensure all costs it charges to federal programs are allowable and comply with cost principles. We also recommend the District work with the awarding agency to determine audit resolution.
District’s Response
The district concurs with the conditions that it had a lack of internal controls in relation to journal entry supporting documentation and a lack of review of journal entries. While some journal entries were reviewed by others, there was a lack of evidence that all, or even most, of the entries were reviewed by another person. For the audit time period, journal entries were posted by two separate individuals. Evidence for journal entries such as monthly treasurer statement entries and apportionment entries can be easily found if not attached to the journal entries. The entries for the movement of expenditures into the ESF program often only had a print out of summary expenditures out of the district's accounting system. These entries show the account codes the money was moved out of and what corresponding account code they were moved into. When looking at these summary account codes and comparing them to the ESF account codes, it allows for analysis of whether the expenditures would fall under allowable expenditures under the grants. This analysis does show that the expenditures, for instance teaching salaries, originally coded as program 01 (Basic Ed) actually do fit the allowable cost under the various ESSER grants. It is understandable that since often only a portion of the original summary amount was moved into the ESF program, the particular person or persons the original code was used for could not be pinpointed. That coupled with the issue that the accounting staff changed over and the person doing the journal entries was not available to ask for their methodology, the district can see the auditor's decision to write this finding. The district, however, believes that with the broad scope of the ESF program and the broad variety of allowable costs, the expenditures that were claimed under the grant fit the allowable costs and should not have been considered questionable costs. With advice that the districts received on the first ESSER I grants the state gave out, they were told to do journal entries to move the money into the ESSER account codes. It is the district's belief that our former staff simply continued on with this practice through the remaining ESF program grants.
Auditor’s Remarks
We appreciate the District’s cooperation and assistance during the audit and acknowledge its commitment to improving this condition. We will review the corrective action taken during our next audit.
Applicable Laws and Regulations
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 516, Audit findings, establishes reporting requirements for audit findings.
Title 2 CFR Part 200, Uniform Guidance, section 303 Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements.
The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting allowability of costs, describes the cost principles for how direct and indirect costs should be charged to federal programs.