FINDING 2024-004
Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles
Federal Agency: Department of Agriculture
Federal Programs: School Breakfast Program, National School Lunch
Program, Special Milk Program for Children
Assistance Listings Numbers: 10.553, 10.555, 10.556
Federal Award Numbers and Years (or Other Identifying Numbers): FY2023, FY2024
Pass-Through Entity: Indiana Department of Education
Compliance Requirements: Activities Allowed and Unallowed, Allowable Costs/Cost Principles
Audit Findings: Material Weakness, Other Matters
Condition and Context
Internal control is generally defined as a process affected by an entity's oversight body, management,
and other personnel that provides reasonable assurance that the objectives of an entity will be
achieved. With respect to federal awards, nonfederal entities, such as the School Corporation, are required
to establish and maintain internal controls over federal awards that provides reasonable assurance that the
nonfederal entity is managing the federal award in compliance with federal statutes, regulations, and terms
and conditions of the federal awards.
INDIANA STATE BOARD OF ACCOUNTS
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CANNELTON CITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Internal control is not one event or circumstance, but a dynamic and iterative process. The internal
control process is based on fundamental principles that operate as a whole but are best understood when
analyzed individually. The fundamental principles are related to five components of internal control which
are as follows: Control Environment, Risk Assessment, Control Activities, Information and Communication,
and Monitoring. If a component is not effective, or the components are not operating together in an
integrated manner, then an internal control system cannot be effective. Deficiencies as noted below were
identified in the risk assessment, monitoring, and control activities components.
Risk Assessment
The School Corporation has not established a formal risk assessment process. There is no
documented risk assessment policy, nor is there evidence of periodic risk identification,
analysis, or evaluation.
Monitoring
The School Corporation did not conduct ongoing or periodic reviews to ensure that internal
controls were operating as intended and to identify areas for improvement. Furthermore, the
School Corporation did not have a process to follow up on corrective actions written as a
response to audit findings.
Control Activities
A sample of 60 claims was selected for testing. Of the 60 claims selected for testing, 43 claims
were vendor claims and 17 were payroll claims. Issues were identified with 5 of the vendor
claims as noted below:
Three claims, totaling $700, were paid based solely upon summary statements from the
vendor. The School Corporation was unable to provide additional documentation, such as
invoices, to detail what items or services had been purchased. Without adequate supporting
documentation, we could not determine if the expenses incurred were for activities and
costs allowable per the grant.
Two claims, totaling $313, were paid with no supporting documentation. The School
Corporation was unable to provide additional documentation, such as invoices, to detail
what items or services had been purchased. Without adequate supporting documentation,
we could not determine if the expenses incurred were for activities and costs allowable per
the grant.
The total amount, $1,013, paid without adequate supporting documentation was considered
questioned costs.
The lack of internal controls and noncompliance were systemic issues throughout the audit period.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
INDIANA STATE BOARD OF ACCOUNTS
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CANNELTON CITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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 200.334 states in part:
"Financial records, supporting documents, statistical records, and all other non-Federal entity
records pertinent to a Federal award must be retained for a period of three years from the date
of submission of the final expenditure report or, for Federal awards that are renewed quarterly
or annually, from the date of the submission of the quarterly or annual financial report,
respectively, as reported to the Federal awarding agency or pass-through entity in the case of
a subrecipient. . . ."
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. . . ."
7 CFR 210.14(a) states in part:
". . . Revenues received by the nonprofit school food service are to be used only for the
operation or improvement of such food service, except that, such revenues shall not be used
to purchase land or buildings, unless otherwise approved by FNS, or to construct buildings.
. . ."
7 CFR 220.7(e)(1)(ii) states in part: ". . . use all revenues received by such food service only for
the operation or improvement of that food service . . ."
Cause
Management of the School Corporation had not taken steps to design and implement policies and
procedures to assess risks facing the School Corporation or to establish and operate monitoring activities
that monitor the internal control system. Additionally, the School Corporation did not follow proper
recordkeeping procedures. The Treasurer paid claims from federal program funds with no support or based
on summary statements.
INDIANA STATE BOARD OF ACCOUNTS
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CANNELTON CITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Effect
As a result of the five components of internal control not being adequately designed and implemented,
the internal control system cannot be effective. Thus, general risks or specific risks from fraud and
significant changes could negatively impact the School Corporation, identified internal control deficiencies
could continue, and unidentified flaws within the internal control system could exist. Additionally, we could
not determine if federal program funds were used to pay only for the operation or improvement of the food
service. Furthermore, the lack of detailed documentation was not in compliance with the cost principles.
Continued payment with no support or only summary statements could lead to payments for unallowable
activities and additional questioned costs.
Questioned Costs
Questioned costs in the amount of $1,013 were identified as noted in the Condition and Context.
Recommendation
We recommended that the School Corporation's management establish a proper system of internal
controls, which would include policies and procedures related to risk assessment and monitoring.
Additionally, we recommended that the School Corporation's management establish a proper system of
internal controls to ensure expenditures made from federal awards have appropriate supporting documentation
to ensure expenditures are allowable per the terms and conditions of the federal award and adhere
to the cost principles.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.