FINDING 2024-007
Subject: COVID-19 - Education Stabilization Fund - Allowable Costs/Cost Principles
Federal Agency: Department of Education
Federal Program: COVID-19 - Education Stabilization Fund
Assistance Listings Numbers: 84.425D, 84.425U
Federal Award Numbers and Years (or Other Identifying Numbers): S425D210013, S425U210013
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Allowable Costs/Cost Principles
Audit Findings: Material Weakness, Modified Opinion
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 control 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
30
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
The School Corporation was a participating member in The Exceptional Children's Cooperative
(Cooperative) which provided special education services to students on behalf of the School
Corporation. The School Corporation utilized $15,672 in program funds to pay for a portion of
the School Corporation's required obligations to the Cooperative. This arrangement existed
prior to the pandemic, and none of the obligations were related to responding to the pandemic.
Additionally, the School Corporation used $12,000 in program funds to pay a retainer fee for
information technology services on a contract that existed prior to the COVID-19 pandemic.
The School Corporation also used $147,809 in program funds to pay the salary and benefits
of a certified staff member who was employed prior to the pandemic and whose job duties were
not related to responding to the pandemic. We consider the total of these payments, $175,481,
to be 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:
(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). . . ."
INDIANA STATE BOARD OF ACCOUNTS
31
CANNELTON CITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
American Rescue Plan Act section 2001(e) states in part:
"Uses of Funds. - A local education agency that receives funds under this section - . . .
(2) shall use the remaining funds for any of the following: . . .
(E) Coordination of preparedness and response efforts of local education agencies
with State, local, Tribal, and territorial public health departments, and other relevant
agencies, to improve coordinated responses among such entities to prevent, prepare
for, and respond to coronavirus. . . .
(G) Developing and implementing procedures and systems to improve the
preparedness and response efforts of local educational agencies. . . ."
2 CFR 200.302(b) states in part:
"The financial management system of each non-Federal entity must provide for the following
. . .
(3) Records that identify adequately the source and application of funds for federally
funded activities. These records must contain information pertaining to Federal
awards, authorizations, financial obligations, unobligated balances, assets, expenditures,
income and interest and be supported by source documentation. . . ."
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. . . .
(g) be adequately documented. . . ."
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's management had not
developed a system of internal controls to ensure that expenditures paid from COVID-19 - Education
Stabilization Funds were for costs allowed by the grant terms and conditions and in compliance with the
allowable cost principles.
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.
Without a proper system of internal controls in place that operated effectively, material noncompliance
that resulted in questioned costs remained undetected. 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 funds to the School Corporation.
INDIANA STATE BOARD OF ACCOUNTS
32
CANNELTON CITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Questioned Costs
Questioned costs in the amount of $175,481 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 are for cost allowed per the terms and
conditions of the federal award and in compliance with the allowable cost principles.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.