FINDING 2023-008
Subject: Child Nutrition Cluster - Special Tests and Provisions - Verification
of Free and Reduced-Price Applications (NSLP)
Federal Agency: Department of Agriculture
Federal Programs: National School Lunch Program
Assistance Listings Number: 10.555
Federal Award Numbers and Years (or Other Identifying Numbers): FY2023
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Special Tests and Provisions - Verification of
Free and Reduced-Price Applications (NSLP)
Audit Findings: Material Weakness, Other Matters
Condition and Context
By November 15 of each school year, the Local Educational Agencies (LEA) must verify the current
free and reduced-price eligibility of households selected from a sample of applications that it has approved
for free and reduced-price meals, unless the LEA is otherwise exempt from the verification requirement.
The verification sample size is based on the total number of approved applications on file on October 1.
If the LEA performs the verification function it must be in accordance with instructions provided by
the state agency. The LEA must follow up on children whose eligibility status has changed as the result of
verification activities to put them in the correct category.
As instructed, the LEAs must select a sample of applications to be verified utilizing one of the
following methods:
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a. Standard sample size - The lesser of 3 percent or 3,000 of the approved applications on
file as of October 1, selected from error-prone applications. For this purpose, error prone
applications are those showing household incomes within $100 monthly or $1,200 annually of
the income eligibility guidelines for free and reduced price meals.
b. Alternative sample sizes - (1) The lesser of 3 percent or 3,000 applications selected at
random from approved applications on file as of October 1 of the school year, or (2) The sum
of (a) the lesser of 1 percent of all applications identified as error-prone or 1,000 error-prone
applications, and (b) the lesser of 1/2 of 1 percent of, or 500, approved applications in which
the household provided, in lieu of income information, a case number showing participation in
the SNAP, TANF, or FDPIR.
In accordance with the above guidance, the School Corporation selected a sample of verifications
based on the alternative sample size. As such, the School Corporation was required to review the lesser
of 3 percent or 3,000 applications selected at random from approved applications on file as of October 1 of
the 2022-2023 school year. On October 1, the School Corporation had 93 applications on file and
determined that 3 applications were required to be verified.
One employee was responsible for performing the required verification of the 3 free and reducedprice
applications. There was no documentation of an oversight, review, or approval process to ensure that
the verifications were properly performed.
All three of the required verifications were selected for testing. For each verification, the School
Corporation requested income documentation from the applicant to perform the verification as required.
For one of the three verifications tested, it was determined the verification was not completed appropriately
as required. For the noted student, income documentation was not provided as requested, nor could the
student be located on the direct certification listings or lookup therefore a status of free, as noted in the
system, could not be verified as accurate.
The lack of internal controls and noncompliance were isolated to fiscal year 2022-2023.
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). . . ."
7 CFR 245.6a states in part:
". . . (f) Verification procedures and assistance for households - . . .
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(7) Eligibility changes. Based on the verification activities, the local educational agency
shall make appropriate modifications to the eligibility determinations made initially. The
local educational agency must notify the household of any change. Households must
be notified of any reduction in benefits in accordance with paragraph (j) of this section.
Households with reduced benefits or that are longer eligible for free or reduced price
meals must be notified of their right to reapply at any time with documentation of
income or participation in one of the eligible programs in paragraph (a)(1) of this
section. . . .
(j) Adverse action. If verification activities fail to confirm eligibility for free or reduced price
benefits or should the household fail to cooperate with verification efforts, the school or local
educational agency shall reduce or terminate benefits, as applicable, as follows: Ten days
advance notification shall be provided to households that are to receive a reduction or
termination of benefits, prior to the actual reduction or termination. The first day of the 10 day
advance notice period shall be the day the notice is sent. The notice shall advise the household
of:
(1) The change;
(2) The reasons for the change;
(3) Notification of the right to appeal and when the appeal must be filed to ensure
continued benefits while awaiting a hearing and decision;
(4) Instructions on how to appeal; and
(5) The right to reapply at any time during the school year. The reasons for ineligibility
shall be properly documented and retained on file at the local educational agency."
Cause
A proper system of internal controls was not designed by management of the School Corporation,
which would include segregation of duties. Embedded within a properly designed and implemented internal
control system should be internal controls consisting of policies and procedures. Policies reflect the School
Corporation's management statements of what should be done to effect internal controls, and procedures
should consist of actions that would implement these policies.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
internal control system cannot be capable of effectively preventing, or detecting and correcting, material
noncompliance. As a result, verifications for free and reduced-price applications could not be verified as
accurate.
Noncompliance with the grant agreement and the compliance requirement could result in the loss
of future federal funds to the School Corporation.
Questioned Costs
There were no questioned costs identified.
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Recommendation
We recommended that management of the School Corporation establish a proper system of
internal controls and develop policies and procedures to ensure verifications for free and reduced-price
applications are appropriately completed and reviewed.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.