FA 2022-001 Strengthen Controls over Expenditures
Compliance Requirements: Activities Allowed or Unallowed
Allowable Costs/Cost Principles
Period of Performance
Internal Control Impact: Significant Deficiency
Compliance Impact: Nonmaterial Noncompliance
Federal Awarding Agency: U.S. Department of Education
Pass-Through Entity: Georgia Department of Education
AL Numbers and Titles: COVID-19 – 84.425C – Coronavirus Aid, Relief and
Economic Security Act – Governor’s Emergency
Education Relief Fund
COVID-19 – 84.425D – Elementary and Secondary
School Emergency Relief Fund
COVID-19 – 84.425U – American Rescue Plan
Elementary and Secondary School Emergency Relief
Fund
COVID-19 – 84.425W – American Rescue Plan
Elementary and Secondary School Emergency Relief
Fund – Homeless Children and Youth
Federal Award Numbers: S425C210012 (Year: 2021), S425D200012 (Year: 2020),
S425D210012 (Year: 2021), S425U210012 (Year: 2021)
S425W210011 (Year: 2021)
Questioned Costs: $101,681
Description:
A review of expenditures charged to the Elementary and Secondary School Emergency Relief Fund program revealed that the School District’s internal control procedures were not operating
appropriately to ensure that expenditures were allowable for the program.
Background:
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways, including providing additional funding for local educational agencies (LEAs) navigating the impact of the COVID-19 outbreak. Provisions included in Title VIII of the CARES Act created the Education Stabilization Fund to provide financial resources to educational entities to prevent, prepare for, and respond to coronavirus. The CARES Act allocated $30.75 billion, the Coronavirus Response and Relief Supplemental Appropriations Act allocated an additional $81.9 billion, and the American Rescue Plan Act added $165.1 billion in funding to the Education Stabilization Fund. Multiple Education Stabilization Fund subprograms were created and allotted funding through the various COVID-19-related legislation. Of these programs, the Elementary and Secondary School Emergency Relief (ESSER) Fund was created to address the impact that COVID-19 has had, and continues to have, on elementary and secondary schools across the nation.
ESSER funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Education (ED). GaDOE is responsible for distributing funds to LEAs and overseeing the expenditure of funds by LEAs. ESSER funds totaling $6,346,257 were expended and reported on the Brooks County Board of Education’s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2022.
Criteria:
As a recipient of federal awards, the School District is required to establish and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to 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 200.303 – Internal Controls.
Provisions included in the Uniform Guidance, Section 200.403 – Factors Affecting Allowability of Costs state that “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, (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity… (g) Be adequately documented… (h) Cost must be incurred during the approved budget period…”
Additionally, provisions included in the Uniform Guidance, Section 200.77 state, “Period of
performance means the time during which the non-Federal entity may incur new obligations to carry out the work authorized under the Federal award.” Further, to assist school districts in improving their financial management systems and associated compliance over federal programs, GaDOE published the Financial Management for Georgia Local Units of Administration (FMGLUA) manual. The FMGLUA manual requires that LEAs submit a budget
as part of each federal program’s Consolidated Application process. The program budget reflects details regarding the manner in which each school district intends to expend the program funds. The Consolidated Application, including the budget, for each program must be reviewed and approved by GaDOE personnel before the LEA is authorized to expend program funds. Amendments to the budget are to be submitted to and approved by GaDOE when a school district intends to spend funds in a manner not initially reported.
Lastly, LEA personnel must also provide program-specific assurances related to the ESSER program within the Consolidated Application system. These assurances are reflected in the Uniform Guidance, Section 200.415 – Required Certifications, and include provisions that require LEAs “to assure that expenditures are proper and in accordance with the terms and conditions of the Federal award and approved project budgets...”
Condition:
A sample of 60 non-personal services expenditures was randomly selected for testing using a nonstatistical sampling approach. In addition, seven individually significant items were selected for testing. These expenditures were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements were met. It was noted that subscription charges related to learning software were prepaid for a five-year period. Because the period of performance for this funding ends on September 30, 2024 and the liquidation period for the program ends 120 days thereafter, it was determined that $85,681 of these expenditures were unallowable as the amounts were incurred after the period of performance and School District personnel did not maintain appropriate documentation to evidence its analysis leading to the decision to enter into the multi-year contract as required by ED. Additionally, a sample of 60 personal services expenditures was randomly selected for testing using a non-statistical sampling approach. Two individually significant items were also selected for testing. These expenditures were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements were met. It was noted that eight employees were paid a $2,000 bonus, which totaled $16,000, that was not approved by GaDOE through the Consolidated Application process, as required.
Questioned Costs:
Upon testing a sample of $444,121 in personal services expenditures, known questioned costs
of $16,000 were identified. Using the total personal services expenditures population of $1,560,088, we project the likely questioned costs to be approximately $56,204.
In addition, known questioned costs of $85,681 were also identified for non-personal services
expenditures that were not tested as part of a sample and were not incurred during the appropriate period. Therefore, the known and likely questioned costs identified for all unallowable payments totaled $101,681 and $56,204, respectively.
Cause:
In discussing these deficiencies with management, they stated that unallowable bonuses paid were due to human error since they were intended to be paid from QBE funds in Fund 100. In addition, management was unaware of the documentation requirements for the multi-year service agreements that extend beyond the period of performance.
Effect:
The School District is not in compliance with the Uniform Guidance or GaDOE guidance related to the ESSER program. Additionally, failure to verify compliance with applicable policies and regulations, including reviewing approved budgets prior to the expenditure of federal program funds and ensuring that expenditures are incurred for a necessary and reasonable purpose and within the appropriate period of performance, may expose the School District to unnecessary financial strains and shortages as GaDOE may require the School District to return funds associated with unapproved and unallowable expenditures.
Recommendation:
The School District should develop and/or modify its policies and procedures to ensure that potential expenditures are approved through the Consolidated Application process, fall within the respective federal program’s period of performance, and are deemed to be allowable before spending federal funds. Further, management should develop and implement a monitoring process to ensure that control procedures are being followed.
Views of Responsible Officials:
We concur with this finding.