FA 2022-02 Strengthen Controls over Expenditures
Compliance Requirement: Activities Allowed or Unallowed
Allowable Costs/Cost Principles
Equipment and Real Property Management
Internal Control Impact: Material Weakness
Compliance Impact: Material Noncompliance
Federal Awarding Agency: U.S. Department of Education
Pass-Through Entity: Georgia Department of Education
AL Numbers and Titles: 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 – 84.425U – American Rescue Plan
Elementary and Secondary School Emergency Relief
Fund
Federal Award Numbers: S425D210012 (Year: 2021), S425U210012 (Year: 2021),
S425Q210012 (Year 2021)
Questioned Costs: $192,004.45
Description:
The policies and procedures of the School District were insufficient to provide adequate internal
controls over expenditures and equipment as it relates to the Elementary and Secondary School
Emergency Relief Fund 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 the 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 $3,287,369.95 were expended and reported on the Telfair 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…”
In addition, provisions included in the Uniform Guidance, Section 202.403 – Reasonable Costs state that “a cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was
made to incur the cost. The question of reasonableness is particularly important when the non-Federal entity is predominantly federally-funded. In determining reasonableness of a given cost, consideration must be given to: (a) Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the non-Federal entity or the proper and efficient performance of the Federal award. (b) The restraints or requirements imposed by such factors as: sound business practices; arm’s-length bargaining; Federal, state, local, tribal, and other laws and regulations; and terms and conditions of the Federal award… (d) Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-Federal entity, its employees, where applicable its students
or membership, the public at large, and the Federal Government. (e) Whether the non-Federal entity significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award’s cost.”
Furthermore, as a condition of receiving federal subawards from the GaDOE, LEAs are required to prepare an annual budget that reflects how funding will be expended. This budget is submitted in the Consolidated Application system and is required to be reviewed and approved by the GaDOE program and grants management prior to expending federal program funds. 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...”
Lastly, provisions included in the Uniform Guidance, Section 200.313 - Equipment state that
"equipment must be used by the non-Federal entity in the program or project for which it was acquired as long as needed, whether or not the project or program continues to be supported by the Federal award, and the non-Federal entity must not encumber the property without prior approval of the Federal awarding agency."
Condition:
A sample of 23 nonpersonal services expenditures was randomly selected for testing using a nonstatistical sampling approach. In addition, six individually significant expenditures were selected for testing. These expenditures were reviewed to determine if appropriate internal controls were implemented and applicable compliance requirements were met. Furthermore, all equipment items purchased during the period under review were selected for testing to ensure approval was obtained from GaDOE prior to the purchase of the equipment. The following deficiencies were noted:
• Two randomly selected expenditures totaling $7,678.24 were not appropriately approved by
GaDOE through the Consolidated Application process as required.
• Two individually significant items totaling $99,628.33 were not appropriately approved by
GaDOE through the Consolidated Application process as required.
• The purchase of two servers totaling $35,022.88 was not appropriately approved by GaDOE
through the Consolidated Application process as required.
• Bonuses totaling $43,900.00 were paid to individuals who were not employees of the School
District. These individuals were hired to perform specific functions as detailed within the
associated contracts and were paid amounts in excess of the stated rate noted within these
contracts.
Questioned Costs:
Upon testing a sample of $142,102.78 in nonpersonal services expenditures, known questioned costs of $7,678.24 were identified. Using the population being sampled, which totaled $279,079.35, we project the likely questioned costs to be approximately $15,079.50.
In addition, known questioned costs identified for unallowable/undocumented payments associated with individually significant items tested totaled $184,326.21; therefore, the known and likely questioned costs identified for all unallowable payments throughout the sample and individually significant items tested totaled $192,004.45 and $199,405.71, respectively.
Cause:
Per discussion with management, the School District believed that the bonuses were allowable as the expenditures were approved by GaDOE through the Consolidated Application process; however, they were not aware that contract amendments should be initiated prior to the expenditure of funds in this manner. In discussing the expenditures not approved on the Consolidated Application, they stated that the School District management did not update the ESSER Consolidated Application system prior to expending the funds for a different purpose.
Effect:
The School District is not in compliance with the Uniform Guidance, ED, or GaDOE guidance related to the ESSER program. Failure to ensure that appropriate policies and procedures are followed when expending federal funds may expose the School District to unnecessary financial strains and shortages as GaDOE may require the School District to return funds associated with unallowable expenditures.
Recommendation:
The School District should review current internal control procedures related to ESSER program
expenditures. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that expenditures are in line with provisions reflected within the associated contract and/or contract amendments. In addition, the School District should implement a monitoring process to ensure that all expenditures are compliant with the School District’s purchasing and employee compensation policies and procedures.
Views of Responsible Officials:
The School District does not agree with this finding. The School District feels this was an isolated incident due to the unique circumstances of this atypical grant. All documentation required by the vendors used was provided. The School District believes GaDOE guidelines and district Board approved procedures were followed on all expenditures except for a portion of the bonuses referenced.
Auditor’s Concluding Remarks:
School District personnel state that the School District “believes GaDOE guidelines and district Board approved procedures were followed”. While the expenditures may be allowable in nature, the School District is still required to get approval from GaDOE to be allowable per the Uniform Guidance. School Districts are expected and required to comply with federal regulations associated with the federal program.
When each federal program budget is submitted to GaDOE, School District management signs
assurances certifying that “each program will be administered in accordance with all applicable
statutes, internal controls in the procurement process for goods and services in accordance with
Georgia’s Financial Management for Georgia LUAS Manual.” As noted previously, the School District did follow appropriate procurement policies and procedures.
We reaffirm our finding and will review the status of the finding during our next audit.