Finding Text
FINDING 2022-005 Subject: COVID-19 - Education Stabilization Fund - Allowable Costs/Cost Principles Federal Agency: Department of Education Federal Program: COVID-19 - Education Stabilization Fund Assistance Listings Number: 84.425D Federal Award Number and Year (or Other Identifying Number): S425D210013 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context An effective internal control system was not in place at the School Corporation to ensure compliance with requirements related to the grant agreement and the Allowable Costs/Cost Principles compliance requirement. Internal controls over vendor related disbursements were not effective at ensuring expenditures related to the Nurse's office and Administration building renovation construction projects were adequately documented prior to payment. Forty accounts payable vouchers (APV) were selected for testing. Three APV's for one vendor did not include itemized invoices for payments related to the construction projects. The School Corporation obtained a combined quote for the two construction projects, in the amount of $185,000, which was signed by both parties. The School Corporation did not advertise for bids, obtain sealed bids, or enter into a contract for the construction projects. In addition, while the quote was for a total cost of $185,000, total payments made to the vendor from ESSER II funds were $275,170. Due to the lack of supporting documentation, we were unable to determine if the $275,170 paid to the vendor was for the construction projects, or if other expenses had been paid. The total $275,170 was considered questioned costs. The lack of internal controls and noncompliance were isolated to the vendor and the renovation projects noted above. INDIANA STATE BOARD OF ACCOUNTS 24 METROPOLITAN SCHOOL DISTRICT OF WARREN COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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). . . ." 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. (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. . . ." Indiana Code 36-1-12-2 states: "As used in this chapter, 'public work' means the construction, reconstruction, alteration, or renovation of a public building, airport facility, or other structure that is paid for out of a public fund or out of a special assessment. The term includes the construction, alteration, or repair of a highway, street, alley, bridge, sewer, drain, or other improvement that is paid for out of a public fund or out of a special assessment. The term also includes any public work leased by a political subdivision under a lease containing an option to purchase." Indiana Code 36-1-12-4 states in part: "(a) This section applies whenever the cost of a public work project will be at least one hundred and fifty thousand dollars ($150,000). (b) The board must comply with the following procedure: (1) The board shall prepare general plans and specifications describing the kind of public work required, but shall avoid specifications which might unduly limit competition. . . . INDIANA STATE BOARD OF ACCOUNTS 25 METROPOLITAN SCHOOL DISTRICT OF WARREN COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (3) Upon the filing of the plans and specifications, the board shall publish notice in accordance with IC 5-3-1 calling for sealed proposals for the public work needed. If the board receives electronic bids as set forth in subsection (d), the board shall also provide electronic access to the notice of the bid solicitation through the computer gateway administered under IC 4-13.1-2-2(a)(6) by the office of technology. . . . (8) Except as provided in subsection (c), the board shall: (A) award the contract for public work or improvements to the lowest responsible and responsive bidder; or (B) reject all bids submitted. . . ." Cause Management had not developed an effective system of internal controls that would have ensured compliance with the grant agreement and the Allowable Costs/Cost Principles compliance requirement. Effect The failure to establish an effective internal control system enabled noncompliance to go undetected. The failure to maintain adequate documentation prevented the determination of the School Corporation's compliance with the Allowable Costs/Cost Principles compliance requirement. Questioned Costs Questioned costs of $275,170 were identified as noted in the Condition and Context. Recommendation We recommended that the School Corporation's management establish an effective system of internal controls to ensure compliance and comply with the grant agreement and the Allowable Costs/Cost Principles compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.