Finding Text
FINDING 2022-003 Information on the federal program: Subject: Child Nutrition Cluster- Allowable Activities, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Lunch Program Assistance Listing Number: 10.555 Federal Award Number(s) and Year(s)(or Other Identifying Numbers): Pass-Through Entity: Indiana Department of Education Compliance Requirements: Allowable Activities, Allowable Costs/Cost Principles Audit Finding: Material Weakness, Modified Opinion Criteria: 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal awards 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)...." USDA Indirect Cost Guidance Memo SP 60-2016 "It is unallowable to bill the nonprofit school food service account (NSFSA) for indirect costs that were previously paid from the general fund unless an agreement exists to show that the district had been ?loaning? the NSFSA funds to cover the indirect costs in one or more prior years." 7 CFR 210.21(f)(1) states in part: ". . . (ii) (A) The contractor must separately identify for each cost submitted for payment to the school food authority the amount of that cost that is allowable (can be paid from the nonprofit school food service account) and the amount that is unallowable (cannot be paid from the nonprofit school food service account); or (B) The contractor must exclude all unallowable costs from its billing documents and certify that only allowable costs are submitted for payment and records have been established that maintain the visibility of unallowable costs, including directly associated costs in a manner suitable for contract cost determination and verification; (iii) The contractor's determination of its allowable costs must be made in compliance with the applicable Departmental and Program regulations and Office of Management and Budget cost circulars; . . . (vi) The contractor must maintain documentation of costs and discounts, rebates and other applicable credits, and must furnish such documentation upon request to the school food authority, the State agency, or the Department." Section III ? Federal Award Findings and Questioned Costs (Continued) FINDING 2021-003 (Continued) 7 CFR 220.7(e) states in part: ". . . the School Food Authority shall, with respect to participating schools under its jurisdiction: (i) Maintain a nonprofit school food service; (ii) . . . use all revenues received by such food service only for the operation or improvement of that food service . . ." 7 CFR 210.14(a) states in part: "Nonprofit school food service. School food authorities shall maintain a nonprofit school food service. Revenues received by the nonprofit school food service are to be used only for the operation or improvement of such food service, except that, such revenues shall not be used to purchase land or buildings, unless otherwise approved by FNS, or to construct buildings. . . ." 7 CFR 225.15(a)(1) states: "Sponsors shall operate the food service in accordance with: the provisions of this part; any instructions and handbooks issued by FNS under this part; and any instructions and handbooks issued by the State agency which are not inconsistent with the provisions of this part." 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. . . . (g) Be adequately documented. . . ." 2 CFR 200.430(i) states in part: "Standards for documentation of Personnel Expenses (1) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE's definition of IBS); (vii) Support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a Federal award and non-Federal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. . . ." Section III ? Federal Award Findings and Questioned Costs (Continued) FINDING 2021-003 (Continued) Condition: An effective internal control system was not in place at the School Corporation in order to ensure compliance with requirements related to the grant agreement and the Allowable Activities and Allowable Costs/Cost Principles compliance requirements. The School Corporation did not have a documented internal control over payroll claims allocation reports in place relating to the Allowable Activities and Allowable Costs/Cost Principles compliance requirements. The School Corporation did not have internal controls over indirect costs that would ensure they were properly paid. Cause: Management had not developed an effective system of internal controls that would have ensured compliance with the grant agreement and the Activities Allowed and Allowable Costs/Cost Principles compliance requirement. Effect: The failure to establish an effective internal control system enabled noncompliance to go undetected. Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs: Known questioned costs of $74,500 were identified. Context: The School Corporation was approved for an indirect cost rate for fiscal years 2019-2020 and 2020-2021 in order to allocate indirect costs to the School Corporation?s Cafeteria fund. However, the School Corporation did not charge these indirect costs in the appropriate time frame. On June 30, 2022 the School Corporation applied the indirect costs retroactively for the child nutrition cluster fiscal year's 2019-2020 and 2020-2021 in the amounts of approximately $33,150 and $41,350, respectively from the Cafeteria Fund to the Operations Fund. For after the fact transfers, the School Corporation is required to enter into an inter-fund loan agreement and to document the Operation fund support of the School Lunch fund. The School Corporation did not have a documented internal control over payroll claims in place relating to the Allowable Activities and Allowable Costs compliance requirements. There was no documented, formal review over the supporting payroll distribution report to support the amount charged and allocated for each employee. The lack of internal controls was a systemic issue throughout the audit period. Identification as a repeat finding, if applicable: No. Recommendation: We recommended that the School Corporation's management establish a system of internal controls for the timing of indirect costs claims and transfers. Views of Responsible Officials and Planned Corrective Actions: Management understands the finding, has prepared an initial corrective action plan and will discuss resolution with Indiana Department of Education.