FINDING 2022-003 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, COVID-19 - School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program, Summer Food Service Program for Children, COVID-19 - Summer Food Service Program for Children Assistance Listings Numbers: 10.553, 10.555, 10.559 Federal Award Numbers and Years (or Other Identifying Numbers): SY 20-21, SY 21-22 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles Audit Findings: Material Weakness, Modified Opinion Condition and Context The School Corporation had not designed nor implemented a system of internal controls to ensure that program costs were supported by proper documentation, were allowable, and only for the operation of the food service program. Vendor Transactions A sample of 38 vendor transactions from the Food Service fund was selected for testing to verify the transactions were for allowable activities and costs under the Child Nutrition programs. There were 3 of the 38 transactions, totaling $10,861, that were paid to vendors for which the School Corporation could not provide documentation to support the costs. As such, the 3 transactions could not be verified as an allowable activity or cost for the food service program. In addition, 10 of the 38 transactions, totaling $10,990, were for fringe benefits in which the supporting documentation did not provide details to identify the employees for which the benefits were paid. As a result, we were unable to determine if the payments were on behalf of allowable staff related to the operation of the food service program. Payroll Transactions A sample of 23 payroll expenditures from the Food Service fund was selected for testing. Each payroll expenditure line could include payroll amounts paid to multiple employees. Of the 23 payroll expenditures tested, 4 included amounts paid to various employees for which supporting documentation, such as timecards was not maintained. The hourly rate paid to these employees also varied from the School Board approved schedule. In addition, contracts were not presented for either audit year to support the salaries paid to two contracted employees. As a result of the lack of supporting documentation, the payroll amounts, totaling $14,001, could not be verified as allowable costs to the operation of the food service program. The lack of internal controls and noncompliance were systemic issues throughout the audit period. 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 200.334 states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass through entity in the case of a subrecipient. . . ." 2 CFR 200.334 (Revised Uniform Guidance) states in part: "Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for Federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the Federal awarding agency or pass-through entity in the case of a subrecipient. . . ." 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. . . ." Cause Management had not established an effective system of internal controls that would have ensured compliance, or that supporting documentation would have been maintained and made available for audit, with the grant agreement and the Activities Allowed or Unallowed and the Allowable Costs/Cost Principles compliance requirements. Effect The failure to establish an effective system of internal controls and retain and provide appropriate supporting documentation prevented the determination of the School Corporation's compliance with the compliance requirements listed above. Questioned Costs Known questioned costs of $35,852 were identified, as detailed in Condition and Context. Recommendation We recommended that the School Corporation's management establish a system of internal controls to ensure that documentation be maintained and made available for audit related to the grant agreement and the Activities Allowable or Unallowed and the Allowable Costs/Cost Principles compliance requirements. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.