Finding Text
Assistance Listing Number, Federal Agency, and Program Name - 84.027, U.S. Department of Education, Special Education Cluster
84.425U, U.S. Department of Education, COVID-19 Education Stabilization Fund
Federal Award Identification Number and Year - 2023 IDEA Flowthrough 22/23 (Special Education Cluster)
213713 - 2122 (Education Stabilization Fund)
Pass-through Entity - Michigan Department of Education
Finding Type - Material weakness
Repeat Finding - No
Criteria - 2 CFR 200.430(i)(1) states that charges to federal awards for salaries and wages must be based on records that accurately reflect work performed. 2 CFR 200.303(a) states that the nonfederal entity must establish and maintain effective internal control over the federal award that provides reasonable assurance that the entity is managing the federal award in compliance with the statutes, regulations, and terms and conditions of the award.
Condition - The School District's controls did not prevent or detect and correct, in a timely manner, an employee's time being charged to the Special Education Cluster that did not have adequate documentation. Additionally, the School District's internal controls did not detect and correct, in a timely manner, updates to an employee status upon termination for employees charged to the Special Education Cluster and the Education Stabilization Fund.
Questioned Costs - None
Identification of How Questioned Costs Were Computed - N/A - No questioned costs reported.
Context - In a sample of 40, we identified that one employee, who was terminated, was inappropriately charged to the Special Education Cluster. The detective controls of the School District identified that the employee lacked appropriate documentation for the time charged and paid, and, thus, the School District requested repayment from the employee. However, the School District's internal controls did not notify the grants department of the overpayment to address the improper charge. In conjunction with tailored procedures to address an identified risk of overpayment for federal grants, one out of seven employees improperly received a payment subsequent to their termination date, which was charged to the Education Stabilization Fund. Based on review of the final payroll audit performed by the School District, there was no overpayment of grant funds. However, we noted that the controls were not operating timely. In this instance, the employee was terminated in March 2023, a final payroll audit was conducted in August 2023, subsequent to the School District's fiscal year, and final payout was not yet disbursed as of the testing date.
Cause and Effect - Controls in place did not prevent or detect and correct, in a timely manner, an instance of noncompliance. The controls in place to notify the grants department of an employee overpayment were not effective. Furthermore, the controls in place to update a change in an employee's status, from active to terminated, did not occur timely. The lack of timely controls may result in inappropriate charges to the grant, inappropriate request for reimbursement, repayment of funds to the funder, and the inability to recoup improper payments from the employee.
Recommendation - We recommend that the School District review its procedures and controls to ensure terminated employees statuses are updated timely within the system. We further recommend that the grants department receive notification of the final payroll audit results to assess what action, if any, is necessary to ensure compliance with the terms and conditions of the award.
Views of Responsible Officials and Corrective Action Plan - The School District concurs with the audit finding. The District has worked to strengthen internal controls to eliminate errors. The District will review its internal controls and provide additional training to staff. The School District is in the process of filling a Project Manager role on the Payroll Team who will be responsible for reviewing employee terminations and identifying potential overpayments. Until the role is filled, the Senior Director of Payroll and CFO will review employee exits quarterly to identify any potential overpayments and move funds to the general fund. New procedures for employee exit were rolled out in July in an effort to improve timely exiting of employees.