FINDING 2023-001
Subject: Research and Development Cluster - Subrecipient Monitoring
Federal Agencies: National Science Foundation, US Department of Education
Federal Programs: Social, Behavioral, and Economic Sciences; Higher Education Institutional Aid
Assistance Listings Numbers: 47.075, 84.031
Federal Award Numbers and Years (or Other Identifying Numbers): 1759694, P031F180072
Compliance Requirement: Subrecipient Monitoring
Audit Findings: Material Weakness, Other Matters
Condition and Context
The University expended $1,076,005 in Research and Development funds during the audit period.
Of that amount, $86,788 was passed through to five subrecipients.
As a pass-through entity, the University was required to identify the award and applicable requirements
and monitor the subrecipient. Procedures to monitor its subrecipients included the following:
Reviewing financial and programmatic reports as required by the University.
Following up and ensuring the subrecipient takes timely and appropriate actions on all
deficiencies pertaining to the federal award provided to the subrecipient detected through
audits, on-site reviews, and other means.
Issuing a management decision for audit findings pertaining to the federal award provided
to the subrecipient.
All five subrecipients expended more than $750,000 in federal awards in fiscal year 2022, thus
subjecting each to a Single Audit as required by the Uniform Guidance. As such, each subrecipient was
required to submit its Single Audit report to the Federal Audit Clearinghouse (FAC) by March 31, 2023. In
November 2023, eight months after the subrecipients' report submission deadline, the University completed
the review of the fiscal year 2022 audit reports for all five subrecipients. The delayed monitoring would not
have allowed the University to follow up and ensure that the subrecipients took timely and appropriate
action on all deficiencies pertaining to the federal awards passed through to the subrecipients from the
University. In addition, it would not have allowed for the University to issue a management decision for
audit findings pertaining to the federal award provided to the subrecipient within six months of acceptance
by the FAC.
The lack of effective internal controls and noncompliance, as related to the monitoring of the five
subrecipients, were systemic issues throughout the audit period.
INDIANA STATE BOARD OF ACCOUNTS 15
INDIANA STATE UNIVERSITY
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 200.332 states in part:
"All pass-through entities must: . . .
(d) Monitor the activities of the subrecipient as necessary to ensure that the subaward is
used for authorized purposes, in compliance with Federal statutes, regulations, and the
terms and conditions of the subaward; and that subaward performance goals are achieved.
Pass-through entity monitoring of the subrecipient must include: . . .
(2) Following-up and ensuring that the subrecipient takes timely and appropriate
action on all deficiencies pertaining to the Federal award provided to the subrecipient
from the pass-through entity detected through audits, on-site reviews, and
written confirmation from the subrecipient, highlighting the status of actions
planned or taken to address Single Audit findings related to the particular
subaward.
(3) Issuing a management decision for applicable audit findings pertaining only to the
Federal award provided to the subrecipient from the pass-through entity as
required by § 200.521. . . ."
2 CFR 200.521(d) states in part: "The federal awarding agency or pass-through entity responsible
for issuing a management decision must do so within six months of acceptance of the audit report by the
FAC. . . ."
Cause
The system of internal controls as developed by management of the University was not properly
implemented to ensure that subrecipient audit reports were received and reviewed in a timely manner.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
internal control system cannot be capable of effectively preventing, or detecting and correcting, material
noncompliance. As a result, subrecipients to whom payments were made were not adequately monitored.
The failure to establish a sufficient system of internal controls allowed noncompliance with the grant
agreements and the Subrecipient Monitoring compliance requirement.
INDIANA STATE BOARD OF ACCOUNTS
16
INDIANA STATE UNIVERSITY
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the University's management establish a system of internal controls,
including segregation of duties, related to the grant agreements and compliance requirements listed above.
An internal control system, including segregation of duties, should be designed and operate effectively to
provide reasonable assurance that material noncompliance with the grant agreement or a compliance
requirement of a federal program will be prevented, or detected and corrected, on a timely basis. In order
to have an effective internal control system, it is important to have proper segregation of duties. This is
accomplished by making sure proper oversight, reviews, and approvals take place and to have a separation
of functions over certain activities related to the program. The fundamental premise of segregation of duties
is that an individual or small group of individuals should not be in a position to initiate, approve, undertake,
and review the same activity.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.