Finding Text
FINDING 2023-007
Subject: COVID-19 - Education Stabilization Fund - Allowable Costs/Cost Principles
Federal Agency: Department of Education
Federal Program: COVID-19 - Education Stabilization Fund
Assistance Listings Numbers: 84.425D, 84.425U
Federal Award Numbers and Years (or Other Identifying Numbers): S425D200013, S425D210013,
S425U210013
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Allowable Costs/Cost Principles
Audit Findings: Material Weakness, Other Matters
Condition and Context
The Elementary and Secondary School Emergency Relief (ESSER) Fund provided funding to
states and school districts to combat the effects of the coronavirus, help safely reopen and sustain the safe
operation of schools, and to address the impact of the coronavirus pandemic on the nation's students.
States were required to subgrant a portion of their ESSER allocation to Local Educational Agencies (LEA).
Prior to the LEAs receiving their respective subgrants, the LEAs were required to complete an application
for ARP ESSER funding, which was submitted to the Indiana Department of Education, the pass-through
entity for approval. The application included a district level budget identifying how the LEA intended to
spend program funds.
The School Corporation did not have internal controls in place over payroll disbursements charged
to the ESSER grant funds. Payroll disbursements were paid without evidence that the detailed report of
payroll disbursements was reviewed and approved by another person not involved in the original payroll
process.
Additionally, a sample of 40 payroll disbursements were selected for testing. For 1 payroll
disbursement selected for testing, the employee's timesheet could not be provided. As such, we could not
substantiate the amount paid, $1,094, out of the grant funds. This amount was considered questioned
costs.
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 200.403 states in part:
"Except where otherwise authorized by statute, costs must meet the following general criteria
in order to be allowable under Federal awards:
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(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 allocated using different allocation bases; or an
unallowable activity and a direct or indirect costs activity. . . ."
Cause
A proper system of internal controls was not designed by management of the School Corporation,
which would include segregation of key functions. Embedded within a properly designed and implemented
internal control system should be internal controls consisting of policies and procedures. Policies reflect
the School Corporation's management statements of what should be done to effect internal control, and
procedures should consist of actions that would implement these policies.
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, payroll charges could not be substantiated.
Questioned Costs
Known questioned costs of $1,094 were identified as noted in the Condition and Context.
Recommendation
We recommended that management of the School Corporation establish a proper system of
internal controls and develop policies and procedures to ensure costs are adequately documented.
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Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.