Finding Text
FINDING 2023-007
Subject: COVID-19 - Education Stabilization Fund - Activities Allowed or
Unallowed, Allowable Costs/Cost Principles
Federal Agency: Department of Education
Federal Program: COVID-19 - Education Stabilization Fund
Assistance Listings Number: 84.425D
Federal Award Numbers and Years (or Other Identifying Numbers): S425D200013
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 properly designed or implemented a system of internal controls,
which would include appropriate segregation of duties, that would likely be effective in preventing, or detecting
and correcting, noncompliance to ensure adjustments for payroll were allowed and in conformance with
the cost principles.
Adjustments were made to payroll disbursement activity between Education Stabilization Fund
(ESF) funds. Support for these adjustments was traced to the School Corporation's records to verify the
gross payroll activity was properly moved. One adjustment, totaling $27,824, could not be verified. The
supporting documentation for this adjustment exceeded the amount of the transaction. Inquiry with School
Corporation officials and review of the documentation determined that the amount transferred was based
on the remaining grant budget amounts instead of actual payroll disbursements. The $27,824 is considered
questioned costs.
The ineffective internal controls and noncompliance was limited to the item noted above for the
S425D200013 grant award.
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). . . ."
INDIANA STATE BOARD OF ACCOUNTS 27
LAKE RIDGE SCHOOLS
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
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 200.400 states in part:
"The application of these cost principles is based on the fundamental premises that: . . .
(d) The application of these cost principles should require no significant changes in the
internal accounting policies and practices of the non-Federal entity. However, the
accounting practices of the non-Federal entity must be consistent with these cost principles
and support the accumulation of costs as required by the principles, and must provide for
adequate documentation to support costs charged to the Federal award. . . ."
Cause
A proper system of internal controls was not designed by management of the School Corporation.
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 controls, 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, a transfer adjustment was made from one Education Stabilization Fund to
another without underlying supporting documentation.
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 $27,824 were identified as detailed 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 included in the approved budget,
are only requested once, and are not retained if received in error.
INDIANA STATE BOARD OF ACCOUNTS
28
LAKE RIDGE SCHOOLS
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.