Finding Text
FINDING 2023-002
Subject: Child Nutrition Cluster - Internal Controls
Federal Agency: Department of Agriculture
Federal Programs: School Breakfast Program, National School Lunch Program
Assistance Listings Numbers: 10.553, 10.555
Federal Award Number and Year (or Other Identifying Number): FY 2022 / FY 2023
Pass-Through Entity: Indiana Department of Education
Compliance Requirements: Activities Allowed and Unallowed, Allowable Costs/Cost
Principles, Special Tests and Provisions - Verification
of Free and Reduced Price Applications (NSLP)
Audit Finding: Material Weakness
Repeat Finding
This is a repeat finding from the prior audit report for Special Tests and Provisions - Verification of
Free and Reduced Price Applications (NSLP). The prior audit finding number was 2021-002.
INDIANA STATE BOARD OF ACCOUNTS 16
NORTHWESTERN CONSOLIDATED SCHOOL DISTRICT OF SHELBY COUNTY
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Condition and Context
The School Corporation had not designed nor implemented internal controls that would likely be
effective in preventing, or detecting and correcting, noncompliance related to the following compliance
requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Special Tests and
Provisions - Verification of Free and Reduced Price Applications (NSLP).
Activities Allowed or Unallowed and Allowable Costs/Cost Principles
The School Corporation entered into a cost-reimbursement contract with a food service
management company (FSMC) to oversee the School Corporation's food service operations.
Some food service personnel paid with program funds were employees of the FSMC, not the
School Corporation. The FSMC billed the School Corporation for the personnel on a regular
basis. There was no documented oversight or review process in place to ensure that the
amounts billed for personnel were allowable activities and were in conformance with the
applicable cost principles for the child nutrition program.
Special Tests and Provisions - Verification of Free and Reduced Price Applications (NSLP)
The School Corporation relied on the food service management company to perform verification
procedures of free and reduced price applications, as required by federal regulations.
There was no documented oversight or review process by the School Corporation to ensure
that the verifications were properly performed by the food service management company.
The lack of internal controls over Activities Allowed or Unallowed and Allowable Costs/Cost
Principles was a systemic issue throughout the audit period. The lack of internal controls over
Special Tests and Provisions - Verification of Free and Reduced Price Applications (NSLP)
was isolated to fiscal year 2021-2022.
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). . . ."
Cause
A proper system of internal controls was not implemented 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
controls, and procedures should consist of actions that would implement these policies.
INDIANA STATE BOARD OF ACCOUNTS
17
NORTHWESTERN CONSOLIDATED SCHOOL DISTRICT OF SHELBY COUNTY
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Effect
Without the proper design or implementation of the components of a system of internal controls,
including policies and procedures that provide segregation of duties and additional oversight as needed,
the internal control system cannot be capable of effectively preventing, or detecting and correcting, material
noncompliance.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that management of the School Corporation design and implement a proper
system of internal controls, including policies and procedures that would provide segregation of duties to
ensure appropriate reviews, approvals, and oversight are taking place.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.