Finding Text
FINDING 2023-005
Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles
Federal Agency: Department of Agriculture
Federal Programs: School Breakfast Program, National School Lunch Program,
Summer Food Service Program for Children
Assistance Listings Numbers: 10.553, 10.555, 10.559
Federal Award Numbers and Years (or Other Identifying Numbers): FY 2022, FY 2023
Pass-Through Entity: Indiana Department of Education
Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles
Audit Findings: Material Weakness, Other Matters
Condition and Context
An effective system of internal controls which would include segregation of duties that would likely
be effective in preventing, or detecting and correcting, noncompliance should be designed and implemented
to ensure expenditures charged to the food service program fund (School Lunch fund) are for the benefit
of the food service program.
The School Corporation's payroll disbursements were prepared by the Payroll Clerk without a
documented review or approval process to prevent, or detect and correct, errors. In addition, vendor claims
were to be reviewed and approved by the Treasurer and the School Board. Of the 40 vendor claims
selected for testing to ensure the internal control was in place and operating effectively, 3 claims did not
have documentation of approval by the Treasurer or the School Board.
In addition, the total amount of trash removal services for the School Corporation was paid from
the School Lunch fund. The total amount charged to the School Lunch fund was $15,448. This amount
was considered questioned costs.
The lack of internal controls over payroll and vendor claims was a systemic issue throughout the
audit period. The noncompliance was isolated to the payments for trash removal services.
INDIANA STATE BOARD OF ACCOUNTS 22
RANDOLPH EASTERN SCHOOL CORPORATION
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 200.403 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. . . ."
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, costs for trash removal were incorrectly charged to the food service program.
Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of
the federal award could result in the loss of future federal funding to the School Corporation.
Questioned Costs
Known questioned costs of $15,448 were identified as detailed in the Condition and Context.
Recommendation
We recommended the School Corporation's management establish a proper system of internal
controls and develop policies and procedures to ensure costs are adequately documented.