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FINDING 2022-003Subject: Child Nutrition Cluster - Allowable Costs/Cost PrinciplesFederal Agency: Department of AgricultureFederal Programs: School Breakfast Program, COVID-19 - School Breakfast Program, National SchoolLunch Program, Summer Food Service Program for Children, COVID-19 - NationalSchool Lunch Program, COVID-19 - Summer Food Service Program for ChildrenAssistance Listings Numbers: 10.553, 10.555, 10.559Federal Award Numbers and Years (or Other Identifying Numbers): FY21, FY22Pass-Through Entity: Indiana Department of EducationCompliance Requirement: Allowable Costs/Cost PrinciplesAudit Findings: Material Weakness, Other MattersCondition and ContextAn effective internal control system was in place at the School Corporation to ensure compliancewith requirements related to the grant agreement and the Allowable Costs/Cost Principles compliancerequirement.The School Corporation was approved for an indirect cost rate for fiscal years 2018-2019 and2019-2020 in order to allocate indirect costs to the School Corporation's Cafeteria fund. However, theSchool Corporation did not charge these indirect costs within the appropriate time frame. Indirect costs for2018-2019 and 2019-2020 in the amount of $15,717 and $17,456, respectively, were not charged to theCafeteria fund until March 2021. Per USDA guidance, it is unallowable to bill the National School FoodService Account (NSFSA) for indirect costs that were paid from the general fund in prior years unless anagreement exists to show that the district had been "loaning" the NSFSA funds to cover the indirect costsin one or more prior years. The School Corporation did not have an inter-fund loan agreement in place.As such the amounts were considered questioned costs.The lack of internal controls and noncompliance were isolated to the indirect costs noted above.INDIANA STATE BOARD OF ACCOUNTS20BLACKFORD COUNTY SCHOOLSSCHEDULE OF FINDINGS AND QUESTIONED COSTS(Continued)Criteria2 CFR 200.303 states in part:"The non-Federal entity must:(a) Establish and maintain effective internal control over the Federal award that providesreasonable assurance that the non-Federal entity is managing the Federal award incompliance with Federal statutes, regulations, and the terms and conditions of the Federalaward. These internal controls should be in compliance with guidance in 'Standards forInternal Control in the Federal Government' issued by the Comptroller General of theUnited States or the 'Internal Control Integrated Framework', issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). . . ."USDA Indirect Costs, Guidance for State Agencies & School Food Authorities states in part:" . . . It is unallowable to bill the NSFSA for indirect costs that were paid form the general fundin prior years unless an agreement exists to sow that the district had been 'loaning' the NSFSAfunds to cover the indirect costs in one or more prior years. . . . There is no Federal requirementthat prohibits an SFA from charging its internal fiscal policy regarding the recovery of indirectcosts by those organizational units within the SFA that actually incur costs. Absent adocumented 'inter-fund loan' as outlined above, however, an SFA may only change its policyto charge the NSFSA for indirect costs prospectively (that is going forward for the next schoolyear.)It is unallowable to bill the NSFSA for indirect costs that were previously paid from the generalfund unless an agreement exists to show that the district had been 'loaning' the NSFSA fundsto cover the indirect costs in one or more prior years. . . ."2 CFR 200.403 states in part:"Except where otherwise authorized by statute, costs must meet the following general criteriain order to be allowable under Federal awards:(a) Be necessary and reasonable for the performance of the Federal award and beallocable thereto under these principles.(b) Conform to any limitations or exclusions set forth in these principles or in the Federalaward as to types or amount of cost items. . . .(g) Be adequately documented. . . ."CauseManagement had not established a system of internal controls that would have ensured compliancewith the grant agreement and the Allowable Costs/Cost Principles compliance requirement.INDIANA STATE BOARD OF ACCOUNTS21BLACKFORD COUNTY SCHOOLSSCHEDULE OF FINDINGS AND QUESTIONED COSTS(Continued)EffectThe failure to establish an effective system of internal controls enabled noncompliance to go undetected.Noncompliance with the grant agreement and the Allowable Costs/Cost Principles compliancerequirement could result in the loss of future federal funds to the School Corporation.Questioned CostsKnown questioned costs of $33,173 were identified as noted in the Condition and Context.RecommendationWe recommended that the School Corporation's management establish a system of internal controlsto ensure compliance with the grant agreement and the Allowable Costs/Cost Principles compliancerequirement.Views of Responsible OfficialsFor the views of responsible officials, refer to the Corrective Action Plan that is part of this report.