Middlebury Community SchoolsLocal Government

FINDING 2024-002 Subject: Title I Grants to Local Educational Agencies - Eligibility Federal Agency: Department of Education Federal Program: Title I Grants to Local Educational Agencies Assistance Listings Number: 84.010 Federal Award Numbers and Years (or Other Identifying Numbers): S010A210014, S010A230014, S010A220014 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Eligibility Audit Finding: Material Weakness Condition and Context The School Corporation submits the October Real Time Data (RT) report each year to the Indiana Department of Education. This data is used to report the School Corporation's enrollment and poverty (socioeconomic) status of the students enrolled in each school. The annual Pupil Enrollment count is a compilation of data from all RT and Enrollment and Mobility reports, for public and non-public schools respectively, which then becomes the official enrollment count for each school. This compiled data populates the socioeconomic status counts on the Eligible School Summary of the Title I applications for the School Corporation, which determines group eligibility for the program. The School Corporation had not designed or implemented a system of internal controls that included an oversight or review process to prevent or detect student socioeconomic status count errors on the Eligible School Summary of the Title I applications for the School Corporation. The lack of internal controls was a systemic issue that occurred 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). . . ." Cause The socioeconomic status counts on the Eligible School Summary of the Title I application were prepopulated and, as such, the grant specialist believed the data was correct and did not perform a review to ensure its accuracy. Effect Without a proper review of the data, the socioeconomic counts in the Title I application could be incorrect. Incorrect data in the Title I application could lead to an incorrect determination of Title I eligibility. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish a system of internal controls, including segregation of duties, related to the grant agreement and the eligibility compliance requirements. An internal control system, including segregation of duties, should be designed and operate effectively to provide reasonable assurance that material noncompliance with the grant agreement or a compliance requirement of a federal program will be prevented, or detected and corrected, on a timely basis. In order to have an effective internal control system, it is important to have proper segregation of duties. This is accomplished by making sure proper oversight, reviews, and approvals take place and to have a separation of functions over certain activities related to the program. The fundamental premise of segregation of duties is that an individual or small group of individuals should not be in a position to initiate, approve, undertake, and review the same activity. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2024-003 Subject: Title I Grants to Local Educational Agencies - Earmarking Federal Agency: Department of Education Federal Program: Title I Grants to Local Educational Agencies Assistance Listings Number: 84.010 Federal Award Number and Year (or Other Identifying Number): S010A210014 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Matching, Level of Effort, Earmarking Audit Findings: Material Weakness, Other Matters Condition and Context Homeless children and youth are automatically eligible for services under Title I, Part A, whether or not they live in a Title I school attendance area or meet the academic standards required of other children for eligibility. The School Corporation is required to reserve (set-aside) the funds necessary to provide homeless children services comparable to services provided in Title I, Part A schools. The set-aside is to be a reasonable amount of funds to meet the needs of the homeless population in the school community. At the end of each grant period, if the School Corporation's obligation to provide services to students experiencing homelessness has been met, but the amount needed to meet that obligation was less than the amount the school had reserved, the school may carry over those unused funds to support any allowable Title I, Part A activities in the next school year. However, if at the end of each grant period the School Corporation's obligation to provide services has not been met, the funds must be carried over to the next school year to provide services to those students experiencing homelessness, in addition to reserving funds from that next school year's grant award for that purpose. The 2021-2022 grant award homeless reservation was $8,600. The School Corporation did not spend any of the funds, but was determined to have met its obligation based on documentation provided. However, through inspection of the final grant report, it was determined that $276 of the $8,600 was used inappropriately in the current school year for other Title I, Part A activities and not for the needs of the homeless student population. The lack of internal controls and noncompliance were isolated to the 2022-2023 school year. 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 200.400 states in part: "The application of these cost principles is based on the fundamental premises that: (a) The recipient and subrecipient are responsible for the efficient and effective administration of the Federal award through sound management practices. (b) The recipient and subrecipient are responsible for administering Federal funds in a manner consistent with Federal statutes, regulations, and the terms and conditions of the Federal award. . . ." 20 USC 6313(c)(3)(A) states: "A local educational agency shall reserve such funds as are necessary under this part, determined in accordance with subparagraphs (B) and (C), to provide services comparable to those provided to children in schools funded under this part to serve - (i) homeless children and youths, including providing educationally related support services to children in shelters and other locations where children may live; (ii) children in local institutions for neglected children; and (iii) if appropriate, children in local institutions for delinquent children, and neglected or delinquent children in community day programs." Cause Total expenditures for the grant were not adequately monitored to ensure funds from the homeless reservation were not spent on other activities. Effect A portion of the homeless reservation was spent on activities not related to the homeless population. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish a system of internal controls, including segregation of duties, related to the grant agreement and the earmarking compliance requirements. An internal control system, including segregation of duties, should be designed and operate effectively to provide reasonable assurance that material noncompliance with the grant agreement or a compliance requirement of a federal program will be prevented, or detected and corrected, on a timely basis. In order to have an effective internal control system, it is important to have proper segregation of duties. This is accomplished by making sure proper oversight, reviews, and approvals take place and to have a separation of functions over certain activities related to the program. The fundamental premise of segregation of duties is that an individual or small group of individuals should not be in a position to initiate, approve, undertake, and review the same activity. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2022-001 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Procurement Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, COVID-19 - School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program Assistance Listings Numbers: 10.553, 10.555 Federal Award Numbers and Years (or Other Identifying Numbers): SY 2020-2021, SY 2021-2022 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Procurement and Suspension and Debarment Audit Finding: Material Weakness Condition and Context An effective internal control system was not designed nor implemented at the School Corporation to ensure compliance with requirements related to the grant agreement and the Activities Allowed or Unallowed, the Allowable Costs/Cost Principles, and the Procurement and Suspension and Debarment compliance requirements. The School Corporation had not established an effective system of internal controls over vendor payments disbursed out of the School Lunch fund. The Director of Food Service was to receive invoices to be paid from the School Lunch Fund for review and approval. However, there was no consistent evidence of the Director of Food Service's review, or review by a person knowledgeable of the grant requirements. The lack of internal controls was a systemic issue 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). . . ." Cause Management had not developed nor implemented a system of internal controls that would have ensured compliance with the grant agreement and the Activities Allowed or Unallowed, the Allowable Costs/ Cost Principles, and the Procurement and Suspension and Debarment compliance requirements. INDIANA STATE BOARD OF ACCOUNTS 14 MIDDLEBURY COMMUNITY SCHOOLS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect The failure to establish an effective system of internal controls placed the School Corporation at risk of noncompliance with the grant agreement and the Activities Allowed or Unallowed, the Allowable Costs/Cost Principles, and the Procurement and Suspension and Debarment compliance requirements. Questioned Costs There were no question costs identified. Recommendation We recommended that the School Corporation's management establish a system of internal controls related to the grant agreement and the Activities Allowed or Unallowed, the Allowable Costs/Cost Principles, and the Procurement and Suspension and Debarment compliance requirements.

FINDING 2020-002 Subject: Child Nutrition Cluster - Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Program Income Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program CFDA Numbers: 10.553, 10.555 Federal Award Number and Year (or Other Identifying Number): FY 18-19 Pass-Through Entity: Indiana Department of Education Compliance Requirements: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Program Income Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2018-004. Condition and Context An effective internal control system was not in place at the School Corporation to ensure compliance with requirements related to the grant agreement and the Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Program Income compliance requirements. The School Corporation paid salaries/wages for management, secretary, custodian, and bookkeeper positions, which were allocated to the School Lunch fund based on fixed percentages during fiscal year 2018-2019. There was no supporting documentation to indicate how the percentages were determined. Adequate time and effort records were not maintained to support the time charged to the federal award. We consider the wages paid in the amount of $108,063 to be questioned costs. The lack of internal controls and noncompliance were isolated to 2018-2019. 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. . . ." 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 are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. . . ." 7 CFR 220.7(e) states in part: "Each school food authority approved to participate in the program shall enter into a written agreement with the State agency or the Department through the FNSRO, as applicable, that may be amended as necessary. . . . Such agreements shall provide that the School Food Authority shall, with respect to participating schools under its jurisdiction: . . . (ii) In accordance with the financial management system established under ? 220.13(i) of this part, use all revenues received by such food service only for the operation or improvement of that food service . . ." 7 CFR 210.14(a) states in part: "Nonprofit school food service. School food authorities shall maintain a nonprofit school food service. Revenues received by the nonprofit school food service are to be used only for the operation or improvement of such food service, except that, such revenues shall not be used to purchase land or buildings, unless otherwise approved by FNS, or to construct buildings. Expenditures of nonprofit school food service revenues shall be in accordance with the financial management system established by the State agency under ? 210.19(a) of this part. . . ." Cause Management had not developed a system of internal controls that would have ensured compliance with the Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Program Income compliance requirements. Effect The failure to establish an effective internal control system enabled material noncompliance to go undetected. Noncompliance with the grant agreement and the Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Program Income compliance requirements could have resulted in the loss of federal funds to the School Corporation. Questioned Costs Questioned costs identified totaled $108,063. Recommendation We recommended that management of the School Corporation establish effective internal controls and comply with the grant agreement and the Activities Allowed or Unallowed, Allowable Costs/Cost Principles, and Program Income compliance requirements. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2020-003 Subject: Special Education Cluster (IDEA) - Activities Allowed or Unallowed, Allowable Costs/Cost Principles Federal Agency: Department of Education Federal Programs: Special Education Grants to States, Special Education Preschool Grants CFDA Numbers: 84.027, 84.173 Federal Award Numbers and Years (or Other Identifying Numbers): 18611-014-PN01, 19611-014-PN01, 18619-014-PN01, 19619-014-PN01 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 An effective internal control system was not in place at the School Corporation to ensure compliance with requirements related to the grant agreement and the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. The School Corporation was a member of the Elkhart County Special Education Cooperative (Cooperative). The Cooperative operated the special education programs on behalf of the School Corporation. Because the grant agreements were between the Indiana Department of Education and the School Corporation, the School Corporation was ultimately responsible for compliance with the grant agreement and the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. The Cooperative provided special education services to its participating member school corporations and billed each school on expenditures paid with Cooperative funds during the audit period. The total amount billed to each school corporation exceeded the grant allocation, therefore, member schools paid the Cooperative bills with local, state, and federal funds. The Cooperative accounted for all expenditures in a single fund, which did not account for each of the funding sources or identify expenditures by federal program, award numbers, or years. The Cooperative was not able to provide records that would support the activities performed by the employees whose salaries were charged in whole or in part to the grant, or for transfers made from grant funds. Due to the lack of documentation for two transfers, approximately 13 percent of expenditures, we were unable to determine if the expenses associated with the transfers were for activities and costs allowable to the federal program. The transfers were considered questioned costs. The lack of internal controls, noncompliance, and failure to maintain adequate supporting documentation of program costs 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: . . . (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 are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. . . ." Cause Management had not developed a system of internal controls that would have ensured compliance, maintenance, and availability of supporting documentation with the grant agreement and the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. Effect The failure to establish an effective internal control system and retain and provide appropriate supporting documentation for transfers prevented the determination of the School Corporation's compliance with the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. Questioned Costs Known questioned costs of $2,256,865 were identified. Recommendation We recommended that the School Corporation's management establish internal controls to ensure that documentation will be maintained and made available for audit and to ensure compliance with the grant agreement and the Activities Allowed or Unallowed and Allowable Costs/Cost Principles compliance requirements. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2020-004 Subject: Special Education Cluster (IDEA) - Procurement and Suspension and Debarment Federal Agency: Department of Education Federal Programs: Special Education Grants to States, Special Education Preschool Grants CFDA Numbers: 84.027, 84.173 Federal Award Numbers and Years (or Other Identifying Numbers): 18611-014-PN01, 19611-014-PN01, 18619-014-PN01, 19619-014-PN01 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Condition and Context An effective internal control system was not in place at the School Corporation to ensure compliance with requirements related to the grant agreement and the Procurement and Suspension and Debarment compliance requirement. The School Corporation was a member of the Elkhart County Special Education Cooperative (Cooperative). The Cooperative operated the special education programs on behalf of the School Corporation. Because the grant agreements were between the Indiana Department of Education and the School Corporation, the School Corporation was ultimately responsible for compliance with the grant agreement and the Procurement and Suspension and Debarment compliance requirement. The School Corporation did not have adequate procedures in place to ensure that the Cooperative complied with the procurement of small purchases or ensure that applicable vendors who received federal funds were not suspended or debarred from participation in federal award programs for those contracts procured by the Cooperative. Procurement - Small Purchases The Cooperative did not obtain an adequate number of price or rate quotes to ensure full and open competition for procurements under the small purchase threshold. Of the eleven vendors sampled that fell under the small purchases threshold, five did not have proper procurement procedures in place. Suspension and Debarment The Cooperative entered into contracts during the audit period but did not perform procedures to ensure compliance with requirements regarding verification that these vendors were not suspended or debarred from participation in federal programs. 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 200.318(a) states: "The non-Federal entity must use its own documented procurement procedures which reflect applicable State, local, and tribal laws and regulations, provided that the procurements conform to applicable Federal law and the standards identified in this part." 2 CFR 200.320 states in part: "The non-Federal entity must use one of the following methods of procurement. . . . (b) Procurement by small purchase procedures. Small purchase procedures are those relatively simple and informal procurement methods for securing services, supplies, or other property that so not cost more that the Simplified Acquisition Threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources. . . . (f) Procurement by noncompetitive proposals. Procurement by noncompetitive proposals is procurement through solicitation of a proposal from only one source and may be used only when one or more of the following circumstances apply: (1) The item is available only from a single source; (2) The public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation; (3) The Federal awarding agency or pass-through entity expressly authorizes noncompetitive proposals in response to a written request from the non-Federal entity; or (4) After solicitation of a number of sources, competition is determined inadequate." 2 CFR 180.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause The School Corporation's management had not developed a system of internal controls that would have ensured compliance with the Procurement and Suspension and Debarment compliance requirement. Effect The failure to establish an effective internal control system enabled material noncompliance to go undetected. Noncompliance with the grant agreement and the Procurement and Suspension and Debarment compliance requirement could have resulted in the loss of federal funds to the School Corporation. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish effective internal controls to ensure compliance and comply with the grant agreement and the Procurement and Suspension and Debarment compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

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