Adrian Public Schools

Finding Type. Immaterial Noncompliance; Significant Deficiency in Internal Controls over Compliance (Procurement). Federal program(s) U.S. Department of Agriculture - Child Nutrition Cluster (ALN 10.553, 10.555, 10.559, and 10.582); Passed through the Michigan Department of Education; All project numbers. Criteria. The District's purchasing policy states that some form of competitive bidding based upon adequate and complete specifications will be implemented for all purchases projected to exceed $10,000. Condition. During the fiscal year 2024-2025, the District utilized the Michigan Department of Education (MDE) competitive bidding threshold of $30,512 when procuring supplies and equipment using the Child Nutrition Cluster funds. However, the federal small purchase threshold was $10,000, and the simplified acquisition threshold was $250,000 during the same period. The District did not obtain the required number of quotes or bids for purchases exceeding the federal small purchase threshold, but below the MDE threshold. Cause. The District relied solely on state guidance for procurement thresholds and did not adequately consider federal requirements applicable to purchases made with federal funds. Effect. The District was not in compliance with federal procurement regulations. This could result in questioned costs and potential repayment of federal funds if deemed unallowable. Questioned Costs. No costs have been questioned as a result of this finding inasmuch as no unallowable costs were identified. Recommendation. We recommend the District revise its procurement policies to clearly distinguish between state and federal requirements and ensure that federal thresholds are applied when expending federal funds. View of Responsible Officials. The District will be communicating and reviewing all Federal purchases to ensure that any purchases between $10,000 and $250,000 follow Board Policy 3301A. The District mistakenly applied the State bidding threshold for Federal purchases that fell between the micro purchase threshold ($10,000) and the State of MI bidding threshold ($30,512). Responsible Official. Daniel Peña, Chief Financial Officer Estimated Completion Date. June 30, 2026

2023-002 – Eligibility Finding Type. Immaterial Noncompliance; Significant Deficiency in Internal Control over Compliance (Eligibility). Federal program(s) U.S. Department of Agriculture - Child Nutrition Cluster (ALN 10.CNC); Passed through MDE; All project numbers Criteria. Recipients of federal awards are responsible for compliance with various requirements in accordance with the Uniform Guidance and the award agreement. The Child Nutrition Cluster requires that students receiving free or reduced rate meals meet certain income guidelines, unless they are categorically eligible by being homeless, a migrant, or a runaway. Eligibility determinations should be supported by an application or other documentation. Condition. In our sample of 40 applications from all students receiving free or reduced cost meals during the year, we noted one instance in which the student's eligibility determination was not supported by a properly completed application or direct certification. Cause. This condition appears to be the result of inadequate document retention and organization policies. Effect. As a result of this condition, the District requested grant reimbursements without the proper support. Questioned Costs. No costs have been questioned as a result of this finding inasmuch as no unallowable costs were identified. Recommendation. We recommend that management ensures all documentation is retained and properly supports the determination for all free and reduced lunch applications and direct certification lists. View of Responsible Officials. The Food Services Director will verify that the documentation supports the determination for all free and reduced lunch applications and direct certification lists. All documentation will be kept on file in the Food Services Director's Office for no less than the current fiscal year plus three years as required by the Michigan Department of Education. Responsible Official. Food Service Director and Business Manager Estimated Completion Date. June 30, 2024

2023-003 – Inaccurate Reporting/Lack of Independent Review and Approval of Reporting Finding Type. Immaterial Noncompliance; Significant Deficiency in Internal Control over Compliance (Reporting). Federal program(s) U.S. Department of Agriculture – Child Nutrition Cluster (ALN 10.CNC); Passed through MDE; All project numbers Criteria. Recipients of federal awards are required to report periodically on financial information, as specified by the 2 CFR 200 Compliance Supplement or grant agreement. Reported information should be supported by the entity’s accounting records and subjected to an independent review and approval prior to submission in order to detect and correct any errors or omissions. Condition. During our audit procedures over the District's reporting process, we noted that none of the claim requests selected for testing were subject to an independent review and approval process. We also noted that one out of the three reports selected for testing had the incorrect number of snack meals. Cause. This condition is the result of management not recognizing the importance of establishing such controls. Effect. As a result of this condition, the District did not comply fully with the reporting requirements under this federal award. In addition, the District was exposed to an increased risk that the reports filed could contain errors and not be detected and corrected on a timely basis. Questioned Costs. No costs have been questioned as a result of this finding inasmuch as no unallowable costs were identified. Recommendation. We recommend that the District establish procedures to ensure that the number of meals being submitted for reimbursement agrees to the actual meal counts, and that all reports are subject to review and approval by an independent employee prior to submission. View of Responsible Officials. The Food Services Director will review and total actual meal counts monthly, and the Food Services Administrative Assistant will review and verify the actual meal counts. The Business Manager will review and verify the monthly meal count after it is filed with the Business Office each month. Responsible Official. Food Service Director and Business Manager Estimated Completion Date. June 30, 2024

2020-001 ? Program Income - Food Service Fund Balance Finding Type. Immaterial Noncompliance Federal program(s) U.S. Department of Agriculture Child Nutrition Cluster (CFDA# 10.553, 10.555 and 10.559); Passed through MDE; All project numbers Criteria. The USDA requires that the ending balance of the non-profit school food service fund does not exceed three months? average of operating expenses [7 CFR Part 210.14(b)]. Condition. As of June 30, 2020, the District's fund balance exceeded three months' average of operating expenses. Cause. This condition appears to be the result of the District's conservative budgeting of expenditures by management, and additional revenue received in fiscal year 2020 related to COVID-19. Effect. As a result of this condition, the District did not fully comply with USDA fund balance requirements. Questioned Costs. No costs have been questioned as a result of this finding. Recommendation. We recommend the District review its budgeting of expenditures for the food service fund to ensure that fund balance is reduced to an appropriate level. View of Responsible Official. The District is aware of the USDA fund balance requirements. The Food Service Director and Assistant Superintendent will create a spenddown plan to be submitted to MDE to get the fund balance within an allowable range. Responsible Officials. Assistant Superintendent Estimated Completion Date. June 30, 2021

2019-001 ? Allowable Costs/Cost Principles Finding Type. Immaterial Noncompliance; Significant Deficiency in Internal Controls over Compliance Federal program(s) U.S. Department of Agriculture Child Nutrition Cluster (CFDA# 10.553, 10.555 and 10.559); Passed through MDE; All project numbers Criteria. The Michigan Department of Education (MDE) requires the District to obtain prior written approval from MDE before incurring the cost of a capital expenditure related to its school nutrition program. MDE requires a purchase request to be submitted for capital expenditures that exceed $5,000 and are not on the MDE pre-approved capital expenditure list. Condition. The District purchased a transit van and a lift gate for the van that were capitalized in fiscal year 2019. The van and the lift gate were not on the MDE pre-approved capital expenditure list and a purchase request was not submitted to MDE before incurring the costs. Cause. While the District was aware of the requirement to obtain pre-approval for food service equipment purchases, the District was not aware that pre-approval was also required for other capital expenditures charged to the food service fund, such as the vehicles and related equipment noted here. Effect. As a result of this condition, the District was exposed to increased risk that disbursements of federal awards could be made for unallowable costs. Questioned Costs. The costs related to equipment purchases that were not pre-approved by MDE totaled $12,980 for the transit van and $15,849 for the lift gate. Recommendation. We recommend that the District review its written policies and procedures over federal awards to ensure that all disbursements have the appropriate documentation and approval prior to incurring costs related to capital expenditures. View of Responsible Official. The Assistant Superintendent reviewed the information with the Food Service Director to ensure all parties are aware of the MDE requirement. The 2019-20 procedures will be updated to ensure compliance.

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