CRAZY HORSE SCHOOL

#2025-002 FINDING: Financial Statement and Schedule of Expenditure of Federal Awards (SEFA) Preparation and Audit Adjustments Federal Program Affected: All major federal programs Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: As a matter of practicality and efficiency, we have assisted in drafting the financial statements and schedule of expenditures of federal awards, in both form and content, based on information provided by management during the audit. In addition, material audit adjustments were approved and recorded by management. The School did not have an internal control process to prepare the financial statements and SEFA. In addition, material audit adjustments were approved and recorded by management. These adjustments resulted in an approximate $622,000 increase in fund balance. Criteria and Effect: Management and those charged with governance are ultimately responsible for adjusting account balances and preparing and presenting the financial statements and SEFA in accordance with the applicable financial reporting framework. The auditor’s responsibility for the financial statements is to express an opinion on them based on the audit evidence obtained. Repeat Finding from Prior Year: Yes, Finding #2024-002 Recommendation: Management and if applicable, governance, should review the financial statements, SEFA, and audit adjustments for accuracy of account balances and context of note disclosures. Management and governance should inquire of the auditors about any balances or disclosures which management does not understand or cannot reconcile to internal records prior to signing the management representation letter. Response/Corrective Action Plan: See Corrective Action Plan.

#2025-003 FINDING: Grant Tracking Federal Program Affected: Substance Abuse and Mental Health Projects of Regional and National Significance (ALN 93.243) Compliance Requirement: Period of Performance Questioned Costs: None due to adjustments Condition and Cause: An adjustment was made to a three-year prepaid curriculum subscription charged to the Substance Abuse and Mental Health Projects of Regional and National Significance. The prepaid expense was erroneously charged to the program in the amount of $82,000. Criteria and Effect: The SEFA is prepared on the accrual basis of accounting and only expenditures incurred are eligible for reimbursement. The current internal control structure did not identify the errors in draw down request for reimbursement-based federal programs during the year. This could have resulted in material noncompliance. Repeat Finding from Prior Year: Yes, #2024-003 Recommendation: Curriculum subscriptions are allowable under the grant, however, only the amount actually incurred as an expenditure during the period should be charged to the grant period. Response/Corrective Action Plan: See Corrective Action Plan.

#2025-004 FINDING: Documentation of Internal Controls Federal Program Affected: All major federal programs Compliance Requirement: Allowable Costs, Special Tests and Provisions, Procurement and Suspension and Debarment Questioned Costs: None Condition and Cause: Although discussions with management indicate controls are in place, the School was unable to provide internal documentation verifying the existence of the following internal control processes: • Stipends and Bonus Pay: The School provided in excess of $775,000 in stipend, incentive, and bonus pay to employees. The School was not able to provide support for School Board approval of all forms of special payments to employees. • Journal Entries: Documentation was not retained to support proper review of journal entries prior to posting. • Bank Reconciliation: Documentation was not retained to support proper review of monthly bank reconciliations. • While cash accounts were properly collateralized and documentation is maintained for one bank account regarding adequate collateralization, documentation supporting internal controls for bank collateralization for several other bank accounts was not maintained. • A search for suspended and debarred vendors was not performed for one contracted instructor paid in excess of $25,000 from the Substance Abuse and Mental Health projects of Regional and National Significance program and for one vendor from the Administrative Cost Grants for Indian Schools program. • The School was not submitting timely reimbursement requests for reimbursement-based grants. • The School was not reconciling balances to underlying subsidiary listings resulting in material audit adjustments. See finding 2025-002. Criteria and Effect: Records of approval of special pay should be maintained and retained by the business office. Without this documentation, it creates an opportunity for misappropriation of funding. Journal entries should be reviewed prior to posting and this review should be documented. Bank reconciliations should be reviewed upon completion, and this review should be documented. Retaining documentation of approvals supports the monitoring function necessary for proper segregation of duties. If bank accounts were not properly collateralized, it could result in noncompliance. Uniform Guidance requires that any covered transactions expected to exceed $25,000 must be searched for through the list of suspended and debarred vendors on Sam.gov. A contracted instructor and vendor for professional services meets the definition of a covered transaction. Failure to request reimbursement timely impacts the availability of federal funds. Repeat Finding from Prior Year: Yes, #2024-004 Recommendation: If special pay to employees are approved, adequate documentation must be maintained to support the activity. Additionally, we recommend that the business manager indicates her review with a signature on all bank reconciliations and journal entries prior to posting. The School should maintain documentation supporting proper collateralization for all bank accounts. The School should perform and retain support for the search of suspended and debarred vendors if there is a reasonable estimation that they will be paid in excess of $25,000. Reimbursement requests should be submitted timely to minimize the lapse of time between the reimbursement and the underlying expenditure. Management should reconcile general ledger accounts to underlying subsidiary balances. Response/Corrective Action Plan: See Corrective Action Plan.

#2025-005 FINDING: Payroll Testing Federal Program Affected: Substance Abuse and Mental Health Projects of Regional and National Significance (ALN 93.243), Indian School Equalization Program (ALN 15.042) Compliance Requirement: Allowable Costs/Activities Allowed Questioned Costs: None exceeding $25,000 Condition and Cause: The School did not have an internal control process in place to identify errors in payroll prior to being paid, resulting in one Project Aware employee being paid $600 over the approved contract and one ISEP employee underpaid due to an incorrect daily pay rate used to calculate the employee’s leave without pay deduction. The total Project Aware payroll tested was $49,953 and total payroll charged to the program was $870,515. Criteria and Effect: Employee payroll charged to federal programs must agree to employee contracts and approved timesheets. Repeat Finding from Prior Year: Yes, #2024-005 Recommendation: We recommend the School begin reconciling payroll reports to the employee contracts to ensure proper payment of payroll each period. Response/Corrective Action Plan: See Corrective Action Plan.

#2025-006 FINDING: Reporting Federal Program Affected: All major federal programs Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: The SF425 reported expenditures did not match internal records. The School did not have an internal control process in place to identify errors in program expenditures reported and actual expenditure activity per the general ledger. The report submission was filed late according to the grant agreement deadline for BIE programs. Additionally, documentation could not be obtained to support the submission of the SF425 and Sustainability Plan required by the Substance Abuse and Mental Health Projects of Regional and National Significance program. The School’s Data Collection Form was not filed by the 3/31/26 due date. Criteria and Effect: Reporting of federal program activity must agree to the recorded expenditures in the general ledger. Reporting requirements must follow the deadlines outlined by the agreements and Office of Management and Budget. Repeat Finding from Prior Year: Yes, #2024-006 Recommendation: We recommend the School begin reconciling individual program expenditure activity to the completed report before submission. We recommend timely filing submissions within the grant agreement specifications and retaining auditable documentation to support the submission. Response/Corrective Action Plan: See Corrective Action Plan.

Criteria: The School operates its education programs with grants from the federal and state government. Any advanced grant funds held by the School must be kept intact and in allowable cash accounts. Condition: In prior years, the School incurred over-expenditures in their federal funds requiring support entries to be made from the general fund. The general fund did not have the available net assets to cover these costs and as such has reported deficits in their unrestricted net assets for the prior three years. They did incur a deficit of $5,724 in the current year as they wrote off all remaining bad debts of a loan program also started in 2019. The remaining deficit in the general fund is $269,778 at June 30, 2023. Context: In the prior years the School was forced to obtain debt to help fund these over-expenditures. They also had quit making their payroll tax deposits during FY2019 as well, due to the cash flow issues. This all created a situation that the School is still dealing with. The only recourse to correct this situation is to generate income in their general fund to create positive fund balance. They have cleared all debt with the Internal Revenue Service and have a remaining balance on their cash flow loan of only $13,774. Questioned Costs: None noted. Cause: Lack of oversight and monitoring of budget and their payroll tax responsibilities in prior years resulted in significant penalties and interest charges by the Internal Revenue Service for late payments and late filings as well as the over-expenditures. The institution of an employee loan fund also added to the problem as procedures established over the loan fund by the board were not followed and there were significant bad debts incurred in 2019 and 2020. Effect: The School has spent the last three years paying off the debts incurred in prior years. They continued to carry one operating loan at year end with a balance of $13,774 for which they are making monthly payments from their general fund. The School did not have revenue in excess of expenditures in the general funds in the current year due to the bad debt write offs of $7,129 of the remaining bad loans. Identification of Prior Audit Finding: This finding is a repeat of a prior year finding 2022-001. Recommendation: We recommend the School continue to implement their plan to liquidate all remaining debt from the general fund and that they investigate new funding sources or maximizing their existing sources of revenue. We also recommend they continue a vigilant oversight of all budgets of the School to ensure this situation does not occur again. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 40.

Criteria: Internal controls including proper segregation of duties should be in place to provide reasonable assurance that all financial transactions are properly reported, and assets are safeguarded. This is essential to ensure accurate internal and external financial statements can be prepared. Management must have accurate financial information in order to monitor, control and execute decisions in the best interest of the School. All year-end adjustments should be completed prior to commencing the audit. Condition: The business staff had prepared many schedules and journals in anticipation of the year end closing and audit, but they did not actually adjust some of balance sheet accounts, before the audit commenced. From the information provided by the School we did post 15 late client entries. During our testing we also identified additional accounts needing adjustment. This process did identify several errors coming forward from prior years that had not been identified previously. Context: Many issues reported previously were corrected in the current year but there are still several closeout processes that need to be finished. A new Business Manager was hired in March of 2020. She and her new business office staff spent considerable time over the last several years correcting, researching and recording for the past years in order to complete the audits and get the School back in compliance. Cause: Dealing with many of the prior issues takes time and attention away from current duties. Effect: The effectiveness of the internal control system relies on prudent policies and enforcement by management and the Board of Education. Close out and reconciliation of all balance sheet accounts at year end is the final step of reviewing transactions and accounts to assure all errors are corrected in your accounting records. Identification of Prior Audit Findings: This finding is a repeat of prior year findings 2022-002. Recommendation: It is the School’s responsibility to determine the financial statements, schedule of expenditures of federal awards and related footnotes are free of material misstatement. The most effective controls lie in management and the Board of Education’s knowledge of the School’s financial operations. Supervision and review functions must be done continually during all phases of the accounting cycle. With a small staff in the business office, cross training becomes exceptionally important. The Business Manager should continue training with her staff and working to record all year end adjustments. These processes will improve disclosure information and the timeliness of the audits. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 40.

Criteria: Internal controls including proper segregation of duties should be in place to provide reasonable assurance that all financial transactions are properly reported, and assets are safeguarded. This is essential to ensure accurate internal and external financial statements can be prepared. Management must have accurate financial information in order to monitor, control and execute decisions in the best interest of the School. Condition: Specific areas of concern are as follows: 1)The School relies on the audit firm to determine that there are no material misstatements in the financial records and to prepare the financial statements including all required disclosures. The preparation of the financial statements is based on the School's trial balance and inquiries made to management and independent sources. The Business Manager reviews and approves underlying information and the financial statements and attempts to stay current on new governmental and accounting standards. 2)Bank reconciliations were completed but needed some adjustment to match the general ledger. In the prior year we had proposed an adjustment of $480,348 related to payments to the IRS that were not actually tendered for payment. In the prior year they were reclassified to payroll liabilities. The balance of the payments was made in the current year but the reclassification was not reversed in their books. There were several other items that were not recorded in the proper period that needed adjustments. Context: Many issues were corrected in the current year but there were some lingering problems with the Internal Revenue Service issue. Cause: COVID had also arrived in March of 2020 and the school had gone virtual for the most part for the next several years. This caused additional issues with obtaining complete information needed in a timely manner and additional problems with remote assignments and personnel not always available. A new Business Manager was hired in March of 2020. She and her new business office staff spent considerable time over the last several years correcting, researching and recording for the past years in order to complete the audits and get the School back in compliance. Effect: The effectiveness of the internal control system relies on prudent policies and enforcement by management and the Board of Education. If either element is deficient, the School?s risk of errors occurring and going undetected rises. In addition, the risk of fraudulent transactions or misappropriation of assets increases. This was seen in many bookkeeping issues to clean up. Identification of Prior Audit Findings: This finding is a repeat of prior year findings 2021-002. Recommendation: It is the School?s responsibility to determine the financial statements, schedule of expenditures of federal awards and related footnotes are free of material misstatement. The most effective controls lie in management and the Board of Education?s knowledge of the School?s financial operations. Supervision and review functions must be done continually during all phases of the accounting cycle. With a small staff in the business office, cross training becomes exceptionally important. The Business Manager should continue to assist with disclosure information and approves all adjusting entries to the trial balance. Currently, she reviews and approves all draft and final copies of the financial statements including disclosures. In light of the guidance of SAS 115, we recommend additional and continuing training for the Business Manager or designated staff. The goal is to provide the training in government financial reporting and current reporting standards to enable management to continue to take the responsibility for the statements and disclosures. The School should continue their implementation of their new financial policies and take steps to ensure they are being followed. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 41.

2021-001 FINDING: Deficit Fund Balances Criteria: The School operates its education programs with grants from federal and state government. Any advanced grant funds held by the School must be kept intact and in allowable cash accounts. Condition: In the prior years, the School incurred over-expenditures in their federal funds of $490,538 requiring support entries to be made from the general fund. The general fund did not have the available net assets to cover these costs and as such has reported deficits in their unrestricted net assets for the prior two years. No deficits were incurred in the current year but the remaining deficit in the general fund is $271,378 at the current year end. Context: In the prior years the School was forced to obtain debt to help fund these over-expenditures. They also had quit making their payroll tax deposits in prior years as well due to the cash flow issues. This all created a situation that the School is still dealing with. They must generate income in a general fund to create positive fund balance. Questioned Costs: None noted. Cause: Lack of oversight and monitoring of budget and their payroll tax responsibilities in prior years resulted in significant penalties and interest charges by the Internal Revenue Service for late payments and late filings as well as the over-expenditures. Effect: The School is working on paying off their debt. They liquidated $456,407 in debt in the current year. They continued to carry one operating loan at year end for $92,548 for which they are making monthly payments from their general fund. They also still owe the Internal Revenue Service for one quarter of taxes and the related penalties and interest. The School did have carryover in the general funds in the prior and current year. They are using these funds to help liquidate these obligations. Identification of Prior Audit Finding: This finding is a repeat of a prior year finding 2020-003. Recommendation: We recommend the School continue to implementing their plan to liquidate all remaining debt from the general fund. We also recommend they continue a vigilant oversight of all budgets of the School. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 39.

2021-002 FINDING: Internal Controls over Financial Reporting Criteria: Internal controls including proper segregation of duties should be in place to provide reasonable assurance that all financial transactions are properly reported, and assets are safeguarded. This is essential to ensure accurate internal and external financial statements can be prepared. Management must have accurate financial information in order to monitor, control and execute decisions in the best interest of the School. The School also is responsible for preparation of the financial statements, schedule of expenditures of federal awards and related footnotes. The Uniform Guidance requires the audit package to be submitted to the Federal Clearinghouse within the earlier of 30 days after receipt of the auditor's report or nine months after the end of the audit period. The Uniform Guidance requires expenditures charged to federal programs to be properly documented and approved, allowable and charged to the proper grant. The Uniform Guidance also requires documentation of hours worked. Payments made should agree to the amount on the invoices. All payroll must include time records for all hourly employees. Hours should be added correctly before input into payroll system and all contracts should be on file to document approved rate of pay. Credits or refunds should be tracked and accounted for. Condition: Specific areas of concern are as follows: 1) The School relies on the audit firm to determine that there are no material misstatements in the financial records and to prepare the financial statements including all required disclosures. The preparation of the financial statements is based on the School's trial balance and inquiries made to management and independent sources. The Business Manager reviews and approves underlying information and the financial statements and attempts to stay current on new governmental and accounting standards. 2) Though many previous issues had been corrected we still noted some issues of internal control deficiencies in the current system. All payroll should be documented with contracts, time sheets and computations of hazard pay should be documented. When over payments occur, the school needs a method to track the resolution of those types of items. 3) Bank reconciliations were completed and tied to the general ledger. In the prior year we had proposed adjustment of $480,348 related to payments to the IRS that were not actually paid. They were reclassified to payroll liabilities. Some of the payments were made in the current year but several still remain at year end. These items were reclassified again during our audit. Payments were made in the next fiscal year so we would expect this to be cleared at that point. Context: Audit reports are due to the Federal Clearinghouse no later than nine months after the close of the audit period. The accompanying audit report was due by September 30, 2022. The record retention system was much improved from prior year but there are finer points that need to be addressed as noted above. Issues from prior years such as the delinquent payroll taxes from 2019 and 2020 are still being dealt with. Cause: The business office had a new Business Manager during this time period and a new accounting manual was implemented. Several new personnel were hired. Improvements were made the current year but still some areas need to be fine-tuned such as tracking of the credits received on purchases and the proceeds of returns of merchandise. They also need to implement a system to review and check all time sheets coming into their office. COVID had also arrived in March of 2020 and the school had gone virtual for the most part. This caused additional issues with obtaining complete information needed in a timely manner and additional problems with remote assignments and personnel not always available. Due to the size of the organization, preparation of the financial statements many times requires hiring an outside accountant for assistance. Effect: The effectiveness of the internal control system relies on prudent policies and enforcement by management and the Board of Education. If either element is deficient, the School?s risk of errors occurring and going undetected rises. In addition, the risk of fraudulent transactions or misappropriation of assets increases. Identification of Prior Audit Findings: This finding is a repeat of prior year findings 2020-001. Recommendation: It is the School?s responsibility to determine the financial statements, schedule of expenditures of federal awards and related footnotes are free of material misstatement and the audit package is filed timely. The most effective controls lie in management and the Board of Education?s knowledge of the School?s financial operations. Supervision and review functions must be done continually during all phases of the accounting cycle. With a small staff in the business office, cross training becomes exceptionally important. The Business Manager assists with disclosure information and approves any adjusting entries to the trial balance. She reviews and approves all draft and final copies of the financial statements including disclosures. In light of the guidance of SAS 115, we recommend additional and continuing training for the Business Manager or designated staff. The goal is to provide the training in government financial reporting and current reporting standards to enable management to continue to take the responsibility for the statements and disclosures. The School should continue their implementation of their new financial policies and take steps to ensure they are being followed. All expenditures should be reviewed to ensure they are properly documented, coded, and the expenditures are allowable for the grant. Review of paychecks should include recalculation of hours on timesheet and leave accrual calculation. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 39. Finding 2021-002 listed in Part B relates to all major programs listed at #7 in Part A of the schedule of findings and questioned costs

2020-001 FINDING: Internal Controls over Financial Reporting Federal Programs Affected: All major programs Criteria: Internal controls including proper segregation of duties should be in place to provide reasonable assurance that all financial transactions are properly reported, and assets are safeguarded. This is essential to ensure accurate internal and external financial statements can be prepared. Management must have accurate financial information in order to monitor, control and execute decisions in the best interest of the School. The School also is responsible for preparation of the financial statements, schedule of expenditures of federal awards and related footnotes. The Uniform Guidance requires the audit package to be submitted to the Federal Clearinghouse within the earlier of 30 days after receipt of the auditor's report or nine months after the end of the audit period. Accounting principles and the internal controls established by the Board of Directors should be implemented and evaluated on a perpetual basis. Areas of concerns should be evaluated, and a corrective action plan developed in a timely manner. The Uniform Guidance requires expenditures charged to federal programs to be properly documented and approved, allowable and charged to the proper grant. The Uniform Guidance also requires documentation of hours worked, and fringe benefits applied to agree to amounts charged to each federal grant. In addition, the School?s policies require specific signatures on purchase requests and approval by the requestor, supervisor, Superintendent and Business Manager for all purchases. Payments made should agree to the amount on the invoices. All payroll must include time records for all hourly employees. Hours should be added correctly before input into payroll system and all contracts should be on file to document approved rate of pay. Condition: Specific areas of concern are as follows: 1) The School relies on the audit firm to determine that there are no material misstatements in the financial records and to prepare the financial statements including all required disclosures. The preparation of the financial statements is based on the School's trial balance and inquiries made to management and independent sources. The Business Manager reviews and approves underlying information and the financial statements and attempts to stay current on new governmental and accounting standards. 2) Though many previous issues had been corrected we still noted internal control deficiencies in the current system. Specific issues include: a. Bank reconciliations were completed but still contained $480,348 in stale dated checks which had the effect of reducing cash by that amount. Most of the checks related to unpaid payroll taxes and benefits and as such also understated the amount of payroll liabilities the School owed at year end. These items were reclassified during our audit. b. All expenditures should be supported by invoices to justify the amount charged to the general ledger. This includes all fringe benefits. The School was not getting personnel updates to their carriers on their fringe benefit programs. Consequently the invoices were incorrect. The School?s practice was to pay from the payroll records and not from the invoices c. The School could not provide detailed accrued leave balances owed to the employees. The Board had approved payouts of leave at year end and some schedules were prepared though not in detail. 3) The financial policies of the school were not followed in all cases regarding expenditures: a. Requisitions not consistently used or were not signed by the appropriate personnel b. Time sheets were not signed by the supervisor and the employee in all cases. Timesheets also had preprinted account numbers on them that were not always correct. We verified the employees were charged to the proper fund though not documented as such. c. Several cases were found of entire expenditures or payroll packets unavailable for testing. d. We were unable to determine if bidding policies stipulated in the finance manual were exercised. Samples chosen during our audit work did not have the appropriate bid information attached but we were able to ensure board approval was obtained. e. We found travel reports not always being filed after an employee returns from travel. The travel report is to reconcile the amounts received to the amounts actually spent and to provide any invoices necessary per their policies. Context: Without timely reconciliation of the accounts in the books, financial statements will not be accurate for management or for external reporting. The financial statements could and did contain material errors and misstatements that would not be detected and corrected by the Board or management. Audit reports are due to the Federal Clearinghouse no later than nine months after the close of the audit period. The accompanying audit report was due by September 30, 2021. Record retention is an essential part of any financial management system. The systems of obtaining review and approval signatures on documents is to ensure the expenditures were necessary and reasonable for the program. Questioned Costs: The following known questioned costs for major programs were noted during testing. U.S. Department of Interior -- Bureau of Indian Affairs Indian School Equalization Program - CFDA #15.042 Units Amount Population Over 250 $ 2,390,930 Sample 174 212,802 Questioned Costs 12 $ 7,407 Cause: The business office had only two employees during most of this time period. The business manager was out for several months during the middle of the year before a new business manager was hired. Many problems were described above and many may have been a resulted of being short staffed or undermanned in the business office. Covid then arrived in March of this year causing additional problems with remote assignments and personnel not being available to provide signatures or documentation as needed. Due to the size of the organization, preparation of the financial statements many times requires hiring an outside accountant for assistance. Effect: The effectiveness of the internal control system relies on prudent policies and enforcement by management and the Board of Education. If either element is deficient, the School?s risk of errors occurring and going undetected rises. In addition, the risk of fraudulent transactions or misappropriation of assets increases. The School also updated and changed their computer accounting system during the year. This may have resulted in some of the mis-codings and mis-postings in their records. The School was very behind in getting their audits submitted. It was necessary to complete the year ended June 30, 2019 audit before the June 30, 2020 audit could be commenced. All of these factors lead to the delay in completing the audit. Errors in a few of their subsidiary journals also took a little extra time. Issues reported here and in the following findings have led to the qualifications in the audit report. Identification of Prior Audit Findings: This finding is a repeat of prior year findings 2019-001 and 2019-004. Recommendation: It is the School?s responsibility to determine the financial statements, schedule of expenditures of federal awards and related footnotes are free of material misstatement and the audit package is filed timely. The most effective controls lie in management and the Board of Education?s knowledge of the School?s financial operations. Supervision and review functions must be done continually during all phases of the accounting cycle. With a small staff in the business office, cross training becomes exceptionally important. One of the overarching principles regarding independence is that the auditors cannot make management decisions. The Business Manager assists with disclosure information and approves any adjusting entries to the trial balance. She reviews and approves all draft and final copies of the financial statements including disclosures. In light of the guidance of SAS 115, we recommend additional and continuing training for the Business Manager or designated staff. The goal is to provide the training in government financial reporting and current reporting standards to enable management to continue to take the responsibility for the statements and disclosures. We also recommend the board review their financial policies and take steps to ensure they are being followed. All expenditures should be reviewed to ensure they are properly documented, coded, and the expenditures are allowable for the grant. Review of paychecks should include recalculation of hours on timesheet and leave accrual calculation. All documentation should be reviewed to ensure proper signatures have been obtained prior to payment. A record retention system to preserve all data should be a priority for the School. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 45.

2020-002 FINDING: Employee Loan Receivables Federal Programs Affected: All major programs Criteria: Federal funding may not be used for any other purpose except to pay expenditures allowed under the applicable grant agreements. The School does not have any available nonfederal funds to use for discretionary purposes. Condition: The School Board approved an employee loan program in the prior year but did not have any discretionary funds available in order to fund the program. In addition, established policies for the program were not followed. Context: The policy approved by the board was not being administered as approved by management. The following issues were found: a. All loans were to be repaid in full by year end which would have alleviated the situation above. The accumulated Employee Loan balance was $97,532 at year-end in violation of this policy. b. The policy requires prior loans be paid in full before a new loan is given. During testing, we noted 15 employees did not repay prior loan before being allowed to obtain another loan. c. The policy required a 10 percent loan fee, however, during testing we noted loan fees charged varied between 10 and 20 percent. Twenty-nine loans tested were charged a 20 percent fee. d. We also noted eleven instances where loan documentation was not signed per loan policies and two recipient loan files were not available for testing. Questioned Costs: None noted. Cause: When the board approves a policy such as this, they should first ensure there is sufficient unrestricted funding available to cover the program. They also should be vigilant that the program is being administered properly. Effect: This situation creates violations to federal contracts and creates additional shortfalls in funds available to educate the students. The board should also weigh the benefit of any spending as it relates to the benefit to the children attending the School. All decisions should be based upon ?the prudent man? theory. Identification of Prior Audit Finding: This finding is a repeat of prior year finding 2019-002. Recommendation: During the audit period, the employee loan fund was discontinued per board action. We recommend the program not be reestablished unless adequate non-federal funds are available. If the program is reestablished, all policies should be in writing and policies should be followed. This should include a monthly report to the board of all individual balances and date of scheduled payments. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 45.

2020-003 FINDING: Deficit Fund Balances Federal Programs Affected: All major programs Criteria: The School operates its education programs with grants from federal and state government. Any advanced grant funds held by the School must be kept intact and in allowable cash accounts. Condition: In the prior years, the School incurred over-expenditures in their federal funds of $453,442 requiring support entries to be made from the general fund. The School again incurred an operating loss of $37,096 in their general fund. The general fund did not have the available net assets to cover these costs and as such is reporting a deficit in their unrestricted net assets for the year. Context: As the School continues to pay off debt incurred in the prior and current year, it will be difficult for them to generate income needed to correct this problem. Questioned Costs: None noted. Cause: Lack of oversight and monitoring of their payroll tax responsibilities resulted in significant penalties and interest charges by the Internal Revenue Service for late payments and late filings. The prior year over expenditures created the original deficit but it was increased in the current year due to the violations of the Internal Revenue Service. Effect: The School does not have the cash reserves to liquidate their accounts payable and accrued liabilities in the next fiscal year. They obtained short term operating loans from their financial institution to get them through the current year. Identification of Prior Audit Finding: This finding is a repeat of a prior year finding 2019-005. Recommendation: The School first of all needs to get their issues with the IRS resolved. The School did stay within budget in their grant funds for the current year but also needs to get their general fund deficit restored. Strict budget monitoring procedures should be implemented and over expenditures should not be allowed by management in any of their funds. The School also needs to assure they are paying all obligations for taxes and vendors in a timely manner and not incurring any additional penalties or interest charges. All future general fund earnings of interest and rent will need to be obligated to reduce the general fund deficit after paying necessary expenses. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 45.

2020-004 FINDING: Special Tests and Provisions- Investment of Federal Funds Federal Programs Affected: All major programs Criteria: Funding from U.S. Department of the Interior -- Bureau of Indian Affairs Contract for the Operation of Crazy Horse School is subject to the provisions of P.L. 100-297. This law governs the use and investment of federal funds advanced to the School on their BIA grant. This law requires all unobligated funds to be supported by existing cash deposits held in specific depository types of accounts. These deposits may not be restricted in any way. Condition: At June 30, 2020, the School had pledged CD?s and cash deposits to cover loans payable to the Security First Bank. The CD?s and cash deposits represent advanced funds received on restricted grants. Under the provisions of P.L. 100-297, this is a violation regarding the use of those funds. Prior year over expenditures in the unrestricted funds had used all their unrestricted cash reserves. Context: With the funds used as collateral, they are not available to cover future expenditures against their carryover balances for their accrued liabilities at year end. Questioned Costs: None noted. Cause: The School used Certificates of Deposits to collateralize their loans as they could get a more favorable interest rate. Effect: The School is not in compliance with P.L. 100-297. This also necessitated the need to obtain short term financing during the year to cover payment of their outstanding obligations. Identification of Prior Audit Finding: This finding is a repeat of a prior year finding 2019-006. Recommendation: The School should not use CD?s or other cash resources as collateral on loans. We would recommend they use the equipment being purchased instead. We also recommend the cash flow loans not be used to finance current operations. We recommend the School discontinue the practice of using federal advance funding as collateral against any debt. We also recommend the School monitor their federal funds expenditures to assure no future over-expenditures are incurred as they no longer have any unrestricted funds to subsidize these programs. We also recommend that controls be instituted to assure they no longer are paying penalties to the Internal Revenue Service. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 45.

2020-005 FINDING: Reporting Federal Programs Affected: All Major Programs Criteria: The School is required to file Federal Financial Report Form 425 to the Bureau of Indian Education quarterly and at year end per the terms of their grant agreement with the Bureau of Indian Affairs. Condition: The School did not submit their Form 425s to the Bureau of Indian Affairs. Context: The preparation and submission of Form 425 is required by their funding agent. This is a violation of the grant terms of their Bureau of Indian Affairs Grant. Questioned Costs: None noted. Cause: Lack of oversight and monitoring of this provision resulted in the noncompliance with their grant requirements. Effect: The School is not in compliance with federal requirements which could affect federal funding. Not filing or late filing of the forms is a violation of grant requirements. Identification of Prior Audit Finding: This finding is a repeat of prior year finding 2019-007. Recommendation: Form 425 should be prepared by the Business Manager and then reviewed and signed by the Superintendent. The review should include verification of all supporting documentation. Original reports should be maintained to document compliance. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 45.

2020-006 FINDING: Violations of Internal Revenue Laws and Regulations Federal Programs Affected: All Major Programs Criteria: The Internal Revenue Service (the Service) monitors and enforces reporting and tax payment made on behalf of all employees by their employers. All payments to employees must have the required taxes withheld. All payroll taxes must be deposited with the Service within their published guidelines. Penalty and interest accrue for violating either of these provisions. Condition: The School was delinquent in paying their federal tax deposits for the 3rd and 4th quarter of 2019, and part of 1st quarter of 2020. This resulted in penalties and interest of $131,609 being assessed against the school. Context: A thorough understanding of the tax law affecting payroll is necessary when responsible for overseeing payroll processing procedures at any organization. Significant penalties and interest are assessed by the IRS for nonpayment or late payment of payroll taxes. Questioned Costs: None noted. Cause: Lack of oversight and monitoring of these laws resulted in the delinquency in paying taxes and filing reports. Effect: The School is not in compliance with federal payroll regulations which leads to penalties and interest assessments from the Internal Revenue Service. All federal grants administered by the School require compliance with all applicable laws and regulations which include the Internal Revenue Service. The School also may not charge penalties and interest to their federal funds. Identification of Prior Audit Finding: This finding is a repeat of a prior year finding 2019-009. Recommendation: All payroll tax payments should be reviewed and supervised by the Business Manager. The review should include verification of all supporting documentation and assurance of timely payment. Original reports should be maintained to document compliance along with the proof of submission of tax deposits. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 45.

2019-001 FINDING: Internal Controls over Financial Reporting Criteria: Internal controls including proper segregation of duties should be in place to provide reasonable assurance that all financial transactions are properly reported and assets are safeguarded. This is essential to ensure accurate internal and external financial statements can be prepared. Management must have accurate financial information in order to monitor, control and execute decisions in the best interest of the School. The School also is responsible for preparation of the financial statements, schedule of expenditures of federal awards and related footnotes. The Uniform Guidance requires the audit package to be submitted to the Federal Clearinghouse within the earlier of 30 days after receipt of the auditor's report or nine months after the end of the audit period. Accounting principles and the internal controls established by the Board of Directors should be implemented and evaluated on a perpetual basis. Areas of concerns should be evaluated and a corrective action plan developed in a timely manner. Condition: Specific areas of concern are as follows: 1) The School relies on the audit firm to determine that there are no material misstatements in the financial records and to prepare the financial statements including all required disclosures. The preparation of the financial statements is based on the School's trial balance and inquiries made to management and independent sources. The Business Manager reviews and approves underlying information and the financial statements and attempts to stay current on new governmental and accounting standards. 2) Many accounts had not been reconciled for the entire year of our audit. Many of them were not reconciled until 2020 when a new business manager was hired and a fee accountant was engaged to address inadequacies in the accounting records. Specific issues include: a. Bank reconciliations were not completed until recently. Issues that affected the bank reconciliations included revenue not being recorded and many checks duplicated in the system. These items were corrected prior to our audit. b. Receivable accounts were not reconciled and amounts owed the school were not pursued for collection during the audit period. c. Accrued leave owed to the employees was not reconciled or recorded in the financial statements we received for audit. d. During our audit work, we discovered significant amounts of miscoded expenditures. Utilities for employee housing were coded in Facilities Programs. Transportation loan payments were miscoded to facilities management, etc. 3) The financial policies of the school were not followed in all cases regarding expenditures: a. Requisitions not consistently used or were not signed by the appropriate personnel b. Time sheets were not signed by the supervisor and the employee in all cases. c. Many cases were found of entire expenditures or payroll packets unavailable for testing. d. We were unable to determine if bidding policies stipulated in the finance manual were exercised. Samples chosen during our audit work did not have the appropriate bid information attached but we were able to ensure board approval was obtained. Context: Without timely reconciliation of the accounts in the books, financial statements will not be accurate for management or for external reporting. The financial statements could and did contain material errors and misstatements that would not be detected and corrected by the Board or management. Audit reports are due to the Federal Clearinghouse no later than nine months after the close of the audit period. The accompanying audit report was due by September 30, 2020. Record retention is an essential part of any financial management system. The systems of obtaining review and approval signatures on documents ensure the expenditures were necessary and reasonable for the program. Questioned Costs: See Finding 2019-004 Allowable Costs Cause: The Business Office had only two employees during this time period and also had both staff members quit before the end of the year. The prior audit had not been started at that point and as described above, there were serious problems with the current period. Many problems were described above and most relate to not reconciling in a timely manner, not following prescribed policy and not ensuring that records were retained for audit. Due to the size of the organization, preparation of the financial statements many times requires hiring an outside accountant for assistance. Effect: The effectiveness of the internal control system relies on prudent policies and enforcement by management and the Board of Education. If either element is deficient, the School?s risk of errors occurring and going undetected rises. In addition, the risk of fraudulent transactions or misappropriation of assets increases. The School is not in compliance with federal requirements which could affect federal funding. Revenue and expense accounts were significantly misstated leading to the delay in completing the audit. The lack of reconciliation of all accounts also lead to the qualifications in the audit report. This was also influenced by the documentation issues reported in subsequent findings. Identification of Prior Audit Finding: This finding is a repeat of prior year finding 2018-001. Recommendation: It is the School's responsibility to determine the financial statements, schedule of expenditures of federal awards and related footnotes are free of material misstatement and the audit package is filed timely. The most effective controls lie in management and the Board of Education's knowledge of the School's financial operations. Supervision and review functions must be done continually during all phases of the accounting cycle. With a small staff in the business office, cross training becomes exceptionally important. One of the overarching principles regarding independence is that the auditors cannot make management decisions. The Business Manager assists with disclosure information and approves any adjusting entries to the trial balance. She reviews and approves all draft and final copies of the financial statements including disclosures. In light of the guidance of SAS 115, we recommend additional and continuing training for the Business Manager or designated staff. The goal is to provide the training in government financial reporting and current reporting standards to enable management to continue to take the responsibility for the statements and disclosures. We also recommend the board review their financial policies and take steps to assure they are being followed. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 47.

2019-002 FINDING: Employee Loan Receivables Criteria: Federal funding may not be used for any other purpose except to pay expenditures allowed under the applicable grant agreements. The School does not have any available nonfederal funds to use for discretionary purposes. Condition: The School Board approved an employee loan program during the year but did not have any discretionary funds available in order to fund the program. In addition, established policies for the program were not followed. Context: When the Board approved the policy they did have some discretionary funds but with the current year over-expenditures, they were depleted and the funds being used in the loan program at year end were needed to help cover the over-expenditures. In addition, the policy approved by the board was not being administered by management. The following issues were found: a. All loans were to be repaid in full by year end which would have alleviated the situation above. The accumulated Employee Loan balance was $82,444 at year-end in violation of this policy. b. During the audit year, the School had to write off over $13,880 in bad debts related to this program. The School does not have the resources in non-grant funds in order to cover the losses or the remaining balance at year end. In addition, an allowance account of $9,500 was also proposed during audit to reflect existing loans that have yet to be collected. c. The policy requires prior loans be paid in full before a new loan is given. During testing, we noted 10 employees did not repay prior loan before being allowed to obtain another loan. d. The policy required a 10 percent loan fee, however, during testing we noted loan fees charged varied from 10 to 20 percent. Sixteen loans tested were charged a 20 percent fee. e. We also noted five instances where loan documentation was not signed per loan policies and one recipient loan file was not available for testing. Questioned Costs: These are noted in Finding 20199-004 Allowable Costs. Cause: When the board approves a policy such as this, they should first ensure there is sufficient unrestricted funding available to cover the program. They also should be vigilant that the program is being administered properly. There were 26 new loans for a total of $33,210 approved in June of 2019. Effect: This situation creates violations to federal contracts and creates additional shortfalls in funds available to educate the students. The board should also weight the benefit of any spending as it relates to the benefit to the children attending the School. All decisions should be based upon "the prudent man" theory. Identification of Prior Audit Finding: This finding is not a repeat of prior year finding. Recommendation: Subsequent to year end, the employee loan fund was discontinued. We recommend the program not be reestablished unless adequate non-federal funds are available. If the program is reestablished, all policies should be in writing and policies should be followed. This should include a monthly report to the board of all individual balances and date of scheduled payments. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 47.

2019-003 FINDING: Equipment and Real Property Management Criteria: A complete perpetual inventory system, including related cost records, should be established and maintained for property and equipment. A control system should be in place to ensure adequate safeguards to prevent loss, damage, or theft to the property. The Uniform Guidance requires a physical inspection of equipment be completed at least once every two years to verify the existence, current use, and continued need for the property. Property records must contain information, such as the source of funding used to acquire the property and the percentage of federal participation in the cost. Disposal of property with a residual value in excess of $5,000 must be reported to the original purchasing federal agency with a request for disposal. Condition: The School does not have adequate controls over its property and equipment inventory system. As a result, complete listings of assets, as well as general ledger control accounts, were not maintained. Since a complete listing of property was unavailable, the School was unable to record depreciation expense in the accompanying financial statements. A physical inspection of property was also not completed. In addition, Governmental Accounting Standards Board Statement 34 requires the reporting of depreciation expense in the government-wide financial statements. In the current year, the School traded three vehicles with residual value of $17,400 each originally purchased with the School Transportation Fund. Uniform Guidance requires that disposal of equipment purchased with federal funds be disclosed to the original purchasing agency. Context: This is a systemic problem present for many years. Research for original cost records dating back many years will be necessary and the School has not had the resources to perform this task. Questioned Costs: None noted. Cause: This has been a consistent problem for many years. Lack of time and resources may be part of the reason that creating and substantiating a property and depreciation list has not occurred. Effect: Without an effective property system, the School is in violation of the Uniform Guidance regarding record keeping and safeguarding of fixed assets purchased with federal funds; and may not be utilizing and maintaining fixed assets to maximize their benefit to the total organization. The School's financial statements for the year ended June 30, 2019 are materially misstated due to omission of depreciation and perhaps misstatement of property owned and the auditor's opinion is modified accordingly. Identification of Prior Audit Finding: This finding is a repeat of prior year finding 2018-002. Recommendation: The School should implement a perpetual inventory system incorporating all related requirements per federal guidelines, including related cost records. A physical inventory of all fixed assets should be performed at least every two years by an individual who does not have custodial responsibility of those items. All cost records of the inventory, plus all additions and deletions, should be reconciled to the perpetual inventory system. Depreciation expense should be recorded in the government-wide financial statements. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 47.

2019-004 FINDING: Allowable Costs Criteria: The Uniform Guidance requires expenditures charged to federal programs to be properly documented and approved, allowable and charged to the proper grant. The Uniform Guidance also requires documentation of hours worked, and fringe benefits applied to agree to amounts charged to each federal grant. In addition, the School's policies require specific signatures on purchase requests and approval by the requestor, supervisor, Superintendent and Business Manager for all purchases. Payments made should agree to the amount on the invoices. Condition: A significant number of invoices and payments packets were not available for testing. This was found in all programs and accounts of the School. Appropriate documentation is a requirement of 2 CFR Part 200 Allowable Cost Principles of the Uniform Guidance. Appropriate documentation includes approvals by school administrators, proof of bidding, invoices and receiving reports. Context: The School did not consistently follow its purchasing policies which require approval and signatures by the requestor, supervisor, Superintendent and Business Manager and Board signature. This is a systemic issue affecting all funds of the School. The samples used appear statistically valid. Questioned Costs: The following known questioned costs for major programs were noted during testing. See Schedule of Findings and Questioned Costs for table. Cause: The School did not follow their established internal control and accounting procedures. These should include proper record retention for all accounting documents. Expenditures were not documented or maintained. Hours were not properly added and timesheets were not properly completed. Effect: Due to errors noted, grants potentially were overcharged which could lead to questioned costs which have to be repaid. Employees were not properly paid for hours worked, resulting in over and underpayments. Leave accrual was not properly calculated. Identification of Prior Audit Finding: This finding is a repeat of a prior year finding 2018-003. Recommendation: All expenditures should be reviewed to ensure they are properly coded and the expenditures are allowable for the grant. Review of paychecks should include recalculation of hours on timesheet and leave accrual calculation. All documentation should be reviewed to ensure proper signatures have been obtained prior to payment. A record retention system to preserve all data should be a priority for the School. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 47.

2019-005 FINDING: Deficit Fund Balances Criteria: The School operates its education programs with grants from federal and state government. Over-expenditures incurred on federal grants cannot be paid with future funding from these agencies but must be covered by unrestricted assets under the control of the School. Condition: The School incurred over-expenditures in their federal funds of $453,442 in the current year requiring support entries to be made from the general fund. The general fund did not have the available net assets to cover these costs and as such is reporting a deficit in-their unrestricted net assets for the year. Context: Though the School had excess unrestricted fund balance coming into the audit period, they also incurred penalties and interest in the current year that could not be paid be with federal funds and had to be charged to the general fund, thereby depleting its reserves of net assets. Questioned Costs: None noted. Cause: Lack of oversight and monitoring of grant expenditures, lack of oversight on payment of taxes and creation of an employee loan fund all contributed to the issue. Effect: The School does not have the cash reserves to liquidate their accounts payable and accrued liabilities in the next fiscal year. This resulted in them obtaining short term operating loans from the bank in August and October of 2019. Identification of Prior Audit Finding: This finding is not a repeat of a prior year finding. Recommendation: The School first of all needs to get control of their expenditures. Strict budget monitoring procedures should be implemented and over expenditures should not be allowed by management. The School also needs to assure they are paying all obligations for taxes and vendors in a timely manner and not incurring any additional penalties or interest charges. All future general fund earnings of interest and rent will need to be obligated to reduce the general fund deficit. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 47.

2019-006 FINDING: Special Tests and Provisions- Investment of Federal Funds Federal Programs Affected: All major programs Criteria: Funding from U.S. Department of the Interior -- Bureau of Indian Affairs Contract for the Operation of Crazy Horse School is subject to the provisions of P.L. 100-297. This law governs the use and investment of federal funds advanced to the School on their BIA grant. This law requires all unobligated funds to be supported by existing cash deposits held in specific depository types of accounts. These deposits may not be restricted in any way. Condition: At June 30, 2019, the School has pledged CD?s and cash deposits to cover loans payable to the Security First Bank. The CD?s and cash deposits represent advanced funds received on restricted grants. Under the provisions of P.L. 100-297, this is a violation of the provisions for the use of those funds. Over expenditures in the unrestricted funds in the current year also used up all prior year reserves the School could have used to help cover their advanced funds requirements. Context: With the funds used as collateral, they are not available to cover future expenditures against their carryover balances or their accrued liabilities at year end. Questioned Costs: None reported Cause: The School had total over-expenditures of $453,442 in their federal funds during the audit period necessitating they use all available unrestricted funds to help cover expenditures. In addition, there were $137,832 in penalties paid on early withdraw of CD?s and Internal Revenue Service penalties for late payment and filing of federal employment forms 941 also expending unrestricted funds reserves. Effect: The School is not in compliance with P.L. 100-297. This also necessitated the need to obtain short term financing subsequent to year end to cover payment of their outstanding obligations from year end. Identification of Prior Audit Finding: This finding is not a repeat of a prior year finding. Recommendation: The School should not use CD?s or other cash resources as collateral on loans. We would recommend they use the equipment being purchased instead. We also recommend the cash flow loans not be used to finance current operations. We recommend the School discontinue the practice of using federal advance funding as collateral against any debt. We also recommend the School monitor their federal funds expenditures to assure no future over-expenditures are incurred as they no longer have any unrestricted fund to subsidize these programs. We also recommend that controls be instituted to assure they no longer are paying penalties to the Internal Revenue Service. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 47.

2019-007 FINDING: Special Tests and Provisions - Character Investigations Federal Programs Affected: All major programs Criteria: 25 CFR Part 63 Indian Protection and Family Violence Prevention requires the School to conduct an investigation of the character of each individual who is considered for employment in a position that involves regular contact with children. The investigation requires fingerprint analysis compared to the Federal Bureau of Investigation or other law enforcement information maintained by other agencies, such as state or tribal. These files must be adjudicated by a certified individual. Only individuals that meet these minimum standards are to be employed in such positions. Condition: The School could not provide complete records for adjudicated background investigations for 10 of 22 files tested. Some of these background checks were performed by a third party that did not meet the requirements for a certified adjudicator. Some of the exceptions were corrected after the end of the School year. Context: A current appropriate background investigation was not available for 10 of 22 individuals selected for testing. Questioned Costs: None noted. Cause: The School did not have adequate controls over the background check procedures. Effect: Failure to obtain background checks is a violation of grant requirements and puts the School and students at risk if an unsuitable applicant is hired. Lack of documentation results in findings and non-compliance with requirements. Identification of Prior Audit Finding: This finding is a repeat of prior year finding 2018-004. Recommendation: The school switched adjudicators during this fiscal year. The adjudicators are qualified to perform the task but they did not receive testing information for all individuals working during the year. We recommend a system be implemented to ensure all employees of the School have suitable background checks performed. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 47.

2019-008 FINDING: Reporting Federal Programs Affected: All Major Programs Criteria: The School is required to file a Form 425 to the Bureau of Indian Education quarterly and at year end per the terms of their grant agreement with the Bureau of Indian Affairs. Condition: The School did not submit their Form 425s to the Bureau of Indian Affairs. Context: The preparation and submission of Form 425 is required by their funding agent. This is a violation of the grant terms of their Bureau of Indian Affairs Grant. Questioned Costs: None noted. Cause: Lack of oversight and monitoring of this provision resulted in the non-filing. Effect: The School is not in compliance with federal requirements which could affect federal funding. Improper and not filing or late filing of the forms is a violation of grant requirements. Identification of Prior Audit Finding: This finding is a repeat of prior year finding 2018-005. Recommendation: The Form 425 should be prepared by the Business Manager and then reviewed and signed by the Superintendent. The review should include verification of all supporting documentation. Original reports should be maintained to document compliance. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 47.

2019-009 FINDING: Violations of Internal Revenue Laws and Regulations Federal Programs Affected: All Major Programs Criteria: The Internal Revenue Service (the Service) monitors and enforces reporting and tax payment made on behalf of all employees by their employers. All payments to employees must have the required taxes withheld. When payments are done separately to employees for bonuses additional federal income tax is required at a 28% rate. All payroll taxes must be deposited with the Service within their published guidelines. Penalty and interest accrue for violating either of these provisions. Condition: The School paid bonuses to their employees during the audit period but did not withhold the required FICA, Medicare or federal income tax from the checks. Instead Form 1099s were issued to the employees for these payments. The School also was delinquent in paying their federal tax deposits for the third quarter of 20 18 and the second quarter of 2019. This resulted in penalties and interest being assessed against the school. Context: A thorough understanding of the tax law affecting payroll is necessary when responsible for these procedures at any organization. Questioned Costs: None noted. Cause: Lack of oversight and monitoring of these laws resulted in the non-noncompliant payments to employees and the delinquency in paying taxes. Effect: The School is not in compliance with federal payroll regulations which leads to penalties and interest assessments from the Internal Revenue Service. All federal grants administered by the School require compliance with all applicable laws and regulations which include the Internal Revenue Service. Identification of Prior Audit Finding: This finding is not a repeat of a prior year finding. Recommendation: Any payment made to employees in the form of bonus or incentive pay must be subject to all tax withholding for FICA, Medicare and federal income tax. We recommend the payroll clerk be responsible for all payments to employees and for the initial calculation of payroll taxes. All payments should be reviewed and supervised by the Business Manager. The review should include verification of all supporting documentation. Original reports should be maintained to document compliance along with the proof of submission of tax deposits. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 47.

2019-010 FINDING: Violations of the Department of Agriculture Child and Adult Nutrition Program Guidelines Federal Programs Affected: 15.042 Indian School Equalization Program Criteria: In order to receive reimbursement through the CANS program administered by the state of South Dakota, the School must conform to rules and regulations regarding food handling and meal preparation, maintenance of eligibility records for student and reporting requirement imposed by the State. Condition: South Dakota Department of Education completed an administrative review of the School's National School Lunch and School Breakfast Programs. Based on the findings in the review, the School was denied $136,821 in grant revenue from the 2017 school year. The School was required to repay $80,583 from the year ended June 30, 2017. Context: The School had hired a new food service manager for the audit period who was not trained in the requirements for the Child and Adult Nutrition Services program. He was not able to supply needed information during the program review. Questioned Costs: None noted. Cause: The School had a 13 year veteran running the program up until the 2017 period. A new director was hired and did not understand the requirements of the program. He was not able to supply needed information during the State's review regarding food preparation, student eligibility and reporting. Effect: The School had to repay $80,583 to the State of South Dakota for the 2017 program deficiencies. Payment was completed in 2019. This resulted in the Indian School Equalization Program having to repay these funds and supplement the food service program. Identification of Prior Audit Finding: This finding is not a repeat of a prior year finding. Recommendation: The School must ensure they have a food service manager that is well versed in the rules and regulations related to managing a Child and Adult Nutrition Services grant. The School has since obtained such a manager and is again receiving reimbursement from the program. Views of Responsible Officials: The views of management are included in the corrective action plan beginning on page 47.

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION