LONEMAN SCHOOL

#2021-001 FINDING: Financial Statement and Schedule of Expenditures of Federal Awards (SEFA) Preparation Federal Program Affected: This finding relates to all major programs identified in Part A, #7 of the Schedule of Findings. Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: As in prior years, we were requested to draft the audited financial statements, related footnote disclosures, and the SEFA as part of our regular audit services. Auditing standards require auditors to communicate this situation to the School Board as an internal control deficiency. Ultimately, it is management?s responsibility to provide for the preparation of the School?s financial statements, footnotes, and SEFA, and the responsibility of the auditor to determine the fairness of presentation of those statements. From a practical standpoint, we do this for the School at the same time in connection with our audit. This is not unusual for schools of your size. Criteria and Effect: This deficiency could result in a material misstatement to the financial statements and SEFA that would not have been prevented or detected by the School?s management. Repeat Finding from Prior Year: Yes, prior year finding #2020-001 Recommendation: We have instructed management to review a draft of the auditor prepared financials in detail for their accuracy, we have answered any questions they might have, and have encouraged research of any accounting guidance in connection with the adequacy and appropriateness of classification and disclosure in the School?s statements. We are satisfied that the appropriate steps have been taken to provide the School with complete financial statements. It is the responsibility of management and those charged with governance to accept the degree of risk associated with this condition because of cost or other considerations. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

#2021-003 FINDING: Testing Errors Federal Programs Affected: This finding relates to all major programs identified in Part A, #7 of the Schedule of Findings. Compliance Requirement: Allowable Costs/Cost Principles, Activities Allowed or Unallowed Questioned Costs: Known questioned costs of $1,753.43 for schoolwide program Title I Grants to Local Education Agencies ALN#84.101. A sample of 25 expenditures totaling $58,224.59 was selected for testing from a total population of $1,062,665. All other programs are below reporting threshold. Condition and Cause: Out of a sample of 92 non-payroll transactions tested, we noted the School could not provide support for 11 transactions. Additionally, out of a sample of 56 payroll transactions tested, we noted two employees were paid more than contracted for extended school, and one employee did not have a signed contract. Criteria and Effect: Lack of adequate documentation and review could result in fraud, errors, and questioned costs. Repeat Finding from Prior Year: Yes, prior year finding #2020-003. Recommendation: The School should verify signed contracts exist for all employees and they are charged the correct rate. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan

#2021-004 FINDING: Equipment and Real Property Management Inventory Listing Federal Program Affected: Indian School Equalization Program (ALN #15.042) Compliance Requirement: Equipment and Real Property Management Questioned Costs: None Condition and Cause: The School did not have an internal control process in place to complete an inventory count at least once every two years, and the inventory listing does not list funding source, resulting in non-compliance. Criteria and Effect: Lack of the inventory count during the required timeframe and lack of knowledge of funding source could lead to misappropriated assets, as well as grant non-compliance if assets are disposed of and proceeds are not returned to the appropriate federal agency. Repeat Finding from Prior Year: Yes, prior year finding #2020-004. Recommendation: We recommend the School perform the inventory count at least every two years. Additionally, the listing must include the funding sources for the items, in the event an item is disposed of in the future. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

#2021-005 FINDING: Uniform Guidance Audit Report Filed Late Federal Program Affected: This finding relates to all major programs identified in Part A, #7 of the Schedule of Findings and Corrective Action Plan. Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: The School will file its Uniform Guidance (UG) audit report and data collection form for fiscal year 2021 late. During the current year, turnover at the School caused audit requests to not be completed timely to allow an audit to be completed prior to the filing deadline. Criteria and Effect: UG requires an entity expending more than $750,000 of federal funds within a fiscal year to have the data collection form and reporting package submitted within nine months after the end of the audit period. For the year-ended June 30, 2021, the deadline was extended six months due to the coronavirus pandemic. The School was not in compliance with the federal grant requirement, which could lead to the School being placed under sanctions by the funding source. Repeat Finding from Prior Year: No. Recommendation: The School should establish a process to ensure all financial data is properly recorded and reviewed timely. An auditor should be provided adequate, timely information to ensure the completion of the audit allows for timely filings. Response/Corrective Action Plan: The School agrees with the above finding. See attached Corrective Action Plan.

#2021-006 FINDING: Procurement Federal Program Affected: Administrative Cost Grants for Indian Schools (ALN #15.046) Compliance Requirement: Procurement and Suspension and Debarment Questioned Costs: None Condition and Cause: The School did not maintain documentation to support procurement internal control process was followed to meet the compliance requirements of procurement when entering into an insurance contract which was charged to federal programs. Criteria and Effect: Non-federal entities must follow Uniform Guidance procurement policy when procuring property or services, such as insurance contracts, and maintain records to document history of procurements. Repeat Finding from Prior Year: No. Recommendation: We recommend the School follow their procurement policy and maintain support for procurements. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

#2021-007 FINDING: Collateralization Federal Program Affected: Indian School Equalization Program (ALN #15.042) and Administration Cost Grants for Indian Schools (ALN #15.046) Compliance Requirement: Special Tests and Provisions Questioned Costs: None Condition and Cause: There was not an internal control process in place for regular review of bank collateralization to ensure the School?s funds are properly insured for amounts over the FDIC threshold. The financial institution utilized by the School was not under-collateralized when tested during fiscal year 2021. Criteria and Effect: A School receiving advance payments should only deposit monies in accounts that are insured by an agency or instrumentality of the United States or are fully collateralized to ensure protection of the advance funds, even in the event of a bank failure. The lack of adequate internal controls over collateralization could result in the School?s funds being deposited in an inadequately collateralized financial institution, which could result in noncompliance with federal requirements. Repeat Finding from Prior Year: Yes, prior year finding #2020-007. Recommendation: The School should obtain the bank collateralization report from the bank on a monthly basis and document the individuals? review to ensure the School?s accounts are adequately collateralized. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

#2020-001 FINDING: Financial Statement and Schedule of Expenditures of Federal Awards (SEFA) Preparation Federal Program Affected: This finding relates to all major programs identified in Part A, #7 of the Schedule of Findings. Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: As in prior years, we were requested to draft the audited financial statements, related footnote disclosures, and the SEFA as part of our regular audit services. Auditing standards require auditors to communicate this situation to the School Board as an internal control deficiency. Ultimately, it is management?s responsibility to provide for the preparation of the School?s financial statements, footnotes, and SEFA, and the responsibility of the auditor to determine the fairness of presentation of those statements. From a practical standpoint, we do this for the School at the same time in connection with our audit. This is not unusual for schools of your size. Additionally, we noted the School did not maintain sufficient documentation to support their fiduciary liability for monies received from students for student activities. Criteria and Effect: This deficiency could result in a material misstatement to the financial statements and SEFA that would have not been prevented or detected by the School?s management. We expressed a disclaimer of opinion on the aggregate remaining fund information of the School. Repeat Finding from Prior Year: Yes, prior year finding #2019-001 for financial statement/SEFA portion and #2019-002 for the disclaimer on fiduciary activities. Recommendation: We have instructed management to review a draft of the auditor prepared financials in detail for their accuracy, we have answered any questions they might have, and have encouraged research of any accounting guidance in connection with the adequacy and appropriateness of classification and disclosure in the School?s statements. We are satisfied that the appropriate steps have been taken to provide the School with complete financial statements. It is the responsibility of management and those charged with governance to accept the degree of risk associated with this condition because of cost or other considerations. The School should also implement procedures to track their student activities and record them in the School?s general ledger as part of the financial statements. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

#2020-002 FINDING: Internal Controls Federal Program Affected: This finding relates to all major programs identified in Part A, #7 of the Schedule of Findings. Compliance Requirement: Allowable Costs/Cost Principles, Activities Allowed or Unallowed. Questioned Costs: None Condition and Cause: During the audit process we noted deficiencies in internal controls. Control deficiencies were caused throughout the year by turnover within the business office. Specific instances noted included: 1. The amount of the payroll initiated by the Payroll Clerk is not verified by the Business Manager after payment. 2. Bank reconciliations were not reviewed. Criteria and Effect: Internal controls should be continually monitored to ensure they have been implemented as designed. A strong review function is a necessary part of any internal control system, and the effectiveness of the internal control system relies on enforcement by management. Additionally, the lack of review of bank reconciliations and payroll initiated could lead to a potential misappropriation of assets. Repeat Finding from Prior Year: Yes, partially with prior year finding #2019-003. Recommendation: Specific recommendations are the following: 1. The amount of payroll initiated should be verified against the amount approved prior to payment. 2. Bank reconciliations should be reviewed monthly, including review of the propriety of outstanding or unusual items. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan

#2020-003 FINDING: Payroll Testing Errors Federal Programs Affected: Indian Schools Student Transportation (CFDA #15.044) Compliance Requirement: Allowable Costs/Cost Principles, Activities Allowed or Unallowed Questioned Costs: Below Reporting Threshold. Condition and Cause: Out of a sample of 90 payroll transactions tested, we noted one employee paid for housing maintenance work that had been erroneously charged to Transportation. This resulted in an error totaling $518.40. Criteria and Effect: The School must verify employees charged to federal programs are doing work allowable within the program. Lack of adequate documentation and review could result in questioned costs. Repeat Finding from Prior Year: Yes, prior year finding #2019-004. Recommendation: The School should verify employees are charged to programs in which expenditures are allowable. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan

#2020-004 FINDING: Equipment and Real Property Management Inventory Listing Federal Program Affected: This finding relates to all major programs identified in Part A, #7 of the Schedule of Findings. Compliance Requirement: Equipment and Real Property Management Questioned Costs: None Condition and Cause: The School did not have an internal control process in place to complete an inventory count at least once every two years, resulting in non-compliance. The last count was performed in fiscal year 2018. Criteria and Effect: Lack of the inventory count during the required timeframe could lead to misappropriated assets, as well as grant non-compliance if assets are disposed of and proceeds are not returned to the appropriate federal agency. Repeat Finding from Prior Year: Yes, partially with prior year finding #2019-003. Recommendation: We recommend the School perform the inventory count as least every two years. Additionally, the listing must include the funding sources for the items, in the event an item is disposed of in the future. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

#2020-005 FINDING: Grant Reporting Federal Program Affected: This finding relates to all major programs identified in Part A, #7 of the Schedule of Findings. Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: The School did not file the ?Grant Annual Report? (25 USC 2505 Sec 5206) with the BIE. The School does not have internal control processes in place to ensure all necessary reports are filed timely for major federal programs. Criteria and Effect: Grant conditions for the above-mentioned major programs require an annual report, as well as quarterly reports, to be filed timely with the BIE. Failure to submit these reports timely could lead to sanctions related to Federal funding if compliance requirements continue to not be met. Repeat Finding from Prior Year: Yes, prior year finding #2019-005. Recommendation: We recommend controls be designed and implemented to ensure required reports are prepared and filed timely with the proper funding agency. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan

#2020-006 FINDING: Suspension and Debarment Federal Program Affected: This finding relates to all major programs identified in Part A, #7 of the Schedule of Findings. Compliance Requirement: Suspension and Debarment Questioned Costs: None Condition and Cause: The School does not have an internal control process in place to meet the compliance requirements of suspension and debarment related to vendors the School utilizes in multiple programs at the School. Expenditures to such vendors are allocated to federal programs, such as insurance and fuel providers. Actual vendors charged to the major federal programs were not suspended or debarred. Criteria and Effect: Recipients of federal grants are prohibited from contracting with or making sub-awards under covered transactions to parties suspended or debarred. ?Covered transactions? include those contracts for goods or services awarded under a non-procurement transaction (e.g. grant or cooperative agreement) that are expected to equal or exceed $25,000 or meet certain other specified criteria. The recipient of federal grants must verify that the entity is not suspended or debarred or otherwise excluded. This verification may be accomplished by checking sam.gov either prior to each time the vendor is paid or keeping a certification on hand that is value through the fiscal year, collecting a certification from the vendor, or adding a clause or condition to the covered transaction with the vendor. The lack of adequate internal controls over suspension and debarment could result in the School making payments to an ineligible party, which could result in noncompliance with federal requirements. Repeat Finding from Prior Year: N/A Recommendation: We recommend the School adopt a policy for vendors involved in transactions throughout multiple programs at the School to verify covered transactions do not transpire with suspended or debarred parties prior to any goods being purchased or services being performed. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

#2020-007 FINDING: Collateralization Federal Program Affected: This finding relates to all major programs identified in Part A, #7 of the Schedule of Findings. Compliance Requirement: Special Tests and Provisions Questioned Costs: None Condition and Cause: There was not an internal control process in place for regular review of bank collateralization to ensure the School?s funds are properly insured for amounts over the FDIC threshold. The financial institution utilized by the School was not under-collateralized when tested during fiscal year 2020. Criteria and Effect: A School receiving advance payments should only deposit monies in accounts that are insured by an agency or instrumentality of the United States, or are fully collateralized to ensure protection of the advance funds, even in the event of a bank failure. The lack of adequate internal controls over collateralization could result in the School?s funds being deposited in an inadequately collateralized financial institution, which could result in noncompliance with federal requirements. Repeat Finding from Prior Year: Yes, prior year finding #2019-003. Recommendation: The School should obtain the bank collateralization report from the bank on a monthly basis, and document the individuals? review to ensure the School?s accounts are adequately collateralized. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

Federal Program Affected: This finding relates to all major programs identified in Part A, #7 of the Schedule of Findings. Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: We were requested to draft the audited financial statements, related footnote disclosures, and the SEFA as part of our regular audit services. Auditing standards require auditors to communicate this situation to the School Board as an internal control deficiency. Criteria and Effect: Ultimately, it is management?s responsibility to provide for the preparation of the School?s financial statements, footnotes, and SEFA, and the responsibility of the auditor to determine the fairness of presentation of those statements. From a practical standpoint, we do this for the School at the same time in connection with our audit. This is not unusual for schools of your size. It is our responsibility to inform the School Board that this deficiency could result in a material misstatement to the financial statements and SEFA that would have not been prevented or detected by the School?s management. Repeat Finding from Prior Year: Yes, prior year finding 2018-001. Recommendation: The School should implement review procedures for the externally prepared financial statements. The School should address the risks associated with the audit firm?s preparation of the financial statements and the SEFA and decide to accept this degree of risk or assign appropriate qualified staff or an outside consultant to complete and review the annual financial statements. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

Federal Program Affected: Indian School Equalization Program (CFDA #15.042) Compliance Requirement: Allowable Costs/Cost Principles, Activities Allowed or Unallowed, and Reporting Questioned Costs: None Condition and Cause: During the course of our engagement, we identified and proposed material audit adjustments. Adjustments were made to adjust accounts payable and the related expenditures, to adjust fiduciary income, to account for forgiveness of questioned costs, and to reclassify insurance proceeds from hail damage and related expenditures for repairs to the general fund. Additionally, we noted the School did not maintain sufficient documentation to support their fiduciary liability for monies received from students for student activities. Criteria and Effect: It is management?s responsibility to determine if the financial statements and SEFA are complete and free of material misstatements. Sufficient review of financial statements and expenditures on a regular basis will identify adjustments that need to be made for accurate financial statements. These adjustments were not recorded as part of the School?s existing internal controls, and therefore, resulted in a material misstatement of the School?s financial statements and to the SEFA. Additionally, we expressed a disclaimer of opinion on the on the aggregate remaining fund information of the School.Repeat Finding from Prior Year: Yes, prior year finding 2018-002. Recommendation: Adjustments necessary to comply with accounting principles generally accepted in the United States of America should be identified and recorded prior to the audit process. The School should identify and implement year end processes to adjust accounts to the actual balance based on subsidiary ledgers. The School should also implement procedures to track their student activities and record them in the School?s general ledger as part of the financial statements. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

Federal Program Affected: Indian School Equalization Program (CFDA #15.042) Compliance Requirement: Equipment and Real Property Management and Special Tests and Provisions ? Collateralization of Bank Accounts Questioned Costs: None Condition and Cause: During the audit process we noted deficiencies in internal controls. Control deficiencies were caused throughout the year by turnover within the business office. Specific instances noted included: 1. Bank reconciliations were not reconciled timely and were not reviewed. 2. There was no regular review of bank collateralization to determine if the School?s funds are properly insured for amounts over the FDIC insurance threshold. 3. There was no review of 941s nor W-2 reports after they were completed. 4. The property inventory report is not reviewed for accuracy, the listing itself was not complete and the funding source is not being tracked within the listing. 5. IT controls need strengthened. The School does not have a formal written data security policy. 6. An internal control process and written procurement policy were not in place to ensure the School followed proper procurement standards. Two expenditures tested could not be verified with procurement history documentation. Criteria and Effect: Internal controls should be continually monitored to ensure they have been implemented as designed. A strong review function is a necessary part of any internal control system and the effectiveness of the internal control system relies on enforcement by management. Additionally, the lack of preparation of bank reconciliations and other subsidiary ledgers on a timely basis does not ensure the financial statements presented to the Board are complete to make sound business decisions. 25 USC 450e-3 requires deposits to be fully collateralized. If bank accounts are not fully collateralized, the School increases its risk of losing deposits in the case of bank failure. Uniform Guidance requires equipment records to include funding source and inventory counts to be reviewed. Without review of payroll tax documentation, improper reporting of payroll data could result in penalties and fines to the School. The lack of a written policy regarding computer controls may cause improper use of the School?s computers. The lack of a written policy regarding computer controls may cause improper use of the School?s computers. The School must have a written procurement policy and be able to show it has a procurement history of items purchased exceeding $3,500. The effects of deficiencies in monitoring of internal controls can result in undetected errors or omissions or misappropriation of assets of the School. The effects of deficiencies in monitoring of internal controls can result in undetected errors or omissions or misappropriation of assets of the School. Repeat Finding from Prior Year: Yes, prior year finding 2018-003. Recommendation: Specific recommendations are the following: 1. Bank reconciliations should be prepared on a timely basis without exceptions and reviewed, including investigation of older items needing to be cleared out prior to a month being closed out, after receiving the bank statement and before financial statements are printed out for the Board?s review. 2. The business office should obtain the bank collateralization report from the bank, at least quarterly, and document the individuals? review to ensure the School?s accounts are adequately collateralized. 3. Review of the proper tax documents by the Business Manager should be performed on a continual basis to ensure the accuracy of the data and compliance with all applicable tax regulations. 4. The School should update their capital asset tracking to include funding source to be compliant with the requirements. The physical inventory count should be reviewed in detail. 5. A formal policy and procedures manual should be developed for data security. 6. The School should obtain rate quotes from vendors for expenditures exceeding $3,500 and keep the quotes to evidence proper procurement history. Recipients of federal grants must maintain a written procurement policy. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

Federal Programs Affected: Indian School Equalization Program (CFDA #15.042) and Indian Schools Student Transportation (CFDA #15.044) Compliance Requirement: Allowable Costs/Cost Principles, Activities Allowed or Unallowed Questioned Costs: None Condition and Cause: We noted the following errors out of a sample of 76 during our testing of payroll transactions: 1. We noted three payroll transactions in which the employees were not paid time and a half for overtime hours, resulting in an error totaling $171.33 (Indian School Equalization Program). 2. We noted one erroneous calculation between overtime and regular pay, which resulted in additional payment to the employee, resulting in an error totaling $2.03 (Indian Schools Student Transportation). 3. We noted one erroneous calculation of a timesheet resulting in employee missing pay for time worked, resulting in an error totaling $40.75 (Indian School Equalization Program). 4. We noted two cases where employees were overpaid either through erroneous overtime or additional hours not recorded on the timecards, resulting in an error totaling $205.08 (Indian School Equalization Program). Criteria and Effect: The School must verify that all overtime hours are paid at the proper rate. Lack of adequate documentation and review could result in questioned costs. Repeat Finding from Prior Year: Yes, prior year finding 2018-004. Recommendation: The School should determine how much overtime should have been paid over the year and pay those funds as soon as possible. The School should verify the clerical accuracy of timesheets to ensure employees are compensated for the proper number of hours. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

Federal Program Affected: Indian School Equalization Program (CFDA #15.042) Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: The School did not file the grant annual report with the BIE and the School did not file the final quarterly compliance report timely. The School did not have adequate policies and procedures in place for preparation and review of required compliance reports. Criteria and Effect: Grant conditions for the above-mentioned major programs require a grant annual report, as well as quarterly reports, to be filed timely with the BIE. Failure to submit these reports timely could lead to sanctions related to Federal funding if compliance requirements continue to not be met. Without proper review of these reports, the information may not be accurate or may be misreported to the funding agency. Repeat Finding from Prior Year: Yes, prior year finding 2018-005. Recommendation: We recommend controls be designed and implemented to ensure required reports are prepared and reviewed properly based on general ledger information and filed timely with the proper funding agency. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

Federal Program Affected: Indian School Equalization Program (CFDA #15.042) Compliance Requirement: Special Test and Provisions ? Character Investigations Questioned Costs: See Schedule of Findings and Questioned Costs for chart/table Condition and Cause: During our compliance testing, we noted one instance in which the School?s adjudicating official did not match the results of the various background checks to the application. Criteria and Effect: Uniform Guidance requires the School to ensure that all existing and newly hired employees undergo a criminal history background check conducted through the identification division of the Federal Bureau of Investigation and through the State criminal history repositories of all States that an employee or prospective employee lists as current and former residences in an employment application. The investigation should cover the last five years of the individual?s employment, education, etc. and must be updated every five years during employment. According to 25 CFR section 63.17, the adjudicating official must review each security investigation form and employment application and compare the information provided. Failure to properly adjudicate background checks increases the school?s risk of employing an individual who does not meet the minimum standards required by grant conditions and results in questioned costs. Repeat Finding from Prior Year: Yes, prior year finding 2018-006. Recommendation: We recommend a policy be established to review all background checks to ensure that all required background checks are completed and reviewed in conjunction with the employment application. A person other than the manager of the investigations should complete this annual review. Response/Corrective Action Plan: The School agrees with the above finding. See Corrective Action Plan.

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