AMERICAN HORSE SCHOOL

Finding #2025-001: Internal Controls over Payroll Federal Program Affected: Title I ALN #84.010A Compliance Requirement: Allowable Costs/Activities Allowed Questioned Costs: None Condition and Cause: Two employees were not paid for overtime hours worked because of an error in payroll processing. Criteria and Effect: The error resulted in an underpayment of $281 to the employees. Repeat Finding from Prior Year: No Recommendation: The School should review and reconcile timesheets to payroll registers prior to processing payroll. Response/Corrective Action Plan: The School agrees with the above Finding. See Correction Action Plan.

Finding #2025-002: Allowable Costs Charged to Administrative Cost Grants for Indian Schools Federal Program Affected: Administrative Cost Grants for Indian Schools, ALN 15.046 Compliance Requirement: Allowable Costs/Activities Allowed Questioned Costs: Yes. See table below for amounts charged to Board Services for the year ended June 30, 2025. Stipend $165,119 Bonus 51,435 Social Security/Medicare 16,582 Health Insurance 1,684 2% Fee 5 Board Expenses 20,619 Travel/Training 69,805 Total $325,249 Condition and Cause: During our engagement, we were made aware of expenditures to board members that were charged to Administrative Cost Grants for Indian Schools that may not be reasonable and necessary under applicable cost principles contained in 2 CFR Part 200, Subpart E. Specifically, the School charged $325,249 of payments to the federal program, consisting of board stipends, travel reimbursements, per diem payments, bonus, and fringe benefits. The School’s internal policy is to pay board members $250 per board meeting. Total expenditures under the Administrative Cost Grants for Indian School for the year ended June 30, 2025 were $994,330. We tested $152,104 of expenditures based audit sampling guidance. All expenditures tested were supported by underlying documentation such as approved payroll registers or invoices. Additionally, all payroll registers or invoices indicated multiple levels of review and approval. Criteria and Effect: Uniform Guidance, in 2 CFR Part 200, Subpart E establishes the rules for determining allowability of costs chargeable to federal awards, ensuring they are necessary, reasonable, allocable, and documented. Repeat Finding from Prior Year: No Recommendation: Expenditures made to board members should be reviewed for compliance under the Uniform Guidance, specifically, 2 CFR Part 200, Subpart E. Additionally, training for those reviewing and approving board payments should be provided. The board may also consider an anonymous whistleblower reporting hotline to provide employees or others with an option to anonymously report impropriety. Response/Corrective Action Plan: The School agrees with the above Finding. See Correction Action Plan.

Federal Program Affected: Indian School Equalization Program (CFDA #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 track funding sources for assets with current depreciation, resulting in non-compliance. Criteria and Effect: Lack of funding source tracking could lead to grant non-compliance if assets are disposed of and proceeds are not returned to the appropriate federal agency. Repeat Finding from Prior Year: Yes, finding #2020-003. Recommendation: The listing must include the funding sources for all 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.

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? (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: N/A 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.

Federal Program Affected: Indian School Equalization Program (CFDA #15.042) Compliance Requirement: Allowable Costs and Procurement Questioned Costs: None Condition and Cause: The School does not have written policies for allowable costs and procurement. Criteria and Effect: Uniform Guidance specifically requires entities to maintain a written policy for allowable costs and procurement. Not properly maintaining such policies leads to noncompliance. Repeat Finding from Prior Year: Yes, finding #2020-003 Recommendation: The School should create a written policy for allowable costs and procurement. 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: Allowable Costs Questioned Costs: None Condition and Cause: During the audit process we noted deficiencies in internal controls. Control deficiencies were caused throughout the year by lack of staff within the business office. Specific instances noted included: 1. No documentation of Board review of monthly bank reconciliations was maintained. Bank statements did not include cancelled check images for a portion of the year. In addition, we noted other items not reviewed during the year, to include the Superintendent?s timecards, payroll registers, and manual journal entries. 2. If travel advances are not fully spent, employees are allowed to keep the additional funds. These excess travel stipend monies are not included in employees? W2 wages. 3. The Business Manager prepares and initiates the payroll direct deposit. No review of the amount deducted from the School?s bank account is performed. Additionally, there was no formal approval of 21st Century pay rates for a portion of the year. 4. The Business Manager performs most cash receipts processes, including preparation of deposit slips, taking the deposit to the bank, and recording the revenue in the general ledger. 5. Student Activities funds are not agreed to outside activity reports that are maintained under the School?s document retention policy. 6. Board minutes do not adequately document Board involvement and monitoring and lack appropriate details. 7. Information technology controls need strengthened. The School does not have a formal written data security policy, and external backups are not performed or maintained. 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. The effects of deficiencies in internal controls can result in undetected errors or omissions or misappropriation of School assets. Repeat Finding From Prior Year: Yes, prior year finding 2019-002. Recommendation: Internal Control procedures should be evaluated to ensure custody of assets, authorization of transactions, and record keeping are separated. Monitoring should be done consistently by knowledgeable individuals. Specifically: 1. Review procedures should be signified by initials and dates on all subsidiary listings and reconciliations. 2. Upon reconciliation of travel request forms, excess funds should be returned to the School. This can be done via payroll deduction if necessary. 3. The external accountant is now reviewing the bank statement to verify the amount of net pay per the approved payroll register agrees to the amount deducted from the bank account. 21st Century pay rates are now being approved by the Board. As such, we have no further recommendation. 4. The cash receipts listing should be maintained by the individual opening the mail. The validated bank deposit slip should be returned to that individual for comparison with the listing. Discrepancies should be reported to the Superintendent. 5. Individuals should be tracking those activities they are responsible for, reconciling regularly with the Business Manager, and maintaining the reconciliation. 6. Additional details should be included in Board minutes to support monitoring being done and decisions being made to avoid future misunderstandings. 7. A formal policy and procedures manual should be developed for data security. Daily external back-ups should be performed, stored off-site and regularly tested. Response/Corrective Action Plan: The School agrees with the above finding. See attached 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: Allowable costs, equipment and real property management, and special tests and provisions. Questioned Costs: None Condition and Cause: Several general compliance policies and procedures are not in place. Specific instances noted include: 1. Payroll certifications for employees fully charged to one program were obtained annually, beginning in December 2019. In addition, no certifications were obtained for two employees. 2. The capital asset inventory report only included the funding source for assets with current depreciation. Additionally, the annual count was not reconciled to the general ledger or reviewed for accuracy. 3. No regular review of bank collateralization was performed to determine if the School?s funds were properly insured. 4. Policies were not updated to ensure all requirements were in place regarding advanced payments and reimbursements, allowable costs, conflicts of interest, procurement, internal controls, travel, financial management and accounting, and time and effort. 5. SF-425 reports were not reviewed prior to filing. Criteria and Effect: Compliance with certain policies and procedures is mandated under Uniform Guidance. Noncompliance with grant provisions could result in questioned costs or loss of funding. Repeat Finding From Prior Year: Yes, prior year Finding 2019-008 Recommendation: The School should implement procedures for the timely preparation of necessary certifications and reports. Payroll certifications should cover the entire fiscal year. The School is in the process of updating written policies to comply with Uniform Guidance. Response/Corrective Action Plan: The School agrees with the above finding. See attached Corrective Action Plan.

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