Carroll County Board of Education

FA 2021-001 Strengthen Controls over Expenditures Compliance Requirements: Activities Allowed of Unallowed Allowable Costs/Cost Principles Internal Control Impact: Material Weakness Compliance Impact: Material Noncompliance Federal Awarding Agency: U.S. Department of Education Pass-Through Entity: Georgia Department of Education Assistance Listing Numbers & Titles: COVID-19 ? 84.425D ? Elementary and Secondary School Emergency Relief Fund COVID-19 ? 84.425U ? American Rescue Plan Elementary and Secondary School Emergency Relief Fund Federal Award Numbers: S425D200012 (Year: 2020), S425D210012 (Year: 2021), S425U210012 (Year: 2021) Questioned Costs: $1,360,085 Description: A review of expenditures charged to the Elementary and Secondary School Emergency Relief Fund programs (Assistance Listing Number 84.425D) revealed that the School District?s internal control procedures were not operating appropriately to ensure that expenditures were allowable for the program. Background Information: On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways, including providing additional funding for local educational agencies (LEAs) navigating the impact of the COVID-19 outbreak. Provisions included in Title VIII of the CARES Act created the Education Stabilization Fund to provide financial resources to educational entities to prevent, prepare for, and respond to coronavirus. The CARES Act allocated $30.75 billion, the Coronavirus Response and Relief Supplemental Appropriations Act allocated an additional $81.9 billion, and the American Rescue Plan Act added $165.1 billion in funding to the Education Stabilization Fund. Multiple Education Stabilization Fund subprograms were created and allotted funding through the various COVID-19-related legislation. Of these programs, the Elementary and Secondary School Emergency Relief (ESSER) Fund was created to address the impact that COVID-19 has had, and continues to have, on elementary and secondary schools across the nation. ESSER funding was granted to the Georgia Department of Education (GaDOE) by the U.S. Department of Education (ED). GaDOE was responsible for distributing funds to LEAs and overseeing the expenditure of funds by LEAs. ESSER funds totaling $9,504,676 were expended and reported on the Carroll County Board of Education?s Schedule of Expenditures of Federal Awards (SEFA) for fiscal year 2021. Criteria: As a recipient of federal awards, the School District is required to establish and maintain effective internal control over federal awards that provides reasonable assurance of managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards pursuant to Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), Section 200.303 ? Internal Controls. In addition, provisions included in Title VIII of the CARES Act state that the Education Stabilization Fund was established ?to prevent, prepare for, and respond to coronavirus.? Specifically, Section 18003(d) of the CARES Act lists 12 allowable uses of ESSER funds by LEAs. Furthermore, provisions included in the Uniform Guidance, Section 200.403 ? Factors Affecting Allowability of Costs state that ?costs must meet the following general criteria in order to be allowable under Federal awards: (a) Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles, (b) Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items, (c) Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non- Federal entity? (g) Be adequately documented?? Lastly, provisions included in the Uniform Guidance, Section 200.430 ? Compensation?Personal Services prescribe standards for documentation of personnel expenses and state, in part, that ?(a) ? Costs for compensation are allowable to the extent that they satisfy? specific requirements?, and that the total compensation for individual employees: (1) Is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity consistently applied to both Federal and non-Federal activities; (2) Follows an appointment made in accordance with a non-Federal entity?s laws and/or rules or written policies and meets the requirements of Federal statute, where applicable; and (3) Is determined and supported as provided in paragraph (i)?, [as follows:] (i) Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity?? Condition: A sample of 32 nonpersonal services expenditures was randomly selected for testing using a nonstatistical sampling approach. Four individually significant items and two unusual items were also selected for testing. These expenditures were reviewed to determine if appropriate internal controls were implemented, and applicable compliance requirements were met. The following deficiency was noted: ??Two expenditures totaling $1,357,125 were made to disburse flat rate, disaster relief payments in the amount of $750 to each School District employee as a reimbursement for costs incurred as a result of the coronavirus pandemic; however, sufficient documentation, including a calculation of the amount, was not maintained on-file to support that the payments were ?necessary and reasonable? for the performance of the ESSER program or met the purpose of the funds, which was to ?prevent, prepare for, or respond to coronavirus.? An additional sample of 60 employees was randomly selected for testing using a non-statistical sampling approach. These items were reviewed to determine if appropriate internal controls were implemented, and applicable compliance requirements were met. The following deficiencies were noted: ??For one employee, the School District was unable to provide documentation to support the years of experience on the salary scale, resulting in an overpayment of $2,403. ??Two employees were reimbursed for work performed during the year at a rate higher than authorized by the Board, resulting in an overpayment of $268. ??For three employees, the payment for additional work performed included the employer portion of Federal Insurance Contributions Act (FICA) taxes, resulting in an overpayment of $289. Questioned Costs: Upon testing a sample of $56,146 in nonpersonal services expenditures and $689,899 in personal services expenditures and individually significant or unusual expenditures totaling $2,513,789, known questioned costs of $1,360,085 were identified for expenditures not supported by adequate documentation. Using the total expenditure population amount of $7,984,776 (excluding benefits payments), we project the likely questioned costs to be approximately $1,393,796. The following Assistance Listing Number was affected by the known and likely questioned costs: 84.425D. Cause: In discussing these deficiencies with management, they stated that preliminary guidance associated with the ESSER program was ambiguous, and cumulative, clarifying guidance was not published until more than a year after the initial ESSER funding was allocated to the School District. Therefore, the School District misinterpreted the initial guidance that was available at the beginning of Fiscal Year 2021. Additionally, errors noted with overpayment to employees are due to oversight by entity personnel and approval of specific reimbursements being made at decentralized level. Effect: The School District is not in compliance with the Uniform Guidance or ED guidance related to the ESSER program. Failure to ensure that appropriate documentation exists to support the allowability of payments from the ESSER fund may expose the School District to unnecessary financial strains and shortages as ED or GaDOE may require the School District to return funds associated with improperly documented expenditures. Recommendation: The School District should review current internal control procedures related to ESSER program expenditures. Where vulnerable, the School District should develop and/or modify its policies and procedures to ensure that expenditures are appropriately documented and reflect the connection to the purpose of the ESSER program funds, which is ?to prevent, prepare for, and respond to coronavirus.? Furthermore, management should develop and implement a monitoring process to ensure that controls are operating appropriately. Views of Responsible Officials: We concur with the conditions totaling $289 and $268, and corrective action has been implemented. We also concur that one employee?s personnel file lacked experience documentation. The personnel file has been updated with no impact to the employee?s salary, and no other corrective action is required for this isolated condition. We do not concur with the auditor?s interpretation that one employee disaster relief payment totaling $1,357,125 lacked sufficient documentation, and we do not concur with the cause described. The District is eligible to make a qualified disaster relief payment under section 26 USC 139(b)(4), and Section 193 does not require receipt for disaster relief payments. We do not concur that Uniform Guidance (UG) requires receipts or extra documentation for disaster relief payments. The UG definitions state that, ?When establishing documentation requirements for payments, agencies should ensure that all documentation requirements are necessary and should refrain from imposing additional burdensome documentation requirements.? Strong internal controls and documentation for the disaster relief payments included: ??Authorization by Carroll County School System Board of Education ??Authorization by Georgia Department of Education ??Documented opening plan defining employee expectations to prevent, prepare for and respond to the pandemic ??Documented employee eligibility requirements ??Documented descriptions of and estimated calculations of pandemic-related costs ??Consultation with accounting and legal experts on requirements prior to payment ??Detailed payment listing for each eligible employee We do not concur with the potential effect. In the unlikely event that disbursements are determined to be disallowed from ESSER funding, the District would substitute other eligible disbursements for the $1,357,125 in disaster relief payments in lieu of repayment. Eligible salary expenditures from other funding sources far exceed the disaster relief payment by millions of dollars. Auditor's Concluding Remarks: The Georgia Department of Audits and Accounts (DOAA) acknowledges the overwhelming burden placed on the School District and its employees due to the effects of the COVID-19 pandemic. However, as noted in the finding details above, the Cost Principles provisions reflected within the Uniform Guidance were still applicable to the School District?s federal expenditure activity during the time in which the disaster relief payments were disbursed, and these requirements were not waived or reduced due to Internal Revenue Service tax relief efforts associated with the pandemic, such as disaster relief payments. While disaster relief payments may have been allowable in nature, auditors do not believe that these payments were supported by adequate documentation as required by the Uniform Guidance. School District personnel state that ?documented descriptions of and estimated calculations of pandemic related costs? were provided to auditors to support the disaster relief payments. Auditors were provided with a one-page document that reflected various estimates of expenses that may have been incurred by employees, such as phone, internet, teleworking supplies and equipment, personal protective equipment (PPE), cleaning/sanitizing, and other medical, personal, family, and living costs due to COVID-19. Auditors noted the following issues with the documentation provided: ??The source of and rationale associated with the estimates was not provided to support the accuracy of the amounts utilized within the calculation. ??The calculation reflected estimates for phone and internet service for 12 months. The Carroll County School System ceased in-person instruction on March 26, 2020, ended the 19-20 school year on May 15, 2020, and returned to in-person instruction on August 24, 2020; therefore, the estimated cost of personal phone and internet service for a 12-month period of time is not deemed to be reasonable as School District facilities were not closed for this length of time. ??There was no analysis, survey, etc. performed to determine if each School District employee may have actually incurred the estimated COVID-related expenditures for which the disaster relief payment was intended to provide reimbursement. For example, the majority of employees likely had existing residential phone and internet service that could be used during the period in which the School District facilities were closed; therefore, additional phone and internet expenditures were not incurred by these employees as a result of the qualified disaster. ??The amount paid to each employee, which totaled $750.00, was not reflected within the calculation documentation provided. In addition, School District personnel state that controls and documentation for the disaster relief payments included ?authorization by Georgia Department of Education (GaDOE).? The GaDOE program personnel approve descriptions and dollar amounts of budgeted expenditures but do not review associated supporting documentation for allowability. There are often instances in which the GaDOE approves an expenditure on a school district?s federal program budget and the expenditure is ultimately deemed unallowable by the DOAA and/or GaDOE due to a lack of supporting documentation. In these instances, the GaDOE determines if repayment of the expenditures is necessary or if an alternative corrective action is required. Furthermore, School District personnel state that they participated in ?consultations with accounting and legal experts on requirements prior to payment,? but no such consultation was requested of or held with the DOAA. If such a consultation with the DOAA management had occurred prior to payment, Uniform Guidance documentation requirements and other industry-specific expertise could have been shared with School District management. Lastly, School District personnel reference a Uniform Guidance definition, which states that ?When establishing documentation requirements for payments, agencies should ensure that all documentation requirements are necessary and should refrain from imposing additional burdensome documentation requirements.? However, this definition pertains to the fact that federal awarding agencies, such as the U.S. Department of Education, should not impose additional unnecessary and burdensome documentation requirements beyond the expenditure documentation requirements under the Cost Principles provisions of the Uniform Guidance, which as stated above were not met. We reaffirm our finding and will review the status of the finding during our next audit.