MCCOMB SCHOOL DISTRICT

Accounts payable testing and internal controls. Programs: Title I Grants to Local Educational Agencies, ALN #84.010 Elementary and Secondary School Emergency Relief Fund II, ALN #84.425D Elementary and Secondary School Emergency Relief Fund III ARP, ALN #84.425U Compliance Requirement: Allowable Cost Repeat Finding: None Criteria: An effective system of internal control is the responsibility of management. Management should establish an internal control system that ensures strong financial accountability and safeguarding of assets. This includes maintenance of accurate accounting records and following the proper purchasing procedures. Condition: During our testing of forty-nine (49) invoices, we noted the following exceptions: 1. One (1) instance of an invoice not being signed and dated to indicate goods and/or services received. 2. Three (3) in the sample where a second quote was not provided for purchases over the $5,000 requirement. 3. Two (2) in the sample where the invoice was dated prior to the purchase order. 4. Three (3) in the sample where the documentation provided did not contain proof of verification for suspension and debarment. 5. Two (2) instances where the district selected the higher quote but did not document the reason. Context: Internal control procedures were tested for accounts payable in the major federal funds. Cause: The district did not properly implement an effective internal control system for accounts payable and did not follow the proper purchasing procedures. Effect: Without a proper internal control system being in place to ensure accurate accounting records, there is an increased risk that the financial statements could be materially misstated. Questioned Cost: None Recommendation: District should implement policies and procedures to establish an internal control system that will require accountability with regard to accounts payable and purchasing. This will ensure the proper safeguarding of assets and accurate accounting records. Response: Please refer to the Auditee’s Corrective Action Plan beginning on page 86.

Material Weakness/Material Non-Compliance 2022-003 Finding Deficiencies in controls surrounding payroll expenditures Programs: Title I Grants to Local Educational Agencies, ALN #84.010 Elementary and Secondary School Emergency Relief Fund II, ALN #84.425D Elementary and Secondary School Emergency Relief Fund III ARP, ALN #84.425U Compliance Requirement: Allowable Cost Repeat Finding: None Criteria: The school district is charged with developing controls around payroll expenditures that will provide authorization of pay through school board approval and the existence of time and attendance records. The district should also have controls, including policies and procedures, that will ensure compliance with the record-keeping requirements of the federal wage and hour law. Condition: During our testing of payroll expenditures, we noted the following exception out of a sample of twenty (20) tested: 1. Due to an error with rolling froward the year and checks being processed or allocated to the wrong fiscal year, the district could not provide accurate monthly check registers to recalculate the net pay for fourteen (14) in the sample. Due to the software error the auditor could not follow the support or proper board approvals showing the differences in actual and approved contract/budgeted pay based on the monthly check registers provided. 2. Two (2) in the sample where the district could not provide the contract or board approved budgeted amount for the employee. Cause: The district did not have adequate controls in place to ensure that payroll expenditures can be properly supported. Effect: This could cause payroll expenditures to be misstated on the financials and could lead to questioned costs. Questioned Cost: None Recommendation: We recommend the district implement internal controls to ensure all employees are properly board approved and employee payments are verified according to the board approved amounts. The district should also implement controls to ensure all employees? time records are being reconciled. Hourly employees should be docked or paid overtime, if applicable. Response: Please refer to the Auditee?s Corrective Action Plan beginning on page 76.

2021-006 Finding Repeat of 2020-008 Non-Payroll expenditures should be supported by adequate documentationl. Program: Child Nutrition Cluster, CFDA # 10.553; 10.555, 10.559 Special Education Cluster, CFDA # 84.027; 84.173 Compliance Requirement: Allowable Cost Questioned Cost: $0 Criteria: Management is responsible for ensuring that all non-payroll expenditures made by the district are adequately documented and approved by the governing board. Condition: We noted the following items while testing non-payroll expenditures: - Seventeen of Twenty invoices not properly canceled indicating payment Cause: The district did not have the proper controls and procedures in place to ensure non-payroll expenditures are properly canceled. Effect: Omitting documentation of approval or receipt of items could result in payments of unauthorized amounts to vendors without receiving the requested goods. Recommendation: We recommend the district implement procedures and internal controls to ensure that all invoices are properly canceled. View of Responsible Officials: The district will implement controls to ensure that all invoices are canceled.

2020-007 Finding Deficiencies in controls surrounding payroll expenditures. Programs: Child Nutrition Cluster, CFDA #10.553; 10.555; 10.559 Title I grants to local educational agencies, CFDA #84.010 Supporting Effective instruction state grants, CFDA # 84.367 Special Education Cluster, CFDA # 84.027; 84.173 Compliance Requirement: Allowable Cost Questioned Cost: $0 Criteria: The school district is charged with developing controls surrounding the payroll expenditure cycle that will provide for authorization of pay transactions through school board approval and the existence of time and attendance records. Controls should also include policies and procedures that will ensure compliance with the record-keeping requirements of federal wage and hour law. Finally, assignments for new employees should align to board approved duties and contracted descriptions. Condition: In our review of the controls surrounding payroll expenditures, we noted that the school board did not approve several supplemental amounts paid to district employees, including supplements for extra duties assigned. We also noted that federal funds were used to pay teacher incentives for four employees tested. District implemented new procedures that showed improvements for the last few months of the fiscal year. Cause: The cause is likely an oversight or lack of controls to ensure items were reconciled and approved appropriately. Effect: The effect is a breakdown in the controls surrounding the payroll expenditure cycle and exposure to risk of noncompliance with federal wage and hour law. Further, employees who are approved for one position are actually serving in a different capacity. Recommendation: We recommend that the school district comply with the recordkeeping requirements of the federal wage and hour law. We further recommend that all supplemental pay amounts be approved by the school board and that all employees be approved for the position/title that corresponds to their actual work assignments. The district implemented new procedures in February of 2020 that made recommended corrections. View of Responsible Officials: The district will implement controls to ensure that all payroll expenditures are approved and documented within the board minutes.

2020-008 Finding Non-Payroll expenditures should be supported by adequate documentation and approval. Program: Title I grant to local educational agencies, CFDA # 84.010 Child Nutrition Cluster, CFDA # 10.553; 10.555, 10.559 Special Education Cluster, CFDA # 84.027; 84.173 Compliance Requirement: Allowable Cost Questioned Cost: $0 Criteria: Management is responsible for ensuring that all non-payroll expenditures made by the district are adequately documented and approved by the governing board. Condition: We noted the following items while testing non-payroll expenditures: - Invoices were not signed or dated noting items received - Invoices not properly canceled indicating payment - Several instances of the service being performed before the PO was issued - Several invoices reviewed were dated before the purchase order date Cause: The district did not have the proper controls and procedures in place to ensure non-payroll expenditures and applicable processes are properly board approved. Controls were also not in place to ensure that all approvals were properly recorded accurately in the minutes. Effect: Omitting documentation of approval or receipt of items could result in payments of unauthorized amounts to vendors without receiving the requested goods. Recommendation: We recommend the district implement procedures and internal controls to ensure that all invoices are properly canceled and that higher quotes be approved by the school board. View of Responsible Officials: The district will implement controls to ensure that all invoices are canceled and higher quotes are approved and documented within the board minutes.

Section III: Federal Award Findings and Questioned Costs Material Weakness and Noncompliance 2019-005 Finding Unallowable Child Nutrition Cost to pay for renovation and construction of McComb High School Cafeteria. Programs: Child Nutrition Cluster, CFDA #10.553; 10.555; 10.559 Criteria: The district is responsible for providing costs associated with remediation or repair to a school building (i.e. plumbing, heating, air conditioning) that would add to the permanent value of the school building. These costs should be borne by the School Food Authority's general fund. Condition: We noted the child nutrition fund had paid for $786,000 to construct, renovate, and repair the district?s high school cafeteria. This was found when reviewing construction in progress. The project was over two fiscal years and completed during the 2019 fiscal year. Cause: Improper internal controls resulted in the district using federal funds instead of general funds. Effect: The district has an unallowable program cost of $786,000. The district will have to pay these funds back to the Child Nutrition fund. Questioned Cost: Child Nutrition Cluster - $786,000 Recommendation: The district should implement stronger internal controls to ensure that all expenditures are an allowable cost for each federal program. The district should make payment to the district?s child nutrition program to pay back the cost of the construction expenses at the high school cafeteria.