A R epoRt to the M ontAnA L egisLAtuRe F -c A inAnciAL oMpLiAnce udit Office of Public Instruction For the Two Fiscal Years Ended June 30, 2021 M 2022 Ay L A egisLAtive udit d ivision 21-19 Financial-Compliance Audits Legislative Audit Financial-compliance audits are conducted by the Legislative Committee Audit Division to determine if an agency’s financial operations are properly conducted, the financial reports are presented Representatives fairly, and the agency has complied with applicable laws and Kim Abbott regulations. In performing the audit work, the audit staff uses [email protected] standards set forth by the American Institute of Certified Public Denise Hayman, Chair Accountants and the United States Government Accountability [email protected] Office. Financial-compliance audit staff members hold degrees Emma Kerr-Carpenter with an emphasis in accounting and many staff members hold [email protected] Certified Public Accountant (CPA) certificates. Terry Moore [email protected] Matt Regier The Single Audit Act Amendments of 1996 and the Uniform [email protected] Administrative Requirements, Cost Principles, and Audit Jerry Schillinger Requirements for Federal Awards require the auditor to issue [email protected] certain financial, internal control, and compliance reports in addition to those reports required by Government Auditing Senators Standards. This individual agency audit report is not intended Jason Ellsworth, Vice Chair to comply with these reporting requirements and is therefore [email protected] not intended for distribution to federal grantor agencies. The John Esp Legislative Audit Division issues a statewide biennial Single Audit [email protected] Report which complies with the above reporting requirements. Pat Flowers [email protected] The Single Audit Report for the two fiscal years ended June 30, Tom Jacobson 2019, was issued March 30, 2020. The Single Audit Report [email protected] for the two fiscal years ended June 30, 2021, will be issued by Tom McGillvray September 30, 2022. [email protected] Mary McNally [email protected] Members serve until a member’s legislative term of office ends or until a Audit Staff successor is appointed, Steven Althoff Adam Hefenieder whichever occurs first. Jeane Carstensen-Garrett Courtney P. Johnson §5-13-202(2), MCA Jessica Curtis Shenae Stensaas Chris G. Darragh Flora M. Waske William J. Hallinan Fraud Hotline (Statewide) Reports can be found in electronic format at: 1-800-222-4446 https://leg.mt.gov/lad/audit-reports (in Helena) 444-4446 [email protected] www.montanafraud.gov LEGISLATIVE AUDIT DIVISION Angus Maciver, Legislative Auditor Deputy Legislative Auditors: Deborah F. Butler, Legal Counsel Cindy Jorgenson William Soller May 2022 The Legislative Audit Committee of the Montana State Legislature: This is our financial-compliance audit report on the Office of Public Instruction (OPI) for the two fiscal years ended June 30, 2021. We focused our audit effort on activity related to the state aid and federal funding distributed to the school districts. Throughout the audit, we also reviewed and tested selected control systems and determined compliance with various state laws and federal regulations. The financial schedules are generated from the state’s accounting system without adjustment. Notes to the financial schedules are prepared by OPI personnel. Our audit contains 13 recommendations related to internal controls and compliance with federal requirements for OPI’s major federal program and compliance with state law related to the internal service fund. OPI’s written response to the audit recommendations is included in the audit report at page C-1. We considered OPI’s nonconcurrence with Recommendation #12. The correcting entry for ESSER processed by the office did not mitigate its noncompliance with cash management requirements, because the entry did not affect cash. As noted in the finding, there were not ESSER expenses to support the cash on hand for over a month. In addition, if internal controls are not working as intended, further noncompliance can occur. As such, our recommendation stands. We thank the superintendent and her staff for their cooperation and assistance throughout the audit. Respectfully submitted, /s/ Angus Maciver Angus Maciver Legislative Auditor Room 160 • State Capitol Building • PO Box 201705 • Helena, MT • 59620-1705 Phone (406) 444-3122 • FAX (406) 444-9784 • E-Mail [email protected] i Table of Contents Figures and Tables ....................................................................................................................iii Elected, Appointed and Administrative Officials.....................................................................iv Report Summary ...................................................................................................................S-1 CHAPTER I – INTRODUCTION AND BACKGROUND ���������������������������������������������������������������������1 Introduction ..............................................................................................................................1 Internal Service Fund ................................................................................................................1 State-Level Activities .................................................................................................................2 Local Education Activities ........................................................................................................2 Prior Audit Recommendations ..................................................................................................2 CHAPTER II – FINDINGS AND RECOMMENDATIONS �������������������������������������������������������������������3 Overall Internal Control Structure ...........................................................................................3 Centralized Subrecipient Monitoring ........................................................................................5 Subaward Disclosures ........................................................................................................5 Risk Assessments ...............................................................................................................6 Management Decisions .....................................................................................................6 Elementary and Secondary School Emergency Relief Fund Monitoring ..................................7 Budgets and Cash Requests ..............................................................................................8 Federal Reporting .....................................................................................................................9 ESSER Annual Report ......................................................................................................9 FFATA Reporting ...........................................................................................................10 Child Nutrition Cluster Findings and Recommendations ......................................................11 Donated Food Inventory .................................................................................................12 Child Nutrition Payment Controls .................................................................................13 Title I Findings and Recommendations ..................................................................................14 Title I Earmarking ..........................................................................................................14 Title I Graduation Rate Policies and Procedures .............................................................16 IDEA Cluster, 21st CCLC Grant, and Cash Management Findings and Recommendations ...................................................................................................................17 IDEA Allocations, Maintenance of Effort, and Period of Performance ..........................17 21st Century Community Learning Centers Payment Controls ....................................18 Cash Management for Child Nutrition and ESSER .......................................................20 Revenue Not Commensurate With Costs in Internal Service Fund .......................................20 INDEPENDENT AUDITOR’S REPORT AND OFFICE FINANCIAL SCHEDULES Independent Auditor’s Report ...............................................................................................A-1 Schedule of Changes in Fund Equity for the Fiscal Year Ended June 30, 2021 ....................A-3 Schedule of Changes in Fund Equity for the Fiscal Year Ended June 30, 2020 ....................A-4 Schedule of Total Revenues & Transfers-In for the Fiscal Year Ended June 30, 2021...........A-5 Schedule of Total Revenues & Transfers-In for the Fiscal Year Ended June 30, 2020 ..........A-6 Schedule of Total Expenditures & Transfers-Out for the Fiscal Year Ended June 30, 2021 ........................................................................................................................A-7 Schedule of Total Expenditures & Transfers-Out for the Fiscal Year Ended June 30, 2020 ........................................................................................................................A-8 Notes to the Financial Schedules ..........................................................................................A-9 21-19 ii Montana Legislative Audit Division REPORT ON INTERNAL CONTROL AND COMPLIANCE Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Schedules Performed in Accordance With Government Auditing Standards ..............................................................................................................B-1 OFFICE RESPONSE Office of Public Instruction ..................................................................................................C-1 iii Figures and Tables Figures Figure 1 Federal Awards Tested for Single Audit ..................................................................................3 Tables Table 1 Approximate Breakdown of Title I Funding ........................................................................15 21-19 iv Montana Legislative Audit Division Elected, Appointed and Administrative Officials Office of Public Elsie Arntzen, Superintendent Instruction Julie Walker, Deputy Superintendent (through April 2020) Sharyl Allen, Deputy Superintendent (as of April 2021) Julia Swingley, Chief Legal Counsel (through November 2020) Jacob Griffith, Chief Legal Counsel (June 2021 through January 2022) Rob Stutz, Chief Legal Counsel (as of February 2022) For additional information concerning the Office of Public Instruction, contact: Sharyl Allen, Deputy Superintendent 1227 11th Avenue P.O. Box 202501 Helena, MT 59620-2501 (406) 444-3095 e-mail: [email protected] RepoRt SummaRy S-1 Financial-compliance audit 21-19 may 2022 Montana LegisLative audit division Office of Public Instruction F t F y e J 30, 2021 oR the wo iScal eaRS nded une B The audit period was a difficult one for all state agencies, ackgRound OPI included. March 2020 started the COVID-19 pandemic The Superintendent of the and OPI employees had to adjust their processes to work Office of Public Instruction (OPI) is the elected official from home. The federal government also gave OPI the new responsible for the general responsibility of managing the Elementary and Secondary supervision of K-12 public School Emergency Relief (ESSER) program, which provides schools and districts within emergency relief to schools. OPI also experienced turnover Montana. In addition, in approximately half of their positions. This audit report the superintendent is the contains 13 findings, most of which have an internal executive officer for K-12 control element. We also identified $460,154 in questioned and vocational-technical costs related to subrecipient monitoring in the ESSER education in the state. program and $40,692 related to Title I School Improvement Activities. OPI has approximately 183 full-time equivalent employees, providing AUDITOR’S OPINION (page A-1): UNMODIFIED technical assistance to We found OPI’s financial schedules and note disclosures present fairly OPI’s activity in all material respects. This means a reader can rely on the school-age children and information presented and the underlying accounting records. teachers in more than 400 school districts. For the full context of the office’s financial activity, see the financial schedules and notes beginning on page A-3. The State Level Activities program is established to RECOMMENDATIONS: deliver state services to In this report, we issued the following recommendations: public school districts, To the office: 13 manage federal grants, and To the legislature: 0 administer state funds to public school districts. In this report, we determined the implementation status of The Local Education recommendations in the prior audit: Activities program oversees Fully Implemented: 4 Partially Implemented: 1 the financial reporting, cash Not Implemented: 1 management, subrecipient No Longer Applicable: 1 monitoring, and cost allocation functions for SELECTED RECOMMENDATIONS: federal grants. Recommendation #1 (page 5): Internal Control and State Compliance Total expenditures and OPI should complete internal risk assessments, document important transfers to local education processes, monitor internal controls, and educate staff on the importance agencies exceeded $1 billion of internal controls and their associated responsibilities. in fiscal years 2021 and Office response: Concur 2020. (continued on back) S-2 Recommendation #2 (page 7): For the full report or more Internal Control and Federal Compliance information, contact the OPI should continue to implement controls to ensure compliance Legislative Audit Division. with federal subrecipient monitoring requirements. Office response: Concur leg.mt.gov/lad Recommendation #3 (page 9): Internal Control and Federal Compliance Room 160, State Capitol OPI should ensure ESSER subrecipient grant expenditures are allowable under the program. PO Box 201705 Office response: Concur Helena, MT 59620-1705 (406) 444-3122 Recommendation #4 (page 10): Internal Control and Federal Compliance The mission of the OPI should ensure ESSER annual reports are accurate and supported. Office response: Concur Legislative Audit Division is to increase public trust Recommendation #5 (page 11): in state government by Internal Control and Federal Compliance reporting timely and accurate OPI should ensure Federal Funding Accountability and Transparency Act reports are accurate and supported. information about agency Office response: Concur operations, technology, and finances to the Legislature Recommendation #6 (page 13): and the citizens of Montana. Internal Control and Federal Compliance OPI should improve inventory procedures. Office response: Concur To report fraud, waste, or Recommendation #7 (page 14): abuse: Internal Control OPI should improve internal controls over Child Nutrition payments. Office response: Concur Online www.Montanafraud.gov Recommendation #8 (page 16): Internal Control and Federal Compliance E-mail OPI should improve internal controls over Title I earmarking. Office response: Concur [email protected] Recommendation #12 (page 20): Call Internal Control and Federal Compliance (Statewide) OPI should increase internal controls over cash management. Office response: Do Not Concur (800) 222-4446 or (Helena) (406) 444-4446 RePoRt on inteRnaL contRoL and comPLiance (page B-1): Text In this report, we identified the following: Material Weaknesses in Internal Control: 0 (704) 430-3930 Significant Deficiencies in Internal Control: 1 Material Non-Compliance: 0 Other Matters: 0 For the full context of this information, including the distinction between the types of items reported, see the report beginning on page B-1.