Flowing Wells Unified School District No. 8

Finding Number: 2025‐001 Repeat Finding: No Program Name/Assistance Listing Title: Child Nutrition Cluster Assistance Listing Number: 10.553, 10.555, 10.559, 10.582 Federal Agency: U.S. Department of Agriculture Federal Award Number: 7AZ300AZ3, 7AZ310AZ1 Pass‐Through Agency: Arizona Department of Education Questioned Costs: $189,745 Type of Finding: Noncompliance, Significant Deficiency Compliance Requirement: Allowable Costs/Cost Principles Criteria According  to  the  Memo  SP60‐2016,  Indirect  Costs  Guidance  for  State  Agencies  and  School  Food  Authorities, issued by the United States Department of Agriculture (USDA), a District may recover indirect costs of services rendered to school food service at a rate not to exceed the unrestricted indirect cost rate approved by the Arizona Department of Education (ADE). Condition Indirect Cost Guidance for the Child Nutrition Program was not followed correctly. Cause The District was unaware that payments to its food service management company exceeding $50,000 must be excluded from the indirect cost calculation. Effect Indirect costs of $189,745 were overcharged to the Child Nutrition Program. Context When calculating indirect costs, the District did not exclude specific costs prohibited in the indirect cost  calculation.  As  a  result,  the  indirect  cost  rate  was  applied  to  a  net  food  service  expenditure  amount that was greater than it should have been. Therefore, the District overcharged $189,745 to the  Child  Nutrition  Cluster  program  as  reported  in  the  Food  Service  Fund.  The  sample  was  not  intended to be, and was not, a statistically valid sample. Recommendation The District should ensure indirect costs are calculated in accordance with the formula set forth in the guidance issued by USDA and ADE. Views of Responsible Officials See Corrective Action Plan.