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Finding 6: KSU Failed to Implement an Effective System of Internal Controls Over Federal Grant Expenditures Putting Over $3 Million Dollars in Federal Funds at Risk.

Kentucky State University receives a significant amount of federal grant funds annually. Colleges and universities are required to spend the funds in accordance with federal guidelines, grant agreements, and laws and regulations. Federal awarding agencies require the grantee to implement and maintain a comprehensive system of internal controls to ensure funds are spent appropriately. KSU did not maintain a strong internal control system over federal grant expenditures to ensure compliance. In addition, some internal controls were deliberately circumvented by KSU executive staff.

APA auditors selected Coronavirus Relief Fund (CRF), Higher Education Emergency Relief Fund (HEERF), Governors Emergency Education Relief Fund (GEER), and Title III, Part B, for Strengthening Historically Black Colleges and Universities (HBCU) Discretionary Grants and Master's Program to review. Numerous requests were made to current KSU staff to provide documentation for

Many of the federal grant expenditures selected could not be substantiated due to missing or insufficient documentation.

transactions charged to the selected federal programs. Many of the selected items could not be substantiated due to missing or insufficient documentation. However, review of the available documentation of KSU's grants yielded significant issues, including the following:

Higher Education Emergency Relief Fund (HEERF)

Beginning in Spring 2020, after the COVID-19 pandemic began, KSU and other universities began receiving HEERF funding to help address financial needs of the institutions and their students. KSU was awarded this funding under three separate HEERF programs: ALN (Assistance Listing Number) 84.425E- Student Aid Portion, ALN 84.425F- Institutional Portion, and ALN 84.425J - Historically Black Colleges and Universities.

HEERF Student Aid Portion – ALN 84.425E

We selected for review $671,328 of $686,039 of HEERF Student Aid Portion transactions posted to the disbursement ledger from the examination period and noted the following issues:

• KSU’s former President and former EVP for Finance requested the KSU Foundation to “Hold and Release Funds” for purposes that were not allowed by the grant and did not notify the Foundation of the federal requirements that applied to the grant. These funds were given to the Foundation because the former President stated “KSU cannot disburse the cash grants and satisfy the requirements of the award.” See Finding 13 for further discussion of this transfer of funds.
• All the HEERF Student Aid Portion funds received by the KSU Foundation were deposited into existing KSU Foundation bank accounts and these drawn down funds were not disbursed within the federally required time frame of within 15 days of receipt.
• KSU did not provide documentation for seven of the 11 payments tested, and auditors were unable to trace payments to students to bank statements due to incomplete records.
• Disbursements dates in KSU's accounting system did not correspond with actual dates the activity occurred, but rather when the transaction was entered in the system.