2025-001 The District did not have adequate internal controls and did not comply with federal eligibility and procurement requirements. Assistance Listing Number and Title: 10.553 - School Breakfast Program, 10.555 - National School Lunch Program Federal Grantor Name: U.S. Department of Agriculture (USDA) Federal Award/Contract Number: N/A Pass-through Entity Name: Office of the Superintendent of Public Instruction (OSPI) Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The District participates in the Child Nutrition Cluster, which includes the School Breakfast Program and National School Lunch Program. These programs provide free and reduced-price meals to students from low-income families. In the 2024-25 school year, the District received $841,788 in federal funding to administer these programs. Federal regulations require recipients to establish, document and maintain effective internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Eligibility Districts providing free and reduced priced meals to students must verify students’ eligibility for these programs by either obtaining applications at the beginning of each school year or through the direct certification process, which is used for categorically eligible children for free meals without further application. Procurement When using federal funds to procure goods and services, governments must apply the more restrictive requirements of federal, state or local laws by obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity. The District must maintain documentation showing the procurement process it performed. The District’s procurement policy conforms to the most restrictive laws and requires the District to obtain three price or rate quotations for purchases of goods between $10,000 and $75,000. Description of Condition Eligibility Our audit found the District did not have adequate internal controls to ensure it only provided eligible students with free and reduced-price meals. Procurement Our audit found the District did not have adequate controls to ensure it complied with procurement requirements. Specifically, the District did not follow its policy when procuring dairy and food products. The District paid three vendors a total of $93,734 in federal program funds. We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance. Cause of Condition The District experienced turnover in the position responsible for managing program eligibility and procuring food products. Current staff were unable to locate the documentation, such as an application or direct certification, to demonstrate students were eligible to receive free and reduced-price meals. Additionally, current staff were unable to locate the documentation to demonstrate compliance with procurement requirements. Effect of Condition and Questioned Costs Eligibility Using a nonstatistical sample, we found three out of 23 students tested (13%) were not supported by documentation evidencing their eligibility. Without documentation showing the students were eligible for free and reduced-price meals, the District cannot demonstrate compliance with the awarding agency’s eligibility requirements. These errors resulted in the District receiving $1,328 in excess federal funds. Based on the projection of our sample, we identified an additional $13,107 in estimated overpayments for free and reduced meal costs. Procurement The District did not comply with procurement requirements for three of six transactions we tested that were subject to procurement. Without effective internal controls, the District cannot demonstrate it complied with federal procurement standards and its own policy, allowed for full and open competition, received the best price or selected the lowest responsible bidder. Recommendation Eligibility We recommend the District establish and follow internal controls to ensure it complies with federal and OSPI requirements for verifying eligibility for free or reduced-price meals and maintain documentation of this verification process. Procurement We recommend the District strengthen internal controls to ensure it complies with its policy and federal regulations for procuring dairy and food related products and that it maintains documentation to demonstrate it complied with federal procurement requirements. District’s Response Eligibility While we believe the person in charge of overseeing eligibility for the 2024-25 school year followed all of the required guidelines because we met all of the requirements in her previous years, we acknowledge that the transition to a new Manager of Child Nutrition resulted in a gap in organization of documentation. Specifically, we had a very difficult time locating eligibility records that were maintained by the previous Manager of Child Nutrition. The list of missing records was greatly reduced through multiple searches but, in the end, we could not locate enough of the missing records to satisfy compliance. Going forward, we will create a district online shared drive that will house this documentation (by year) so that future transitions will happen more seamlessly. Procurement As we understand it, our deficiency around following federal procurement guidelines revolves around two conditions. 1. We failed to demonstrate that we actually received three bids from vendors on one or more procurement contracts. We showed that we requested bids from 4 vendors but only 2 vendors responded. Our process has been to request bids from all vendors that serve our area and that has been sufficient in the past. This seems to be a gray area that needs to be tightened up so we will change our process to the following: Request bids from all vendors that service our area. If we do not receive at least three formal responses, we will then place an advertisement in a journal or newspaper with at least regional circulation formally requesting bids. If/When we do not receive any additional bids we will hold that documentation for audit purposes. 2. We recognize that we also failed to comply with federal procurement requirements around our milk procurement. We made procurement assumptions based on past meal quantities and determined we would not likely meet the required threshold but our meal quantities increased significantly and we exceeded the threshold by several thousand dollars. We could have also used the locally grown regulations to meet the requirements but we do not have a board policy formally adopting that. Going forward, we will need to do a better job of forecasting meals, being far more conservative and we will be adopting a board policy around locally grown products. Auditor’s Remarks We thank the District for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the District’s corrective action during our next audit. Applicable Laws and Regulations 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 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 7 CFR Part 245, Section 245.6 – Application, eligibility and certification of children for free and reduced price meals and free milk. Title 2 CFR Part 200, Uniform Guidance, section 320, Methods of procurement to be followed, establishes requirements for procuring goods and services.