2023-001 The District did not have adequate internal controls for ensuring compliance with federal
allowable activities and allowable costs 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
Federal Award/Contract Number: N/A
Pass-through Entity Name: Office of Superintendent of Public
Instruction (OSPI)
Pass-through Award/Contract
Number: N/A
Known Questioned Cost Amount: $190,241
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 or reduced-price meals to
students from families with low incomes. In the 2022–2023 school year, the District received a
total of $2,163,900 in federal funding, including $395,741 in Supply Chain Assistance (SCA) awards
to administer these programs.
Federal regulations require recipients to establish and maintain internal controls that ensure
compliance with program requirements. These controls include understanding program requirements
and monitoring the effectiveness of established controls.
Federal regulations also establish principles and standards for determining allowable direct and
indirect costs for federal awards. All costs that recipients charge to the program must comply with
program requirements and be supported
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by proper documentation that demonstrates costs are allowable. Specifically, for the Supply Chain
Assistance funds, the District must use the award exclusively to purchase domestic, unprocessed or
minimally processed food products for the school meal programs.
Description of Condition
The District’s internal controls were inadequate to ensure it maintained sufficient records to
demonstrate that it supported expenditures it claimed and that the District was allowed by SCA to
charge them to the program. The District used SCA funds to pay $190,241 to a vendor that provided
dairy products to its schools but did not retain support to show which specific products it
purchased.
We consider this deficiency in internal controls to be a significant deficiency.
Cause of Condition
The District’s nutrition services department did not understand the requirement to track
expenditures and retain supporting documents. The Nutrition Service Department discarded the
packing slips that contained itemized details of the dairy products it purchased at each school
building.
Effect of Condition and Questioned Costs
Because the District did not retain sufficient evidence supporting it only paid for specific
products SCA allowed, it could not demonstrate compliance with the SCA funding requirements. We
identified $190,241 in total payments the District made to one vendor for dairy products without
sufficient supporting documentation. Since we cannot confirm the expenditures the District charged
to the program were allowable, we are questioning these costs.
Federal regulations require the State Auditor’s Office to report known questioned costs that are
more than $25,000 for each type of compliance requirement. We question costs when we find the
District does not have sufficient documentation to support expenditures.
Recommendation
We recommend the District ensure it retains sufficient documentation to demonstrate that costs it
charged to the federal program are supported, allowable and comply with program requirements.
Office of the Washington State Auditor sao.wa.gov Page 7
District’s Response
We appreciate the work of the State Auditor’s Office (SAO) on this year’s audit and the opportunity
to submit this response. The District received its initial allocation of federal funding for Supply
Chain Assistance (SCA) during the fiscal year 2022-2023. This funding is in response to
unprecedented challenges in purchasing and receiving food that operators of USDA Meal Programs are
experiencing. Supply Chain Assistance funds must be used to purchase domestic, unprocessed, or
minimally processed food products for the school meal programs. Examples include: Fluid milk or
other dairy foods such as cheese and yogurt, fruits and vegetables etc. In order to be eligible for
the funding, the District signed attestation statement form with OSPI in May 2022.
The District used SCA funds to pay a vendor for locally produced dairy products for our schools
that complied with the funding requirements. Invoices from the vendor show the total amount for
each delivery but did not include item level details. With each delivery, a packing slip was
provided to the Food Services Department staff members to confirm the receipt of approved items and
reconcile for invoice approval. Once invoices were reconciled and properly approved with a
signature indicating review, the District used the official invoice statement for payment
processing and the delivery packing slip was no longer retained. To assist with the audit, the
District provided auditors with the dairy vendor contract, vendor invoice statements, and an
attestation letter from vendor stating the items purchased conformed to the SCA item list.
Unfortunately, these documents were deemed insufficient to allow SAO re-performing our internal
controls to test its effectiveness.
After SAO communicated the necessity for delivery packing slips in their testing, the District
enhanced our current practice and began retaining all packing slips to support SAO’s internal
control effectiveness review. We welcome any feedback to further strengthen our overall financial
management practices moving forward.
Auditor’s Remarks
We appreciate the steps the District is taking to address this issue. We will review the condition
during our next audit.
Office of the Washington State Auditor sao.wa.gov Page 8
Office of the Washington State Auditor sao.wa.gov
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 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting allowability of costs,
describes the cost principles for how direct and indirect costs should be charged to federal
programs.
Title 7 CFR 210.9(b)(17), Agreement with State Agency, which include maintaining documentation
demonstrating appropriate use of SCA funds
Office of Superintendent of Public Instruction (OSPI) Bulletin 029-22, Child Nutrition Services,
documents requirements for allowable use of Supply Chain
Assistance funds.