Finding 1105120 (2024-003)

FINDING 2024-003 Subject: Child Nutrition Cluster - Suspension and Debarment Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, Summer Food Service Program for Children Assistance Listings Numbers: 10.553, 10.555, 10.559 Federal Award Numbers and Years (or Other Identifying Numbers): FY 2022 - 2023, FY 2023 - 2024 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Condition and Context Prior to entering into subawards and covered transactions with federal award funds, recipients are required to verify that such contractors and subrecipients are not suspended, debarred, or otherwise excluded. "Covered transactions" include, but are not limited to, contracts for goods and services awarded under a nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking the SAM exclusions, collecting a certification from that vendor, or adding a clause or condition to the covered transaction with that vendor. The School Corporation did not verify that all vendors with covered transactions that equaled or exceeded $25,000 were not suspended, debarred, or otherwise excluded from participation in federal award programs. The School Corporation had three covered transactions during the audit period with two different vendors. The School Corporation provided the formal contract for fiscal years 2023 and 2024 for one of the vendors that included a clause or condition to the covered transaction with that vendor. The second vendor did not have a formal contract associated with the covered transaction and the School Corporation did not check the SAM exclusions or collect a certification from that vendor. The School Corporation did not establish internal controls to ensure that someone is checking the SAM exclusions, collecting a certification, or ensuring there is a clause or condition to covered transactions. The lack of internal controls was systemic throughout the audit period. The noncompliance was isolated to 2024. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." 2 CFR 180.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking the SAM.gov Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause A proper system of internal controls was not designed by management of the School Corporation. Although the School Corporation was aware of this requirement and verified that a suspension and debarment clause was included in one of its vendor's contract, they were not aware that the requirement also applied for covered transactions without a formal contract. Effect Without the proper implementation of an effectively designed system of internal controls, the School Corporation cannot ensure that the vendors paid with federal funds were eligible to participate in federal programs. Any program funds the School Corporation used to pay vendors that were suspended and debarred would be unallowable, and the awarding agency could potentially recover them. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure vendors are not suspended, debarred, or otherwise excluded prior to entering into any covered transactions. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.