Finding Text
U.S. DEPARTMENT OF AGRICULTURE
PASSED THROUGH ARKANSAS DEPARTMENT OF EDUCATION
CHILD NUTRITION CLUSTER - AL NUMBERS 10.553 AND 10.555
PASS-THROUGH NUMBER 6701
AUDIT PERIOD - YEAR ENDED JUNE 30, 2024
2024-001. Procurement and Suspension and Debarment
Criteria or specific requirement: In accordance with 7 CFR 210.21, School Food Authorities (SFA) must follow proper procurement procedures to ensure expenditures meet the requirements to be paid from the nonprofit school food service account and maintain oversight to ensure contractors perform in accordance with the terms, conditions, and specifications in their contracts. The District entered into a cost reimbursable contract with a food service management company (FSMC) that included a provision allowing the FSMC to provide a loan for investment not to exceed $250,000. Additionally, 7 CFR 250.51 states that a food service management company (FSMC) must disclose and credit the SFA for the value of USDA donated foods and maintain records of all donated food received, used, or credited.
Condition: A contract monitoring review conducted by the Arkansas Division of Elementary and Secondary Education, Child Nutrition Unit (DESE, CNU) revealed the District purchased equipment totaling $494,203, which exceeded the food service management company (FSMC) loan for investment limit outlined in the FSMC contract by $244,203. In January 2025, the District transferred $244,203 in operating funds to the food service account to reimburse the unallowable costs. In addition, FSMC invoices reviewed during the audit period did not disclose the value of USDA donated foods received and used in meal preparation.
Cause: Lack of monitoring of the terms, conditions, and specifications of the FSMC contract. Additionally, the District did not establish procedures to ensure accurate tracking and reporting of USDA donated food usage and credits.
Effect or potential effect: The District exceeded the contractual loan for investment limit and incurred unallowable costs in the nonprofit Child Nutrition account. In addition, the lack of tracking and crediting donated foods could potentially result in the District not receiving full credit from the FSMC for USDA donated food.
Questioned costs: $244,203
Context: Results of a procurement review performed by DESE, CNU and review of the FSMC contract and monthly invoices.
Identification as a repeat finding: No
Recommendation: The District should implement stronger internal controls over FSMC contract monitoring, including regular reconciliation of equipment purchases against contract terms, and procedures to ensure all USDA donated food is tracked and credited on FSMC invoices.
Views of responsible officials: The District has implemented controls to ensure that USDA donated food is tracked and credited on future FSMC invoices. The District made journal entries from Operating to cover the $244,203 that had been originally approved verbally by CNU. We then found out this was not an approved expense from Child Nutrition and corrected this expense.