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FINDING 2025-002 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): FY2023, FY2024 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Condition and Context The School Corporation had not properly designed and implemented a system of internal controls, which would include appropriate segregation of duties, that would likely be effective in preventing, or detecting and correcting, noncompliance related to the Procurement and Suspension and Debarment compliance requirement. Suspension and Debarment 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 SAMs exclusions, collecting a certification from that vendor, or adding a clause or condition to the covered transaction with that vendor. It is the School Corporation's policy that they will either require a certification from the vendor or check the exclusion list prior to entering a covered transaction. The School Corporation entered into three covered transactions during the audit period, and it was unable to provide evidence that it followed its policy for two of those transactions. The total purchases made from these two vendors totaled $93,895. INDIANA STATE BOARD OF ACCOUNTS 15 PAOLI COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The lack of internal controls and noncompliance was only noted in the first year of the audit period. 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 Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause The School Corporation's management failed to properly design and implement an internal control system that would have ensured that its policy over the Procurement and Suspension and Debarment compliance requirement was adhered to during the audit period. Effect The failure to design and implement an effective internal control system enabled material noncompliance to go undetected. Noncompliance with the grant agreement and the Procurement and Suspension and Debarment compliance requirement could have resulted in the loss of federal funds to the School Corporation. Additionally, the School Corporation could have made payment to a vendor that was suspended or debarred. Payments to such vendors are unallowable. Questioned Costs There were no questioned costs identified. INDIANA STATE BOARD OF ACCOUNTS 16 PAOLI COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommended that the School Corporation's management establish a system of internal controls to ensure compliance and comply with the grant agreement and the Procurement and Suspension and Debarment compliance requirement. The system should be designed to ensure that vendors are not suspended or debarred, or otherwise excluded, prior to the School Corporation entering into a covered transaction. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.