FINDING 2025-018 Subject: Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) - Procurement and Suspension and Debarment Federal Agency: Department of Education Federal Program: Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) Assistance Listings Number: 84.374 Federal Award Number and Year (or Other Identifying Number): S374A200039 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Condition and Context Procurement Federal regulations allow for informal procurement methods when the value of the procurement for property or services does not exceed the simplified acquisition threshold, which is set at $250,000 unless a lower, more restrictive threshold is set by a non-Federal entity. As Indiana Code has set a more restrictive threshold of $150,000, informal procurement methods are permitted when the value of the procurement does not exceed $150,000. This informal process allows for methods other than the formal bid process. The informal process is divided between two methods based on thresholds. Micro-purchases, typically for those purchases $10,000 or under, and small purchase procedures for those purchases above the micro-purchase threshold, but below the simplified acquisition threshold. Micro-purchases may be awarded without soliciting competitive price rate quotations. If small purchase procedures are used, then price or rate quotations must be obtained from an adequate number of qualified sources. When the value of the procurement for property or services exceeds the simplified acquisition threshold, formal procurement methods are required. Formal procurement methods require adherence to documented procedures and formal methods such as sealed bids or proposals. The School Corporation did not have internal controls in place to ensure it complied with the procurement requirement for small purchase and simplified acquisition procurement methods. During the audit period, the School Corporation paid 22 vendors with Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) that fell into the small purchase threshold. There were 4 vendors were tested. For all 4 vendors tested, the School Corporation could not provide the procurement history or the rationale for the method of procurement, selection of vendors, and basis for price. The total dollar amount paid to these four vendors was $206,756. The School Corporation had 1 vendor during the audit period which exceeded the simplified acquisition threshold that was paid from Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund). This vendor was tested and it was determined that formal procurement methods were not followed. The total amount paid to this vendor was $305,034. In addition, the School Corporation did not follow their own purchasing policy #6325, in which the School Corporation had set a threshold of $3,500 for small purchases. INDIANA STATE BOARD OF ACCOUNTS 58 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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. We identified 11 transactions during the audit period that equaled or exceeded $25,000 and were therefore determined to be covered transactions. Of the 11 transactions, 4 were selected for testing. The School Corporation was unable to provide current documentation that the vendor's suspension and debarment status was verified for 2 of these transactions. The total dollar amount spent with these 2 vendors was $82,105. There were multiple Directors over the Teacher and School Leader Incentive Grants (formerly the Teacher Incentive Fund) during the audit period. At the time the audit was performed, no previous Directors were employed with the School Corporation and there were no current employees that were knowledgeable of the grant and its requirements. The lack of internal controls and noncompliance were systemic issues throughout 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 200.320 states in part: "The non-Federal entity must have and use documented procurement procedures, consistent with the standards of this section and §§ 200.317, 200.318, and 200.319 for any of the following methods of procurement used for the acquisition of property or services required under a Federal award or sub-award. (a) Informal procurement methods. When the value of the procurement for property or services under a Federal award does not exceed the simplified acquisition threshold (SAT), as defined in § 200.1, or a lower threshold established by a non-Federal entity, formal procurement methods are not required. The non-Federal entity may use informal procurement methods to expedite the completion of its transactions and minimize the associated administrative burden and cost. The informal methods used for procurement of property or services at or below the SAT include: . . . INDIANA STATE BOARD OF ACCOUNTS 59 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (2) Small purchases— (i) Small purchase procedures. The acquisition of property or services, the aggregate dollar amount of which is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources as determined appropriate by the non-Federal entity. (ii) Simplified acquisition thresholds. The non-Federal entity is responsible for determining an appropriate simplified acquisition threshold based on internal controls, an evaluation of risk and its documented procurement procedures which must not exceed the threshold established in the FAR. When applicable, a lower simplified acquisition threshold used by the non-Federal entity must be authorized or not prohibited under State, local, or tribal laws or regulations. (b) Formal procurement methods. When the value of the procurement for property or services under a Federal financial assistance award exceeds the SAT, or a lower threshold established by a non-Federal entity, formal procurement methods are required. Formal procurement methods require following documented procedures. Formal procurement methods also require public advertising unless a non-competitive procurement can be used in accordance with § 200.319 or paragraph (c) of this section. The following formal methods of procurement are used for procurement of property or services above the simplified acquisition threshold or a value below the simplified acquisition threshold the non-Federal entity determines to be appropriate: (1) Sealed bids. A procurement method in which bids are publicly solicited and a firm fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid, conforming with all the material terms and conditions of the invitation for bids, is the lowest in price. The sealed bids method is the preferred method for procuring construction, if the conditions. . . . (2) Proposals. A procurement method in which either a fixed price or costreimbursement type contract is awarded. Proposals are generally used when conditions are not appropriate for the use of sealed bids. . . ." 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." INDIANA STATE BOARD OF ACCOUNTS 60 SOUTH BEND COMMUNITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Cause A proper system of internal controls was not implemented by management of the School Corporation. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the School Corporation's management statements of what should be done to affect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of preventing, or detecting and correcting, noncompliance. As a result, the School Corporation did not comply with the simplified acquisition or small purchase procurement requirements or the suspension and debarment requirements of the federal award. By not properly completing the procurement process, the School Corporation could have overpaid for the goods or services that were procured. Additionally, the School Corporation could have made payment to a vendor that was suspended or debarred. Payments to such vendors are unallowable. Noncompliance with the grant agreement and the compliance requirement could result in the loss of future federal funds to the School Corporation. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management develop policies and procedures to ensure continuity of school records during a personnel change. We also recommend that the School Corporation establish and implement an effective internal control system over procurement and suspension and debarment to ensure compliance with federal grant requirements. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.