FINDING 2023-003
Subject: Child Nutrition Cluster - Procurement and Suspension and Debarment
Federal Agency: Department of Agriculture
Federal Programs: School Breakfast Program, National School Lunch Program
Assistance Listings Numbers: 10.553, 10.555
Federal Award Numbers and Years (or Other Identifying Numbers): FY 21-22, FY 22-23
Pass-Through Entity: Indiana Department of Education
Compliance Requirements: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Other Matters
Repeat Finding
A similar comment was in the prior audit report. The prior audit finding number was 2021-001.
Condition and Context
A School Nutrition Cooperative (Co-ops, Education Service Center, Group Purchasing
Organization, etc.) that would like to be classified as a School Food Authority (SFA) Cooperative must
complete a questionnaire and submit it to the Indiana Department of Education (IDOE). Once a questionnaire
is received, the IDOE will review the answers to determine a Cooperative's classification. Only
Cooperatives that submit the questionnaire and receive a SFA-only Cooperative classification from the
IDOE in writing will be considered a SFA only Cooperative for the purposes of the procurement process
and procurement reviews.
Procurement
When the value of goods or services exceeds the simplified acquisition threshold, the proper
purchasing method would be the bidding process, unless the purchase meets certain other
qualifications. Federal regulations allow for informal procurement methods when the value of
the procurement for goods or services does not exceed the simplified acquisition threshold,
which is customarily set at $250,000. However, Indiana Code 5-22-8 has a more restrictive
threshold of $150,000 or less for when small purchase procedures may be used. 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 micropurchase
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. If it is determined a single source provider can be used for a small purchase, documentation
must be retained supporting the determination.
The School Corporation purchased bread, diary, produce, and commodities through Region 8
Education Service Center (Region 8). However, Region 8 had not received the SFA-only
Cooperative classification from the IDOE for fiscal years 2021-2022 and 2022-2023. As such,
the School Corporation could not rely on the procurement procedures completed by Region 8
and were responsible for adhering to the procurement requirements for its purchases of bread,
dairy, produce, and commodities.
Two vendors fell within the small purchase threshold. Both vendors were selected for testing.
For one of the two vendors, an adequate number of price or rate quotes were not obtained.
The vendor not in compliance, was procured through Region 8; however, as noted above, since
Region 8 was not an approved SFA-only Cooperative, the School Corporation could only use
Region 8 as one price or rate quote and would have needed to solicit additional bids or quotes
to be in compliance.
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.
The School Corporation purchased bread, diary, produce, and commodities through Region 8
Education Service Center (Region 8). However, Region 8 had not received the SFA-only
Cooperative classification from the IDOE for 2021-2022 and 2022-2023. As such, the School
Corporation could not rely on Region 8's verification of suspension and debarment and was
required to complete its own verification.
One covered transaction was identified and tested that equaled or exceeded $25,000. For the
noted transaction, the School Corporation did not verify that the vendor was not excluded or
disqualified from participation in federal award programs.
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 200.318 states in part:
"(a) The non-Federal entity must have and use documented procurement procedures,
consistent with State, local, and tribal laws and regulations and the standards of this section,
for the acquisition of property or services required under a Federal award or subaward. The
non-Federal entity's documented procurement procedures must conform to the procurement
standards identified in §§ 200.317 through 200.327. . . .
(i) The non-Federal entity must maintain records sufficient to detail the history of procurement.
These records will include, but are not necessarily limited to, the following: Rationale for the
method of procurement, selection of contract type, contractor selection or rejection, and the
basis for the contract price. . . ."
2 CFR 200.320 states in part:
"The non-Federal entity must have and use document 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: . . .
(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. . . .
(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.
(i) In order for sealed bidding to be feasible, the following conditions should be
present:
(A) A complete, adequate, and realistic specification or purchase description
is available;
(B) Two or more responsible bidders are willing and able to compete
effectively for the business; and
(C) The procurement lends itself to a firm fixed price contract and the selection
of the successful bidder can be made principally on the basis of price.
(ii) If sealed bids are used, the following requirements apply:
(A) Bids must be solicited from an adequate number of qualified sources,
providing them sufficient response time prior to the date set for opening
the bids, for local, and tribal governments, the invitation for bids must be
publicly advertised;
(B) The invitation for bids, which will include any specifications and pertinent
attachments, must define the items or services in order for the bidder to
properly respond;
(C) All bids will be opened at the time and place prescribed in the invitation for
bids, and for local and tribal governments, the bids must be opened
publicly;
(D) A firm fixed price contract award will be made in writing to the lowest
responsive and responsible bidder. Where specified in bidding
documents, factors such as discounts, transportation cost, and life cycle
costs must be considered in determining which bid is lowest. Payment
discounts will only be used to determine the low bid when prior experience
indicates that such discounts are usually taken advantage of; and
(E) Any or all bids may be rejected if there is a sound documented reason.
(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. They are awarded in
accordance with the following requirements:
(i) Requests for proposals must be publicized and identify all evaluation factors
and their relative importance. Proposals must be solicited from an adequate
number of qualified offerors. Any response to publicized requests for proposals
must be considered to the maximum extent practical;
(ii) The non-Federal entity must have a written method for conducting technical
evaluations of the proposals received and making selections;
(iii) Contracts must be awarded to the responsible offeror whose proposal is most
advantageous to the non-Federal entity, with price and other factors considered;
and
(iv) The non-Federal entity may use competitive proposal procedures for
qualifications-based procurement of architectural/engineering (A/E) professional
services whereby offeror's qualifications are evaluated and the most qualified
offeror is selected, subject to negotiation of fair and reasonable compensation.
The method, where price is not used as a selection factor, can only be used in
procurement of A/E professional services. It cannot be used to purchase other
types of services though A/E firms that are a potential source to perform the
proposed effort. . . ."
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 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
Management had not established a system of internal controls that would have ensured compliance
with the Procurement and Suspension and Debarment compliance requirement.
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.
Questioned Costs
There were no questioned costs identified.
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.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.