FINDING 2023-004
Subject: Child Nutrition Cluster - Procurement
Federal Agency: Department of Agriculture
Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 -
National School Lunch Program, Summer Food Service Program
for Children, Fresh Fruit and Vegetable Program
Assistance Listings Numbers: 10.553, 10.555, 10.559, 10.582
Federal Award Numbers and Years (or Other Identifying Numbers): FY 2021-2022, FY 2022-2023
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Other Matters
INDIANA STATE BOARD OF ACCOUNTS 25
SCHOOL CITY OF EAST CHICAGO
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Repeat Finding
This is a repeat finding from the prior audit report. The prior audit finding number was 2021-003.
Condition and Context
The School Corporation had not properly designed or 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 for the acquisition of property and services that fell within the small
purchase procedures.
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.
Five small purchase vendors were selected for testing. Of the five small purchase vendors tested,
the School Corporation did not obtain price or rate quotes for four of the vendors. Documentation detailing
the history of procurement, which must include the reason for the procurement method used, was not
available for audit.
Additionally, the School Corporation did not obtain approval of its food service management
company contract for the fiscal year 2022-2023 from the Indiana Department of Education as required.
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). . . ."
INDIANA STATE BOARD OF ACCOUNTS
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SCHOOL CITY OF EAST CHICAGO
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2 CFR 200.318(a) states:
"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."
2 CFR 200.318(i) states:
"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."
Indiana Code 5-22-8-3(d) states: "If the purchasing agent receives a satisfactory quote, the
purchasing agent shall award a contract to the lowest responsible and responsive offeror for each line or
class of supplies required."
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. . . ."
7 CFR 210.16(a) states in part:
". . . Any school food authority that employs a food service management company in the
operation of its nonprofit school food service shall: . . .
INDIANA STATE BOARD OF ACCOUNTS
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SCHOOL CITY OF EAST CHICAGO
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(Continued)
(10) Ensure that the State agency has reviewed and approved the contract terms and that
the school food authority has incorporated all State agency required changes into the
contract or amendment before any contract or amendment to an existing food service
management company contract is executed. Any changes made by the school food
authority or a food service management company to a State agency pre-approved
prototype contract or State agency approved contract term must be approved in
writing by the State agency before the contract is executed. When requested, the
school food authority must submit all procurement documents, including responses
submitted by potential contractors, to the State agency, by the due date established
by the State agency."
Cause
A proper system of internal controls was not designed by management of the School Corporation,
which would include segregation of key functions. 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 effect 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 effectively preventing, or detecting and correcting, material
noncompliance. As a result, small purchase procurement procedures for goods and services were not
adhered to and the School Corporation's food service management contract was not approved.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the School Corporation's management establish a proper system of internal
controls and develop policies and procedures to ensure procurement procedures for goods and services
are adhered to and that their food service management contract be approved.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.