Finding 384434 (2023-002)

Material Weakness Repeat Finding
Requirement
I
Questioned Costs
-
Year
2023
Accepted
2024-03-26

AI Summary

  • Core Issue: The School Corporation lacks effective internal controls for procurement and vendor verification, leading to repeat findings of noncompliance.
  • Impacted Requirements: Noncompliance with federal procurement standards and suspension/debarment verification as outlined in 2 CFR 200.303 and Indiana Code 5-22-8-3.
  • Recommended Follow-Up: Implement a robust internal control system with proper segregation of duties and ensure all procurement processes and vendor checks are documented and compliant.

Finding Text

FINDING 2023-002 Subject: Child Nutrition Cluster - Procurement and Suspension and Debarment Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, COVID-19 - National School Lunch Program Assistance Listings Number: 10.553, 10.555 Federal Award Numbers and Years (or Other Identifying Numbers): 2021-2022, 2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters 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 related to the Procurement and Suspension and Debarment compliance requirement. 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. INDIANA STATE BOARD OF ACCOUNTS 17 LINTON-STOCKTON SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The population for those procurements that fell within the small purchases range consisted of four vendors with a total purchased amount from those vendors of $314,783. All four vendors were selected for testing. The School Corporation provided documentation detailing the history of procurement for two of the four vendors; however, a contract as required was not awarded to these vendors. The total amount spent with the two vendors was $247,825. The lack of internal controls and noncompliance were isolated to the two vendors identified above. 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. Upon inquiry of the School Corporation in order to review the procedures in place for verifying that a vendor with which it plans to enter into a covered transaction is not suspended, debarred, or otherwise excluded, the School Corporation disclosed that the Director of School Finance verified applicable vendors were not suspended or debarred from participation in federal programs prior to entering into a covered transaction. However, the Director of School Finance verified the vendors' status without a system of oversight or review to ensure compliance prior to payment. The lack of internal controls was a systemic issue 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(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." INDIANA STATE BOARD OF ACCOUNTS 18 LINTON-STOCKTON SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Indiana Code 5-22-8-3 states in part: "(a) This section applies only if the purchasing agent expects the purchase to be: (1) at least fifty thousand dollars ($50,000); and (2) not more than one hundred fifty thousand dollars ($150,000). . . . (d) 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. . . ." Cause A proper system of internal controls, which would include segregation of key functions, was not designed 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 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, procurement procedures for goods and services were not adhered to. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions or the federal award could result in the loss of future federal funding to the School Corporation. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the School Corporation establish a proper system of internal controls and develop policies and procedures to ensure proper procurement procedures are followed. In addition, we recommended that management of the School Corporation establish a proper system of internal controls, including policies that would provide segregation of duties to ensure appropriate reviews, approvals, and oversight are taking place prior to payment of covered transactions. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

Categories

Procurement, Suspension & Debarment

Other Findings in this Audit

  • 384431 2023-002
    Material Weakness Repeat
  • 384432 2023-002
    Material Weakness Repeat
  • 384433 2023-002
    Material Weakness Repeat
  • 384435 2023-002
    Material Weakness Repeat
  • 384436 2023-003
    Material Weakness Repeat
  • 384437 2023-003
    Material Weakness Repeat
  • 384438 2023-004
    Material Weakness
  • 384439 2023-004
    Material Weakness
  • 384440 2023-004
    Material Weakness
  • 384441 2023-004
    Material Weakness
  • 384442 2023-004
    Material Weakness
  • 384443 2023-004
    Material Weakness
  • 960873 2023-002
    Material Weakness Repeat
  • 960874 2023-002
    Material Weakness Repeat
  • 960875 2023-002
    Material Weakness Repeat
  • 960876 2023-002
    Material Weakness Repeat
  • 960877 2023-002
    Material Weakness Repeat
  • 960878 2023-003
    Material Weakness Repeat
  • 960879 2023-003
    Material Weakness Repeat
  • 960880 2023-004
    Material Weakness
  • 960881 2023-004
    Material Weakness
  • 960882 2023-004
    Material Weakness
  • 960883 2023-004
    Material Weakness
  • 960884 2023-004
    Material Weakness
  • 960885 2023-004
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
84.425 Education Stabilization Fund 2022 $599,300
32.009 Emergency Connectivity Fund Program 2022 $552,000
10.555 National School Lunch Program 2023 $460,252
84.425 Education Stabilization Fund 2023 $424,682
84.010 Title I Grants to Local Educational Agencies 2022 $347,235
84.027 Special Education_grants to States 2022 $331,663
84.010 Title I Grants to Local Educational Agencies 2023 $245,385
10.553 School Breakfast Program 2022 $103,052
84.367 Improving Teacher Quality State Grants 2023 $83,773
84.358 Rural Education 2022 $74,224
10.553 School Breakfast Program 2023 $70,845
84.367 Improving Teacher Quality State Grants 2022 $64,383
84.027 Special Education_grants to States 2023 $58,116
10.766 Community Facilities Loans and Grants 2022 $50,000
84.424 Student Support and Academic Enrichment Program 2023 $39,836
84.424 Student Support and Academic Enrichment Program 2022 $32,351
10.555 National School Lunch Program 2022 $27,756
93.778 Medical Assistance Program 2023 $21,400
93.778 Medical Assistance Program 2022 $12,043
84.173 Special Education_preschool Grants 2022 $8,291
84.173 Special Education_preschool Grants 2023 $2,099
10.649 Pandemic Ebt Administrative Costs 2023 $628
10.649 Pandemic Ebt Administrative Costs 2022 $614