FINDING 2023-005
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 Summer Food Service Program for Children
Assistance Listings Numbers: 10.553, 10.555, 10.559
Federal Award Numbers and Years (or Other Identifying Numbers): FY2021-2022, FY2022-2023
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Modified Opinion
Repeat Finding
This is a repeat finding from the prior audit report. The prior audit finding number was 2021-005.
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 of goods and the suspension and
debarment of vendors.
Procurement - Micro-Purchases
Upon inquiry of the School Corporation in order to review the procedures in place for verifying
micro purchase procedures the School Corporation disclosed its process for micro-purchases,
typically those purchases for $10,000 or under, was for the purchase to be reviewed by the
Treasurer or Food Service Director to ensure proper procurement procedures were followed.
The review was documented by initials or a signature on the claim. To verify the internal control
was operating effectively four vendors that fell within the micro-purchase threshold were
selected for testing. Two of the four vendors selected were not reviewed, as there was no
documentation of initials or a signature on the corresponding claim.
Procurement - Small Purchases
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.
Upon inquiry of the School Corporation in order to review the procedures in place for verifying
small purchase procedures the School Corporation disclosed it had two processes for ensuring
proper procurement procedures were followed. There was one process for small purchases
that required a contract and one process for small purchases that did not require a contract.
For small purchases requiring a contract, the Food Service Director made the determination,
which was then reviewed and approved by the School Board. Small purchases that did not
require a contract were reviewed by the Treasurer or Food Service Director to ensure proper
procurement procedures were followed. To verify the control was operating effectively five of
the six vendors that fell within the small purchase threshold were selected for testing. Of the
five tested, one contracted vendor and three noncontracted vendors did not have evidence of
a review.
Due to the lack of effective internal controls over small purchases, three of five small purchase
vendors tested did not obtain the required price or rate quotes. In addition, documentation
detailing the history of procurement, which must include the reason for the procurement method
used, was not available for audit.
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 procedures included the School
Board approving bids, which include a certification from the vendor. The one covered transaction
identified was not approved by the School Board. As such the internal control was
determined to not be properly implemented.
The lack of internal controls and noncompliance were systemic issues throughout the audit period.
Criteria
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 200.303 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."
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."
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 . . .
(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. . . ."
Cause
A proper system of internal controls was not implemented 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, procurement methods used were not properly documented.
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 management of the School Corporation design and implement a proper
system of internal controls, including policies and procedures that would provide segregation of duties to
ensure appropriate reviews, approvals, and oversight are taking place to ensure compliance.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.