FINDING 2023-004
Subject: Child Nutrition Cluster - Procurement and Suspension and Debarment
Federal Agency: Department of Agriculture
Federal Programs: School Breakfast Program, 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): FY 21-22, FY 22-23,
7182022IN890342,
7182023IN890342
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
Procurement
The School Corporation did not have effective internal controls in place to ensure costs charged
for goods and services to the food service program were properly procured.
The School Corporation designed and implemented a process to ensure that costs charged for
goods and services to the food service program were properly procured. The process was for
vendor claims to be reviewed and approved by the department head or Food Service Director
and the Treasurer. However, during our test of 11 vendor claims that fell within the micropurchase
threshold, there were 5 claims that were not approved by the department head or the
Food Service Director.
The lack of internal controls was isolated to 2022-2023.
Suspension and Debarment
The School Corporation had not properly designed or implemented a system of internal controls
which would include segregation of duties, that would likely be effective in preventing, or
detecting and correcting noncompliance. 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 had not been performed
that ensured all vendors were not suspended or debarred prior to entering into covered
transaction. There were five covered transactions that equaled or exceeded $25,000 that were
identified, totaling $254,729. All five covered transactions were selected for testing. For two
of the transactions, totaling $85,616, the School Corporation had not performed procedures
that ensured vendors were not suspended or debarred, or otherwise excluded or disqualified
from participating in federal assistance 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 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."
Cause
A proper system of internal controls 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 managements 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, vendors to whom payments equal to or in excess of $25,000 were not verified
to be not suspended, debarred, or otherwise excluded.
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 that contractors are not suspended, debarred,
or otherwise excluded prior to entering into any contracts or subawards.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.