FINDING 2023-001
Information on the federal program:
Subject: Child Nutrition Cluster
Federal Agency: Department of Agriculture
Federal Program: School Breakfast Program, National School Lunch Program, and Summer Food Service
Program for Children
Assistance Listing Number: 10.553, 10.555, 10.559
Federal Award Numbers and Years (Or Other Identifying Number): FY2022, FY2023
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Activities Allowed or Unallowed, Allowable Costs/Cost Principles, Procurement
and Suspension and Debarment
Audit Finding: Material Weakness, Qualified Opinion
Criteria: 7 CFR 220.7(e) states in part:
". . . the School Food Authority shall, with respect to participating schools under its jurisdiction: . . .
(ii) . . . use all revenues received by such food service only for the operation or improvement of that
food service . . .”
7 CFR 220.7(d) states in part:
"(1) Any school food authority (including a State agency acting in the capacity of a school food authority)
may contract with a food service management company to manage its food service operation in one or
more of its schools. However, no school or school food authority may contract with a food service
management company to operate an a la carte food service unless the company agrees to offer free,
reduced price and paid reimbursable breakfasts to all eligible children. Any school food authority that
employs a food service management company in the operation of its nonprofit school food service shall:
• Adhere to the procurement standards specified in § 220.16 when contracting with the food service
management company;
• Ensure that the food service operation is in conformance with the school food authority's
agreement under the Program;
• Monitor the food service operation through periodic on-site visits;
• Retain control of the quality, extent, and general nature of its food service, and the prices to be
charged the children for meals;”
Condition: There was not an effective control in place to review underlying transaction detail billed by the
food service management compliance to verify compliance with Activities Allowed or Unallowed
requirements. There was also not an effective control in place to monitor and review the food service
management company followed procurement and suspension and debarment regulations.
Cause: The School Corporation relied on the food service management company to operate the food
service program without sufficient oversight.
Effect: The failure to establish an effective internal control system could place the School Corporation at
risk of noncompliance with the grant agreement and related compliance requirements.
Questioned Costs: $663 of known questioned costs has been identified related to Activities Allowed or
Unallowed and Allowable Costs/Cost Principles.
Context:
As a result of the COVID-19 pandemic, waivers from the federal government provided free meals to all
students through the Summer Food Service Program and allowed meals to be consumed off-site. Due to
the changing regulations, the USDA and IDOE required School Corporations to implement an Integrity Plan
for any schools providing Grab and Go Meals which includes inquiring of any adult requesting meals without
children present as to how many children under the age of 18 would be served. Prior to March 2020, the
School Corporation was using a point-of-sale system to record meals served. Starting in March 2020, the
School Corporation was authorized by IDOE to utilize a clicker to track meals served. During the summer
months of 2021, the School Corporation was also authorized by IDOE to provide meal pickup service on
Wednesdays from 3 – 6 p.m. for 5 days’ worth of meal for both breakfast and lunch, resulting in 10 meals
being served per child under the age of 18 each week.
In June 2021, the Indiana Department of Education performed an unannounced meal site observation and
a second, announced meal site review noting several program compliance and administrative issues.
In July 2021, the IDOE performed a targeted review of the Summer Food Service Program for the period
of March 2020 through May 2021 noting the following program compliance issues.
• Meals were distributed without ensuring they were going to children ages 18 and younger as
required by SFSP regulations.
• Meals were taken off site to be distributed/dropped off at non—approved locations.
• Meals were distributed and claimed on days when no meal service was approved,
• Meals were distributed outside of approved meal service times.
• Some meals were not distributed in household size quantities to the parent or guardian but
distributed in bulk to large groups and knowingly transported in unsafe and unsanitary ways.
• Meal count records were incomplete, unsigned, or missing required information.
• Meal production was not adjusted when attendance fluctuations were noted.
• Different menu items were ordered for and distributed to a specific group of individuals that was
not the same as the planned menu.
• Menu planning did not consider food inventory on hand and MSD of Pike Township’s access to
USDA Foods (commodities) to reduce overall food costs.
• Unauthorized donation, distribution, and disposal of foods purchased with federal funds was
made without MSD Pike administration knowledge or approval.
The review also noted a lack of administrative oversight of the food service management company
contract including the following issues:
• Food service management company representatives were making decisions regarding child
nutrition program operations without consulting MSD of Pike Township administration. This
practice was ongoing and occurred over several administrations.
• Potential unallowable expenditures were noted in a review of monthly itemized invoices presented
to MSD of Pike Township for recent payment. Items for personal consumption of food service
management employees such as coffee, energy drinks, donuts, lunches, and even unauthorized
travel expenses were presented but are considered unallowable expenditures from the food service
account.
As a result of the IDOE review, a total of $1,299,365 was disallowed from the Summer Food Service
Program. The School Corporation and IDOE agreed to a repayment plan to repay the disallowed costs
identified. The School Corporation completed the repayment to IDOE in December 2021.
Activities Allowed or Unallowed, Allowable Costs/Cost Principles
During the testing of activities allowed or unallowed and allowed costs/cost principles, we selected 6
monthly invoices from the food service management company during the audit period. We noted there was
not an internal control in place by School Corporation personnel to obtain and view the underlying support
of transactions charged by the food service management company to verify the transaction was for a
business purpose. The School Corporation did not obtain and review source documents, such as invoices
or proof of payment for vendor transactions or a schedule of employees, assigned locations, salaries, and
hours to be worked for payroll transactions submitted by the food service management company for
reimbursement.
We also selected a sample of 40 vendor transactions charged to Fund 0800 to test which were not related
to the food service management company and incurred directly by the School Corporation. For 6 of the 40
transactions tested, we noted transactions for concession fees which were charged to the School Nutrition
Program from July 2021 through September 2022 and are deemed unallowable. In October 2022, the
School Corporation began recording all concession activity to Fund 2180, Concessions – District. The six
concession transactions in our sample total $663 which are considered known questioned costs.
Procurement and Suspension and Debarment
The School Corporation did not have an internal control in place to monitor the food service management
company was following proper procurement standards. School Corporations that contract with a food
service management company on a cost reimbursement basis should ensure they are monitoring contracts
sufficiently including verifying or reviewing the following:
• The School Corporation should receive contract commits to supply
• Reviewing invoices received from the food service management company compared to amounts paid
by the food service management company
• Reviewing contracts for compliance with Buy American
• Verifying return of discounts, rebates, or credit are properly applied to the School Corporation’s
account
Identification as a repeat finding, if applicable: Yes. See Finding 2021-001.
Recommendation: We recommend the School Corporation maintain an internal food service director with
strong working knowledge of USDA Child Nutrition Programs to oversee the contract and be the liaison for
all decisions made between the food service management company and the School Corporation. Internal
controls should be established to perform a detailed, documented review of underlying disbursement
transactions billed to the School Corporation by the food service management company as well as
procedures to verify and review that the food service management company adheres to federal and state
procurement standards.
Views of Responsible Officials and Planned Corrective Actions: Management agrees with the finding
and has prepared a corrective action plan.