2023-002 The District’s internal controls were inadequate for ensuring compliance with federal procurement and suspension and debarment requirements.
Assistance Listing Number and Title: 10.553 – School Breakfast Program
10.555 – National School Lunch Program
10.559 – Summer Food Service Program for Children
10.582 – Fresh Fruit and Vegetable Program
Federal Grantor Name: U.S. Department of Agriculture
Federal Award/Contract Number: N/A
Pass-through Entity Name: Office of Superintendent of Public Instruction
Pass-through Award/Contract Number: N/A
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
The District participates in the School Breakfast, National School Lunch, Summer Food Service, and Fresh Fruit and Vegetable programs. The District received a total of $5,050,955 for these programs for the 2022–2023 school year. These programs provide funding for free and reduced-price meals for students of low-income families.
Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls.
When using federal funds to purchase goods or services, governments must apply the more restrictive of federal requirements, state law or local policies by obtaining quotes or following a competitive bidding process, depending on the cost of the purchase.
Additionally, state and federal regulations allow local entities to bypass normal procurement laws through a process referred to as “piggybacking.” This process allows entities to purchase goods and services using contracts awarded by another government or group of governments via an interlocal agreement. To comply with piggybacking requirements under state law, the entity must enter into this interlocal agreement before it purchases services or goods from the other entity’s bid contract. If the District uses such an agreement, federal regulations require it to confirm that the procurement methods the awarding agency followed met its own statutory procurement laws and followed regulations applicable to the District when selecting the contractor. Additionally, for the piggybacking transaction to be valid, the District must purchase goods or services from the contractor that the original entity awarded the contract to through its own procurement process.
Federal requirements also prohibit grant recipients from contracting with or purchasing from contractors suspended or debarred from doing business with the federal government. Whenever the District enters into contracts for goods or services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that contractors have not been suspended, debarred or otherwise excluded. The District may verify this by collecting a written certification from the contractor or including a clause or condition in the contract that states the contractor is not suspended or debarred. Alternatively, the District may review the U.S. General Services Administration’s federal Excluded Parties List System (EPLS). The District must meet this requirement before entering into the contract, and must maintain documentation to demonstrate compliance.
Description of Condition
Procurement
Our audit found District’s internal controls were inadequate for ensuring it complied with federal procurement requirements for two contractors participating in federal programs. The District paid $1,261,211 in program funds to one contractor it piggybacked through a purchasing cooperative. The District had an interlocal agreement allowing this arrangement, but did not have documentation available to confirm that it ensured the procurement methods the awarding agency followed met its own statutory requirements before purchasing. Additionally, the District did not have a process to ensure it only purchased products awarded through the awarding entities’ contracts.
The District also paid $722,265 in program funds to one contractor for produce products. The District was able to provide evidence of formal competitive process by way of a notice of publication. However, the District did not have documentation available to confirm it followed the competitive bid process and selected the lowest qualified bidder.
Suspension and Debarment
Our audit found District’s internal controls were inadequate for ensuring it verified that four contractors were not suspended or debarred from participating in federal programs.
We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance.
Cause of Condition
The District experienced turnover among key staff responsible for procuring food products through these contracts, and the District was unable to locate files for review.
Effect of Condition
Procurement
Without competitively procuring the services, the District cannot demonstrate it received the best price for the services it purchased or selected the most qualified contractors. Additionally, the District cannot demonstrate that it complied with federal regulations.
We determined the purchases are allowable under the federal program; therefore, we are not questioning costs.
Suspension and Debarment
The District did not have documentation to prove that it obtained written certifications, inserted clauses into the contracts or checked the EPLS to verify four out of four contractors were not suspended or debarred before contracting with or purchasing from them. The District paid these contractors $2,269,915 during fiscal year 2023.
Without adequate internal controls, the District cannot ensure the contractors it paid with federal funds are eligible to participate in federal programs. Any program funds that the District used to pay contractors that have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. We are not questioning costs because we subsequently verified that the contractors were not suspended or debarred.
Recommendation
We recommend the District strengthen internal controls over procuring goods and ensure compliance with federal requirements, as well as retain and maintain records of these processes for audit.
Further, we recommend the District strengthen internal controls to ensure that all contractors it pays over $25,000 or more, all or in part with federal funds, are not suspended and debarred from participating in federal programs. Additionally, we recommend the District retain documentation to demonstrate this compliance.
District’s Response
The District believed they had complied with the suspension and department requirements and followed all of the bid document requirements for the Food Service Program.
The District was unable to locate the specific documents related to the Food Service Program bid compliance. A recent leadership change resulted in a gap in knowledge about the previous filing system. The District thoroughly searched the former director's computer and potential filing locations, but unfortunately, didn’t find them.
Going forward the Food Service Department will create a dedicated binder for these documents and place the binder in a location easily accessible to both the Director of Food Service and Administrative Assistant. Food Service will also provide copies to the Fiscal Department for their own binder.
Auditor’s Remarks
We appreciate the District’s commitment to resolving the issues identified above. We will follow up on the status of the finding during the next regularly scheduled audit.
Applicable Laws and Regulations
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements.
The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
Title 2 CFR Part 200, Uniform Guidance, section 320, Methods of procurement to be followed, establishes requirements for procuring with Federal funds by nonfederal entities.
Title 2 CFR Part 180, OMB Guidelines to Agencies on Government wide Debarment and Suspension (Nonprocurement), establishes non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.