2023-001 The District’s internal controls were inadequate for ensuring it complied with federal 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
Federal Agency 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
Questioned Cost Amount: $0
Background
The District participates in the Child Nutrition Cluster, which includes the School Breakfast Program, National School Lunch Program, and Summer Food Service Program for Children. These programs provide free or reduced-price meals to students from low-income families. The District received $708,468 to administer these programs during the 2022–23 school year.
Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding the program requirements and monitoring the effectiveness of established controls.
Description of Condition
Federal requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the District enters into contracts or purchases 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 from participating in federal programs. The District may verify this by obtaining a written certification from the contractor, adding a clause or condition into the contract that states the contractor is not suspended or debarred, or checking for exclusion records in the U.S. General Services Administration’s System for Award Management at SAM.gov. The District must verify this before entering into the contract, and it must maintain documentation demonstrating compliance with this federal requirement.
Our audit found the District did not have adequate controls in place to verify one of three contractors we tested was not suspended or debarred from participating in federal programs.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
When setting up the purchase order for the 2022–23 school year, the Child Nutrition Supervisor reviewed the prior year expenditures with the contractor and initially expected they would be less than $25,000 for the school year. However, because staff did not monitor total expenditures for the contractor during the school year, they did not notice that actual expenditures exceeded this amount. As a result, the Supervisor did not verify the contractor’s suspension and debarment status before expenditures exceeded $25,000.
Effect of Condition
The District did not obtain a written certification, insert a clause into the contract, or check SAM.gov to verify one contractor paid $37,620 in part with federal funds was not suspended or debarred before contracting or purchasing. Without adequate internal controls, the District cannot ensure the contractor it paid with federal funds is eligible to participate in federal programs. Any program funds the District used to pay contractors that have been suspended or debarred would be unallowable, and the awarding agency could potentially recover them. Because we subsequently verified the contractor was not suspended or debarred, we are not questioning costs.
Recommendation
We recommend that the District strengthen its internal controls to ensure all contractors it pays $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs before contracting with or purchasing from them.
District’s Response
The District agrees that it failed to check Suspension and Debarment for one of its Child Nutrition vendors. Corrective action was taken May of 2023, at the time of the previous audit. Unfortunately, May is very late in the year, so actions that occurred prior to the Audit rolled forward into this audit period. Moving forward, just to be extra cautious, Child Nutrition will be issuing the Suspension and Debarment Attestation Form to all vendors and keeping copies on file.
Auditor’s Remarks
We appreciate the steps the District has taken to resolve this issue and will review the condition during our next 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 180, OMB Guidelines to Agencies on Government wide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.