2022-001 The District?s internal controls were inadequate for ensuring it complied with federal procurement, suspension and debarment, and reporting requirements. Assistance Listing Number and Title: 10.553 School Breakfast Program 10.555 National School Lunch 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: $359,518 Description of Condition The District participates in the Child Nutrition Cluster, which includes the National School Lunch and School Breakfast programs. The District received $371,350 to administer the programs during the 2021?22 school year. Federal regulations require recipients to establish and maintain internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Procurement/Suspension and Debarment 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 estimated cost of purchase. State and federal requirements allow local entities to bypass normal procurement laws through a process commonly 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 or cooperative. If the District uses such an agreement, federal regulations require it to confirm the awarding entity followed all procurement laws and regulations applicable to the District when selecting the contractor and retain documentation. Federal requirements prohibit grant recipients from contracting with parties suspended or debarred from doing business with the federal government. Whenever the District contracts for goods and 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 or debarred or otherwise excluded. This verification may be accomplished by obtaining a written certification from the contractor, inserting 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 perform this verification before entering into the contract or paying the contractor more than $25,000, and it must maintain documentation to demonstrate compliance. Our audit found the District did not have a process in place to ensure staff followed the most restrictive procurement requirements when procuring food products and retained supporting documentation to show it complied with these requirements. In addition, the District?s internal controls were inadequate for ensuring it verified one contractor was not suspended or debarred from participating in federal programs. We consider these deficiencies in internal controls to be a material weakness that led to a material noncompliance. This issue was not reported as a finding in the prior audit. Reporting Federal regulations require school districts to ensure accuracy of meal counts before submitting them for reimbursement. The Office of Superintendent of Public Instruction (OSPI) reimburses the District for the program by applying the ?national average payments? rates for free, reduced-price and full-cost meals to the number of meals served in each category. For monthly reimbursements, the District must submit to OSPI the total number of meals served in each category, and it must retain supporting documentation for these meal counts. During the audit period, the District submitted 11 monthly claims to OSPI for reimbursement based on meals served to students. District staff did not retain the meal count forms to support these claims. We consider this control deficiency to be a material weakness that led to a material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition Due to turnover in the Nutrition Program Director position, which is responsible for managing the programs, current District staff was unable to locate documentation to support compliance with requirements for procurement, suspension and debarment. Current staff thought the District piggybacked onto another agency?s contract to procure one of the contractors, but could not locate the documentation during the audit. Additionally, staff was unable to locate meal count forms supporting the District?s reimbursement requests for fiscal year 2022. Effect of Condition and Questioned Costs Procurement/Suspension and Debarment The District cannot demonstrate it complied with procurement requirements when it purchased food products from two contractors totaling $153,271, because it did not retain documentation to support the procurement history. Therefore, the District cannot demonstrate it received the best price for the goods it purchased. The District did not obtain written certifications, insert clauses into the contracts, or check SAM.gov to verify one contractor it paid $131,886 was not suspended or debarred before contracting or purchasing. Without adequate internal controls, the District cannot ensure the contractor 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 funding agency could potentially recover them. Because we subsequently verified that the contractor was not suspended or debarred, we are not questioning costs. Reporting The District was unable to provide meal count forms or data to support the reimbursement claims. As a result, the District cannot ensure it provided accurate meal counts to OSPI and received reimbursement for actual meals served in accordance with the federal regulations. We are questioning $359,513 of costs received for meals served. Recommendation We recommend the District establish internal controls to ensure compliance with federal procurement, suspension and debarment, and reporting requirements, as well as retain documentation supporting compliance with program requirements. District?s Response The District has put new staff in place to oversee the management of the Food Service Program and compliance requirements surrounding procurement of contractors. The District has also put new safeguards in place to ensure documentation remains in a centrally located area at all times. The District has updated our Vendor Packets to include signature and date lines acknowledging the suspension and debarment language. Auditor?s Remarks We thank the District for its cooperation and assistance during the audit and acknowledge its commitment to improving the condition described. We will review the status of this issue 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 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. Title 7 CFR Part 210, National School Lunch Program, section 8, Claims for reimbursement, establishes the requirements to ensure the accuracy of meal counts prior to submission of the monthly claim for reimbursement and maintaining all data used in preparing the claims. Title 7 CFR Part 220, School Breakfast Program, section 11, Reimbursement procedures, establishes the requirements to ensure the accuracy of breakfast counts prior to submission of the monthly claim for reimbursement and maintaining all data used in preparing the claims.