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): FY2022, FY2023
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Other Matters
Condition and Context
The School Corporation had not properly designed or implemented a system of internal controls,
which would include appropriate segregation of duties, that would likely be effective in preventing, or
detecting and correcting, noncompliance related to the purchase of goods and services that fell within the
small purchase threshold or were considered covered transactions.
Procurement
Federal regulations allow for informal procurement methods when the value of the procurement
for property or services does not exceed the simplified acquisition threshold, which is set at
$250,000 unless a lower, more restrictive threshold is set by a non-federal entity. As Indiana
Code has set a more restrictive threshold of $150,000, informal procurement methods are
permitted when the value of the procurement does not exceed $150,000. This informal process
allows for methods other than the formal bid process. The informal process is divided between
two methods based on thresholds: Micro-purchases, typically for those purchases $10,000 or
under, and small purchase procedures for those purchases above the micro-purchase
threshold, but below the simplified acquisition threshold. Micro-purchases may be awarded
without soliciting competitive price rate quotations. If small purchase procedures are used,
then price or rate quotations must be obtained from an adequate number of qualified sources.
The School Corporation had not designed or implemented internal controls, which would
consist of policies and procedures, to ensure that proper procurement procedures for small
purchases were followed. A population of eight small purchase vendors was identified. All
eight were selected for testing. For all eight small purchases, totaling $180,015, the School
Corporation did not obtain price or rate quotes. Documentation detailing the history of procurement,
which must include the reason for the procurement method used, was not available
for audit.
Suspension and Debarment
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.
The School Corporation had not designed or implemented internal controls, which would
consist of policies and procedures, to ensure that vendors were not suspended or debarred
prior to entering into a covered transaction. One covered transaction that equaled or exceeded
$25,000 was identified and selected for testing. Payments to the vendor, totaling $81,295,
were made without verifying if the vendor was suspended, debarred or otherwise excluded
from participation in federal awards.
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 200.320 states in part:
"The non-Federal entity must have and use document procurement procedures, consistent with
the standards of this section and §§ 200.317, 200.318, and 200.319 for any of the following
methods of procurement used for the acquisition of property or services required under a
Federal award or sub-award.
(a) Informal procurement methods. When the value of the procurement for property or
services under a Federal award does not exceed the simplified acquisition threshold (SAT),
as defined in § 200.1, or a lower threshold established by a non-Federal entity, formal
procurement methods are not required. The non-Federal entity may use informal
procurement methods to expedite the completion of its transactions and minimize the
associated administrative burden and cost. The informal methods used for procurement
of property or services at or below the SAT include: . . .
(2) Small purchases –
(i) Small purchase procedures. The acquisition of property or services, the aggregate
dollar amount of which is higher than the micro-purchase threshold but does not
exceed the simplified acquisition threshold. If small purchase procedures are used,
price or rate quotations must be obtained from an adequate number of qualified
sources as determined appropriate by the non-Federal entity. . . ."
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 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 and implemented by management of the
School Corporation, which would include segregation of key functions. 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 management 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, price or rate quotes were not obtained for small purchases and 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 of
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 system of internal controls
and develop policies and procedures to ensure rate or price quotes are obtained for small purchases
and ensure contractors and subrecipients, as appropriate 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.