FINDING 2024-003
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): FY 2023, FY 2024
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
An effective internal control system, which would include segregation of duties, was not in place at
the School Corporation in order to ensure compliance with requirements related to the grant agreement
and the Procurement and Suspension and Debarment compliance requirement.
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 nonfederal 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.
During the audit period, the School Corporation had two vendors, totaling $900,414, that were
considered simplified acquisition purchases. Both vendors were selected for testing. For one
vendor in both fiscal years, the School Corporation procured more than $150,000 in services
without providing bid tabulations or evaluation criteria for awarding the bid and without obtaining
a contract agreement. For the other vendor, services were properly procured; however, the
School Corporation did not have a contract with this vendor.
During the audit period, the School Corporation had nine vendors, totaling $324,810, that were
considered small purchases. Two vendors were selected for testing. For one vendor during
the fiscal year 2022-2023, the School Corporation procured $12,830 in services and could not
provide evidence of open competition or quotes for the purchase.
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SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
During the audit period, the School Corporation had 122 transactions, totaling $106,328, that were
considered micro-purchases. Eighteen transactions were selected for testing. Three of the transactions
sampled did not include the approval of the Food Service Director per the internal control process. The
internal control was not properly implemented.
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.
Upon inquiry of the School Corporation, in order to review the procedures in place verifying that
a vendor with which it plans to enter into a covered transaction is not suspended, debarred, or
otherwise excluded, the School Corporation disclosed that the Food Service Director verified
vendors were not suspended or debarred by reviewing the SAMs exclusions. The School
Corporation had three vendors in both fiscal years, and one vendor in 2022-2023 had incurred
more than $25,000 in covered transactions, totaling $1,150,939. The School Corporation did
not maintain documentation to show that the vendor was verified for suspension and
debarment status prior to payment.
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 200.318 states in part:
"(a) The non-Federal entity must have and use documented procurement procedures,
consistent with State, local, and tribal laws and regulations and the standards of this section,
for the acquisition of property or services required under a Federal award or subaward. The
non-Federal entity's documented procurement procedures must conform to the procurement
standards identified in §§ 200.317 through 200.327. . . .
(i) The non-Federal entity must maintain records sufficient to detail the history of procurement.
These records will include, but are not necessarily limited to, the following: Rationale for the
method of procurement, selection of contract type, contractor selection or rejection, and the
basis for the contract price. . . ."
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SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
2 CFR 200.320 states in part:
"The non-Federal entity must have and use documented 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:
(1) Micro-purchases— . . .
(ii) Micro-purchase awards. Micro-purchases may be awarded without soliciting
competitive price or rate quotation if the non-Federal entity considers the price to
be reasonable based on research, experience, purchase history or other
information and documents it files accordingly. . . .
(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. . . .
(b) Formal procurement methods. When the value of the procurement for property or
services under a Federal financial assistance award exceeds the SAT, or a lower threshold
established by a non-Federal entity, formal procurement methods are required. Formal
procurement methods require following documented procedures. Formal procurement
methods also require public advertising unless a non-competitive procurement can be used
in accordance with § 200.319 or paragraph (c) of this section. The following formal
methods of procurement are used for procurement of property or services above the
simplified acquisition threshold or a value below the simplified acquisition threshold the
non-Federal entity determines to be appropriate:
(1) Sealed bids. A procurement method in which bids are publicly solicited and a firm
fixed-price contract (lump sum or unit price) is awarded to the responsible bidder
whose bid, conforming with all the material terms and conditions of the invitation
for bids, is the lowest in price. The sealed bids method is the preferred method for
procuring construction, if the conditions.
(i) In order for sealed bidding to be feasible, the following conditions should be
present:
(A) A complete, adequate, and realistic specification or purchase description
is available;
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SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(B) Two or more responsible bidders are willing and able to compete
effectively for the business; and
(C) The procurement lends itself to a firm fixed price contract and the selection
of the successful bidder can be made principally on the basis of price.
(ii) If sealed bids are used, the following requirements apply:
(A) Bids must be solicited from an adequate number of qualified sources,
providing them sufficient response time prior to the date set for opening
the bids, for local, and tribal governments, the invitation for bids must be
publicly advertised;
(B) The invitation for bids, which will include any specifications and pertinent
attachments, must define the items or services in order for the bidder to
properly respond;
(C) All bids will be opened at the time and place prescribed in the invitation for
bids, and for local and tribal governments, the bids must be opened
publicly;
(D) A firm fixed price contract award will be made in writing to the lowest
responsive and responsible bidder. Where specified in bidding
documents, factors such as discounts, transportation cost, and life cycle
costs must be considered in determining which bid is lowest. Payment
discounts will only be used to determine the low bid when prior experience
indicates that such discounts are usually taken advantage of; and
(E) Any or all bids may be rejected if there is a sound documented reason.
(2) Proposals. A procurement method in which either a fixed price or costreimbursement
type contract is awarded. Proposals are generally used when
conditions are not appropriate for the use of sealed bids. They are awarded in
accordance with the following requirements:
(i) Requests for proposals must be publicized and identify all evaluation factors
and their relative importance. Proposals must be solicited from an adequate
number of qualified offerors. Any response to publicized requests for proposals
must be considered to the maximum extent practical;
(ii) The non-Federal entity must have a written method for conducting technical
evaluations of the proposals received and making selections;
(iii) Contracts must be awarded to the responsible offeror whose proposal is most
advantageous to the non-Federal entity, with price and other factors considered;
and
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(Continued)
(iv) The non-Federal entity may use competitive proposal procedures for
qualifications based procurement of architectural/engineering (A/E) professional
services whereby offeror's qualifications are evaluated and the most qualified
offeror is selected, subject to negotiation of fair and reasonable compensation.
The method, where price is not used as a selection factor, can only be used in
procurement of A/E professional services. It cannot be used to purchase other
types of services though A/E firms that are a potential source to perform the
proposed effort. . . ."
Indiana Code 5-22-8-3 states in part:
"(a) This section applies only if the purchasing agency expects the purchase to be:
(1) at least fifty thousand ($50,000); and
(2) not more than one fifty thousand ($150,000).
(b) A purchasing agent may purchase supplies under this section by inviting quotes from at
least three (3) persons known to deal in the lines or classes of supplies to be purchased. . . .
(d) If the purchasing agency receives a satisfactory quote, the purchasing agent shall award
a contract to the lowest responsible and responsive offeror for each line or class of supplies
required. . . ."
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 the SAM.gov Exclusions, or
(b) Collecting a certification from that person, or
(c) Adding a clause or condition to the covered transaction with that person."
Cause
There was no documented evidence of the internal control process. The School Corporation and
the Food Service Director had not developed an adequate system of internal controls that would ensure
compliance with the grant agreement and the Procurement and Suspension and Debarment compliance
requirement. According to the Food Service Director and the Chief Financial Officer, due to the change of
the Food Service Director, the School Corporation did not have the proper safeguards in place to ensure
that the documentation was properly maintained. As a result, the Chief Financial Officer and the Food
Service Director were unable to locate the documentation for each procurement method.
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SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Effect
The School Corporation was not able to provide the documentation that they followed the proper
procurement procedures or that they verified vendors were not suspended or debarred. By not following
proper procurement procedures, the School Corporation may not be receiving the most competitive pricing.
If the School Corporation does not verify that vendors are not suspended or debarred, the School
Corporation may be purchasing from vendors that are not eligible to receive federal funds.
Without a proper system of internal controls in place that operated effectively, material noncompliance
remained undetected. 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 recommend that management of the School Corporation establish a proper system of internal
controls and develop policies and procedures to ensure there are appropriate procurement procedures for
goods and services and contractors and subrecipients, as appropriate, are not suspended, debarred, or
otherwise excluded prior to entering into any contracts or subawards. Documentation of all procurement
and suspension and debarment activities should be maintained.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.