Finding 526955 (2024-003)

FINDING 2024-003 Subject: Child Nutrition Cluster - Internal Controls Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program Assistance Listings Numbers: 10.553, 10.555 Federal Award Numbers and Years (or Other Identifying Numbers): FY23, FY24 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Procurement and Suspension and Debarment Audit Finding: Material Weakness Condition and Context As part of sound management of the federal award, the School Corporation was responsible for implementing a system of internal controls that would ensure compliance with the applicable requirements. The School Corporation had not properly implemented such a system. The School Corporation stated that it verified that vendors with which it entered into a covered transaction were not suspended or debarred, or otherwise excluded from receiving or participating in Federal awards, by checking the SAM exclusions, collecting a certification from the vendor, and/or adding a clause to the vendor's contract. During the audit period, the School Corporation entered into six covered transactions, two of which were selected for testing. For one covered transaction, the School Corporation added the suspension and debarment clause to the vendor's contract. The School Corporation designed an internal control that all contracts were approved by governance and provided the signed contract as evidence that the internal control was properly implemented. For the second covered transaction, the School Corporation obtained a certification statement from the vendor and checked the SAM exclusions. However, there was no evidence or an oversight, review, or approval process that would have ensured that the School Corporation's procedures for verifying the vendor's suspension and debarment status were properly followed. The lack of internal controls was isolated to vendors from which the School Corporation obtained a suspension and debarment certification and/or for which the School Corporation checked the SAM exclusions. Criteria The Indiana State Board of Accounts (SBOA) is required under Indiana Code 5-11-1-27(e) to define the acceptable minimum level of internal control standards. To provide clarifying guidance, the State Examiner compiled the standards contained in the manual, Uniform Internal Control Standards for Indiana Political Subdivisions. All political subdivisions subject to audit by SBOA are expected to adhere to these standards. The standards include adequate control activities. According to this manual: "Control activities are the actions and tools established through policies and procedures that help to detect, prevent, or reduce the identified risks that interfere with the achievement of objectives. Detection activities are designed to identify unfavorable events in a timely manner whereas prevention activities are designed to deter the occurrence of an unfavorable event. Examples of these activities include reconciliations, authorizations, approval processes, performance reviews, and verification processes. An integral part of the control activity component is segregation of duties. . . . INDIANA STATE BOARD OF ACCOUNTS 21 NORTH SPENCER COUNTY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) There is an expectation of segregation of duties. If compensating controls are necessary, documentation should exist to identify both the areas where segregation of duties are not feasible or practical and the compensating controls implemented to mitigate the risk. . . ." 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). . . ." Cause The School Corporation had not fully developed its system of internal controls to ensure that its procedures for verifying a vendor's suspension and debarment status were followed prior to entering into a covered transaction. The internal control procedures over suspension and debarment did not include a documented review when verification was done using a suspension and debarment certification and/or when School Corporation checked the SAM exclusions. Effect Without a proper system of internal controls in place that operated effectively, the School Corporation could not ensure that vendors were not suspended or debarred prior to entering into covered transactions. The lack of proper internal controls could enable material noncompliance to remain undetected, which could result in expending funds to a vendor who is excluded or disqualified from receiving federal funds. 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 funds to the School Corporation. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish a proper system of internal controls, as well as appropriately document the evidence of those internal controls, to ensure that the program is properly managed to ensure compliance with the terms and conditions of the federal award. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.