Finding 529493 (2024-005)

Material Weakness
Requirement
I
Questioned Costs
-
Year
2024
Accepted
2025-03-24

AI Summary

  • Core Issue: The School Corporation lacks effective internal controls over federal awards, leading to significant compliance failures in procurement and vendor verification.
  • Impacted Requirements: Noncompliance with 2 CFR 200.303 regarding internal controls and 2 CFR 200.318/200.320 for documented procurement procedures.
  • Recommended Follow-Up: Establish a formal risk assessment process, conduct regular monitoring of internal controls, and ensure proper documentation for all procurement activities.

Finding Text

FINDING 2024-005 Subject: Child Nutrition Cluster - Procurement and Suspension and Debarment Federal Agency: Department of Agriculture Federal Programs: School Breakfast Program, National School Lunch Program, Special Milk Program for Children Assistance Listings Numbers: 10.553, 10.555, 10556 Federal Award Numbers and Years (or Other Identifying Numbers): FY2023, FY2024 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context Internal control is generally defined as a process affected by an entity's oversight body, management, and other personnel that provides reasonable assurance that the objectives of an entity will be achieved. With respect to federal awards, nonfederal entities, such as the School Corporation, are required to establish and maintain internal controls over federal awards that provides reasonable assurance that the nonfederal entity is managing the federal award in compliance with federal statutes, regulations, and terms and conditions of the federal awards. INDIANA STATE BOARD OF ACCOUNTS 25 CANNELTON CITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Internal control is not one event or circumstance, but a dynamic and iterative process. The internal control process is based on fundamental principles that operate as a whole but are best understood when analyzed individually. The fundamental principles are related to five components of internal control which are as follows: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. If a component is not effective, or the components are not operating together in an integrated manner, then an internal control system cannot be effective. Deficiencies as noted below were identified in the risk assessment, monitoring, and control activities components. Risk Assessment The School Corporation has not established a formal risk assessment process. There is no documented risk assessment policy, nor is there evidence of periodic risk identification, analysis, or evaluation. Monitoring The School Corporation did not conduct ongoing or periodic reviews to ensure that internal controls were operating as intended and to identify areas for improvement. Furthermore, the School Corporation did not have a process to follow up on corrective actions written as a response to audit findings. Control Activities - Procurement The School Corporation made purchases from two and three vendors during fiscal years 2022- 2023 and 2023-2024, respectively, for which expenditures fell under the small purchase threshold. The School Corporation could not provide any documentation that the procurement method used was appropriate or that the procurements provided full and open competition or rationale to support the determination to limit competition. Additionally, the history of the procurement, including rationale for the method of procurement, selection of the vendor, and the basis for the price, was not adequately documented. The School Corporation made purchases from five and four vendors during 2022-2023 and 2023-2024, respectively, for which expenditures fell under the micro-purchase threshold. The history of the procurement, including rationale for the method of procurement, selection of the vendor, and the basis for the price, was not adequately documented for any of the vendors. Control Activities - Suspension and Debarment The School Corporation utilized two vendors during 2022-2023 and 2023-2024 for which purchases throughout the year exceeded $25,000. The School Corporation was unable to provide any evidence that they verified that the vendors were not suspended or debarred from participation in federal programs. The lack of internal controls and noncompliance were systemic throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: INDIANA STATE BOARD OF ACCOUNTS 26 CANNELTON CITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (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(a) states: "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 service required under a federal award or subaward. The non-Federal entity's documented procurement procedures must conform to the procurement standard identified in §§ 200.317 through 200.327." 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 — (i) Distribution. The acquisition of supplies or services, the aggregate dollar amount of which does not exceed the micro-purchase threshold (See the definition of micro-purchase in § 200.1). To the maximum extent practicable, the non-Federal entity should distribute micro-purchases equitably among qualified suppliers. (ii) Micro-purchase awards. Micro-purchases may be awarded without soliciting competitive price or rate quotations 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. Purchase cards can be used for micropurchases if procedures are documented and approved by the non-Federal entity. . . . (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. . . ." INDIANA STATE BOARD OF ACCOUNTS 27 CANNELTON CITY SCHOOL CORPORATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 Management of the School Corporation had not taken steps to design and implement policies and procedures to assess risks facing the School Corporation or to establish and operate monitoring activities that monitor the internal control system. Additionally, the small size and location of the School Corporation were the determining factors when making purchasing decisions as many vendors will not service the School Corporation. Therefore, the School Corporation has used the same vendors for many years. As such, the School Corporation did not follow the proper procurement procedures to document the reason that competition was limited. Accordingly, the School Corporation also did not check the vendors' suspension and debarment status. Effect As a result of the five components of internal control not being adequately designed and implemented, the internal control system cannot be effective. Thus, general risks or specific risks from fraud and significant changes could negatively impact the School Corporation, identified internal control deficiencies could continue, and unidentified flaws within the internal control system could exist. Furthermore, by not properly completing the procurement process the School Corporation could have overpaid goods or services. Additionally, the School Corporation could have made payment to a vendor that was suspended or debarred. Payments to a suspended or debarred vendor are unallowable. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the School Corporation's management establish a proper system of internal controls, which would include policies and procedures related to risk assessment and monitoring. Additionally, we recommended that the School Corporation's management establish a proper system of internal controls to ensure expenditures made from federal awards use the appropriate procurement method and retain the documentation to support the procurement methods used in order to ensure compliance with the terms and conditions of the federal award. Additionally, we recommend that the School Corporation's management verify applicable vendors are not suspended or debarred prior to making payment. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

Categories

Procurement, Suspension & Debarment Subrecipient Monitoring

Other Findings in this Audit

  • 529482 2024-003
    Material Weakness
  • 529483 2024-003
    Material Weakness
  • 529484 2024-003
    Material Weakness
  • 529485 2024-003
    Material Weakness
  • 529486 2024-003
    Material Weakness
  • 529487 2024-004
    Material Weakness
  • 529488 2024-004
    Material Weakness
  • 529489 2024-004
    Material Weakness
  • 529490 2024-004
    Material Weakness
  • 529491 2024-004
    Material Weakness
  • 529492 2024-005
    Material Weakness
  • 529494 2024-005
    Material Weakness
  • 529495 2024-005
    Material Weakness
  • 529496 2024-005
    Material Weakness
  • 529497 2024-006
    Material Weakness
  • 529498 2024-006
    Material Weakness
  • 529499 2024-006
    Material Weakness
  • 529500 2024-006
    Material Weakness
  • 529501 2024-006
    Material Weakness
  • 529502 2024-006
    Material Weakness
  • 529503 2024-006
    Material Weakness
  • 529504 2024-007
    Material Weakness
  • 529505 2024-007
    Material Weakness
  • 529506 2024-007
    Material Weakness
  • 529507 2024-007
    Material Weakness
  • 529508 2024-008
    Material Weakness Repeat
  • 529509 2024-008
    Material Weakness Repeat
  • 529510 2024-008
    Material Weakness Repeat
  • 529511 2024-008
    Material Weakness Repeat
  • 529512 2024-008
    Material Weakness Repeat
  • 529513 2024-008
    Material Weakness Repeat
  • 529514 2024-008
    Material Weakness Repeat
  • 529515 2024-009
    Material Weakness Repeat
  • 529516 2024-009
    Material Weakness Repeat
  • 1105924 2024-003
    Material Weakness
  • 1105925 2024-003
    Material Weakness
  • 1105926 2024-003
    Material Weakness
  • 1105927 2024-003
    Material Weakness
  • 1105928 2024-003
    Material Weakness
  • 1105929 2024-004
    Material Weakness
  • 1105930 2024-004
    Material Weakness
  • 1105931 2024-004
    Material Weakness
  • 1105932 2024-004
    Material Weakness
  • 1105933 2024-004
    Material Weakness
  • 1105934 2024-005
    Material Weakness
  • 1105935 2024-005
    Material Weakness
  • 1105936 2024-005
    Material Weakness
  • 1105937 2024-005
    Material Weakness
  • 1105938 2024-005
    Material Weakness
  • 1105939 2024-006
    Material Weakness
  • 1105940 2024-006
    Material Weakness
  • 1105941 2024-006
    Material Weakness
  • 1105942 2024-006
    Material Weakness
  • 1105943 2024-006
    Material Weakness
  • 1105944 2024-006
    Material Weakness
  • 1105945 2024-006
    Material Weakness
  • 1105946 2024-007
    Material Weakness
  • 1105947 2024-007
    Material Weakness
  • 1105948 2024-007
    Material Weakness
  • 1105949 2024-007
    Material Weakness
  • 1105950 2024-008
    Material Weakness Repeat
  • 1105951 2024-008
    Material Weakness Repeat
  • 1105952 2024-008
    Material Weakness Repeat
  • 1105953 2024-008
    Material Weakness Repeat
  • 1105954 2024-008
    Material Weakness Repeat
  • 1105955 2024-008
    Material Weakness Repeat
  • 1105956 2024-008
    Material Weakness Repeat
  • 1105957 2024-009
    Material Weakness Repeat
  • 1105958 2024-009
    Material Weakness Repeat

Programs in Audit

ALN Program Name Expenditures
84.425 Education Stabilization Fund 2023 $306,447
84.010 Title I Grants to Local Educational Agencies 2024 $158,170
84.010 Title I Grants to Local Educational Agencies 2023 $142,251
10.555 National School Lunch Program 2023 $133,028
10.555 National School Lunch Program 2024 $117,724
84.425 Education Stabilization Fund 2024 $106,046
84.424 Student Support and Academic Enrichment Program 2024 $58,811
10.553 School Breakfast Program 2024 $48,082
10.553 School Breakfast Program 2023 $47,913
10.579 Child Nutrition Discretionary Grants Limited Availability 2023 $24,809
84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants) 2024 $17,589
84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants) 2023 $15,546
84.424 Student Support and Academic Enrichment Program 2023 $10,254
10.556 Special Milk Program for Children 2024 $9,842
84.027 Special Education Grants to States 2023 $9,174
84.196 Education for Homeless Children and Youth 2023 $9,000
84.358 Rural Education 2024 $7,514
84.358 Rural Education 2023 $6,514
84.027 Special Education Grants to States 2024 $1,722
10.557 Wic Special Supplemental Nutrition Program for Women, Infants, and Children 2024 $1,681
84.173 Special Education Preschool Grants 2023 $930
10.649 Pandemic Ebt Administrative Costs 2023 $628
84.173 Special Education Preschool Grants 2024 $103