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.