FINDING 2024-004
Subject: Child Nutrition Cluster - Procurement and Suspension and Debarment
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): FY22-23, FY23-24
Pass-Through Entity: Indiana Department of Education
Compliance Requirements: Procurement and Suspension and Debarment
Audit Finding: Material Weakness, Other Matters
Repeat Finding
This is a repeat finding from the immediately prior audit report. The prior audit finding number was
2022-001.
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 the Debarment compliance requirement.
Procurement
Federal regulations allow for informal procurement methods when the value of the procurement
for goods or services does not exceed the simplified acquisition threshold, which is customarily
set at $250,000. However, Indiana Code 5-22-8 has a more restrictive threshold of $150,000
or less for when small purchase procedures may be used. The 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 did not have effective controls in place to ensure that an adequate
number of price or rate quotations were obtained for all small purchases.
The School Corporation did not obtain price or rate quotations from an adequate number of
sources for all three vendors that were tested that met the small purchase threshold.
Suspension and Debarment
Prior to entering into subawards and covered transactions with the Child Nutrition Cluster
(CNC) 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 non-procurement transaction
(i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be
done by checking the SAM exclusions, collecting a certification from that vendor, or adding a
clause or condition to the covered transactions with that vendor. The School Corporation did
not have effective controls in place to ensure that the verification was completed for all
contractors prior to entering into covered transactions.
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 200.318 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. . . ."
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: . . .
(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. . . .
Cause
Management had not established a system of internal controls to ensure documentation was
obtained and retained to demonstrate they had properly procured all small purchases.
Management had not established a system of internal controls to ensure that the School
Corporation's procedures for verifying a contractor's suspension and debarment status was followed for all
contractors.
Effect
Without a proper design or implementation of internal controls, the internal control system cannot
be capable of effectively preventing, or detecting and correcting, material noncompliance. This could result
in the School Corporation overpaying for goods or services or paying a contractor who has been suspended
or debarred, which would be unallowable.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the School Corporation's management strengthen its system of internal
controls to ensure that an adequate number of price or rate quotations are obtained for all small purchases
and that suspension and debarment is verified for all covered transaction of $25,000 or more.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.