Castle Rock School District No. 401
September 1, 2023 through August 31, 2024
2024-002 The District did not have adequate internal controls and did not
comply with federal procurement and suspension and debarment
requirements.
Assistance Listing Number and Title: 10.553 – School Breakfast Program
10.555 – National School Lunch
Program
Federal Grantor Name: U.S. Department of Agriculture
Federal Award/Contract Number: N/A
Pass-through Entity Name: Office of the Superintendent of
Public Instruction
Pass-through Award/Contract
Number:
N/A
Known Questioned Cost Amount: $0
Prior Year Audit Finding: Yes, Finding 2023-001
Background
The District participates in the Child Nutrition Cluster, which includes the School
Breakfast Program and National School Lunch Program. These programs provide
free and reduced-price meals to students from low-income families. The District
received $750,680 to administer these programs during the 2023-2024 school year.
Federal regulations require recipients to establish and maintain internal controls
that ensure compliance with program requirements. These controls include
understanding grant requirements and monitoring the effectiveness of established
controls.
State and federal requirements allow local entities to bypass normal procurement
laws through a process commonly referred to as “piggybacking.” This process
allows entities to purchase goods and services using contracts awarded by another
government or group of governments via an interlocal agreement or cooperative. If
the District uses such an agreement, federal regulations require it to confirm that
the procurement methods the awarding agency followed met its own statutory
procurement laws and followed regulations applicable to the District when
selecting the contractor. Additionally, to make a valid piggybacking transaction,
the District must purchase goods or services from the contractor that the original
entity awarded the contract to through its own procurement process.
Additionally, federal requirements prohibit grant recipients from contracting with
or purchasing from parties suspended or debarred from doing business with the
federal government. Whenever the District enters into contracts or purchases goods
or services that it expects to equal or exceed $25,000, paid all or in part with federal
funds, it must verify that the contractors are not suspended, debarred or otherwise
excluded from participating in federal programs. The District may verify this by
obtaining a written certification from the contractor, adding a clause or condition
into the contract that states the contractor is not suspended or debarred, or checking
for exclusion records in the U.S. General Services Administration’s System for
Award Management at SAM.gov. The District must perform this verification
before entering into the contract, and it must maintain documentation
demonstrating compliance with this federal requirement.
Description of Condition
The District did not have a process to ensure it complied with procurement
requirements when purchasing food. The District piggybacked onto a purchasing
cooperative’s contract and a neighboring school district’s contract for food and
dairy products; however, the District did not confirm that the procurement methods
the awarding agencies followed met its own statutory procurement requirements
before purchasing. Additionally, the District did not have a process in place to
ensure it only purchased products that were awarded through the awarding entities’
contracts at the established price.
Additionally, although the District has a process to verify the suspension and
debarment status for contractors it pays more than $25,000, our audit found the
District could not demonstrate it verified all three contractors were not suspended
or debarred before purchasing from them.
We consider these deficiencies in internal controls to be material weaknesses that
led to material noncompliance.
Cause of Condition
The District was unaware of the piggybacking requirements until it received a
finding in the prior audit. Due to the timing of the prior audit, the District had
already begun purchasing off the new contracts.
Additionally, the District experienced turnover in the Director of Fiscal Services
position, and current staff could not locate documentation to demonstrate
compliance with federal suspension and debarment requirements.
Effect of Condition
The District piggybacked on three contracts without reviewing bid documentation
and spent about $128,000 of federal funds to purchase food and dairy products.
Without effective internal controls, the District cannot demonstrate it complied
with piggybacking federal procurement requirements, allowed for full and open
competition, and received the current contract price for the food purchases.
The District did not obtain written certification from the contractors, insert a clause
into the contract or retain evidence that it checked for exclusion records at
SAM.gov to verify contractors it paid $435,630 using federal funds were not
suspended or debarred before contracting. Without adequate internal controls, the
District increases its risk of awarding federal funds to contractors that are excluded
from participating in federal programs. Any payments the District made to an
ineligible party would be unallowable, and the federal agency could potentially
recover them.
We subsequently verified the contractors were not suspended or debarred.
Therefore, we are not questioning costs.
Recommendation
We recommend the District strengthen internal controls to ensure it complies with
applicable procurement requirements for purchases of goods and services.
Additionally, we recommend the District strengthen its internal controls to verify
all contractors it pays $25,000 or more, all or in part with federal funds, are not
suspended or debarred from participating in federal programs and maintain
documentation demonstrating compliance with this requirement.
District’s Response
The District will conduct mandatory training for all staff involved in procurement
on federal regulations, including how to check vendors against the System for
Award Management (SAM.gov) for suspension or debarment.
The District will also establish a procurement review checklist to be completed by
the vendor and staff. Send out yearly with request of updated w-9 the vendor
acknowledgment with debarment statement. Review debarment statues yearly.
Auditor’s Remarks
We thank the District for its cooperation throughout the audit and the steps it is
taking to address these concerns. We will review the status of the District’s
corrective action during our next audit.
Applicable Laws and Regulations
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal Awards
(Uniform Guidance), section 516, Audit findings, establishes reporting
requirements for audit findings.
Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes
the requirements for auditees to maintain internal controls over federal programs
and comply with federal program requirements.
Title 2 CFR Part 200, Uniform Guidance, section 320, Methods of procurement to
be followed, establishes requirements for procuring with Federal funds by
nonfederal entities.
Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide
Debarment and Suspension (Nonprocurement), establishes nonprocurement
debarment and suspension regulations, implementing Executive Orders 12549 and
12689.
The American Institute of Certified Public Accountants defines significant
deficiencies and material weaknesses in its Codification of Statements on Auditing
Standards, section 935, Compliance Audits, paragraph 11.