2022-001 The District?s internal controls were inadequate for ensuring it complied with federal procurement, suspension and debarment requirements. "See Schedule of Findings and Questioned Costs for chart/table" Background The District participates in the Child Nutrition Cluster, which includes the National School Lunch Program and the Summer Food Service Program for Children. These programs provide free or reduced-price meals to students from low-income families. The District received $1,070,704 to administer these programs during the 2021-2022 school year. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Description of Condition Procurement Federal regulations require grant recipients to follow their own documented procurement procedures, which must conform to the Uniform Guidance procurement standards found in 2 CFR ? 200.318-327. The procedures must reflect the most restrictive of applicable federal requirements, state laws and local policies. When using federal funds to procure goods and services, governments must apply the more restrictive requirements applicable to the purchase. For goods and supplies costing more than $75,000, state purchase requirements would require the District to award contracts to the lowest responsible bidder. Additionally, state and federal requirements, as well as the District?s policy, allow it 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. When piggybacking, the entity must enter into an agreement before it purchases services or goods from another entity?s contract. If the District uses such an agreement, federal regulations require it to confirm the awarding entity followed all procurement laws and regulations applicable to the District when selecting the contractor. Our audit found the District did not have adequate internal controls for ensuring compliance with federal procurement requirements. Specifically, the District piggybacked onto another government?s contract to purchase food items, but it did not retain supporting documentation showing it verified the awarding government followed applicable procurement requirements before purchasing. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. This issue was not reported as a finding in the prior audit. Suspension and Debarment Federal requirements prohibit grant recipients from contracting with parties that are suspended or debarred from doing business with the federal government. Whenever the District contracts for goods and services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that contractors have not been suspended or debarred, or otherwise excluded, from participating in federal programs. This verification may be accomplished by obtaining a written certification from the contractor, inserting 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 to demonstrate compliance. Our audit found the District did not have adequate controls in place to verify two contractors were not suspended or debarred from participating in federal programs. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The District had turnover in program staff at the beginning of the 2021-2022 school year. Employees did not know they needed to obtain procurement documentation from the awarding agency to verify the process complied with procurement requirements before purchasing. Although the District has an established affidavit process that staff are supposed to use for verifying contractors are not suspended or debarred, new employees were not aware of the process or the requirement to verify a contractor?s status. Effect of Condition The District piggybacked onto another agency?s contract, and it spent $212,609 of federal funds to purchase food items from one food service contractor. Without effective internal controls, the District cannot demonstrate it complied with piggybacking requirements, and cannot ensure it allowed for full and open competition. The District also did not obtain written certifications, insert clauses into the contracts, or check SAM.gov to verify two contractors paid $268,920 in federal funds were not suspended or debarred before contracting or purchasing. Without adequate internal controls, the District cannot ensure the contractors were eligible to participate in federal programs. Any program funds the District used to pay contractors that have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. Because we subsequently verified the contractors were not suspended or debarred, we are not questioning costs. Recommendation We recommend that the District strengthen its internal controls to ensure compliance with federal procurement, suspension and debarment requirements. This should include retaining documentation supporting its compliance with program requirements. We also recommend the District provide training to staff responsible for program requirements. District?s Response During the 2021-2022 school year, Granite Falls School District failed to demonstrate that suspension and debarment requirements were met in the child Nutrition program. The Child Nutrition program ?piggyback? on two contracts used by numerous other districts to purchase food for the program. Even though these vendors have been vetted by many other school districts and the contacts did not originate with Granite Falls, we are still required to ensure that these vendors meet the suspension and debarment requirement. During the 2021-2022 school year, we transitioned to a new supervisor in that department and during the change-over, we neglected to confirm that even though these were contracts from other agencies, we still had to verify suspension and debarment. We have a good system in place currently where all contacts sign an attestation confirming they meet the suspension and debarment requirements. Child Nutrition now understands that they need to use this attestation on all contracts even if they do not originate from Granite Falls. Auditor?s Remarks We appreciate the steps the District has taken to resolve this issue and will review the condition 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. 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. Title 2 CFR Part 200, Uniform Guidance, section 318, General procurement standards, establishes requirements for written procedures and maintaining records sufficient to detail the history of procurement. Title 2 CFR Part 200, Section 319 ? Competition, establishes all procurement transactions are to be conducted in a manner providing full and open competition. Title 2 CFR Part 200, 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 Government wide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.