Finding Text
2022-001 The District did not have adequate internal controls for ensuring compliance with federal suspension and debarment requirements. Assistance Listing Number and Title: 10.553 ? School Breakfast Program 10.555 ? National School Lunch Program 10.559 ? Summer Food Service Program for Children Federal Grantor Name: U.S. Department of Agriculture Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: 207WAWA3N1099 Known Questioned Cost Amount: $0 Background The District participates in the National School Breakfast, Lunch and Summer programs. For the 2021?22 school year, the District received a total of $14,783,889 for these programs, which provide funding for free and reduced-price meals for students of low-income families. During the 2021?22 school year, the District used the funding to provide free meals to all students, which was allowed under a waiver from the U.S. Department of Agriculture. 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. Description of Condition Federal requirements prohibit grant recipients from contracting with parties suspended or debarred from doing business with the federal government. Whenever the District contracts for goods or 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. 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 meet this requirement before entering into the contract or paying the contractor more than $25,000, and it must maintain documentation to demonstrate compliance. Our audit found the District?s internal controls were inadequate for ensuring it verified that a contractor was 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. The issue was not reported as a finding in the prior audit. Cause of Condition The District typically includes a suspension and debarment clause in contracts that it intends to pay with federal funds. For procurement actions without a contract, the District includes the standard terms and conditions clause on the purchase order with the link to the Purchase Order Terms and Conditions page on its website, which has the suspension and debarment clause. By signing the purchase order, the contractor agrees to be bound by all the requirements stated in the District?s standard terms and conditions, including that it is not suspended and debarred. The District was unable to provide sufficient documentation to demonstrate that the contractor signed the purchase order to attest that it was not suspended and debarred. Staff turnover resulted in lost documentation, and the District was unable to provide any other records supporting that staff verified the contractor was not suspended or debarred. Effect of Condition The District did not obtain a written certification, insert a clause into the contract, or check SAM.gov to verify one out of its two contractors was not suspended or debarred before contracting or purchasing. The District paid this contractor $119,480 during fiscal year 2022. Without adequate internal controls, the District cannot ensure the contractors paid with federal funds are 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 that the contractor was not suspended or debarred, we are not questioning the costs. Recommendation We recommend the District strengthen internal controls to ensure that all contractors that are paid $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs. District?s Response The District concurs with this finding. The Purchasing department has controls in place however this finding was received for one purchase that did exceed the purchase amount for verification of suspension and debarment. The Purchasing department has trained staff on the requirements of suspension and debarment checks to not only be listed on the PO with signature but to also be verified using the SAM.gov option. The Purchasing department will now include the SAM.gov check on any purchase that is made with Federal Funds on a PO. This will ensure that if a PO is not signed, the verification will still take place prior to payment. 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. 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 180, OMB Guidelines to Agencies on Government wide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.