FINDING 2023-004
Subject: Child Nutrition Cluster - Procurement and Suspension and Debarment
Federal Agency: Department of Agriculture
Federal Programs: School Breakfast Program, National School Lunch Program,
Summer Food Service Program for Children
Assistance Listings Numbers: 10.553, 10.555, 10.559
Federal Award Numbers and Years (or Other Identifying Numbers): FY 2022, FY 2023
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Other Matters
Repeat Finding
This is a repeat finding from the prior audit report. The prior audit finding number was 2021-009.
Condition and Context
The School Corporation had not properly designed or implemented an effective system of internal
controls to prevent, or detect and correct, noncompliance.
Procurement
A School Nutrition Cooperative (Co-ops, Education Service Center, Group Purchasing
Organization, etc.) that would like to be classified as a School Food Authority (SFA)
Cooperative must complete a questionnaire and submit it to the Indiana Department of
Education (IDOE). Once a questionnaire is received, the IDOE will review the answers to
determine a Cooperative's classification. Only Cooperatives that submit the questionnaire and
receive a SFA only Cooperative classification from the IDOE in writing will be considered a
SFA only Cooperative for the purposes of the procurement process and procurement reviews.
When the value of goods or services exceeds the simplified acquisition threshold, the proper
purchasing method would be the bidding process, unless the purchase meets certain other
qualifications. 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. This 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 micropurchase
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. If it is determined a single source provider can be used for a small purchase,
documentation must be retained supporting the determination.
The School Corporation purchased milk through Region 8 Education Service Center (Region
8). However, Region 8 had not received the SFA-only Cooperative classification from the IDOE
for fiscal years 2021-2022 and 2022-2023. As such, the School Corporation could not rely on
the procurement done by Region 8. Region 8 could be considered one quote for procurement;
however, the School Corporation did not obtain any other quotes related to the purchase of
milk, therefore, an adequate number of quotes from qualified sources was not obtained.
INDIANA STATE BOARD OF ACCOUNTS 20
MADISON-GRANT UNITED SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Suspension and Debarment
Prior to entering into subawards and covered transactions with federal 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 nonprocurement transaction (i.e., grant agreement) that are
expected to equal or exceed $25,000. The verification is to be done by checking the SAMs
exclusions, collecting a certification from that vendor, or adding a clause or condition to the
covered transaction with that vendor.
Upon inquiry of the School Corporation in order to review the procedures in place for verifying
that a vendor with which it plans to enter into a covered transaction is not suspended, debarred,
or otherwise excluded, the School Corporation noted that vendors were checked against
SAM.Gov and verified to not be suspended or debarred. Four covered transactions that
equaled or exceeded $25,000 were identified. All four transactions, totaling $213,795, were
selected for testing. For three of the four vendors, the School Corporation did not verify the
vendor's suspension and debarment status prior to payment. The total amount spent with the
three vendors was $122,034.
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 document 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.
INDIANA STATE BOARD OF ACCOUNTS
21
MADISON-GRANT UNITED SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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. . . ."
2CFR 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 SAM Exclusions; or
(b) Collecting a certification from that person; or
(c) Adding a clause or condition to the covered transaction with that person."
Cause
A proper system of internal controls was not designed by management of the School Corporation.
Embedded within a properly designed and implemented internal control system should be internal controls
consisting of policies and procedures. Policies reflect the School Corporation's management statements
of what should be done to effect internal controls, and procedures should consist of actions that would
implement these policies.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
internal control system cannot be capable of effectively preventing, or detecting and correcting, material
noncompliance. As a result, procurement procedures for goods and services were not adhered to and
vendors to whom payments equal to or in excess of $25,000 were not verified to be not suspended,
debarred, or otherwise excluded.
Noncompliance with the grant agreement and the compliance requirement could result in the loss
of future federal funds to the School Corporation.
Questioned Costs
There were no questioned costs identified.
INDIANA STATE BOARD OF ACCOUNTS
22
MADISON-GRANT UNITED SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Recommendation
We recommended that management of the School Corporation establish a proper system of
internal controls, and develop policies and procedures to ensure there are appropriate procurement
procedures for goods and services and contractors and subrecipients, as appropriate, are not suspended,
debarred, or otherwise excluded prior to entering into any contracts or subawards.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.