FINDING 2023-002
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): 2021-2022, 2022-2023
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 2021-003.
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 Debarment compliance requirement.
INDIANA STATE BOARD OF ACCOUNTS
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SOUTHEAST DUBOIS COUNTY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Procurement
Federal regulations allow for informal procurement methods when the value of the procurement
for property or services does not exceed the simplified acquisition threshold, which is set at
$250,000 unless a lower, more restrictive threshold is set by a non-federal entity. As Indiana
Code has set a more restrictive threshold of $150,000, informal procurement methods are
permitted when the value of the procurement does not exceed $150,000. 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 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.
During the audit period, the School Corporation had purchases from three vendors, totaling
$294,518, that were considered small purchases. All three vendors were selected for testing.
For one vendor, in both fiscal years, the School Corporation procured more than $50,000 in
like/kind services without obtaining a contract. The total dollar amount spent with this vendor
was $190,425.
The lack of internal controls and noncompliance were isolated to the one vendor noted above.
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 disclosed that the Business Manager verified
vendors were not suspended or debarred by reviewing the SAMs exclusions. The School
Corporation's records only indicated one vendor, in both fiscal years, incurred more than
$25,000 in covered transactions, totaling $190,425. The School Corporation did not have
documentation to show that the vendor was verified for suspension and debarment status prior
to payment.
The lack of internal controls and noncompliance were isolated to the one vendor noted above.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
INDIANA STATE BOARD OF ACCOUNTS
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SOUTHEAST DUBOIS COUNTY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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. . . ."
Indiana Code 5-22-8-3 states in part:
"(a) This section applies only if the purchasing agency expects the purchase to be:
(1) at least fifty thousand ($50,000); and
(2) not more than one fifty thousand ($150,000).
(b) A purchasing agent may purchase supplies under this section by inviting quotes from at
least three (3) person known to deal in the lines or classes of supplies to be purchased. . . .
(d) If the purchasing agency receives a satisfactory quote, the purchasing agent shall award
a contract to the lowest responsible and responsive offeror for each line or class of supplies
required. . . ."
2 CFR 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 the SAM Exclusions; or
(b) Collecting a certification from that person; or
(c) Adding a clause or condition to the covered transaction with that person."
INDIANA STATE BOARD OF ACCOUNTS
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SOUTHEAST DUBOIS COUNTY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
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 for
vendors that fell within the small purchase threshold 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 provisions of federal statutes, regulations, and the terms and conditions of
the federal award could result in the loss of future federal funding to the School Corporation.
Questioned Costs
There were no questioned costs identified.
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 that 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.