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,
COVID-19 - National School Lunch Program
Assistance Listings Number: 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
The School Corporation had not properly designed or implemented a system of internal controls,
which would include appropriate segregation of duties, that would likely be effective in preventing, or
detecting and correcting, noncompliance related to the Procurement and Suspension and Debarment
compliance requirement.
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.
INDIANA STATE BOARD OF ACCOUNTS 17
LINTON-STOCKTON SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
The population for those procurements that fell within the small purchases range consisted of
four vendors with a total purchased amount from those vendors of $314,783. All four vendors
were selected for testing. The School Corporation provided documentation detailing the history
of procurement for two of the four vendors; however, a contract as required was not awarded
to these vendors. The total amount spent with the two vendors was $247,825.
The lack of internal controls and noncompliance were isolated to the two vendors identified
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 Director of School Finance
verified applicable vendors were not suspended or debarred from participation in federal
programs prior to entering into a covered transaction. However, the Director of School Finance
verified the vendors' status without a system of oversight or review to ensure compliance prior
to payment.
The lack of internal controls was a systemic issue 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(a) states:
"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."
INDIANA STATE BOARD OF ACCOUNTS 18
LINTON-STOCKTON SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Indiana Code 5-22-8-3 states in part:
"(a) This section applies only if the purchasing agent expects the purchase to be:
(1) at least fifty thousand dollars ($50,000); and
(2) not more than one hundred fifty thousand dollars ($150,000). . . .
(d) If the purchasing agent 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. . . ."
Cause
A proper system of internal controls, which would include segregation of key functions, 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.
Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions
or 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 proper procurement procedures are
followed. In addition, we recommended that management of the School Corporation establish a proper
system of internal controls, including policies that would provide segregation of duties to ensure appropriate
reviews, approvals, and oversight are taking place prior to payment of covered transactions.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.