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,
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 21-22, FY22-23
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Other Matters
Condition and Context
Procurement
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.
During fiscal year 2022-2023, the School Corporation purchased five ovens, totaling $311,705,
from one vendor. As the cost of the ovens was in excess of $150,000, the proper procurement
method would have been the formal bid process; however, the School Corporation only
obtained quotes. Additionally, there was no contract between the School Corporation and this
vendor.
The lack of effective internal controls and noncompliance was isolated to the purchase 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 person, or adding a clause or condition to the
covered transaction with that person.
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 Food Service Director
obtained verification from the vendors to ensure they are not suspended or debarred prior to
entering into covered transaction. There were ten covered transactions, totaling $830,842, that
equaled or exceeded $25,000 identified. Two covered transactions were selected for testing.
For one of the two covered transactions tested, totaling $69,560, the School Corporation had
not performed procedures that ensured the vendor was not suspended or debarred or
otherwise excluded or disqualified from participating in federal assistance programs.
The identified lack of internal controls and noncompliance was isolated to 2021-2022.
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 documented 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.
(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. . . .
(b) Formal procurement methods. When the value of the procurement for property or
services under a Federal financial assistance award exceeds the SAT, or a lower threshold
established by a non-Federal entity, formal procurement methods are required. Formal
procurement methods require following documented procedures. Formal procurement
methods also require public advertising unless a non-competitive procurement can be used
in accordance with § 200.319 or paragraph (c) of this section. The following formal
methods of procurement are used for procurement of property or services above the simplified
acquisition threshold or a value below the simplified acquisition threshold the non-
Federal entity determines to be appropriate:
(1) Sealed bids. A procurement method in which bids are publicly solicited and a firm
fixed-price contract (lump sum or unit price) is awarded to the responsible bidder
whose bid, conforming with all the material terms and conditions of the invitation
for bids, is the lowest in price. The sealed bids method is the preferred method for
procuring construction, if the conditions.
(i) In order for sealed bidding to be feasible, the following conditions should be
present:
(A) A complete, adequate, and realistic specification or purchase description
is available;
(B) Two or more responsible bidders are willing and able to compete effectively
for the business; and
(C) The procurement lends itself to a firm fixed price contract and the selection
of the successful bidder can be made principally on the basis of price.
(ii) If sealed bids are used, the following requirements apply:
(A) Bids must be solicited from an adequate number of qualified sources, providing
them sufficient response time prior to the date set for opening the
bids, for local, and tribal governments, the invitation for bids must be publicly
advertised;
(B) The invitation for bids, which will include any specifications and pertinent
attachments, must define the items or services in order for the bidder to
properly respond;
(C) All bids will be opened at the time and place prescribed in the invitation for
bids, and for local and tribal governments, the bids must be opened publicly;
(D) A firm fixed price contract award will be made in writing to the lowest
responsive and responsible bidder. Where specified in bidding
documents, factors such as discounts, transportation cost, and life cycle
costs must be considered in determining which bid is lowest. Payment
discounts will only be used to determine the low bid when prior experience
indicates that such discounts are usually taken advantage of; and
(E) Any or all bids may be rejected if there is a sound documented reason.
(2) Proposals. A procurement method in which either a fixed price or costreimbursement
type contract is awarded. Proposals are generally used when
conditions are not appropriate for the use of sealed bids. They are awarded in
accordance with the following requirements:
(i) Requests for proposals must be publicized and identify all evaluation factors
and their relative importance. Proposals must be solicited from an adequate
number of qualified offerors. Any response to publicized requests for proposals
must be considered to the maximum extent practical;
(ii) The non-Federal entity must have a written method for conducting technical
evaluations of the proposals received and making selections;
(iii) Contracts must be awarded to the responsible offeror whose proposal is most
advantageous to the non-Federal entity, with price and other factors considered;
and
(iv) The non-Federal entity may use competitive proposal procedures for
qualifications-based procurement of architectural/engineering (A/E) professional
services whereby offeror's qualifications are evaluated, and the most qualified
offeror is selected, subject to negotiation of fair and reasonable compensation.
The method, where price is not used as a selection factor, can only be used in
procurement of A/E professional services. It cannot be used to purchase other
types of services though A/E firms that are a potential source to perform the
proposed effort. . . ."
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."
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, the improper procurement method was utilized for one vendor and a vendor
to whom payments equal to or in excess of $25,000 were made was not verified to be not suspended,
debarred, or otherwise excluded.
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 that the proper procurement method is
used for purchase and that contractors 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.