Finding 963300 (2023-005)

Material Weakness Repeat Finding
Requirement
I
Questioned Costs
-
Year
2023
Accepted
2024-03-28

AI Summary

  • Core Issue: The School Corporation lacks effective internal controls for procurement, leading to noncompliance with federal and state regulations.
  • Impacted Requirements: Failure to follow proper procedures for micro and small purchases, and inadequate verification of vendor suspension and debarment.
  • Recommended Follow-Up: Implement stronger internal controls, ensure documentation is maintained for all procurement processes, and verify vendor compliance before transactions.

Finding Text

FINDING 2023-005 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 Summer Food Service Program for Children Assistance Listings Numbers: 10.553, 10.555, 10.559 Federal Award Numbers and Years (or Other Identifying Numbers): FY2021-2022, FY2022-2023 Pass-Through Entity: Indiana Department of Education Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the prior audit report. The prior audit finding number was 2021-005. 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 of goods and the suspension and debarment of vendors. Procurement - Micro-Purchases Upon inquiry of the School Corporation in order to review the procedures in place for verifying micro purchase procedures the School Corporation disclosed its process for micro-purchases, typically those purchases for $10,000 or under, was for the purchase to be reviewed by the Treasurer or Food Service Director to ensure proper procurement procedures were followed. The review was documented by initials or a signature on the claim. To verify the internal control was operating effectively four vendors that fell within the micro-purchase threshold were selected for testing. Two of the four vendors selected were not reviewed, as there was no documentation of initials or a signature on the corresponding claim. Procurement - Small Purchases 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. Upon inquiry of the School Corporation in order to review the procedures in place for verifying small purchase procedures the School Corporation disclosed it had two processes for ensuring proper procurement procedures were followed. There was one process for small purchases that required a contract and one process for small purchases that did not require a contract. For small purchases requiring a contract, the Food Service Director made the determination, which was then reviewed and approved by the School Board. Small purchases that did not require a contract were reviewed by the Treasurer or Food Service Director to ensure proper procurement procedures were followed. To verify the control was operating effectively five of the six vendors that fell within the small purchase threshold were selected for testing. Of the five tested, one contracted vendor and three noncontracted vendors did not have evidence of a review. Due to the lack of effective internal controls over small purchases, three of five small purchase vendors tested did not obtain the required price or rate quotes. In addition, documentation detailing the history of procurement, which must include the reason for the procurement method used, was not available for audit. 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 procedures included the School Board approving bids, which include a certification from the vendor. The one covered transaction identified was not approved by the School Board. As such the internal control was determined to not be properly implemented. The lack of internal controls and noncompliance were systemic issues throughout the audit period. Criteria Indiana Code 5-22-8-3(d) states: "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." 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." 2 CFR 200.318(i) states: "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 . . . (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. . . ." Cause A proper system of internal controls was not implemented by management of the School Corporation, which would include segregation of key functions. 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 methods used were not properly documented. 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. Recommendation We recommended that management of the School Corporation design and implement a proper system of internal controls, including policies and procedures that would provide segregation of duties to ensure appropriate reviews, approvals, and oversight are taking place to ensure compliance. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

Categories

Procurement, Suspension & Debarment

Other Findings in this Audit

  • 386846 2023-003
    Material Weakness Repeat
  • 386847 2023-003
    Material Weakness Repeat
  • 386848 2023-003
    Material Weakness Repeat
  • 386849 2023-003
    Material Weakness Repeat
  • 386850 2023-003
    Material Weakness Repeat
  • 386851 2023-003
    Material Weakness Repeat
  • 386852 2023-003
    Material Weakness Repeat
  • 386853 2023-004
    Material Weakness Repeat
  • 386854 2023-004
    Material Weakness Repeat
  • 386855 2023-004
    Material Weakness Repeat
  • 386856 2023-005
    Material Weakness Repeat
  • 386857 2023-005
    Material Weakness Repeat
  • 386858 2023-005
    Material Weakness Repeat
  • 386859 2023-005
    Material Weakness Repeat
  • 386860 2023-005
    Material Weakness Repeat
  • 386861 2023-005
    Material Weakness Repeat
  • 386862 2023-005
    Material Weakness Repeat
  • 386863 2023-006
    Material Weakness
  • 386864 2023-006
    Material Weakness
  • 386865 2023-007
    Material Weakness
  • 386866 2023-007
    Material Weakness
  • 386867 2023-008
    Material Weakness
  • 386868 2023-008
    Material Weakness
  • 386869 2023-009
    Material Weakness
  • 386870 2023-009
    Material Weakness
  • 386871 2023-009
    Material Weakness
  • 386872 2023-010
    Material Weakness
  • 386873 2023-010
    Material Weakness
  • 963288 2023-003
    Material Weakness Repeat
  • 963289 2023-003
    Material Weakness Repeat
  • 963290 2023-003
    Material Weakness Repeat
  • 963291 2023-003
    Material Weakness Repeat
  • 963292 2023-003
    Material Weakness Repeat
  • 963293 2023-003
    Material Weakness Repeat
  • 963294 2023-003
    Material Weakness Repeat
  • 963295 2023-004
    Material Weakness Repeat
  • 963296 2023-004
    Material Weakness Repeat
  • 963297 2023-004
    Material Weakness Repeat
  • 963298 2023-005
    Material Weakness Repeat
  • 963299 2023-005
    Material Weakness Repeat
  • 963301 2023-005
    Material Weakness Repeat
  • 963302 2023-005
    Material Weakness Repeat
  • 963303 2023-005
    Material Weakness Repeat
  • 963304 2023-005
    Material Weakness Repeat
  • 963305 2023-006
    Material Weakness
  • 963306 2023-006
    Material Weakness
  • 963307 2023-007
    Material Weakness
  • 963308 2023-007
    Material Weakness
  • 963309 2023-008
    Material Weakness
  • 963310 2023-008
    Material Weakness
  • 963311 2023-009
    Material Weakness
  • 963312 2023-009
    Material Weakness
  • 963313 2023-009
    Material Weakness
  • 963314 2023-010
    Material Weakness
  • 963315 2023-010
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
84.425 Education Stabilization Fund 2023 $1.41M
10.555 National School Lunch Program 2023 $1.06M
84.010 Title I Grants to Local Educational Agencies 2023 $615,259
84.027 Special Education_grants to States 2022 $526,339
10.559 Summer Food Service Program for Children 2022 $446,118
84.010 Title I Grants to Local Educational Agencies 2022 $294,989
10.553 School Breakfast Program 2023 $187,522
10.553 School Breakfast Program 2022 $164,094
84.425 Education Stabilization Fund 2022 $150,429
93.778 Medical Assistance Program 2023 $83,079
84.367 Improving Teacher Quality State Grants 2023 $80,515
10.555 National School Lunch Program 2022 $65,379
93.778 Medical Assistance Program 2022 $43,079
97.036 Disaster Grants - Public Assistance (presidentially Declared Disasters) 2023 $40,426
10.559 Summer Food Service Program for Children 2023 $40,338
84.424 Student Support and Academic Enrichment Program 2023 $22,199
10.649 Pandemic Ebt Administrative Costs 2022 $3,063
10.649 Pandemic Ebt Administrative Costs 2023 $628