Lake Stevens School District No. 4

The District did not have adequate internal controls to ensure compliance with federal requirements regarding procurement. CFDA Number and Title: 10.553 ? School Breakfast Program 10.555 ? National School Lunch Program 10.559 ? Summer Food Service Program for Children Federal Grantor Name: U.S. Department of Agriculture Federal Award/Contract Number: 31-004 and 31-989 Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: N/A Questioned Cost Amount: N/A Background The District spent $1,406,716 in Child Nutrition Cluster grant funds during the 2018-19 school year. Federal regulations require recipients of federal awards to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. When using federal funds to purchase goods or services, governments must apply the more restrictive of federal requirements, state law or local policies by obtaining quotes or following a competitive bidding process, depending on the purchase amount. For federal purchases greater than $10,000 but less than $75,000, the District must obtain at least three quotes and keep records to demonstrate compliance. The District may solicit goods or services from only one contractor if it determines the goods and services are available from only a single source or if it determines competition is inadequate. Districts cannot restrict competition based on brand names when an equal product or service is available and must keep records to show how they reached this conclusion. State law also allows governments to purchase goods and services using contracts awarded by another government or group of governments via an interlocal agreement or cooperative contract. If a school district uses such an agreement, federal regulations require it to confirm the awarding entity followed all procurement laws and regulations applicable to the district when selecting a vendor or contractor. Description of Condition Although the District has controls in place over procurement, the controls were not effective in ensuring the District complied with all applicable procurement requirements. Specifically, we identified the following: ? The District selected a vendor procured through a purchasing cooperative without keeping records to show it confirmed that the cooperative awarded the contract to the lowest responsible bidder. The District paid this vendor $751,298. ? The District spent $12,810 for electrical repairs without keeping records to show it obtained at least three quotes. ? The District used the sole-source method to procure a $12,603 contract for food safety management and education without keeping adequate records to show the vendor was a sole-source provider. Though the vendor asserted it was a sole-source provider, the District must document how it concluded there was only a single source for the goods or services procured. We consider this control deficiency to be a material weakness. The issue was not reported as a finding in the prior audit. Cause of Condition District staff responsible for procurement were not aware of all required documentation to show compliance with federal and state procurement requirements. Though the District did have some documentation, they did not obtain sufficient detailed records to show the procurement methods used fully comply with applicable requirements. Effect of Condition Without effective internal controls, the District cannot ensure it received the best possible price for its purchases and cannot demonstrate that it complied with federal regulations for procuring goods and services. We determined the purchases were allowable under the federal program. Therefore, we are not questioning the costs paid under these contracts. Recommendation We recommend the District establish and follow internal controls to ensure employees understand applicable procurement requirements and that records are kept that demonstrate compliance with federal procurement requirements, state law and District policy. District?s Response The District concurs with the cause of the condition. Though we are aware of the federal and state procurement requirements and had ample documentation for procuring, we were missing expected records to sufficiently show the procurement methods used to fully comply with applicable requirements. For the purchasing cooperative, we obtained and reviewed the bid solicitation, affidavit of publication and signed contract. This same level of documentation was sufficient for prior audits and reviews by OSPI. The missing document was the bid tabulation form that proved the vendor chosen was the lowest, responsive bidder. For the electrical repairs, we were provided verbal confirmation from the Facilities and Operations Manager that three vendors were contacted. These charges were shared between general maintenance and food service because of a kitchen equipment failure. This was a unique and time-sensitive project that occurred during the winter break. Unfortunately, we did not keep a document of which vendors were called and when. For the sole-source, we provided program details and verbal information supporting the decision to select this vendor. However, we did not provide a written document of how we concluded this was a sole-source vendor for the service rendered. This vendor is no longer being used. In the future, we will provide staff with purchasing training, with an emphasis on documentation and federal procurement requirements. We will create and post standard forms and checklists to be utilized and retained to document our compliance with procurement requirements. In addition, we will apply federal procurement requirements to any purchase involving federal funds. We appreciate the State Auditor?s Office continued assistance to interpret and implement documentation requirements. Auditor?s Remarks We appreciate the District?s commitment to resolving the issues noted above and thank the District for its cooperation and assistance during the audit. We will follow up on these issues during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 CFR Part 200, Uniform Guidance, section 303 Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Section 319 ? Competition, establishes all procurement transactions are to be conducted in a manner providing full and open competition and requires non-federal entities to have written procedures for procurement transactions. Title 2 CFR Part 200, Section 320 ? Methods of procurement to be followed, describes each allowable procurement method.