2009-10 Audit Information
In response to inquiries received regarding the treatment of Recovery Act school food service equipment assistance funds in A-133 audits of school districts that received such grants, the USDA has released the following Q&A which is intended to address questions raised by LEAs and auditors:
Q-1. There has been some question about the correct CFDA number for this program. What is it?
A-1. It is 10.579.
Q-2. Is this program part of the Child Nutrition (CN) Cluster described in Part 4 of the A-133 Audit Compliance Supplement?
A-2. No, this program is NOT part of the CN Cluster. To be deemed appropriate for clustering, programs must meet the criteria set out in the A-133 definition of “cluster of programs” (codified by USDA at 7 CFR section 3052.105). These criteria are:
a. The programs must be closely related.
There is no question about meeting this criterion. The funding is authorized specifically for equipment that schools use to operate the programs that comprise the CN Cluster.
b. The programs must share common compliance requirements.
This criterion cannot be met because the food service equipment grants use a business model different from that of the CN Cluster programs. Specifically:
(1) The National School Lunch Program, School Breakfast Program, etc. are entitlement programs, in which a school’s or school district’s entitlement to Federal funds is determined by an open-ended formula. A school district receives the amount generated by multiplying the number of school meals served at full price, at reduced price, and at no charge by respective per-meal rates (called reimbursement rates). The more eligible meals a school district serves, the more reimbursement they receive. Consequently, the key data elements that school districts must report to their State administering agencies are the numbers of paid, reduced-price, and free meals served. The school district is deemed to have “earned” the meals-times-rates amount by serving eligible meals; this amount is NOT adjusted downward if it exceeds the allowable costs of operating the meal service. Further, program regulations require State agencies to make the program available to any applicant that meets the regulatory definition of “school;” applicants do not compete for funds under these programs.
(2) By contrast, the 2009 food service equipment grants are discretionary grants at the school district level. USDA makes these funds available to State agencies via an allocation formula, but school districts must compete for the grants. Each State agency publishes a notice soliciting applications from school districts; considers the eligibility of schools for which applications are received; evaluates the eligible applications against stated criteria; and awards funding to those deemed most in need. The key data element that recipients of such funding must report to their State agencies is the cost they incur to purchase and install the equipment for which the funding was awarded. If these costs are less than the amount awarded, the school district must return the unspent funds to the State agency for use in funding equipment for other schools.
Given the foregoing, the 2009 food service equipment grants are “different” from the regular CN Programs. They don’t work the same way. Therefore, this program was not added to the CN Cluster.
Q-3. Why is this program not written-up in the 2009 Compliance Supplement or in the June 30, 2009 Addendum thereto? Will a write-up on this program appear in the 2010 Compliance Supplement?
A-3. FNS did not develop a Compliance Supplement write-up on this program because:
a. The dollar amounts awarded under this program are so small that we did not expect many auditors to test it for compliance as a major program; and
b. The program is expected to have a short life span. Section 1603 of the Recovery Act requires that funds made available under the Act be obligated by the close of business on September 30, 2010. Funding authorized under the National School Lunch Act extended the program’s life one additional year.
For these same reasons, we have not submitted a write-up on this program for inclusion in the 2010 Compliance Supplement.
Q-4. Without a Compliance Supplement write-up or regulations, there is no published guidance on this program’s compliance requirements. Nevertheless, some auditors have designated it a major program in school district audits because: (a) it is funded under the Recovery Act, hence subject to greater scrutiny and accountability; and (b) it is the only “new” FNS program created under the Act. What compliance requirements should they test?
A-4. As you know, Part 7 of the Compliance Supplement gives guidance on devising an audit program for a Federal assistance program that is not written-up therein. Among other things, it suggests:
a. Studying the auditee’s agreement with the State agency that made the funding available. School districts receive funding under this program as sub-grants from their respective State awarding agencies.
b. Consulting the Federal awarding agency (that is, FNS). We suggest consulting the State agencies as well, since they have the Federal assistance relationship with the school districts.
Q-5. As a general rule, what does FNS consider the key compliance requirements for this program?
A-5. Subject to any additions or qualifications that individual State agencies may establish, we believe the applicable compliance requirements are:
A. Activities Allowed or Unallowed. Did the auditee purchase the equipment approved by the State agency, and install it in the approved school building(s)?
B. Allowable Costs. Did the costs the auditee charged to the award conform to the definition of “capital expenditure” at 2 CFR Part 225 (OMB Circular A-87), Appendix B, section 15.a.(1) and any criteria or limitations set out in its agreement with the State agency?
I. Procurement and Suspension & Debarment. Did the auditee:
1. Select its equipment vendor according to the procurement rules set out at 7 CFR section 3016.36, program regulations, and any applicable State requirements?
2. Ensure that the vendor had been neither suspended nor debarred from doing business with the Federal Government before awarding the contract or purchase order?
L. Reporting. The State agency is required to report its expenditures for this program to FNS, and to recover and reallocate funds awarded to school districts but not fully spent. Since this program is funded under the Recovery Act, the State agency must also submit the reports required by section 1512 of that legislation. The State cannot do these things unless it captures timely, accurate information from school districts on the status of their awards. Did the auditee comply with reporting instructions issued by the State agency or set out in the agreement?
N. Special Tests & Provisions. Did the auditee’s execution of the award conform to the specific Recovery Act requirements set out on pages 3-N-2 through 3-N-4 of the June 30, 2009 Addendum to the 2009 Compliance Supplement. They include:
1. Separate accountability for Recovery Act funding; and
2. Presentation of expenditures of Recovery Act funds in the Schedule of Expenditures of Federal Awards (SEFA) and the SF-SAC (Data Collection Form).
A third requirement, Subrecipient Monitoring, is also outlined in the June 2009 Addendum. That requirement does not apply because a school district is itself a subrecipient of the State agency and its award does not contemplate further sub-awarding.
The 2009 Compliance Supplement and Addendum also identify a compliance requirement entitled “F. Real Property and Equipment Management.” While that requirement speaks to equipment, it does not apply to this program because each school district received its award for the express purpose of purchasing equipment. Once the equipment has been purchased and installed, the school district has performed under the award.