1 United States No. Department of Office of Agriculture Inspector General Washington, 27009e Audit Guide FOOD AND NUTRITION SERVICE. FNS - Audits of Multi-State Food Processors This Guide is provided for use of nonfederal auditors in conducting audits of Multi-State Food Processors. Primary distribution to intended users will be by Food and Nutrition Service (FNS). MATERIAL SUPERSEDED: Audit Guide No. 27009d, dated June 25, 1996. Remove and destroy. Audit FIRMS WHICH DO NOT COMPLY WITH PROFESSIONAL AUDITING. STANDARDS AND/OR FNS PROGRAM REQUIREMENTS COULD BE REFERRED TO. THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, AND. CONSIDERED FOR SUSPENSION OR DEBARMENT FROM PERFORMING AUDITS. OF FNS PROGRAMS. Date November 30, 1999. PREFACE. The Audit Guide has been revised to incorporate changes in the Food Distribution Program Regulations at 7 CFR part 250, and Audit standards and procedures prescribed by the Office of Inspector General, USDA.
2 This revised Guide was prepared with participation of representatives of the Food and Nutrition Service and the Office of Inspector General. This Audit Guide is designed to assist independent public accountants in conducting an attestation engagement of Multi-State Food Processors participating in the Food Distribution Program at the highest level of examination. Comments and suggestions for improvement of this Guide are encouraged. 27009e TABLE OF CONTENTS. Page I. GENERAL ..2. A. B. C. ACRONYMS AND TERMS ..2. D. PERTINENT REGULATIONS, INSTRUCTIONS, AND. E. STANDARDS FOR CONDUCTING THIS ENGAGEMENT ..3. F. OBJECTIVES ..4. G. SCOPE AND FREQUENCY OF EXAMINATIONS ..4. H. FIELDWORK REQUIREMENTS ..5. I. REPORTING REQUIREMENTS ..7. II. Audit PROCEDURES. A. CONTRACT B. MONTHLY PERFORMANCE REPORTS ..11. C. PRODUCTION YIELD RETURN ..14. D. QUALITY CONTROLS ..15. E. INVENTORY CONTROLS ..16. F. COMMODITY VALUE G. BONDING AND SCHEDULE A - SUMMARY OF SUBCONTRACTS.
3 21. SCHEDULE B - MONTHLY SALES ..22. SCHEDULE C - SUMMARY OF MONTHLY SALES ..23. SCHEDULE D-1 - AUDITED PRODUCTION - SUBSTITUTABLE SCHEDULE D-2 - AUDITED PRODUCTION - NONSUBSTITUTABLE SCHEDULE D-3 - SUMMARY OF BY-PRODUCTS - MEAT AND POULTRY SCHEDULE E - CONTRACTING AGENCY INVENTORY SCHEDULE F - COMBINED INVENTORY ACTIVITY ..28. SCHEDULE G - INVENTORY RECONCILIATION - NONSUBSTITUTABLE FOODS ..29. -1- November 30, 1999. 27099e I. GENERAL. A. PURPOSE. This Audit program is designed to assist independent public accountants in conducting an attestation engagement of Multi-State Food Processors (MSFP) participating in the Food Distribution Program (FDP) at the highest level of assurance (an "examination"). This program is not a substitute for knowledge of applicable laws, regulations, and operating procedures. The auditor must use professional judgment in tailoring the Audit approach to incorporate variables encountered at the Audit site.
4 However, the minimum examination procedures provided in this program are necessary for uniform and consistent coverage. The schedules (or similar ones) accompanying this program must be completed by the auditor and attached to the Audit report. The auditor must use discretion to adapt the schedules to each processor's system. The data required on these schedules must be collected and any noted deficiencies must be included in the Audit report. Deficiencies noted should be sufficiently explained in order to assess the impact on the program. B. BACKGROUND. Section 416 of the Agriculture Act of 1949, as amended; Section 32 of Public Law 74- 320, as amended; and Section 6 of the National School Lunch Act, as amended;. authorized USDA to donate various agricultural commodities to eligible recipient agencies (RA) across the nation. These RA's include: schools, charitable institutions, summer camps, summer feeding programs, nutrition programs for the elderly, and nonresidential child care facilities.
5 Within each State, an agency has been designated the distributing agency (DA) for that State. This agency signs an agreement with USDA to distribute donated foods to those eligible outlets listed above. The DA or RA can enter into processing contracts with food processors to produce end products ( , pizza bread) utilizing USDA-donated foods as ingredients. In most instances the cost of the end product is reduced by the value of the donated foods contained in that end product. Only sales of approved end products to eligible RA's can be recorded by the processor for purposes of commodity inventory reductions. NOTE: A DA can also be a RA. C. ACRONYMS AND TERMS. AICPA American Institute of Certified Public Accountants AMS USDA's Agricultural Marketing Service CA Contracting Agency (either FNS, DA or RA). CFR Code of Federal Regulations CPA Certified Public Accountant DA Distributing Agency EPDS End Product Data Schedule November 30, 1999 -2- 27009e FDP Food Distribution Program FNS Food and Nutrition Service FSIS USDA's Food Safety and Inspection Service MSFP Multi-State Food Processor RA Recipient Agency RO FNS Regional Office USDA United States Department of Agriculture VPT Value Pass Through Definitions of standard terms used throughout this program can be found in 7 CFR Finally, for the purposes of this program the terms processing agreement and processing contract are synonymous.
6 D. PERTINENT REGULATIONS, INSTRUCTIONS, AND PUBLICATIONS. 7 CFR Part 250 Food Distribution Program, Amended 12/7/94 (Overall Revision 1/1/96). 7 CFR Part 3015, Uniform Federal Assistance Regulations, January 14, 1986 (Subpart I). Government Auditing Standards, 1994 Revision Department of Treasury Circular 570. AICPA Statements of Standards for Attestation Engagement The program regulations contain specific provisions concerning processing under the following citations with which the auditor should become familiar. 7 CFR , State Processing of Donated Foods 7 CFR , Reviews, Paragraph (b)(2). 7 CFR 210, Appendix C - Child Nutrition Labeling Program Prior to beginning the examination, the auditor should obtain and review the key reference materials listed above. This review should provide a frame of reference as to how the program operates and what the auditor may reasonably expect from a processor that chooses to participate in DA or RA processing programs.
7 E. STANDARDS FOR CONDUCTING THIS ENGAGEMENT. The compliance attestation engagement must be performed as an examination-level engagement in accordance with AICPA Statement on Standards for Attestation Engagements - Compliance Attestation, and Government Auditing Standards issued by the Controller General of the United States (1994 Revision). Management's written assertions are the basis for the auditor's testing and therefore are an integral part of the -3- November 30, 1999. 27099e engagement. Such assertions normally should be obtained from management in a letter of representation to the auditor. F. OBJECTIVES. The objectives of the examination are to ensure that the MSFP is in compliance with the terms of the contract for processing donated commodities, specifically to: (1) test and report on the reliability of the MSFP's monthly performance reports in conformity with applicable laws and regulations; (2) test and report if the MSFP is in compliance with laws and regulations which could have a direct and material effect on the financial-related data reported on the monthly performance reports; (3) detect with reasonable assurance, any irregularities, illegal acts, and other noncompliance that could have a direct and material effect on the financial schedules.
8 And (4) to obtain an understanding of and assess the control risk relating to the MSFP internal controls that pertains to its ability to comply with the donated food processing contract, and in particular the MSFP's ability to record, process, summarize and report financial-related data on the monthly performance report in conformity with applicable laws and regulations. The objectives of the examination also include preparing a report showing the results of the examination including reports on compliance and a full discussion of all Audit findings and conclusions. (See Section I - Reporting Requirements.). G. SCOPE AND FREQUENCY OF EXAMINATIONS. All MSFP's shall have provided for a compliance attestation engagement depending on the value of the donated commodities received by the MSFP for each year as follows. - Annual examinations are required for those MSFP's receiving more than $250,000. in donated foods during the contract year.
9 - An examination is required every 2 years for those MSFP's receiving between $75,000 and $250,000 in donated foods each contract year. - An examination is required every 3 years for those MSFP's receiving less than $75,000 in donated foods each contract year. Those multi-State processors which are in the two or three-year Audit cycle shall move into the next Audit cycle at the point in time in which the value of donated foods received reaches $75,000 or $250,000 in any year (See 7 CFR (b)). If a processor exceeds $250,000 in donated foods during the second year of its biennial cycle, one Audit is required covering both years. The thresholds apply to donated foods received in total from all States under the FDP. The examination cycle should be revised as the value of donated commodities received crosses the threshold levels. November 30, 1999 -4- 27009e The scope of the examinations should cover all FDP activities since the period covered by the prior examination.
10 The extent of coverage must meet the minimum requirements of this program, and coverage should be expanded as necessary, to fully develop conditions noted, to enable the auditor to meet the examination and reporting objectives. H. FIELDWORK REQUIREMENTS. In accordance with the AICPA's Attestation Standards, the examination should be adequately planned, and assistants, if any, should be properly supervised. Plans for the Audit should include a tour of the production facility to view the operations as they pertain to the contract. The auditor should plan to follow-up on any observations noted at this time; the auditor should also be aware of prior audits. Overall, the auditor must obtain sufficient evidence to provide a reasonable basis for the conclusions expressed in the attestation report. In accordance with Government Auditing Standards, when laws, regulations, and other compliance requirements are significant to Audit objectives, auditors should design the Audit to provide reasonable assurance about compliance with them.