Education Has Not Provided the Oversight Necessary to Ensure That School Food Authorities Comply With the Buy American Requirement
Education has not taken the steps necessary to ensure school food authorities’ compliance with the Buy American requirement. As the state level administrator of the meal programs, Education is responsible for ensuring that California’s school food authorities adhere to federal meal program requirements. However, until recently, Education did not provide sufficient training to school food authorities on the federal Buy American requirement or monitor their compliance with the requirement. In addition, although it began conducting reviews of school food authority compliance in school year 2016–17, Education has not developed adequate procedures for conducting those reviews. As a result, its reviews have been inconsistent and inadequate. It has also not taken steps to publicly report the results of its monitoring as federal regulations require. Finally, it has not collected and reported information about the magnitude of school food authorities’ foreign‑sourced food purchases. Although federal regulations do not require Education to track this information, we believe doing so would place California at the forefront of transparency with regard to the Buy American requirement.
Until Recently, Education Did Not Monitor Whether School Food Authorities Complied With the Buy American Requirement
Education did not ensure that school food authorities that participated in the meal programs complied with the Buy American requirement. As the Introduction explains, federal regulations require Education to ensure that school food authorities comply with all federal requirements related to the meal programs. An essential component of ensuring compliance is monitoring activities to verify that processes are working as required. However, despite monitoring other federal requirements, according to the associate director of Education’s Nutrition Services Division (associate director), Education did not begin to monitor or enforce school food authorities’ compliance with the Buy American requirement until school year 2016–17. Specifically, she stated that before that year, Education did not assess whether school food authorities appropriately documented exceptions to the Buy American requirement or whether they included provisions related to the Buy American requirement in their procurement specifications and solicitations. As a result, Education did not know whether school food authorities were appropriately spending the federal funds that support the meal programs.
Education did not prioritize monitoring the school food authorities’ compliance with the Buy American requirement until school year 2016–17 because it did not believe it was required to do so. According to the associate director, state law does not require such monitoring. The associate director further explained that Education did not believe that federal regulations required it to monitor this specific area until the USDA published its June 2016 review manual, which included an explicit requirement for states to evaluate school food authorities’ compliance with the Buy American requirement. In response, in school year 2016–17, Education began reviewing school food authorities’ compliance with the Buy American requirement as part of its administrative reviews.
However, we disagree with Education’s contention that it was not required to monitor this requirement before 2016. Specifically, federal regulations require state educational agencies such as Education to ensure that school food authorities administer the meal programs in accordance with all applicable requirements, including the Buy American requirement, which has been part of federal law since 1998. Further, as part of its 1998 agreement with the USDA to receive grant funds for the meal programs, Education agreed to comply with all relevant federal laws and regulations as well as all instructions related to those regulations. In August 2006 the USDA issued guidance about the meal programs that explicitly states that state educational agencies have an obligation to ensure that school food authorities are complying with the Buy American requirement to the maximum extent practicable. Therefore, although the USDA only recently updated its administrative review manual, federal regulations and its contractual obligations have called for Education to ensure food authorities’ compliance with the Buy American requirement since 1998, and the USDA’s guidance shows it expected Education to do so.
Education asserted that it did ensure school food authorities’ compliance with the Buy American requirement; however, the steps it took were insufficient to ensure compliance. Specifically, according to the associate director, Education ensured compliance by forwarding the USDA’s guidance to school food authorities, by investigating complaints regarding violations of the Buy American requirement, and by offering training to school food authorities about the requirement. We discuss the facts surrounding our conclusion that Education’s trainings related to the Buy American requirement were insufficient later in this report. Further, a manager in Education’s Nutrition Services Division stated that Education received only three complaints about the Buy American requirement. As we indicate earlier, monitoring school food authorities’ implementation of the Buy American requirement is a necessary component of ensuring their compliance with the requirement. Therefore, by not monitoring—and instead, simply forwarding guidance to school food authorities and responding to a low number of complaints—Education was unable to know whether school food authorities statewide were following the guidance it distributed and complying with the Buy American requirement.
In the absence of such monitoring, Education deferred to the school food authorities the responsibility to ensure statewide compliance. According to the associate director, Education believed that before July 2016, the school food authorities were responsible for ensuring their own compliance with the Buy American requirement. Although school food authorities must take steps to comply with the Buy American requirement, Education is responsible for ensuring statewide compliance. Because it did not actively monitor school food authorities’ compliance, Education did not meet the USDA’s expectations or ensure statewide compliance with federal law. If the USDA determines that Education fails to comply with the conditions associated with the award of the meal program grant funding, it may impose additional conditions on Education, or it may take more serious action such as temporarily withholding cash payment, wholly or partly suspending or terminating the federal award, or withholding further federal awards for the program.
Moreover, Education’s recent monitoring has given it only a limited perspective on statewide compliance with the Buy American requirement. According to Education’s records, about 1,300 school food authorities had received reimbursement under the meal programs for school year 2015–16. However, according to a manager in the Nutrition Services Division, as of May 1, 2017, Education had only provided the results to the relevant school food authorities of 146 administrative reviews that included evaluations of compliance with the Buy American requirement. An analyst in the Nutrition Services Division reported to us that as of May 22, 2017, nine of its reviews had findings related to the Buy American requirement. However, as we discuss later, we have concerns about the quality of Education’s reviews of Buy American compliance.
In addition, Education did not meet USDA’s expectation for reviewing school food authorities’ procurement practices to ensure that all contracts for food items comply with federal regulations. Specifically, in a March 2016 management evaluation report, the USDA determined that Education did not conduct procurement‑specific reviews as part of its administration of the meal programs in school year 2015–16. Subsequently, the USDA released specific guidance in June 2016 on how to conduct these reviews. Unlike the administrative review process, the USDA’s guidance for procurement‑specific reviews does not include steps, such as determining country of origin by examining food labels, which are necessary to determine whether school food authorities are actually purchasing food items that comply with the Buy American requirement. However, had Education conducted these reviews as the USDA expected, it would have determined whether school food authorities had language in their bid documentation and contracts regarding the Buy American requirement. According to the associate director, Education plans to begin reviewing a selection of school food authorities’ procurement documents in school year 2017–18. Until it completes more administrative reviews that include a review of Buy American compliance and begins conducting procurement reviews, Education will not be able to say with certainty that school food authorities are complying with the Buy American requirement.
Education’s Recent Reviews of the Buy American Requirement Have Been Inadequate
Education’s current process for evaluating school food authorities’ compliance with the Buy American requirement has weaknesses that have resulted in inadequate and inconsistent reviews. According to the associate director, before the USDA issued updated guidance in June 2016 for how state educational agencies should assess compliance with the Buy American requirement during administrative reviews, Education did not have written procedures in place that would help it to identify foreign‑sourced food products. She stated that Education adopts USDA’s policies and procedures for administering the meal programs. Consequently, after the USDA released its updated guidance for administrative reviews in 2016, Education created its own procedures for evaluating school food authorities’ compliance with the Buy American requirement. However, instead of providing further guidance to its staff, Education’s procedures simply mirror the steps found in the USDA’s guidance. Although it has taken steps to follow this guidance, Education has not implemented additional procedures in key areas that would ensure that it adequately and consistently evaluates school food authorities’ compliance with the Buy American requirement.
For example, Education has not established procedures identifying the level of evidence its reviewers must collect during their reviews, and as a result, the reviewers have not collected a sufficient level of documentation to support their determinations of compliance. According to the associate director, Education’s reviewers only collect and retain evidence for those food items they determine are not compliant with the Buy American requirement. She explained that if the reviewers determine that food items comply with the Buy American requirement, they simply note the compliance. As a result, managers in the Nutrition Services Division cannot review the evidence supporting all compliance determinations.
In the absence of such evidence, Education’s managers have to accept the reviewers’ work without verifying the accuracy of their compliance judgments. For example, in one administrative review, the reviewer indicated that a food item was produced in a foreign country but that the school food authority had not violated the Buy American requirement. However, the reviewer did not document the reasoning for this decision. When we questioned Education about this item, a manager in the Nutrition Services Division had to obtain the documentation from the school food authority to demonstrate that the item met one of the two allowed exceptions. As the Introduction explains, the USDA’s guidance provides two exceptions that school food authorities may cite when purchasing foreign‑sourced food items: either that the product is not produced or manufactured in the United States in sufficient and reasonably available quantities of a satisfactory quality, or that competitive bids reveal that the cost of a product from the United States is significantly higher than a nondomestic product.
At the beginning of our audit, Education increased the level of detail it expects its reviewers to record to demonstrate compliance with the Buy American requirement; however, its reviewers have not consistently implemented its new process. Specifically, Education began instructing reviewers to record the names of the food items they inspect on a template and use a checkmark to indicate if the items comply with the Buy American requirement. If followed, this template would provide Education’s managers with at least some additional information about the food items that reviewers inspect. However, we found that Education’s reviewers inconsistently documented the food items they reviewed. When we reviewed more than 30 administrative review results, we found that one reviewer merely stated that most items were of domestic origin and did not specifically identify any of the domestic food items inspected. On the other hand, some reviewers recorded the specific food names, vendor names, and other details from the product labels, such as the city and state. The inconsistent nature of the information the reviewers recorded, combined with the lack of supporting documentation, means that Education’s management cannot know whether reviewers’ compliance determinations are accurate and appropriate.
Further, Education’s procedures do not include sufficient guidance to help reviewers and managers handle the complexities of determining compliance with the Buy American requirement. As we discuss later in this report, during our review of food items at six school districts, we encountered a large number of food item labels that did not provide clear country‑of‑origin information. Although Education has provided its staff with steps to follow when they encounter unclear labels, it has not provided a list of the types of labels its staff should consider inconclusive. As a result, different reviewers may arrive at different conclusions when reviewing the same food labels. For example, a food label that states prepared in the USA may lead some reviewers to determine the product could include ingredients from outside of the United States, requiring them to look for additional evidence to determine compliance with the Buy American requirement. However, other reviewers may interpret this phrasing to indicate the product is from the United States and therefore complies with the Buy American requirement. According to a manager in the Nutrition Services Division, the managers typically discuss as a group their findings and the various issues that reviewers raise. Nonetheless, because managers only see documentation for items that reviewers have concluded were noncompliant, it is unclear to us how these discussions would identify that reviewers had dealt inappropriately with unclear food labels they encountered.
Education’s lack of guidance to its managers and reviewers has resulted in its reviewers reaching different conclusions regarding compliance with the Buy American requirement about the same products. For example, during one administrative review, a reviewer noted the company, product type, and multiple countries of origin listed on the food label attached to an item and determined that the item did not comply with the Buy American requirement. However, during a review involving the same item at another site, a second reviewer noted the company and product type but only listed a domestic city and state as the item’s place of origin. In this case, the reviewer indicated the item complied with the Buy American requirement. Based on our examination of the same product during our review of food items, it is clear that the second reviewer only obtained information about the product listed on the outside of the box in which the products were shipped rather than the correct country‑of‑origin information from the label on the actual item. There is no indication that the reviewer considered additional evidence beyond the information on the box to reach the conclusion that this product complied with the Buy American requirement. Moreover, as we indicated previously, the managers monitoring these reviewers are not in a position to know that such a difference exists because of the limited supporting evidence they are given to examine. Consequently, in instances such as these, Education would fail to identify noncompliance its reviewers may have overlooked or misjudged.
We also found a number of additional instances in which reviewers appeared to rely on insufficient information to reach compliance determinations. Specifically, when we examined 24 administrative reviews in which the reviewers completed Education’s testing template to determine compliance with the Buy American requirement, we identified seven reviews in which the reviewers concluded that items were compliant but they recorded only a city and state or just a state to support their determinations—similar to the second example we just described. Our own review of food items revealed that food labels often do not fully indicate whether products comply with the Buy American requirement even though they feature a domestic city and state. The USDA’s administrative review guidance and Education’s own procedures direct reviewers to take an additional step in these cases to determine whether the school food authority’s bid or contract documents contained language related to the Buy American requirement. Therefore, we expected to see evidence that Education’s reviewers took that step when reaching their conclusions. However, we found no indication that the reviewers took any additional steps to assess compliance in these instances. This leads us to believe that Education’s reviewers concluded food products were domestic even though the food label they reviewed did not provide such assurance. The difficulties Education experienced in its first year of evaluating school food authorities’ compliance with the Buy American requirement emphasize the importance of Education developing sufficient procedures for its reviewers to follow when conducting its reviews, including obtaining sufficient evidence to justify their conclusions. Until Education issues clear guidance regarding how reviewers should evaluate and document the evidence supporting their conclusions, it can expect such discrepancies and errors to continue in its administrative reviews.
Finally, Education has not reported the results of its administrative reviews as federal regulations require. Starting July 2016, federal regulations have required Education to post a summary of the results for each administrative review on its website no later than 30 days after it provides those results to the pertinent school food authority. According to a manager in the Nutrition Services Division, Education provided the results of 146 administrative reviews to school food authorities as of May 1, 2017. However, Education had not posted the results of any reviews on its website as of early June 2017. Consequently, Education has failed to comply with the federal requirement to provide the public with information about school food authority compliance with meal program requirements, including the Buy American requirement.
Although it has been one year since this reporting requirement took effect, Education has yet to determine how it will make the necessary information public. According to a manager in the Nutrition Services Division, Education is evaluating two factors affecting its ability to post the results of its reviews: how to manage the volume of reviews, given its current online storage capacity, and how to present the data in a consistent manner, given that its reviews are generated by numerous reviewers. However, we question whether Education’s explanations for the delay are reasonable when other states have posted the results of their administrative reviews. For example, Arizona had posted the results of more than 125 reviews as of June 2017, suggesting that Education could have posted the results of at least some, if not all, of its completed administrative reviews. Although Education insists it is working on meeting this now one‑year old requirement, it did not resolve the issue between our first inquiry in February 2017 and our follow‑up inquiry in June 2017. Until Education begins posting the results of its reviews, it will continue to violate this federal regulation.
Education Has Not Emphasized Compliance With the Buy American Requirement in Its Trainings for School Food Authorities
Although it asserts that school food authorities are responsible for ensuring their own compliance, Education provided inadequate training to school food authority staff regarding how to comply with the Buy American requirement. From school years 2013–14 through 2016–17, Education provided 12 training courses to staff at multiple school food authorities that included information regarding the Buy American requirement. However, the training materials Education provided to us show that these training courses generally related to overall school food authority procurement practices and included only minimal segments related to the Buy American requirement. None of the training courses focused exclusively on compliance with the Buy American requirement. As a result, Education did not ensure that school food authorities were properly equipped with the knowledge and tools needed to achieve compliance with the Buy American requirement. It was not until November 2016 that Education finally offered a training that included sufficient information on how school food authorities could ensure compliance with the Buy American requirement.
The USDA has issued periodic guidance since 2001 to reinforce the importance of compliance with the Buy American requirement and to provide tips on how to comply, some of which Education forwarded to school food authorities by issuing management bulletins and informational emails. However, Education’s lack of training appears to have affected school food authorities’ awareness of the Buy American requirement. As we discuss in more detail later in this report, the school districts we reviewed had few measures in place to ensure compliance with the Buy American requirement, and they generally indicated that Education had not emphasized the importance of the Buy American requirement.
According to a manager in the Nutrition Services Division, Education did not offer more robust training and guidance regarding the Buy American requirement before late 2016 because the Buy American requirement was not a primary focus of the administration of the meal programs and the USDA has only recently placed a larger emphasis on evaluating compliance with the requirement. However, as we previously describe, the Buy American requirement has been in place since 1998. The associate director indicated that moving forward, Education plans to modify its training efforts to better address the Buy American requirement; specifically she stated that Education will gather and analyze information from its administrative and procurement reviews of school food authorities to better enhance the content of its future training materials. In addition, Education’s Nutrition Services Division indicated that it plans to provide a webinar in the future that will focus primarily on compliance with the Buy American requirement. Although these seem to be positive first steps, until it consistently prioritizes providing adequate training on the Buy American requirement and monitoring the school food authorities’ compliance with this guidance, Education risks that school food authorities will lack the knowledge they need to develop and implement appropriate procedures to ensure compliance with the Buy American requirement.
Because It Does Not Track the Frequency of School Food Authorities’ Foreign‑Sourced Food Purchases, Education Cannot Provide Valuable Information to the Legislature and the Public
Education does not collect information from school food authorities about the frequency and magnitude of their purchases of foreign‑sourced food items because it is not currently required to do so. Congress added the Buy American requirement to federal law to benefit the American agriculture industry and to address public health concerns regarding imported food. By tracking school food authorities’ foreign‑sourced food purchases, Education could obtain a better understanding of where the food that California’s students consume comes from and whether the State’s nearly $2 billion in federal meal program funding supports domestic agricultural producers. As we stated earlier, this is of particular importance to California because agriculture represents a significant part of its economy.
According to the associate director, Education does not currently—nor does it plan to—track school food authorities’ purchases of food products because doing so is not a USDA requirement. The USDA’s review manual does direct Education to check the labels of a selection of food items found at school food authorities’ storage facilities to assess the countries of origin of those products. However, federal regulations do not require state agencies to perform administrative reviews of each school food authority every year. In addition, because the USDA’s guidance only directs reviewers to inspect a limited selection of food items across nine food categories, Education may not identify all foreign‑sourced food items that the school food authority purchased. Therefore, to identify the magnitude of the foreign‑sourced food items school food authorities procure annually, Education would need to go beyond these minimum requirements.
If Education obtained and published data regarding school food authorities’ purchases of foreign‑sourced food, it would increase the meal programs’ transparency and accountability. For example, if Education required school food authorities to report their foreign‑sourced food purchases, the school food authorities might consider purchasing more domestically grown products or be more likely to maintain evidence demonstrating that their purchases of foreign‑sourced food met one of the two exceptions the USDA allows. In addition, stakeholders such as domestic agriculture companies, policymakers, and parents could evaluate the data to determine which school food authorities purchased foreign‑sourced items. Having information about school food authorities’ purchases of food products from various countries could provide local producers with opportunities to market to school food authorities. It would also enable policymakers to hold more informed discussions regarding food policy. Finally, it could better allow parents to make decisions regarding the food their children eat and to contact their school officials if they have concerns about the foreign‑sourced items. Figure 1 shows the information Education could make available to these stakeholders through its website.
The six school districts we reviewed indicated that reporting data regarding the foreign‑sourced food items they have purchased is possible and would not be a significant burden on their resources. In fact, Elk Grove began gathering this type of information for some products during the 2016–17 school year. Because school food authorities already must document any foreign‑sourced food purchases to demonstrate that the items meet one of the two exceptions to the Buy American requirement, reporting these purchases to Education should not represent a significant burden on school food authorities. Although the associate director in the Nutrition Services Division stated that Education would need significant resources to be able to track and report foreign‑sourced food purchases, she confirmed that Education has never studied the cost of such an effort. Of the 10 other states we researched, we did not identify any that make this type of information about foreign‑sourced food purchases available to the public. If Education were to report this information annually on its website, we believe it would place California at the forefront of transparency with regard to the Buy American requirement as well as producing the other benefits already mentioned.
A Model for Presenting Centralized Information on Foreign‑Sourced Food Purchases
Sources: California State Auditor’s assessment of a selection of food items at food storage facilities at three of the school districts we reviewed.
The School Food Authorities We Reviewed Have Not Implemented Sufficient Measures to Ensure Compliance With the Buy American Requirement
None of the school food authorities we reviewed had adequate controls in place to ensure compliance with the Buy American requirement. We visited six school districts—Elk Grove, Fresno, Los Angeles, San Diego, San Francisco, and Stockton. As we described previously, school districts are the most common type of school food authority. Our review found that none of the six school districts we reviewed had sufficient policies or procedures for complying with the Buy American requirement. These same school districts also varied in the degree to which they included language related to the Buy American requirement in their food purchase bid solicitations and contracts. Finally, during our review of food items at the six school districts, we found that the school districts had not adequately documented their exceptions to the Buy American requirement for almost all—22 of the 23 foreign‑sourced food items—we identified.
The School Districts We Reviewed Generally Did Not Have Adequate Policies and Procedures Related to the Buy American Requirement
Federal regulations require school food authorities to use documented procurement procedures that reflect applicable laws and regulations, which include the Buy American requirement. Additionally, the USDA’s guidance outlines ways school food authorities can accomplish compliance with the Buy American requirement, such as monitoring food deliveries to ensure the food they receive is domestic and including Buy American‑related language in bid solicitations and contracts. As a result, we expected that each school district we visited would have written policies and procedures that describe how staff will ensure compliance with the Buy American requirement. For example, we expected written guidance for deciding whether to purchase foreign‑sourced food items and for documenting this rationale. However, none of the six school districts we reviewed had policies or procedures that addressed documenting purchases that were exceptions to the requirement. As we describe later in this report, we found instances in which each of the school districts in our review did not maintain USDA‑required documentation describing the reasons for foreign‑sourced food purchases.
Of the six school districts we visited, only one had any written policies and procedures to ensure compliance with the Buy American requirement before our review began. Specifically, in November 2016, San Diego instituted a written procedure to include language related to the Buy American requirement in its bid solicitations and contracts for food products. However, this procedure was not comprehensive and did not, for example, address how staff at the school district should ensure that vendors complied with the contract terms. Another school district, Elk Grove, drafted a policy that specified that all food‑based bids include both a reference to the Buy American requirement and a request that vendors provide the origins of food items. However, during our visit in March 2017, Elk Grove had not yet implemented this policy because the district was waiting for Education to verify this policy during its visit to Elk Grove, which the district anticipated would occur in a few months. Elk Grove had not yet finalized this policy as of May 2017.
Most of the districts we reviewed explained that Education had only recently emphasized the requirement, which, we concluded, likely contributed to their lack of policies and procedures related to the Buy American requirement. However, after our site reviews, all of the school districts we evaluated indicated they would implement policies and procedures related to the Buy American requirement for the 2017–18 school year. Since our review, Fresno and Los Angeles have created policies specifying that district staff must include a reference to the Buy American requirement in food bid solicitations. Fresno’s policy also requires vendors to notify it in advance of delivering foreign‑sourced food items. Los Angeles’s policy states that its staff should develop food product specifications with domestic products in mind and that exceptions to the Buy American requirement are allowed only if documentation is available to justify one of the two USDA exceptions, but its policy does not specify how staff should gather and maintain adequate exception documentation.
However, all six of the school districts are still missing policies and procedures that are critical to complying with federal regulations. Specifically, none of these school districts have adequate policies and procedures that address regularly verifying that vendors’ products are domestic or maintaining adequate documentation for allowable exceptions to the requirement. Further, only Los Angeles has drafted a policy related to identifying early in the procurement process the need for foreign‑sourced items. Until each school district implements adequate policies and procedures, it will be at a higher risk for noncompliance with the Buy American requirement.
In addition to the school districts we visited, we surveyed a random selection of other school food authorities in the State and asked whether they maintained policies and associated procedures for compliance with the Buy American requirement. From those that responded that they had policies and procedures, we selected 19 school food authorities and asked them to provide us with copies of those documents. Only 15 of the 19 school food authorities responded to this request, and among those, only three could provide evidence that they had both policies and procedures. An additional two provided a policy that related to the Buy American requirement but had no associated procedures, while another five school food authorities could only prove that they had procedures but no associated policies. These results, combined with our review of the six school districts, lead us to conclude that Education should do more to ensure that school food authorities have policies and procedures for complying with the Buy American requirement. Education could check for such policies and procedures in its planned procurement reviews or its administrative reviews. A manager in the Nutrition Services Division indicated that performing this check would be feasible.
Most School Districts We Reviewed Did Not Consistently Include the Buy American Requirement in Their Bid Solicitations or Contracts
Most of the six school districts we reviewed did not consistently include language related to the Buy American requirement in the bid solicitations or contracts that we selected to evaluate. According to the USDA’s guidance, two ways school food authorities can accomplish compliance with the Buy American requirement are by including in all procurement documents—such as bid solicitations and contracts—language related to the Buy American requirement or by including a specification that they have approved only domestically grown and processed products for purchase. At each of the six school districts we visited, we reviewed up to four bid solicitations or contracts for each school year from 2013–14 through 2016–17. Table 2 shows that at four of the six school districts, either none or only some of the bid solicitations and contracts we reviewed had adequate language to address the requirement.
Only two school districts—San Diego and San Francisco—included adequate language related to the Buy American requirement in all of the bid solicitations and contracts we reviewed. Specifically, the contracts for both of these districts contained a description of the Buy American requirement or a statement that only domestic products were solicited. In addition, San Diego’s contracts stated that vendors must provide food items’ countries of origin upon request, and San Francisco’s contracts assert that a prospective bidder must alert the district on its bid of the bidder’s intent to provide any items produced or grown in foreign countries. This language provided both San Diego and San Francisco with a course of action to ensure that their vendors’ products were domestic. A contract specialist at San Diego believed the school district has had language related to the Buy American requirement in its contracts since he began working with the district in 2003. However, he was not sure how the district first became aware of the importance of compliance with the Buy American requirement or when precisely San Diego began including this language in its contracts. The director of Student Nutrition Services at San Francisco was new to her position at the time of our audit and did not know when or why the school district began to include Buy American language in its contracts.
Sources: California State Auditor’s review of a selection of up to four bid solicitations and contracts obtained at each of the school district sites.
Note: In two instances—Fresno for 2014–15 and San Francisco for 2015–16—we present our conclusions regarding multi‑year bid solicitations and contracts that were also reviewed for previous years because there were no other contracts to review for these years. In all other instances, we present our conclusions about bid solicitations or contracts only once.
At Fresno we found that nearly all of the bid solicitations and contracts we reviewed contained adequate language related to the Buy American requirement. The only exception was the contract for juice and dairy products which we reviewed for school years 2013–14 and 2014–15. Fresno’s food services director stated that Fresno had an informal practice of purchasing domestic food and indicated that Fresno was not primarily focused on the Buy American requirement as part of its procurement.
In contrast to Fresno, San Diego, and San Francisco’s specific contract language, the bid solicitations and contracts we reviewed at Stockton broadly stated that each contract was subject to all applicable federal statutes and regulations. Stockton’s purchasing manager asserted his belief that this broad statement addressed the Buy American requirement. However, we consider this language to be inadequate because the USDA recommends that school food authorities include in solicitations and contracts language related specifically to the Buy American requirement or the specification that only 100 percent domestically grown and processed products are approved for purchase. In April 2017, after we discussed the matter with its food service and procurement staff, Stockton released a frozen food solicitation for the 2017–18 school year that included a specific description of the Buy American requirement. This description states that the school district is required to purchase domestically grown and processed foods to the maximum extent practicable, that vendors must list any foreign‑sourced food items in their bids, and that Stockton may decline to purchase foreign‑sourced food items that vendors offer.
The other two school districts offered different reasons for omitting the Buy American requirement from their bid solicitations and contracts. Specifically, the chief procurement officer at Los Angeles stated that the Buy American language was removed by a previous chief procurement officer for unknown reasons and was inadvertently left out of some of the subsequent bid solicitation and contract documents. On the other hand, Elk Grove indicated that it had inadequate bid solicitation and contract language because, before school year 2016–17, the Buy American requirement was not a main consideration for food purchase contract awards. Instead, price and availability were often higher priorities—albeit without sufficient exception documentation, which we describe in more detail in the next section. Elk Grove explained that after it received training from Education, it ensured its 2016–17 bid solicitations and contracts included language related to the Buy American requirement. As the direct purchasers of food products, school food authorities such as the six school districts we reviewed are in a key position to notify food vendors about their purchasing preferences and to hold them to those preferences through the adoption of robust bid solicitation and contract language.
The School Districts We Reviewed Generally Did Not Document Exceptions to the Buy American Requirement
As Figure 2 shows, we reviewed 375 food items at six school districts, classifying their origins as domestic, foreign, or unclear, according to the labels on the food items. The majority of the items, a total of 241, fell into the unclear category—an issue that we discuss in greater detail in the next section. In its guidance, the USDA provides specific direction for reviewers when they encounter a food label that does not clearly identify the country of origin. Specifically, the reviewer is to check the procurement documents, such as solicitation and contract documents that the school food authority used to purchase the food item. If the procurement documents include language that requires the vendor to comply with the Buy American requirement, then the reviewer can conclude that the food item was compliant with the requirement.
Results of Our Review of 375 Food Items at Selected School Districts Between March and April 2017
Source: California State Auditor’s review of food items that were stored at or distributed to the locations we visited.
Note: We attempted to review 81 items at each school district (nine items from each of the nine USDA food categories). However, none of the districts had nine items to review in all of the food categories.
* We identified items as domestic if their labels included language that clearly indicated the item originated from the United States. Common examples of these labels included: “product of USA,” “produce of USA,” and “USDA Further Processed Certification Program.”
† We classified items as unclear if they either did not have labels or the labels did not clearly indicate the country of origin. Many unclear labels included language such as “packed in,” “made in,” “or distributed by.”
‡ We classified items as foreign‑sourced if their labels clearly indicated that the country of origin was other than the United States. An example is “product of Guatemala.”
Following this guidance, it is likely some of the food items we reviewed at two of the six school districts—Los Angeles and Stockton—would not be fully compliant with the Buy American requirement during the 2016–17 school year because some of the labels did not provide sufficient information about country of origin and those school districts did not include Buy American language in most or all of the bid and contract documents we reviewed for that year.
Further, although the USDA requires school food authorities to maintain documentation that foreign‑sourced purchases were justified under one of the two exceptions to the Buy American requirement, none of the school districts we reviewed consistently maintained this type of exception documentation. As the Introduction explains, the USDA’s guidance provides two exceptions that school food authorities may cite when purchasing foreign‑sourced food items: either the product is not produced or manufactured in the United States in sufficient and reasonably available quantities of a satisfactory quality or competitive bids reveal that the cost of a product from the United States is significantly higher than a nondomestic product. Our review identified that 23 food items were clearly marked as originating from foreign countries, including canola oil and extra virgin olive oil; fresh fruit items, such as bananas; and baking supplies, like yeast. Photos of some of the nondomestic items we reviewed are included in Figure 3. However, the districts could not provide us any documentation noting the exception to the Buy American requirement they used to justify 15 out of these 23 purchases. By not documenting their exceptions to the Buy American requirement, the school districts failed to follow the USDA’s guidance.
Also, for the eight items for which school districts did provide exception documentation, we found only one case where the documentation was sufficient. Specifically, Elk Grove provided documentation for one of these eight items in the form of a review document in which it compared the quality of offerings from potential vendors as well as price during its formal bid review process, ultimately concluding that the product’s cost was significantly lower from the foreign source. The remaining exception documentation that school districts provided was not sufficient. For example, two districts—Elk Grove and San Diego—provided documentation from a food producer stating that the types of food—mandarin oranges and pineapple—were not available in sufficient quantity in the United States. However, the food items we reviewed were produced by a different company than the one from which these districts obtained documentation. Although the USDA’s guidance says that school food authorities may document exceptions with communications between them and their food supplier, we found this documentation was not sufficient because it did not pertain to the specific food items found during our review.
Examples of Food Labels That Clearly Identify a Foreign Country of Origin
Sources: California State Auditor’s assessment of a selection of food items at food storage facilities at the school districts we reviewed.
Additionally, Elk Grove had to ask its vendor for the documentation supporting that another item qualified as an exception to the Buy American requirement. We expected Elk Grove would have this documentation readily available so that it could demonstrate that it knew that the purchase met one of the exceptions rather than needing to contact the vendor for this information after receiving our request for it. Further, Elk Grove provided documentation that it chose another item based on the lowest price. However, this documentation did not identify the country of origin for any of the products Elk Grove considered purchasing, demonstrating that it did not identify or consider the origin country when it decided to purchase this item. As a result, we found this documentation inadequate.
Finally, Fresno provided documentation that it used another item—yeast—as an ingredient in dinner rolls and that it constituted less than 51 percent of the final food product. However, we determined that this justification did not align with the exceptions to the Buy American requirement because the yeast itself was not made in the United States and the Buy American requirement makes no distinction between food products purchased for stand‑alone consumption and food products purchased for use in recipes.
School food authorities have multiple opportunities to identify foreign‑sourced food items and document their reasoning for using the two exceptions to the Buy American requirement. For example, we found that school districts could have identified and documented exceptions for some likely foreign‑sourced items, such as bananas, as early as the meal‑planning phase. School districts could have identified other foreign‑sourced items during the solicitation or contracting phase, when they sometimes provided specific information on the items that they wanted to purchase. At this stage, school districts could request that vendors identify the country of origin of the products they offer during the bid process, and if applicable, the school districts could begin documenting why domestic food items would not meet their needs. However, based on the exception documentation we reviewed and the food items for which school districts could not provide any documentation, we found that only Elk Grove performed any of these steps in a manner that allowed it to maintain adequate exception documentation. However, the director of food and nutrition services at Elk Grove stated that before the 2016–17 school year, the district did not conduct or document any analysis of purchases of foreign‑sourced food items, evidence that this is a relatively recent practice at this district. We believe that by taking steps to adequately document exceptions early in their food purchasing processes, school food authorities could better ensure that they are complying with the Buy American requirement.
Both Education and School Food Authorities Will Face Challenges as They Attempt to Verify Compliance With the Buy American Requirement
As we discuss throughout this report, our review of Education and six school districts identified significant shortcomings in the ways in which they have approached the Buy American requirement. Education and these school districts failed to follow USDA guidance and did not adequately prioritize the Buy American requirement as a component of the meal programs. Therefore, Education and the districts we reviewed can make significant improvements to their approach to the Buy American requirement. However, as school food authorities increase their efforts to purchase domestic food products and Education does more to verify compliance with the Buy American requirement, they will face challenges when using food product labels to verify compliance.
The USDA’s guidance directs Education—and until June 30, 2017, directed school food authorities—to verify compliance with the Buy American requirement, in part, by ensuring that food product labels designate the United States or its territories as the country of origin. However, as we previously show, for the majority of the food items we reviewed at six school districts—241 of 375—the labels did not clearly indicate the country of origin. Many of these unclear food labels only identified where the items were distributed from or the location of the distributing company rather than where the items were grown or produced. Others identified that the items’ ingredients could have come from multiple countries, including the United States. This type of labeling is not adequate for identifying items as domestic for the purpose of the Buy American requirement because the label does not indicate whether over 51 percent of the product consists of domestic agricultural commodities, which is the standard set by the USDA. Figure 4 shows examples of unclear labels that we found during our review and illustrates why they do not provide enough information to reach conclusions about compliance with the Buy American requirement.
Examples of Food Labels That Do Not Clearly Identify Food Items as Domestically Produced
Sources: California State Auditor’s assessment of a selection of food items at food storage facilities at the school districts we reviewed.
As demonstrated in the previous paragraph, food labels, which are subject to federal law, do not always provide the information needed to enable Education or school food authorities to verify that a food item complies with the Buy American requirement. For example, one federal law requires imported items to contain a marking that indicates the country of origin of the item. However, this law exempts certain food items such as eggs, maple sugar, and livestock. In addition, a second federal law requires certain vendors to identify the origin of certain commodities, including chicken, fish, peanuts, and fresh fruit and vegetables. However, this second law does not apply to beef and pork, nor does it apply to all vendors. Yet another federal law does not require packaged foods to contain a label identifying the country of origin for those foods or their ingredients; instead, it requires the label of a food in packaged form to specify the name and place of business of the manufacturer, packer, or distributor. Although this information indicates where a food item was processed, it does not necessarily indicate the country of origin of the processed item’s underlying ingredients. This is problematic since over 51 percent of a processed product must consist of agricultural commodities that were grown domestically in order for the processed food item to be compliant with the Buy American requirement.
Because the laws governing food labels do not always result in food labels that identify the country of origin, school food authorities will face difficulties if they use those labels to verify that items they purchase comply with the Buy American requirement. The USDA advises school food authorities that one method they can use to ensure compliance is to require vendors to certify the percentage of domestic content in food products during the bidding process. However, even if a school food authority were to obtain assurance from its vendor that the product it purchased was compliant, the current food labeling requirements make it impossible in many instances for the school food authority to verify that assertion. Moreover, because food labels may not contain information delineating where items or their ingredients originated, outside reviewers—such as Education—would not be able to determine in those instances whether school food authorities were purchasing domestic food as the Buy American requirement intends.
California’s economy stands to gain from increased compliance with the Buy American requirement; accordingly, resolving the challenges created by these federal requirements is in the State’s best interest. California lawmakers could work with their counterparts in the California congressional delegation to petition Congress for changes that would add clarity about the origins of food products that school food authorities purchase. For example, Congress could direct the USDA to develop a certification program that would indicate whether food products were compliant with the Buy American requirement. Specifically, the USDA could develop a voluntary certification program that would allow vendors to submit information regarding the origin of food items. The USDA could then verify that information and certify food items as Buy American‑compliant. Certified products could then carry a logo that marks them as certified compliant with the Buy American requirement.
A program of this nature would allow both school food authorities and review agencies, such as Education, to verify that meal programs are supporting the United States’ agricultural industry as the Buy American requirement intends. The USDA already operates similar certification programs: for example, its Domestic Origin Verification Audit program establishes criteria that vendors from whom the USDA purchases food can use to demonstrate that the food commodities they intend to deliver to the USDA are 100 percent of United States origin. Further, products certified as meeting the USDA’s requirements for organic production and handling may carry the USDA organic seal, providing an example of how Buy American certification could work.
In the meantime, we believe that Education would benefit from obtaining additional guidance from the USDA about how to understand food labels. As we mention earlier in this report, we found that Education’s reviewers were inconsistent in how they interpreted food labels. We believe that as part of its effort to develop better guidance for its reviewers, Education would benefit from consulting with the USDA to establish appropriate guidelines for reviewing labels. Education could then develop a list of food label language that reviewers should view as clearly indicating a country of origin—such as product of or grown in—as well as those terms that reviewers should view as indicating items of unclear origin—such as manufactured, packed, or crafted in. The creation of this sort of list would promote consistency in Education’s reviews while consulting with the USDA would ensure that Education aligns its monitoring with federal expectations. Managers from the Nutrition Services Division stated that working with the USDA to develop this type of guidance would be a reasonable step.
To ensure effective oversight of the meal programs and to increase public transparency, the Legislature should require Education to track school food authorities’ purchases of foreign‑sourced food items and to post to its website the school food authorities that purchase foreign‑sourced food items, the types of food items they purchase, and the countries of origin of the food items they purchase.
To address the challenges food labels present to ensuring that California’s school food authorities purchase domestic food items, the Legislature should work with the California congressional delegation and request that Congress direct the USDA to establish a voluntary certification program through which the USDA could certify that food products are compliant with the Buy American requirement. This certification program should include an indicator, such as a certification logo, that would identify that products comply with the requirement.
To strengthen its administrative reviews and help ensure that school food authorities comply with the Buy American requirement, Education should update its written procedures to include the following:
- A requirement that reviewers collect and retain evidence for all items they evaluate for compliance with the Buy American requirement. This update should occur no later than October 1, 2017.
- Guidance for how its reviewers should interpret common food labels with regard to compliance with the Buy American requirement. It should develop this guidance in consultation with the USDA and should begin working with the USDA by no later than October 1, 2017.
To comply with federal regulations and provide transparency to the public, Education should immediately post to its website a summary of the results of any administrative reviews that it has shared with the relevant school food authorities. Moving forward, it should comply with federal regulations by posting the results of administrative reviews to its website within 30 days of sharing them with school food authorities.
To ensure that school food authorities comply with the Buy American requirement, Education should develop, no later than December 31, 2017, a training course that explains to school food authorities how to comply with the Buy American requirement. Further, as soon as it develops this training, Education should make it available to all school food authorities.
To ensure that school food authorities comply with the Buy American requirement, Education should use procurement reviews or its administrative reviews to verify that school food authorities have policies and procedures that address the Buy American requirement. Further, Education should verify that these policies and procedures align with the USDA’s guidance for including Buy American‑related language in bid solicitations and contract documents and for maintaining exception documentation for foreign‑sourced food purchases.
To help ensure that they consistently comply with the Buy American requirement, the school districts we reviewed should establish written policies and procedures related to the Buy American requirement by October 1, 2017. At a minimum, those policies and procedures should include the following:
- An explanation of how each school district will ensure that it consistently includes language related to the Buy American requirement in its bid solicitation documents and contracts.
- A minimum expectation for how regularly the school district will verify that food items its vendors provide are domestic commodities or products.
- A requirement that its staff identify the need to purchase foreign‑sourced items as early as possible in the food purchasing process and that they begin documenting the justification for such exceptions to the Buy American requirement at that time.
- Guidance for how it will maintain documentation showing that its purchases of foreign‑sourced food items meet one of the two allowable exceptions.
We conducted this audit under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the Scope and Methodology section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.
ELAINE M. HOWLE, CPA
July 27, 2017
Bob Harris, MPP, Audit Principal
Terra Bennett Brown, MPP
Ryan Grossi, JD
Karen Jenks, MBA
Charles H. Meadows, III, CPA
Michelle J. Baur, CISA, Audit Principal
Ben Ward, CISA, ACDA
Reed Adam, MPAc
Heather Kendrick, Sr. Staff Counsel
For questions regarding the contents of this report, please contact
Margarita Fernández, Chief of Public Affairs, at 916.445.0255.