TO: HONORABLE MAYOR AND FROM: Toni J. Taber, CMC
CITY COUNCIL City Clerk
SUBJECT: SEE BELOW DATE: November 1, 2022
SUBJECT: City Initiatives Roadmap: COVID-19-related Food Distribution Expenditures Audit Report
Recommendation
As recommended by the Neighborhood Services and Education Committee on October 13, 2022, accept the report on COVID-19-related Food Distribution Expenditures Audit as part of the approved City Initiatives Roadmap for 2022-2023.
CEQA: Not a Project, File No. PP17-009, Staff Reports, Assessments, Annual Reports, and Informational Memos that involve no approvals of any City action. (City Auditor)
COUNCIL AGENDA: 11/1/2022
ITEM: 3.3
FILE NO: 22-1605
Office of the City Auditor
Report to the City Council
City of San José
COVID-19 FOOD
DISTRIBUTION
EXPENDITURES: THE CITY
SHOULD ADDRESS GAPS
IN EMERGENCY
DOCUMENTATION AND
PROCEDURES
Report 22-06
October 2022
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200 E. Santa Clara Street, San José, CA 95113
Telephone: (408) 535-1250 Email: [email protected] Website: www.sanjoseca.gov/auditor/ Office of the City Auditor
Joe Rois, City Auditor
October 6, 2022
Honorable Mayor and Members
Of the City Council
200 East Santa Clara Street
San José, CA 95113
COVID-19 Food Distribution Expenditures: The City Should Address Gaps in Emergency Documentation and Procedures
The COVID-19 pandemic created an unprecedented demand for emergency services. At the start of the emergency, Santa Clara County requested that San Jo sé (City) provide food and necessities throughout the county. The City coordinated a network of food providers to feed vulnerable county residents from 2020 into 2021. The City has continued to coordinate food services within ci ty limits throughout the emergency.
Before the pandemic, the City had limited experience providing food services. Its primary experience was through the Senior Nutrition Program, which provided around 200,000 meals per year, or 4,000 per week.
Staff estimated that the City needed to increase the number of weekly meals by 1.3 million to meet demand from the pandemic. The City used the Genera l Fund and federal relief dollars to significantly expand its food distribution efforts. Each funding source allows money for food distribution, but funding source rules vary on target populations, expenditure deadlines, and requirements around documentation and procurement.
The objective of this audit was to review the transparency and accountability of food distribution expenditures during the pandemic. A Councilmember requested this audit.
Finding I: The City Spent $79.3 Million on Food Distribution. From the start of the pandemic through June 2022, the City spent $82.6 million on food and necessities distribution. Most of the spending ($79.3 million) went toward direct food provision ( i.e., meal or grocery deliver y or pick-up) and food boxing. Additional funding went toward necessities like diapers, and other expenses, like supplies and materials. We found:
The City used several federal funding sources (i.e., funds from the Federal Emergency Management Agency (FEMA), Coronavirus Relief Funds (CRF), an d American Rescue Plan Act (ARPA) funds), as well as the General Fund. Each of these sources had different eligibility requirements for food distribution, and different procurement and documentation requirements. The food contracts specified target populations within the city and county most affected by COVID-19 either directly (medically) or indirectly (economically). Based on available data, vendors report that between March 2020 and December 2021, they distributed around 6.5 million meals, 13.8 million pounds of groceries, and 762,000 grocery boxes.
4 Finding 2: The City Should Gather Additi onal Documentation to Corroborate Service Delivery and Support the City’s Claims to Federal Funds. As noted, the City used various federal funding sources for food distribution services. Each of the federal funding sources are subject to review by federal granting agencies. The City has been working to document all expenditures in preparation for such reviews. We found:
The City faced challenges in contract development and management. Challenges stemmed from the immediate
need of the emergency, the different timing and
ambiguity of requirements from federal funding
sources, and limited staff resources.
At the time of the audit, the City had not fully
documented that food contracts followed some federal
procurement requirements for competitive purchases,
nor documented justifications for all non-competitive
emergency purchases. These requirements vary by
funding source.
Although the City received invoices and performance
reports from vendors, the City did not generally
corroborate information in performance reports by
requesting backup documentation (such as intake forms or delivery receipts). Grants management best practices recommend maintaining controls for contract compliance, including procedures to ensure the reliability of third-party information.
Finding 3: Updating Emergency Guidance Can Prepare the City for Future Emergencies. The Emergency Operations Plan (EOP) gives an over view of the City’s emergency procedures and responsibilities. We found:
The EOP provides limited gu idance on procurements
using federal funds or contract management during an
emergency.
Purchasing staff created tools during the emergency to help the City meet federal requirements, but they were
not consistently used. Staff attribute this to the timing of their development.
Staff followed PRNS guidelines on contract monitoring.
Those guidelines do not re flect all requirements for
federal grants and best practices for contract
management.
Integrating lessons learne d around purchasing and
contract monitoring into the EOP will help prepare the
City for future emergencies.
Recommendations: The
Administration should:
→ Collect documentation
supporting federal compliance
with procurement rules to
include in its cost recovery files
→ Retroactively collect sample
documentation from vendors to
verify adherence with contract
terms, reported service
delivery, and eligibility of
contracted populations Recommendations: To prepare
for potential contracting needs in
future emergencies, the
Administration should update the
EOP to:
→ Revise staff roles and formalize
emergency procurement tools
developed by Purchasing
→ Include a reference to guidance
supporting federal grant
compliance for contract
monitoring
PRNS should also update its
contract management guidance to
include expectations on verifying
service delivery through site visits
and desk reviews
5 This report has five recommendations to improve the documentation of emergency-related expenses, and procedures around emergency-related procurements and contract monitoring. We plan to present this report at the October 13, 2022 meeting of the Neig hborhood Services and Education Committee. We would like to thank staff in the Department of Park s, Recreation and Neighborhood Services, Finance Department, Office of Emergency Management, City A ttorney’s Office, and Budget Office and for their time, information, insight, and cooperation during th e audit process. The Administration has reviewed the information in this report, and their response is shown on the yellow pages.
Respectfully submitted,
Joe Rois
City Auditor
Audit Staff: Stephanie Noble
Michelle Mallari
Juan Barragan
cc: Jennifer Maguire Lee Wilcox Jon Cicirelli Julia Cooper Nora Frimann Dolan Beckel Neil Rufino Luz Cofresí-Howe
Rosa Tsongtaatarii Jim Shannon Uyên Mai Rick Bruneau
Kevin Fisher Bryce Ball Mi chael Frelier Alice Vurich
Aaron Yu Ray Riordan Jay McAmis
This report is also available online at www.sanjoseca.gov/audits
6 This page was intentionally left blank
T able of Contents
Cover Letter ........................................................................................................... 3 Background ............................................................................................................. 9 Finding I
The City Spent $79.3 Million on Food Distribution .......................................... 17 The City Allocated Significant Relief Dollars Towards Food Distribution ............ 17 Finding 2
The City Should Gather Additional Documentation to Corroborate Service Delivery and Support the City’s Claims to Federal Funds ................ 23 Collecting Documentation Can Help Ensure the City Met Federal Procurement Rules ............................................................................................................. 23 Additional Documentation From Vendors Can Help Verify That Services Were Delivered as Reported .......................................................................................... 30 Finding 3
Updating Emergency Guidance Can Prepare the
City for Future Emergencies .............................................................................. 37 The Emergency Operations Plan Offers Limited Guidance on Contract Management During an Emergency ................................................................................ 37 The Emergency Operations Plan Does Not Offer Guidance on Contract Monitoring ............................................................................................................................ 40 Conclusion ............................................................................................................. 43 Appendix A
Audit Objective, Scope, and Methodology ...................................................... A-1 Appendix B
Charts and Table of Distributed Food Reported by Vendors From March 2020 Through December 2021 .......................................................................... B-1 Appendix C
Table of Contracts for Direct Food Service From March 2020 Through June 2022 ............................................................................................................. C-1 Administration’s Response ................................................................. yellow pages
T able of Exhibits
Exhibit 1: Local Food Providers Advised the City on Food Distribution Efforts ................... 11 Exhibit 2: Three Major Federal COVID-19 Relief Funding Sources Supported Food Distribution ............................................................................................................................................ 12 Exhibit 3: Expenditures Mostly Went Toward Direct Food Services, Such as Meal and Grocery Delivery .................................................................................................................................. 18 Exhibit 4: The City Spent a Majority of Food and Necessities Distribution Money on a Few Vendors ....................................................................................................................................... 19 Exhibit 5: Food Expenses by Fund, Location, Program, and Target Populations .................... 22 Exhibit 6: Federal Rules Apply Throughout the Contracting Process ...................................... 24 Exhibit 7: Funding Sources Have Different Procurement Requirements ................................. 26 Exhibit 8: Food Distribution Contracts Largely Transitioned From Non-Competitive to Competitive ....................................................................................................................................... 27 Exhibit 9: Less than Half of Direct Food Distribution Agreements and Contract Value Were Non-Competitive ...................................................................................................................... 28 Exhibit 10: Compared to PRNS, Housing Has More Detailed Monitoring Procedures to Adhere With Uniform Guidance ....................................................................................................... 41
9 Background
The COVID-19 pandemic created an unprecedented demand for City emergency services. On January 21, 2020, the Cent ers for Disease Control and Prevention (CDC) confirmed the first diagnosed case of a U.S. resident with COVID-19, a new, highly infectious virus. By March 4, the California Department of Health Services reported the first death in the state related to COVID-19, and the Governor declared a state emergency. 1 On March 16, Santa Clara County (County) issued a shelter-in-place order, such that individu als could only leave their residence to perform essential activities. The County also asked the City to provide food and necessities throughout Santa Clara County. 2 At this point, the Emergency Operations Center (EOC) was fully activated. The City started operations to support the continuity of essential City services (such as public safety and utilities) and emergency-related acti vities such as food distribution and sheltering services to at-risk communities.
The City’s Emergency Operations Plan Describes the City’s Emergency Response Policies, Roles, and Responsibilities
The City’s Emergency Operations Plan (E OP) gives an overview of the City’s approach to emergency operations and th e recovery process. The EOP outlines responsibilities for City departments suppo rting the EOC. When activated, the EOC leads emergency communication, coordination, and resource management.
The first operational priority of the EOC is to
save lives; another is to provide for basic human
needs, including food. The structure of the EOC
is based on standardized incident management
practices. Different sections of the EOC focus
on overall management, operations, logistics,
and recovery efforts. The Food and Necessities
Branch was part of the EOC’s Operations
Section.
For most emergencies, the EOC operates on a short-term basis. During the COVID-19 pandemic, the EOC remained active for nearly two years.
The City Stepped in to Address a Need for Food Distribution Services The EOC’s Food and Necessities Branch began coordinating countywide food distribution services in March 2020. Through the food distribution program, City
1 In April 2020, the Santa Clara County Medical Examiner-C oroner reported that ther e were COVID-19 associated deaths as early as February 2020.
2 The Santa Clara County Public Health Department acts as lead agency in a pandemic emergency. Santa Clara County is responsible for coordinating and managing countywide public health efforts during a public emergency.
EOC
The City’s Emergency
Operations Center
(EOC) is a cross-
departmental team that
focuses on responding to
an emergency.
Audit of COVID-19 Food Distribution Expenditures
10 staff managed a network of food providers to feed vulnerable San José residents throughout the pandemic, as well as residents of neighboring cities and unincorporated areas in Santa Clara Count y. The City coordinated meal and grocery delivery throughout the county into 2021. The City has continued to coordinate food services within San José’s city limits.
Before the COVID-19 Pandemic, the City Served Around 200,000 Meals Per Year through the Senior Nutrition Program
Before the pandemic, the City’s experience
providing food services to residents was mostly
through the Senior Nutrition Program.
3 The
program, which provides lunch to adults aged 60
and over, averaged around 200,000 meals a year
prior to the pandemic, or around 4,000 per week.
Staff estimated that the City would need to
increase the number of weekly meals available
across the county by around 1.3 million to meet the increased demand during the pandemic.
This increased need for food occurre d as many in-person and high-touch businesses closed, unemployment jumped, food banks reported a surge in demand, and school closures generated concerns that families with children receiving free or reduced-price lunch would not have enough food. Staff set out to feed residents with the program goals of “feed our most vulnerable,” “maximize existing food networks,” and “scale for a widespread food crisis.”
The City Sought Assistance in Creating a Food Distribution Program The City’s limited experience in food distribution, paired with the uncertainty of the emergency, made it difficult to implem ent a countywide food program. Staff report that they were unfamiliar with how to assess food insecurity in the community. Additionally, staff feared that strained supply chains and panic buying could lead to food shortages and rising costs.
Staff created a steering committee and non-pr ofit leadership council to aid City staff in assessing the level of need in the community, identifying available resources, developing strategies, collecting data, and providing insight into the status of local food distribution efforts. The advisory groups were composed of representatives from local non-profit and for-profit organizations, as well as City and County staff, as shown in Exhibit 1.4
3 The Department of Parks, Recreation and Neighborhood Services (PRNS) may also provide some food and snacks through its camps and youth programs.
4 As discussed further in Finding 2, some members of these advisory groups received contracts with the City.
Staff estimated the City
would need to increase
meals by around 1.3
million meals a week to
meet increased demand
during the pandemic.
Background
11 Exhibit 1: Local Food Providers Advised the City on Food Distribution Efforts
Source: Auditor summary of an Emergency Operations Center organization chart.
The City Used Federal Relief Dollars to Significantly Scale Its Food Services Budget
During the pandemic, the Ci ty received federal and state grants for COVID-19 relief. These grants came piecemeal and had grant-specific rules, as shown in Exhibit 2. Most of the City’s funding for food distribution has come from federal grants, though the City also used General Funds.
Food and Necessities
Branch Leadership
Advisory Groups
Steering Committee
Revolution Foods
World Central
Kitchen
Second Harvest
Deloitte
Sodexo
Google
City of San José
Santa Clara County
Non-Profit
Leadership Council
Second Harvest
The Health Trust
Catholic Charities
Sourcewise
First 5
Silicon Valley Council
of Non-Profits
City of San José
Santa Clara County
Branch Units (City staff)
Audit of COVID-19 Food Distribution Expenditures
12 Exhibit 2: Three Major Federal COVID-19 Relief Funding Sources Supported Food Distribution
FEMA CRF CSLFRF
Funding Source Public Assistance from the
Federal Emergency Management
Agency (FEMA)
Coronavirus Relief Funds (CRF)
from the Coronavirus Aid,
Relief and Economic Security
(CARES) Act
Coronavirus State and Local
Fiscal Recovery Funds (CSLFRF)
from the American Rescue Plan
Act (ARPA)
Funding $7.8 million* $178.3 million $212.3 million
Date of availability Presidential emergency declared
on March 13, 2020.**
Signed into law March 27, 2020,
with initial funds available 30
days after enactment.
Signed into law March 11, 2021,
with initial funds available 60
days after enactment.
Type of award Reimbursement for documented
eligible expenses.
Financial assistance issued to the
City.
Financial assistance issued to the
City.
Awarding agency FEMA, California Office of
Emergency Services (CalOES)
U.S. Department of the
Treasury
U.S. Department of the
Treasury
Expenditure deadlines Estimated expenses through
July 1, 2022 are due December
31, 2022.***
Obligated by December 31,
2021, and spent by September
30, 2022. (Original deadline was
to obligate and spend funds by
December 30, 2020.)
Obligated by December 31,
2024, and spent by December
31, 2026.
Food distribution
eligibility and restrictions
Eligible expenses for purchasing,
packaging, preparing, and
delivering food for people who
have tested positive for
COVID-19 or who are at
higher-risk, or “other
populations based on the
direction or guidance of the
appropriate public health
official.” FEMA has advised that
food distribution outside of
San José is not an eligible
expense.
Eligible expenses for food
delivery to residents, including
senior citizens and other
vulnerable populations. May
fund food outside San José.
Presumes eligible populations
(low- and moderate-income)
experienced increased food
insecurity.
Source: Auditor analysis of FEMA memos and final rules for CRF and CSLFRF. * FEMA obligated $7.8 million in expedited assistance to the City in summer 2020. Additional expenses are eligible for FEMA reimbursement. The FY 2022-23 Proposed Operating Budget projected $40.7 million in revenue from FEMA. ** Funding is made available under a presidential declaration of emergency, but reimbursed upon completion of a request for public assistance and review by FEMA. FEMA issued guidance making expenses eligible from January 20, 2020 onward. *** FEMA issued a policy on deadlines for the COVID-19 pandemic in June 2022. This policy states that December 31, 2022 is the deadline to identify and report all COVID-19 emergency work performed through July 1, 2022. There is not yet a deadline for expenses associated with COVID-19 work on or after July 2, 2022.
The City Started Winding Down Food Distribution and Ramping Up Fiscal Recovery Efforts
In July 2021, the City transitioned em ergency operations from response to recovery. This transition decreased th e activation level of the EOC. Some emergency services, such as food distribution, were transferred to City departments.
Background
13 The Administration Division of Parks, Recreation and Neighborhood Services (PRNS) manages the City’s remaini ng food distribution contracts. 5 Within the Division, 6.5 full-time equivalent position s comprise the food distribution team.
The team has struggled with vacancies, av eraging a 50 percent vacancy rate since July 2021. Up until August 2022, just three employees staffed the team. The City has funded food distribution at decreased levels through fall 2022 to meet ongoing need.
Much of the City’s Work to Document Federal Emergency Expenses Is Still Underway Most of the City’s food distribution funding has come from federal relief dollars, which are subject to various compliance rules. The City created the Finance Recovery Group (FRG) – now known as the Grants Oversight Group – to oversee reporting, compliance, and documentation requirements for the federal and state grants received by the City during the pandemic. FRG’s goal is to help reduce the risk of federal agencies rescinding, or clawing back, part of the $800 million in federal and state relief dollars received by the City.
The group, made up of seven limit-dated (to June 30, 2023) staff in the Accounting Division of the Finance Department, collects and reviews documentation to support expenses for FEMA, the Coronavirus Relief Fund (CRF), and Coronavirus State and Local Fiscal Recovery Funds (CSLFRF). FRG’s work consists of reporting and compliance activities, including checking expenses for:
eligibility under federal guidelines,
timing (that expenses occurred within required spending periods), and support for costs incurred (namely, gathering invoices, contracts, purchases orders, proofs-of payment, and fiscal records documenting the movement of funds).
FRG staff have undertaken to review ev ery emergency transaction, including General Fund transactions, for potential e ligibility under federal grants. To this end, FRG staff has worked and continues to work closely with program staff in different departments to collect document ation supporting the City’s claims to federal grant funds (such as invoices). To support this work, the City contracted with Ernst & Young to help the City identify eligible costs and meet federal requirements.
5 In 2019-20, the Housing Department managed a $1.2 million grant for food distribution paid for with Community Development Block Grant (CDBG) funds issued by the U.S. Department of Housing and Urban Development. Housing also managed a First 5 contract for diaper distribution. (These were covered in our Preliminary Review of the Allocation Process and Monitoring of COVID-19 Related Housing Grants, issued December 2020.) Three food distribution contracts managed by PRNS used CDBG funding fo r limited sites and timeframes. PRNS staff reported that Housing monitored CDBG related expenses, though PRNS reported out on the contracts generally.
Audit of COVID-19 Food Distribution Expenditures
14 Funding for the FRG runs through fiscal year (FY) 2022-23. The group has a large scope of work, which is still in process. As of June 2022, the City had processed over 1,000 emergency transactions for food distribution alone. At the time of the audit, FRG reported that it was reviewing more than 8,300 emergency transactions from COVID-19 funds through December 31, 2021.6
Several Prior Audits and Management Reports Have Identified Risks and Areas of Improvement
Our office released three memos on the City’s response to the pandemic in 2020.
The memos covered documentation of COVID-19 costs for recovery and the allocation and monitoring of COVID-19 related housing grants (issued by the U.S.
Department of Housing and Urban Development and the State of California). 7 These memos identified potential risks an d described the City’s development of controls associated with:
tracking expenditures funded by federal grants;
collecting supporting documentation for expenses, including cost or price analyses and reasons for non-competitive procurement methods; incorporating tools to ensure pr oper authorization of emergency expenses into a process that captures all emergency contracts; eligibility for people receiving food paid with federal funds; and delayed on-site monitoring of vendor s providing services using federal funds on the City’s behalf (grant subrecipients).
In 2022, our office also issued an audit of Citywide federal grant management.8 It noted that past audits have repeatedly raised concerns aro und the tracking and documentation of federal grant expenditures. 9 The audit found that the City’s decentralized grant management structure creates risk in managing grants and recommended development of Citywide guidance and training.
Specific to the pandemic response, the Office of Emergency Management (OEM) contracted a Preliminary Operational Assessment Report (OAR) to provide
6 This figure does not include transactions the group reviewed from the General Fund. 7 The first two memos, Preliminary Review of Controls to Document COVID-19 Recovery Costs (May 2020) and Preliminary Review of Documentation for Costs Included in the July 2020 Coronavirus Relief Fund Interim Report (October 2020), covered documentation. The third, Preliminary Review of the Allocation Process and Monitoring of COVID-19 Related Housing Grants (December 2020), covered grant management. These reports are available on our website:
https://www.sanjoseca.gov/your-government/appointees/city-auditor/audit-reports/. 8 Citywide Grant Management: Improved Coordination can Increase Federal Grant Opportunities and Standardize Grant Administration (April 2022) is also available on our website. 9 The FY 2018-19 Single Audit found a significant deficiency related to the City’s tracking of FEMA expenditures for financial reporting purposes for expenditures related to the City’s 2017 flood response. The FY 2019-20 Single Audit report also noted errors in the City’s reporting of its receipt of CRF funds. The 2020-21 Single Audit, however, did not find any errors with any of the federal relief funds received by the City. These reports are available on our website:
https://www.sanjoseca.gov/your-government/appointees/city-auditor/external-financial-audits.
Background
15 feedback on potential improvements to emergency processes. The OAR acts as a sort of after-action report, though the emergency was still active when the OAR was prepared. 10 The OAR had several findings relating to food distribution, including recommendations to:
Establish preapproved agreements and a pre-vetted list of organizations the City can call upon during a future food emergency;
Prepare City staff to serve in cross-departmental functions in the EOC by conducting trainings and creating cl ear guidelines, such as checklists around emergency procurement;
Develop a food and necessities annex in the EOP and codify best practices; Ensure food distribution sites can accommodate residents with functional needs, are easily accessible by public transit, and are large enough to allow for social distancing; and
Improve emergency communications for non-English speakers.
10 The OAR covers the City’s response from January 2020 to October 2020. Once the pandemic ends, OEM plans to issue an after-action report covering the entire COVID-19 response.
Audit of COVID-19 Food Distribution Expenditures
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17 Finding I The City Spent $79.3 Million on Food
Distribution
Summary
From the start of the pandemic through June 2022, the City spent $82.6 million on food and necessities distribution. Most of that money ($79.3 million) went toward direct food provisions (i.e., meal or groc ery delivery or pick-up) and food boxing.
Additional funding went toward necessit ies like diapers or other expenses like supplies or materials. Based on target populations specified in the vendor contracts, most money went towards supporting city and county residents that had been affected by COVID-19 either directly (medically) or indirectly (economically).
Based on available data, ve ndors report that between March 2020 and December 2021, they distributed around 6.5 million meals, 13.8 million pounds of groceries, and 762,000 grocery boxes.
The City used several federal funding sources (from FEMA, as well as Coronavirus Relief Funds (CRF) and Coronavirus State and Local Federal Relief Funds (CSLFRF) issued by the U.S. Department of the Treasury), as well as the General Fund. Each of these sources had different eligibility requirements for food distribution.
The City Allocated Significant Relief Dollars Towards Food Distribution From March 2020 through June 2022, th e City spent $79.3 million on food distribution.11 Necessities, which included items like diapers and hygiene kits, totaled $2.8 million. The City reserved an additional $4.2 million for future food and necessity expenses.
Most of the money spent has gone toward s supplying food, which included direct food services (i.e., meal or grocery de livery) and support services. Support has primarily been through a program that paid workers to box groceries on behalf of a local food bank. As of June 2022, the City has spent $64.7 million in direct food services and $14.6 million in support services (i.e., food boxing) (see Exhibit 3). For the most part, these expenditures were contracts with food vendors.
11 This figure is based on auditor analysis and compilation of expenses in the City’s financial management system (FMS).
We compiled all non-personnel expenses under food and necessities appropriations as well as food-related expenses within a FEMA appropriation. We manually reviewed documentation for batched expenses that moved between funds to understand the amount and use of that money. As needed, we supplemented this review with tracking documents and invoices maintained by PRNS. This figure does not include City or temporary staff.
Audit of COVID-19 Food Distribution Expenditures
18 Exhibit 3: Expenditures Mostly Went Toward Direct Food Services, Such as Meal and Grocery Delivery
Source: Auditor analysis of FMS data, food distribution contracts, and PRNS contract monitoring documentation for expenses through June 30, 2022.
* Other expenses primarily include supplies and materials.
The City Contracted 20 Vendors to Support Food Distribution to Residents Most Impacted by COVID-19
From March 2020 through June 2022, the Ci ty contracted 20 vendors to provide and support food distribution services within San José as well as other parts of Santa Clara County.12 Most of the money that the City has spent for food distribution paid for services within San José. 13 As noted in the Background, the City coordinated countywide food distribution from the start of the pandemic into 2021.
As of June 30, 2022, the City’s top food distribution vendors, in terms of cost, included Off the Grid ($19.9 million), San José Conservation Corps ($14.6 million), World Central Kitchen ($9.9 million), Team San Jose ($6.2 million), and Loaves and Fishes ($4.5 million). Combined, these ve ndors accounted for 69 percent of the City’s food distribution costs. Exhibi t 4 shows the amounts paid to all food distribution vendors, as well as the f ood distribution programs these vendors supported.
12 The City also paid for food services through Door Dash and Mod Pizza. However, the City did not have formal contracts with these vendors.
13 Based on our review of contract terms and FMS transaction data for direct food contracts, the City funded at least $3.3 million, or 4 percent of the total, of food services outside of San José as of June 2022. Another $7.1 million went to contracts that covered meals both within and outside San José city limits; however, our review did not break those costs out further between inside and outside of San José. Based on Finance’s review of all food and necessities invoices, Finance reports $59.3 million was spent inside of San José, and $5.2 million was spent outside of San José from March 2020 to December 2021.
Direct Food
Assistance, $64.7
Food Boxing,
$14.6
Necessities, $2.8
Other*,
$0.5
$- $10 $20 $30 $40 $50 $60 $70 $80 $90
Millions
Finding 1
19 Exhibit 4: The City Spent a Majority of Food and Necessities Distribution Money on a Few Vendors
Source: Auditor analysis of FMS data, food distribution co ntracts, and PRNS contract monitoring documentation for expenses through June 30, 2022.
Note: This chart includes 18 vendors contracted to provide direct food services, two vendors to provide support for food distribution, two vendors (Mod Pi zza and Door Dash) who provided services but were not under a contract, and three vendors who provided necessities.
The City organized food services by pr ogram. Some programs provided direct services; others provided support services. Most of the funding for the City’s food distribution has gone to four programs:
meal and grocery distribution, which pr ovided direct support to residents via home delivery or pick-up locations ($30.2 million); food boxing to support the Second Harvest of Silicon Valley food bank ($14.6 million);
meals for people in temporary housin g, such as those in isolation or quarantine due to COVID-19 exposure or experiencing homelessness ($9.9 million); and
$ $5 $10 $15 $20
Off the Grid
San José Conservation Corps
World Central Kitchen
Team San Jose
Loaves & Fishes
Revolution Foods
The Health Trust
Catholic Charities
Second Harvest
TRIO Community Meals
Hunger at Home
First 5
San José Unified School District
Healing Grove Health Center
YMCA
Veggielution
Sourcewise
Nobhill Catering
Bay Area Community Health
Mama D 2nd Chance
Mexican Heritage Plaza School of Art and Culture
Downtown Streets Team
Mod Pizza
Door Dash
Cathedral of Faith
Millions
Direct Food Assistance
Food Boxing
Necessities
Audit of COVID-19 Food Distribution Expenditures
20 collective impact grants (CIG), a gran t program developed by the City to seek proposals from local nonprofits to distribute food and necessities to residents affected by COVID-19 ($8.6 million).
Combined, these four programs accounted for most of the money that the City has spent on food services (80 percent of the $79.3 million for direct food distribution).
The other food programs included providing meals at school locations throughout Santa Clara County and feeding seniors.
The City Focused Food Distribution Efforts Toward Vulnerable Residents
Based on a goal to “feed our most vulnerable,” City staff focused on providing food to the residents affected by the pandemic. The City’s agreements with food vendors focused on services to residents most affected by or at risk from COVID-19. This included residents likely affected by the pandemic either dire ctly (medically) or indirectly (economically). The City’s contracts had target populations for people medically at-risk, seniors, low-income f amilies, people in temporary shelters, and families experiencing job loss. As noted in Finding 2, however, the City should take additional steps to corroborate that services went to the target populations specified in the agreements.
From March 2020 to December 2021, Vendors Report Distributing 6.5 Million Meals, 13.8 Million Pounds of Groceries, and 762,000 Grocery Boxes
Vendors reported their meal and grocery counts to the City. Based on available data, vendors reported distributing around 6.5 million meals, 13.8 million pounds of groceries, and 762,000 grocery boxes from March 2020 through December 2021. 14 The data includes meal and grocery count s from food vendors contracted by the City.15 The data does not include meal or grocery counts from vendors outside of their contracts.
As discussed in the Finding 2, the City sh ould take additional steps to corroborate these reported totals and to confirm serv ices were fully provided as contracted.
Refer to Appendix B for reported food services by vendor.
14 These figures are a subset of the total food distributed through June 2022. (From March 2020 to December 2021, the City recorded $55.8 million in direct food service expenses. As noted earlier, expenses for direct food services totaled $64.7 million through June 2022.) As a note, staff estimated that 1.2 pounds of food equate to one meal. Grocery boxes varied in the quantity and type of food provided.
15 As a note, this figure does not include other meals or gr oceries provided in the County without direct contracts for service with the City. Data is reported by vendor and not by contract. Data may be incomplete and exclude counts that were not reported or could not be located.
Finding 1
21 Shifting Funding Sources Complicated the Flow of Food Distribution Funding
As noted earlier, the City primarily used federal grants to fund food distribution services. Although these grants allowed the City to significantly increase its emergency response, they also created challenges. The federal grants had different dates of availability, eligibility requirements, and spending deadlines, which changed over time. Staff reported that as a resu lt, they had to reallocate expenses among funding sources to match food distributio n expenses with eligibility requirements and spending deadlines to maximize grant use.
Exhibit 5 shows how much money flowed from each source through different programs and target populations, as well as whether services were provided inside or outside San José city limits.
Audit of COVID-19 Food Distribution Expenditures
22 Exhibit 5: Food Expenses by Fund, Location, Program, and Target Populations
Funding Source Services Provided Inside or Outside
of San José Program Target Population
Source: Auditor analysis of the City’s financial management system data, PRNS contract monitoring documentation, and food distribution contracts.
Note: The exhibit shows food expenses from the beginning of the pandemic in March 2020 through June 30, 2022 for food contracts managed by PRNS.
* Expenses for services provided ‘both’ inside and outside San José were combined in a single transaction in the City’s financi al management system. As a note, based on Finance’s review of all food and necessities invoices, $5.2 million was spent outside of San José from March 2020 to December 2021. ** “Vulnerable” refers to individuals and families likely to have been affected by the pandemic either directly (medically) or indirectly (economically). This includes individuals with certain underlying health conditions or at-risk populations, as defined by the CDC, as well individuals experiencing economic hardship because of the pandemic. *** “Young adults” refers to the target population of the Resilience Corps Food Security Program, which provides job training a nd work experience for people aged 18 to mid- to late-20s.
23 Finding 2 The City Should Gather Additional
Documentation to Corroborate
Service Delivery and Support the
City’s Claims to Federal Funds
Summary
The City used various federal funding so urces for food distribution services.
Funds from each source are subject to re view by federal granting agencies. The City has been working to document all expenditures in preparation for such reviews. At the time of the audit, the City had not fully documented 1) that food contracts followed all federal proc urement requirements for competitive procurements or 2) justifications for non-competitive emergency purchases. The City should include documentation supporting federal compliance for procurement in its cost recovery files or reallocate expenses among the different sources as necessary.
Additionally, although the City received invoices and performance reports from food vendors, the City did not generally verify delivery to target populations or other information in the performance reports by requesting delivery receipts, participant intake forms, or other suppor ting documentation. Collecting such documentation helps ensure residents received the services promised under the contracts. To corroborate service delivery, verify adherence with contract terms and funding requirements, and reduce the likelihood of questioned costs by grant agencies, the City should collect sample backup documentation from vendors to support reported service levels.
Collecting Documentation Can Help Ensure the City Met Federal Procurement Rules
To provide food distribution services to the county, City staff procured and managed contracts with food vendors duri ng the emergency. (See Appendix C for a list of agreements for vendors supporting direct food distribution.) Federal requirements for purchasing services, awarding contracts, and monitoring performance are outlined in Exhibit 6. Some of these requirements also apply when conducting non-grant procurements, as outlined in the City’s Municipal Code and City policy.
Audit of COVID-19 Food Distribution Expenditures
24 Exhibit 6: Federal Rules Apply Throughout the Contracting Process
* The City must take affirmative steps to include minority businesses, women’s businesses, and labor surplus area firms on solicitation lists for competitive procurement when possible.
Source: Auditor summary of Uniform Guidance contrac ting guidance for non-state entities. Uniform Guidance requires maintaining procurement records, suggesting documents such as procurement method, contract type, and contractor selection. FEMA further recommends documentation for following socioeconomic affirmative steps and conducting cost or price analysis.
Finding 2
25 Procurement Rules Varied Across Federal Funding Programs To pay for food distribution services, the City used
various federal funding sources during the
emergency, including FE MA, ARP (CSLFRF), and
CRF. Each funding source has different
procurement and documentation requirements
(see Exhibit 7). For FEMA and CSLFRF, the City
must comply with Uniform Guidance and follow
its own documented procurement policies.
16 CRF
guidance did not detail procurement
requirements.17 The City also used General Funds
for food distribution and should follow
procurement guidelines outlined by City policy.
16 The Uniform Guidance is a set of rules around managing federal grants and is recorded in the Code of Federal Regulations (CFR) chapter 2, part 200. It applies in part to FEMA, ARPA, and CRF grants. 2 CFR §200.318 states that the non-Federal entity must have and use documented pr ocurement procedures when using federal awards. The procurement procedures must conform with standards identified in §200.317 through §200.327. 17 The U.S. Department of Treasury republished its final guidance for CRF on January 15, 2021. The final rule mentions procurement policies when determining cost eligibility with in a covered period, but the guidance does not discuss procurement or conflict of interest requirements. CRF desk review procedures by the Department of Treasury also do not discuss such requirements.
Uniform Guidance
Most federal grants to
cities require that the
cities comply with
Uniform Guidance, a set
of rules designed to
prevent misuse of federal
awards. Rules include
progress reporting,
monitoring, and standards
for procurement.
Audit of COVID-19 Food Distribution Expenditures
26 Exhibit 7: Funding Sources Have Different Procurement Requirements
FEMA ARPA (CSLFRF)
CRF General Fund Uniform Guidance
Non-competitive
purchases in an
emergency
Non-competitive procurement is
allowed in an emergency or when
available only from a single source.
CRF does not
provide guidance on
procurement.
The City does not need to
use competitive
procurement for emergency
purchases.
Threshold for
competition (when
not making
emergency or sole-
source purchases)
Purchases over the threshold typically
require a competitive process. The
federal threshold is $250,000.
However, the City must use its lower
threshold of $130,000.*
CRF does not
provide guidance on
procurement.
For purchases of more than
$130,000,* the City typically
uses a competitive process
to request for bids (RFB) or
proposals (RFP).
Cost or price
analysis
The City must conduct a cost or price
analysis for both competitive and non-
competitive procurements above the
federal simplified acquisition threshold
of $250,000. Because the City’s
threshold of $130,000* is lower, the
City’s threshold would apply.
CRF does not
provide guidance on
procurement.
Purchases up to $130,000*
require request for quote(s).
Purchases above the City’s
threshold of $130,000*
typically require an RFB or
RFP, except during an
emergency.
Steps to reach
certain firms
The City must take affirmative steps to
reach minority businesses, women’s
businesses, and labor surplus area firms
for competitive procurement when
possible.
CRF does not
provide guidance on
procurement.
The Municipal Code
provides preference towards
local and small businesses.
The preference is not
applied to procurements
under grant programs, such
as FEMA and ARPA.
Conflict of interest
requirements
In both competitive and non-competitive
procurements, the City must prevent
employees with a conflict of interest
from awarding contracts.
CRF does not
provide guidance on
procurement.
City staff and outside parties
involved in developing
specifications, solicitation,
and evaluations must
complete a conflict of
interest form before
beginning work in that
area.18
Source: Auditor analysis of Uniform Guidance (2 CFR 200), FEMA guidance, ARPA (SLFRF) Final Rule, CRF Final Rule, San José Municipal Code, City Policy Manual, Purchasing Guidelines and Checklist for Federally Funded Procurements, and Memorandum on Adjustments to Contract Authority Limitations. * As of July 1, 2022, the City’s threshold increased from $130,000 to $140,000.
The City Appears to Have Met Many Procurement Requirements For competitively bid contracts for food distribution, the City appears to have met many of the procurement guidelines outlined in federal rules, including:
Maintaining a documented history of procurement, including rationale for procurement method and contractor selection (§200.318)
18 While staff collect conflict of interest forms for evaluators, staff report that it is not their current practice to collect those forms for people who have helped to develop specifications or the solicitation. We referred this to the Administration.
Finding 2
27 Having written procurement proced ures that ensure an accurate description of the requested service (§200.319)
Ensuring awards are not made to de barred or suspended organizations (§180.300)
The City’s competitive procurement files contain a list of awarded vendors and the requested scope of work. The City also appears to have met requirements around public advertisement, disclosure of evaluation factors and their relative importance, and consideration of all proposals. Sampled vendors did not appear on the System for Award Management (SAM) as debarred or suspended.
The City Transitioned From Non-Competitive to Competitive Procurements During the Emergency
As shown in Exhibit 8, the City moved to wards competitive contracts for direct food distribution after initially relying on non-competitive contracts. This is in accordance with FEMA guidance. Unif orm Guidance allows non-competitive purchases in emergency circumstances, but FEMA generally requires recipients to move to competitive bids as soon as possible.
Exhibit 8: Food Distribution Contracts Largely Transitioned From Non- Competitive to Competitive
Source: Auditor analysis of contracts for direct food provision (i.e., not inclusive of support services like food boxing or necessities distribution) with contract terms between March 2020 and June 2022.
Note: Competitive includes CIG agreements. Not all options to extend a contract had execution dates; where available, we used the date on the contract transmittal form or a retroactive memo as a proxy. We excluded two extensions without clear execution dates or prox ies. As a note, most contracts were executed retroactively, or after the term already started.
Finance’s Purchasing Division (Purchasing) facilitated two competitive procurement processes for food distri bution in fall 2020, resulting in eight 0 5
10 15
20 25
30 Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Jan-21
Feb-21
Mar-21
Apr-21
May-21
Jun-21
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Jan-22
Feb-22
Mar-22
Apr-22
May-22
Jun-22
Number of agreements
Execution date
Non-competitive base agreement
Non-competitive extension
Competitive base agreement
Competitive extension
Audit of COVID-19 Food Distribution Expenditures
28 competitive contracts. Separately, PRNS had an open call for proposals for the Collective Impact Grant (CIG) program in late 2020, resulting in 14 contracts.
In all, less than half of contracts for direct food distribution were non-competitive (see Exhibit 9). Over time, the City did not renew some non-competitive contracts and allowed them to expire, though it did extend others. Some vendors initially received non-competitive contracts, but later participated in a competitive procurement.
Exhibit 9: Less than Half of Direct Food Distribution Agreements and Contract Value Were Non-Competitive
Source: Auditor analysis of contracts for direct food provision (i.e., not inclusive of support services like food boxing or necessities distribution) with contract terms between March 2020 and June 2022.
Note: Total contract value refers to not-to-exceed value for base agreements and extensions through amendments or contract options for the full potential value of the contract. Invoiced amounts may be less than the not-to-exceed value.
The City Can Fill Gaps to Document Compliance With Federal Procurement Requirements
While the City met many procurement requirements, it does not appear to have documented compliance with all Uniform Guidance requirements, including:
Taking affirmative steps to include minority-owned firms in procurement solicitation lists (§200.321)
Conducting cost or price analysis for any purchase above a certain threshold (§200.324)19
Separately negotiating profit for competitive contracts with a sole responsive bidder (§200.324)
Written justification for all non-competitive procurements (FEMA, CSLFRF, City policy)
19 This is based on the most restrictive threshold for competitive procurement under the local, state, or federal law.
The City’s formal bidding threshold (previously $130,000; $ 140,000 as of July 1, 2022) is more restrictive than the federal threshold of $250,000. Conducting a cost or price analysis is required for both non-competitive and competitive purchases.
Competitive
$29.2 M
Competitive (CIG)
$8.8 M
Non-Competitive
$30.1 M
0% 25% 50% 75% 100%
Number of base agreements
Total contract value
Finding 2
29 Many of these requirements vary from City-standard processes. Absent documentation of these requirements, the City may need to reallocate expenses to alternate funding sources. As discussed in Finding 3, Purchasing staff developed tools to address federal procurement re quirements during the emergency, but due to timing, these tools were not consistently used.
Federal Guidelines Require Documented Justification for Non- Competitive Contracts
FEMA, CSLFRF, and City Policy 5.1.4 require written justification for non- competitive procurements. This rule a pplies in situations when conducting a competitive procurement would delay an emergency response or when an item is only available from a single sour ce. For FEMA purchases, for example, justification should:
Identify which circumstance listed in Uniform Guidance justifies non- competitive procurement,
Provide a description of the service being procured,
Explain why non-competitive procurement is necessary, State how long the non-competitively procured contract will be used, Describe specific steps taken to determine competition could not have been used,
Describe any known conflicts of inte rest and efforts made to identify possible conflicts, and
Include any other information justif ying the use of noncompetitive procurement in the specific instance.20
At the time of the audit, Purchasing and FRG were completing sole-source justification memos for FEMA purchases. Staff also report that they intend to complete these memos for CRF and CSLFRF funded purchases. Finance’s memo template appears to include most of the criteria above. However, it does not describe efforts to identify possible conflicts of interest.
Steering Committee and Non-Profit Leadership Council Members Received Contracts From the City
The City should address any appearances of conflicts of interest by documenting the decision-making around vendor selection. This will help justify the need for a particular vendor’s services. For ex ample, multiple organizations that held advisory positions on the food distribut ion steering committee or non-profit
20 FEMA released “Procurement Under Grants: Under Exigent or Emergency Circumstances” guidance on March 20, 2020, which suggests these elements to include in non-competitive justification memos. Uniform Guidance only allows non-competitive procurement in specific circumstances lis ted in §200.320, such as during a public exigency or emergency or when items are only available from a single source.
Audit of COVID-19 Food Distribution Expenditures
30 leadership council also received sole-source contracts. 21 Additionally, three vendors received sole-source contracts for food distribution following separate, unsuccessful competitive bids. (The competitive processes successfully awarded contracts to responsive bidders.) The reasons for sole-source awarding decisions should be well documented, as sole-sou rce procurement has fewer controls to prevent conflicts of interest in issuing awards.
Overall, collecting additional documentat ion on steps taken during competitive and non-competitive procurements can he lp ensure the City met procurement requirements for its various funding sources.
Recommendation:
1: For FEMA and ARPA funded expenditures, the Administration should document in its emergency cost recovery files:
specific justification for all sole-source and non-
competitive contracts, as well as any changes to existing contracts beyond the scope of the original agreement,
including appearances of conflicts of interest and efforts made to identify potential conflicts,
cost or price analysis for all purchases and contract modifications over the City’s formal bidding threshold, and
other information as required to document compliance
with federal requirements for competitive
procurements (e.g., affirm ative steps to include
minority-owned firms in solicitation lists and separate negotiation of profit for solely responsive bidders).
For expenses where the Administration is unable to document compliance with appropriate requirements, it should reallocate those expenses to alternate funding sources.
Additional Documentation From Vendors Can Help Verify That Services Were Delivered as Reported
Staff in the EOC Food Distribution Br anch and PRNS handled the management and monitoring of food contracts. As noted in the Background, just three staff in
21 We reviewed meeting minutes from the steering committee and did not see any indication that the committee discussed procurement decisions or specifications. In reviewing the timing of contracts awarded to steering committee members, Deloitte and Revolution Foods’ participation followed their initial contract execution dates. Second Harvest’s participation preceded its contract period. Staf f report that World Central Ki tchen, while listed, did not attend committee meetings.
Finding 2
31 PRNS managed food contracts, which incurred more than 1,000 emergency transactions.
Staff Checked Vendor Invoices for Consistency With Service Reports To monitor contracts, staff collected invoices
and vendor-submitted service reports, in which
vendors report how many meals or groceries
they provided. Staff cross-referenced the
invoices and service reports for consistency.
For grantees in the CIG program, staff also
tracked vendor-reported expenses against
contracted budgets. Staff reported that when
they found discrepancies between the amount
of food billed and the amount of food reported,
they would follow up with the vendor for
clarification. Additionally, staff may have
followed up with the vendor when the final
invoice was less than the contracted installment
amount.
Based on this review, staff submitted in voices to management for approval and fiscal staff for payment. Additionally, sta ff visited some vendor sites to talk with vendor staff about operations.
Sample Invoices and Supporting Documentat ion Did Not Clearly Show How Vendors Used City Funds
Despite this process, some invoices examined during the audit did not appear to provide sufficient or accurate detail.
22 In these cases, the amount of distributed
food reported by the vendor did not align with expenses incurred by the vendor and subsequently charged to the City. Such invoices did not inform the City how the vendor allocated funds between food, labor, equipment, and other operating and administrative expenses. For example:
Six invoices were billed based on co ntracted budgets, rather than the reported number of meals. Five of the invoices did not specify the
22 We used a stratified judgmental sample from our inventory of direct food contracts to select 13 invoices from 10 vendors to review against vendor-submitted service reports. The purpose of the limited testing was to understand the controls that the City had in place to ensure services were provided as intended in the contracts before payment.
Based on this sampling methodology, we determined that the City's controls did not corroborate reported participant eligibility or the reported number of meals or food delivered for all vendors. We should note that because the sample was limited and risk-based, we cannot extrapolate results to the full population of vendors. Following the initial sample, we reached out to a subset of eight vendors to request supporting documentation for reported service delivery. One vendor sent a letter noting it was unable to provide any supporting documentation for the meals provided. Other vendors provided partial support (e.g., participant information, but no delivery information, or vice versa). It is possible that these vendors and others could provide additional supp orting documentation to staff to validate both service delivery and participant eligibility.
Contract Monitoring
Ongoing monitoring
ensures vendors are
performing contracted
services. Monitoring can
include reviewing vendor
reports and invoices,
visiting vendor sites, and
conducting desk reviews
to review vendor files and
systems for compliance
with contract terms.
Audit of COVID-19 Food Distribution Expenditures
32 number of meals provided by the vendor. The sixth invoice charged a fraction of a meal. Staff report thes e contracts were to support staffing and program costs, rather than a pe r-meal basis (though the contracts had performance targets for food provided and target populations). The invoices did not have line items for actual expenses and generally did not include documentation to support those costs (such as receipts, timecard data, etc.).
A seventh invoice referred to food distributed outside Santa Clara County. The vendor was only cont racted to coordinate distribution inside San José.
Vendor service reports also indicated errors or did not have details of service delivery. For example, we noted instances of reports having invalid zip codes or zip codes outside Santa Clara County.23 In other instances, location data, such as the zip code or city of a food delivery, were not included. Food vendors send in service reports, typically as an Excel file and aggregated by day or week, to report their performance. However, vendors do not have to submit documents to support their reported count, like deliver y confirmations or participant intake forms or lists.24
Insufficient review of invoices or vendor service reports increases the risk that the City has not received the contracted se rvices, or that the City is paying for incorrect or unrelated program expenses.
Verifying Services Helps Ensure That Food Was Delivered as Intended The vendors’ contracts require that they keep documents supporting participant eligibility and location data. 25 However, the City has not generally collected or reviewed such documentation to verify that the target populations within contracts received the food they needed . As noted, the City was receiving service reports that provided aggregated data on service delivery, but these reports often did not provide sufficient de tail about target populations served.
Staff cited that limited bandwidth made it challenging to proactively check service reports against other vendor records. Grants management best practices
23 In reviewing service reports submitted by vendors with total expenses of at least $1 million and available location data, less than 1 percent of meals had zip codes outside Santa Clara County. This is a small error rate, but accounts for an estimated $790,000 in meals based on a standard per meal contract rate. About 3,100 meals had zip codes that were missing, incomplete, or unrecognized by the United States Postal Service. The estimated cost of these totaled about $55,000.
24 The contracts reviewed include documentation retention clauses as part of general City provisions and for federal funding agencies. Vendors are required to retain records relating to performance; administrative, financial, and programmatic records related to agreements; and other offici al documentation. World Central Kitchen and Off the Grid are two vendors that submit participant-level eligibilit y data and general location (city or zip code) for daily deliveries to support their invoices and service counts. 25 As discussed in Finding 3, contracts were developed after vendors began delivering services and collecting data.
These retroactive agreements made it harder to ensure vendors collected information required by grant agencies.
Finding 2
33 recommend maintaining controls for cont ract compliance, including procedures to ensure third-party information is reliable.26
The food distribution contracts included target populations for vendors to focus their efforts. Contracts required participant eligibility based on different criteria for need such as COVID-19 isolation or quarantine, risk from age or medical conditions, or reduced income. This was to ensure that food went to people with the greatest need.
Checking that sampled costs tie to docu ments supporting participant eligibility and delivery confirmation provides two be nefits. It ensures vendors provided services as contracted – that target populations received the food they needed – and it ensures that vendors have retain ed sufficient documentation in the event of a federal audit.
Site Visits are an Important Element of Contract Monitoring to Verify Service Delivery Typically, site visits are an opportunity for staff to
corroborate reported service delivery with on-
site files and review a vendor’s operations.
However, site visits for food distribution
contracts generally did not validate service
delivery or participant eligibility.
27 For example, PRNS staff generally did not match
on-site participant records or activity logs against
the service reports submitted to the City to
corroborate the level of service or participant
eligibility. PRNS staff appeared to request and
examine some vendor files, such as example
expenses and timesheets. This approach
provided assurance that vendors were able to
provide support for some costs. However, it did not provide assurance that services were provided as contracted. As discussed in Finding 3, while PRNS guidelines and the EOP did not provide much detail on contract monitoring, other City departments with experience in managing federal grants have procedures around reviewing backup documentation and conducting site visits.
26 The Government Finance Officers Association (GFOA) recommends maintaining controls for contract compliance, procedures to ensure third-party information is reliable, and monitoring subrecipient progress. The U.S. Department of Treasury also identifies pre-payment and ongoing validations based on assessed risk as best practices for due diligence in CSLFRF Compliance and Reporting Guidance.
27 At the start of the pandemic, in 2020-21, staff report tha t site visits were not conducted due to shelter-in-place orders. Following the release of the COVID-19 vaccine and transition of the Food Distribution Unit from the EOC to PRNS, staff started up site visits in 2021-22. They performed 10 site visits for seven vendors between June 2021 and May 2022.
Site Visits
A site visit is a monitoring
method used to review a
vendor’s program
implementation,
adherence to program
guidelines, and
compliance with federal
and local regulations.
During a site visit, staff
can observe contracted
activities, identify issues,
and provide technical
assistance to vendors.
Audit of COVID-19 Food Distribution Expenditures
34 Collecting Documentation of Service Delive ry Can Help Support Claims for Federal Reimbursement
The Office of Inspector General (OIG) of the U.S. Department of Homeland Security reviews the use of FEMA grants. The OIG reports it has frequent audit findings on inadequate documentation, unsupported costs, and unrelated project charges. These findings result in que stioned costs and may lead FEMA to take back awarded funds.
The Office of the Inspector General for the U.S. Department of the Treasury will review the use of CRF and ARPA funds. FEMA, ARPA (CSLFRF), and CRF all apply Uniform Guidance rules on cont ract monitoring. Uniform Guidance requires the City to review subrecipient s’ financial and performance reports to ensure awards go toward the federally authorized purpose (§200.332).28 Validating data in vendor reports an d assessing participant eligibility for contracted services can help support Ci ty claims to federal relief funding.
Expenses should have evidence to show th ey were related to food distribution, and that food services went to people affected by COVID-19. The City should check sample vendor service report data for accuracy and review documentation supporting participant eligibility, such as information collected in participant intake forms.
29 Recommendation:
2: To verify service delivery and reduce the potential for questioned costs from grant agencies, Parks, Recreation and Neighborhood Services in coordination with the Finance
Recovery Group should:
Using a risk-based approach, collect sample documentation from food vendors to support reported service levels and eligibility of contracted populations where the City does not currently have detailed data on service delivery.
Documentation should support that grant funds met
contract terms.
28 A subrecipient is an entity that carries out a federal program after receiving the award from a pass-through entity (2 CFR §200.1). For example, U.S. Department of Treasury awarded the City funding through ARPA to support food distribution. The City is a pass-through entity that initially received the aw ard, and then passed the ARPA funds to food vendors to provide food distribution services. The f ood vendors contracted by the City would be considered subrecipients.
29 Based on guidance from the U.S. Department of Treasury on use of CSLFRF funds, “organization[s] will need to evaluate each subrecipient’s risk of noncompliance based on a set of common factors. These risk assessments may include factors such as prior experience in managing [f]e deral funds, previous audits, personnel, and policies or procedures for award execution and oversight. Ongoing monitoring of any given subrecipient should reflect its assessed risk and include monitoring, identification of deficiencies, and follow-up to ensure appropriate remediation.” This is based on §200.332 of Uniform Guidance which requires organizations to evaluate subrecipient’s risk of noncompliance.
Based on this assessment, organizations should determine th e appropriate level of monitoring to ensure awards are used for their authorized purposes.
Finding 2
35 As needed, collect documentation to supplement or clarify invoices that do not tie to service reports.
Audit of COVID-19 Food Distribution Expenditures
36 This page was intentionally left blank
37 Finding 3 Updating Emergency Guidance Can
Prepare the City for Future
Emergencies
Summary
The Emergency Operations Plan (EOP) pr ovides an overview of the City’s emergency procedures and re sponsibilities. The plan, however, provides limited guidance on contract procurement or management during an emergency. During the COVID-19 response, this created oper ational challenges for City staff and vendors, as well as potential risks around federal compliance. The City should update the EOP and formalize tools developed by Purchasing staff during the emergency. Additionally, the Administrati on should establish standard processes around contract management, such as verify ing information through site visits or desk reviews, and such guidance should be referenced within the EOP. Integrating lessons learned around purchasing and contract monitoring into the EOP will help prepare the City for future emergencies.
The Emergency Operations Plan Offers Li mited Guidance on Contract Management During an Emergency
The Emergency Operations Plan (EOP) outlines the City’s emergency response and assigns City departments with roles and re sponsibilities during the response and recovery phases of an emergency.30 The EOP highlights basic steps of the resource request process such as information to be included in resource requests and documentation required to support reim bursement for labor, vehicle, and equipment expenses. However, it does not refer to procedures for procurement and contract monitoring, which may have contributed to gaps in documentation as discussed in Finding 2. We should note that contract management should apply in both emergency and non-emergency circumstances.
Purchasing Staff Developed Tools During the Emergency, But Report That Timing Hindered Consistent Implementation
The EOP does not detail requirements for pu rchases using federal funds, such as federal requirements for competitive purchases that differ from regular City requirements. Rather, the EOP outlines basic information to include in a resource
30 As a note, the EOP was still partly in draft form at the time of the COVID-19 emergency. City Council adopted a resolution amending the base plan in January 2019. Staff further developed annexes to the base plan in 2019. Annex A, the EOC Operations Guide, was still in draft form at the time of the audit.
Audit of COVID-19 Food Distribution Expenditures
38 request (such as an item description and quantity) and the EOC workflow for requesting goods or services.31
During the emergency, Purchasing staff developed more detailed guidance and tools for procurements, such as:
a checklist for Purchasing staff that included items for staff to look out for to ensure federal compliance, like affirmative steps to include women and minority-owned businesses by includ ing them in email invitation lists for requesting bids or proposals, and
a questionnaire for EOC staff requesting procurements with sections asking for explanations of project scopes and the need for the purchase as it related to the emergency.
These forms also provided guidance about documenting staff’s decision-making for future federal review, including items like the rationale for procurement methods.
Purchasing staff report that they worked under the assumption that all emergency purchases would need to meet rules under federal Uniform Guidance, as required by FEMA. They designed these forms to collect information required by the Uniform Guidance.
Purchasing staff also reports that timing (namely, the forms’ development during the emergency) and limited implementation hindered consistent application of these tools. For example, two competitive bids they facilitated for food distribution occurred before the implementation of their checklist and questionnaire.
The Emergency Purchasing Process Faced Other Challenges The City’s COVID-19 Preliminary Operational Assessment Report (OAR) analyzed the City’s COVID-19 emergency proc esses and provided feedback for improvements. The OAR found that the City faced challenges in procurement and needed to adapt its non-disaster procurem ent processes. Staff similarly reported issues. Namely, at the start of the emergency, to separate staff requesting purchases from staff making purchases, EOC and Purchasing staff revised the EOC structure to locate Purchasing staff within the Recovery Branch. The EOP should be updated to reflect the revised stru cture adopted during the emergency.
Additionally, staff report that limited st affing capacity and experience hindered contract development and may have contributed to delays and retroactive agreements.
31 The emergency resource request (213RR) process can trigger a procurement process. The EOC seeks to fill requests with existing internal resources first, but procures resources or services when no internal source exists.
Finding 3
39 Most Food Distribution Contracts Were Retroactive Agreements Almost all food distribution contracts were retroactive, with nine in ten having execution dates after the service start date s. While an emergency makes it more difficult to avoid retroactive agreemen ts, clarifying emergency procurement processes before an incident can equip EOC staff with guidance to develop contracts and conduct procurements soon er and in accordance with federal requirements.
Retroactive agreements present several challenges:
Retroactive agreements create challenges for vendors due to late payment.
The OAR noted that non-profits experi enced delayed approval of funding to support food distribution.
Retroactive agreements also make it harder to ensure vendors collect federally required data and document ation. Vendors had already begun service delivery and data collection be fore contracts were developed. As such, City staff reported difficulty developing contract terms to collect necessary data from vendors that demonstrated services were directed towards populations in need of food during the pandemic. Retroactive agreements in combinat ion with emergency rules can delay presentation of major contracts to Ci ty Council. City rules change in an emergency under the Municipal Code to allow greater flexibility for staff to respond quickly. In retroactive emergency agreements, vendors begin services before City Council approves the scope of work and budget. This reduces transparency and makes it difficult for Council to fulfill their normal oversight responsibilities.
32 The OAR recommends consolidating items in the procurement process and providing clear guidelines and checklists. To this end, the EOP should revise staff roles to match the structure adopted du ring the emergency. Additionally, referencing Purchasing’s emergency proc urement tools in the EOP will help to ensure compliance with federal funding rules on the front-end of the next emergency. This will reduce the kind of back-end documentation work that staff are currently undertaking, as well as risks of federal agencies taking back funds due to noncompliance.
32 During the pandemic, the state and City Council also voted to change public meeting rules to allow for remote meetings.
City Council further waived the requirement to post COVID-19 related documents 72 hours before a meeting. Amending the notice requirements allowed staff reports and resolutions related to food contracts to be presented with short notice.
While retroactive agreements and special notice rules enabled City staff to execute contracts with food vendors and immediately begin food distribution services, the delayed presentation of contracts prevented City Council and the public from being informed of active contracts in a timely manner.
Audit of COVID-19 Food Distribution Expenditures
40 Recommendation:
3: To prepare for the next emerge ncy, the Administration should update the Emergency Operations Plan to reassign the
Purchasing Division’s roles and responsibilities to ensure segregation of duties and formalize procurement tools as developed by staff during the COVID-19 emergency.
The Emergency Operations Plan Does Not Offer Guidance on Contract Monitoring The EOP does not offer or refer to guidance on monitoring vendors contracted to provide services to residents affected by an emergency. While contracts management is not limited to an emergency, having such guidance is important as risks for fraud increase during an emergency. 33 Effective contract monitoring ensures that resources go toward their intended purpose.34 It can also ensure the City follows federal rules.
Food distribution staff followed PRNS contract management guidelines, which give high-level guidance on overseeing contractor performance and reviewing payment requests. However, these guidelines di d not provide guidance around assessing vendor risks, verifying participant eligibility, or checking vendor receipts, as shown in Exhibit 10.
Other City departments with experience in managing federal grants have more detailed procedures to monitor contracts, including:
reviewing and saving backup documentation for the vendor’s expenses, checking processes and controls, and
observing operations in action to identify areas of noncompliance.
These procedures help ensure the City meets federal requirements under Uniform Guidance. For example, the Housing De partment’s grant monitoring manual includes detailed objectives and tasks to complete during site visits and desk reviews. Exhibit 10 compares PRNS’ an d Housing’s procedures on monitoring federal grantees. Compared to PRNS, Ho using’s manual provides more detailed tasks and objectives to address Uniform Guidance provisions.
33 The Office of Inspector General for the Department of Ho meland Security has noted that the pressure to distribute funds quickly makes FEMA’s disaster assistance programs susceptible to fraud, waste, and abuse. With particular regard to the COVID-19 pandemic, the U.S. Government Accountability Office reported that “the public health crisis, economic instability, and increased flow of federal funds associated with the COVID-19 pandemic have increased pressures and opportunity for fraud…”
34 Our office has had repeated findings relating to contracts management within the City. As of September 2022, an audit recommendation to develop Citywide policies and procedures on contract monitoring and management (including documenting deliverables prior to payment) remains open. This recommendation was made in a 2013 audit of consulting agreements (see https://www.sanjoseca.gov/Home/ShowDocument?id=33780) and has been made a priority by the Administration.
Finding 3
41 Exhibit 10: Compared to PRNS, Housing Has More Detailed Monitoring Procedures to Adhere With Uniform Guidance
Source: Auditor summary of PRNS Contract Development Handbook, PRNS site visit checklists, Housing Grant Monitoring Policy and Procedures Manual, and Uniform Guidance. Criteria (in bold text) refer to sections of Uniform Guidance.
As noted in the Background, there is an open audit recommendation to the Administration to develop and maintain Citywide administrative guidelines, procedures, and trainings on federal grants management. This includes PRNS Manual Housing Manual
Evaluate subrecipient’s risk of noncompliance (§200.332(b)).
PRNS does not conduct a risk assessment for grantees. The manual instructs Housing to select high-risk grantees by considering factors such as:
the vendor’s experience managing government grants,
experience administering a specific program,
amount of the grant award, and
progress reports.
Based on risk assessment, perform on-site reviews (site visits) of the subrecipient’s operations to ensure compliance with program requirements (§200.332(e)).
Site visits were conducted based on scheduling availability and were limited during COVID-19.
On-site monitoring was initially postponed during COVID-
19. The manual provides guidance on remote reviews,
with provisions to increase desk reviews and grantee
technical assistance in the interim.
Pre-site visit procedures
The manual and site visit checklist do not give guidance on preparing for a site visit.
The manual instructs Housing to request specific files from the vendor to ensure that forms capture data required on a federal level. Documents include the vendor’s policies and procedures, cost center appropriations, timesheets, and receipts. Housing may review these files in more detail to match them against sampled activity reports and invoices.
Reviewing intake forms during a site visit
The site visit checklist has a section on participant intake, but it does not specify what PRNS staff should check intake or sign-in sheets against.
Housing reviews intake forms to ensure the vendor is
capturing accurate and necessary demographic information for funding sources.
Monitor subrecipient activities to ensure the subaward is used for authorized purposes and complies with contract terms. Among other activities, review the subrecipient’s financial and performance reports (§200.332(d)). Ensure costs are necessary, reasonable, and adequately documented (§200.403).
The manual instructs staff to ensure items charged on
invoices match reports and actual services. The manual does not include the site visit checklist or guidance on what to review.
To review how vendors manage the receipt and
disbursement of grants, Housing reviews documentation
for a sample of the vendor’s activity reports. Staff sample transactions to check if receipts are documented,
accounting files match totals on reimbursement reports, billed amounts are allowed under the vendor’s contract, and expenses are necessary to carry out the grant award’s intent.
Audit of COVID-19 Food Distribution Expenditures
42 expectations around subrecipient monitori ng and preparing for federal review of awards.35
To ensure staff Citywide follow federal gr ant requirements during an emergency, the EOP should reference federal gran t management policies developed by the Administration as appropriate. Additi onally, PRNS should update its contract monitoring guidance to clarify expectations around site visits and service validation.
This update should include matching vendor records against records submitted to the City to check the accuracy of vendor-submitted service reports as well as eligibility of populations served.
Recommendations:
4: To increase emergency preparedness, the Administration should establish processes in accordance with Uniform Guidance for City staff to review submitted documentation and verify information through site visits and desk reviews, and reference such guidance within the Emergency Operations Plan.
5: The Parks, Recreation and Neighborhood Services Department should update its contract development and management
guidance to incorporate clear expectations on validating costs and verifying information through documentation and invoice review, site visits to program sites and administrative premises, and desk reviews based on levels of risk.
35 This recommendation resulted from our 2022 Audit of Citywide Grants Management. We recommended, “To assist departments that manage grants awards Citywide, the Administ ration should identify staffing resources to develop and maintain Citywide administrative guidelines or procedures and training materials around the different phases of grant management, including: (i) applying for grants; (ii) account ing, tracking, and monitoring of expenditures, including subrecipient and contractor management; (iii) grant closeout responsibilities; (iv) preparing for federal audits and reviews, including notifying the Finance Department when the award is selected for an audit or review by a federal agency.” See https://www.sanjoseca.gov/home/showpublisheddocument/84480.
43 Conclusion
The City massively expanded food dist ribution efforts during the pandemic, spending nearly $80 million. It acted duri ng a period of great uncertainty–due to the nature of the pandemic as well as piecemeal federal funding and guidance. The City prioritized speed, scale, and access to mitigate risks to public health and wellbeing, and potential supply chain dist urbances, like those seen with medical supplies and personal protective equipment. In doing so, the City took on risks of overpayment and potential claw backs of federal funding. To reduce these risks, the City should document decision-making around procurements, including specific justification for non-competitive purchases . The City should also retroactively conduct additional contract monitoring , such as reviewing sample supporting documentation to verify service delivery reported in vender service reports.
Adding guidance to the City’s Emergency Operations Plan will help to avoid such work on the back end and support compliance with federal funding requirements on the front-end in a future emergency.
RECOMMENDATIONS
Finding 1: The City Spent $79.3 Million on Food Distribution No recommendations.
Finding 2: The City Should Gather Additional Documentation to Corroborate Service Delivery and Support the City’s Claims to Federal Funds Recommendation #1: For FEMA and ARPA funded expenditures, the Administration should document in its emergency cost recovery files:
specific justification for all sole-source an d non-competitive contracts, as well as any changes to existing contracts beyond the scope of the original agreement, including appearances of conflicts of interest and efforts made to identify potential conflicts, cost or price analysis for all purchases and co ntract modifications over the City’s formal bidding threshold, and
other information as required to document compliance with federal requirements for competitive procurements (e.g., affirmative steps to include minority-owned firms in solicitation lists and separate negotiation of profit for solely responsive bidders).
For expenses where the Administration is una ble to document compliance with appropriate requirements, it should reallocate those expenses to alternate funding sources.
Recommendation #2: To verify service delivery and reduce the potential for questioned costs from grant agencies, Parks, Recreation and Neighborhoo d Services in coordination with the Finance Recovery Group should:
Using a risk-based approach, collect sample documentation from food vendors to support reported service levels and eligibility of cont racted populations where the City does not Audit of COVID-19 Food Distribution Expenditures
44 currently have detailed data on service delivery. Documentation should support that grant funds met contract terms.
As needed, collect documentation to supplement or clarify invoices that do not tie to service reports.
Finding 3: Updating Emergency Guidan ce Can Prepare the City for Future Emergencies
Recommendation #3: To prepare for the next emer gency, the Administration should update the Emergency Operations Plan to reassign the Purchasing Division’s roles and responsibilities to ensure segregation of duties and formalize procurement tools as developed by staff during the COVID-19 emergency.
Recommendation #4: To increase emergency prepar edness, the Administration should establish processes in accordance with Uniform Guidance for City staff to review submitted documentation and verify information through site visits and desk reviews, and reference such guidance within the Emergency Operations Plan.
Recommendation #5: The Parks, Recreation and Neighborhood Services Department should update its contract development and management gu idance to incorporate clear expectations on validating costs and verifying information through documentation and invoice reviews, site visits to program sites and administrative premises, and desk reviews based on levels of risk.
APPENDIX A
Audit Objective, Scope, and Methodology
A-1
The mission of the City Auditor’s Office is to inde pendently assess and report on City operations and services. The audit function is an essential elem ent of San José’s public accountability and our audits provide the City Council, City management, and the general public with independent and objective information regarding the economy, efficiency, effectiveness, and equity of City operations and services.
In accordance with the City Auditor’s Fiscal Year (FY) 2022-23 Work Plan, we have completed an audit of COVID-19 expenditures, with a focus on food distribution. The audit was conducted in response to a request from a Councilmember.
We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan an d perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reason able basis for our findings and conclusions based on our audit objectives.
The objective of our audit was to document and review the disbursal of COVID-19 related funds for food distribution for transparency and fiscal accountability. We should note that the City used multiple grant sources with extensive requirements, and we did not au dit for strict compliance with all aspects of each grant program. We sought to understand the re levant management controls over emergency food distribution, and have performed the following to achieve the audit objective:
Reviewed budgeted amounts for food distribution for FYs 2018-19 through 2021-22. Compiled actual expenditures for food distribution expenses from FY 2019-20 through 2021- 22 based on data in the City’s financial management system (FMS); internal tracking records from Parks, Recreation and Neighborhood Services; food distribution contracts; and invoices and journal vouchers.
Inventoried direct food contracts (including base agreements, options, and amendments) to understand service providers, contracted budgets, service term lengths, scopes of work, and target populations.
Assessed the reliability of data presented in the City’s food distribution dashboard and vendor- submitted reports.
Aggregated vendor-submitted service reports to understand the quantity and location (as available) of food distributed.
To understand City operations and decisions during the emergency:
o Reviewed the Emergency Operations Pl an Base Plan and Recovery Annex, COVID-19 Preliminary Operational Assessment Report, San José Municipal Code, City Policy Manual, and Council memos.
o Interviewed staff from the following departments: Parks, Recreation and Neighborhood Services; Finance; and the City Attorney’s Office. Additionally, sought input from the Office of Emergency Management on emergency operations and policies.
A-2
To understand statutory requirements of federa l awards received by the City, interviewed staff from Finance, the City Attorney’s Office, and Ernst & Young, as well as reviewed:
o Federal Register, Title 2: Grants and Agreements, Part 200 (Uniform Guidance); o Final rules released for CSLFRF and CRF by the U.S. Department of Treasury; o Guidance released by FEMA, the U.S. De partment of Homeland Security Office of Inspector General, and the Office of Inspector General of the U.S. Department of the Treasury;
o CalOES Grants Monitoring Policies and Procedures Manual; and o The Citywide Memo to Fiscal Officers on Guidance and Basic Checklist for Citywide Procurements Funded by Federal Grants issued by Finance. To understand the vendor selection process for competitive procurement:
o Reviewed submissions and scoring for two competitive procurements and one open call for grants.
o Checked a judgmental sample of 10 vend ors for debarment or suspension on SAM.gov.
o Interviewed Purchasing and Parks, Recreation and Neighborhood staff. To understand vendor selection for non-compet itive procurement and potential conflict of interest:
o Interviewed staff from the following departments: Parks, Recreation and Neighborhood Services; Finance; and the City Attorney’s Office. o Reviewed Food and Necessities Steering Committee meeting minutes from April through September 2020.
o Checked conflict of interest forms (F orm 700s) for City employees in the Recovery and Food Distribution leadership teams.
To understand the City’s contract monitoring process during the emergency:
o Reviewed internal policies and procedures, shadowed one administrative and one warehouse site visit, reviewed staff notes for an additional eight site visits, and walked through the invoice review proc ess conducted by staff from Parks, Recreation and Neighborhood Services.
o Using a stratified judgmental sample from our inventory of direct food contracts, we selected 13 invoices between 10 vendors to review against vendor-submitted service reports. Based on this review, we selected a judgmental sample of eight vendors and directly requested supporting documentation for reported meal or grocery counts.
o Compared emergency practices to inte rnal grant management policies by the Housing Department as well as the Ca lOES Grant Monitoring Policies and Procedures Manual.
A-3
Based on a random sample of food contract s (including base agreements, options, and amendments) that met emergency thresholds defined in the San José Municipal Code, verified 13 contracts were presented to City Council.
The Office of the City Auditor thanks the Department of Parks, Recreation, and Neighborhood Services, Finance Department, the City Attorney’s Office, th e Office of Emergency Management, and the City Manager’s Office, as well as the community-based organizations that we reached out to, for their time, information, insight, and cooperation during the audit process.
A-4
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APPENDIX B
Charts and Table of Distributed Food Reported by Vendors From March 2020 Through December 2021
B-1
Source: Auditor compilation of vendor reports and contracts for meals and grocery boxes distributed between March 2020 and December 2021. As a note, this data has not been validated for accuracy. We identified distribution location (inside/outside San José) based on location data within the vendor reports or, when unavailable, based on the vendor, date, and relevant contracted terms. An immaterial number of meals and groceries had zip codes that were missing, incomplete, or unrecognized by the United States Postal Service. They are not included in this data.
1.3 M
1.1 M
934 K
868 K
755 K
327 K
258 K
255 K
247 K
149 K
141 K
69 K
1 K
- 500,000 1,000,000 1,500,000
Loaves & Fishes
Team San Jose
San José Unified School District
Revolution Foods
World Central Kitchen
TRIO Community Meals
Off the Grid
Hunger at Home
The Health Trust
YMCA of Silicon Valley
Sourcewise
Nob Hill Catering
Veggielution
Meals Distributed
Inside San José Outside San José
307 K
238 K
179 K
23 K
15 K
- 50,000 100,000 150,000 200,000 250,000 300,000 350,000 Catholic Charities
Off the Grid
Loaves & Fishes
School of Arts and Culture
Veggielution
Grocery Boxes Distributed
Inside San José Outside San José
B-2
Number of Meals/Groceries
in each Jurisdiction Served*
Vendor Inside
San José
Outside
San José Undetermined Grand Total
Meals
Loaves & Fishes 1,325,881 1,325,881
Team San Jose 884,620 256,562 1,141,182
San José Unified School District 933,854 933,854
Revolution Foods 664,637 202,930 867,567
World Central Kitchen 632,892 122,478 3,002 758,372
TRIO Community Meals 286,823 39,912 326,735
Off the Grid 256,770 1,020 257,790
Hunger at Home 122,656 132,549 255,205
The Health Trust 237,280 9,472 246,752
YMCA of Silicon Valley 149,333 149,333
Sourcewise 141,042 141,042
Nob Hill Catering 39,424 29,892 69,316
Veggielution 1,196 1,196
Grand Total 5,676,408 794,815 3,002 6,474,225
Estimated
Pounds
Second Harvest
of Silicon Valley** 13,821,902 13,821,902
Grand Total 13,821,902 13,821,902
Grocery Boxes***
Catholic Charities 281,417 26,006 307,423
Off the Grid 237,488 126 91 237,705
Loaves & Fishes 179,242 179,242
School of Arts and Culture
at the Mexican Heritage Plaza 23,039 23,039
Veggielution 14,639 14,639
Grand Total 735,825 26,132 91 762,048
Unspecified****
Healing Health Grove
Health Center 100,660 100,660
Hunger at Home 92,843 92,843
Mama D 2nd Chance 6,371 6,371
Grand Total 199,874 199,874
Source: Auditor compilation of available performance data from vendors. Underlying data has not been validated. Meal and grocery counts are reported by vendors and are not identified by contract. As such, the data presented above may be incomplete. * When location data (address, zip code, or city) is presented in vendor-submitted service reports, meal and grocery counts are categorized in the appropriate jurisdiction. When location data was not readily available, counts are categorized in their contracted jurisdiction. “Undetermined” refers to zip codes that were missing, incomplete, or unrecognized by the United States Postal Service. ** The City paid $2.6 million for food that was distributed by Second Harvest. Data tying purchase orders to distribution sites is not readily available to the City. Second Harvest reports distributing 33.7 million pounds of food in San José for $6.4 million du ring the contracted period. Based on the $2.6 million the City was contract ed to provide, the City covered 41 percent of the $6.4 millio n.
The table above estimates that the City supported 41 percent of the 33.7 million pounds, or 13.8 million pounds. *** The amount of food per grocery box varies. Some vendors have a contracted number of pounds in each grocery box. In other cases, the contract and the service reports do not specify the amount of food per grocery distribution. **** Service reports do not specify if the units reported are meals or groceries. Vendors were contracted to provide both meals and groceries.
APPENDIX C
Table of Contracts for Direct Food Service From March 2020 Through June 2022 C-1
Provider
Base
Agreement Ext.1 Jurisdiction Selection
Not to Exceed
(Full Term)
Term
Start
Term
End Months
Bateman Community Living LLC2 OC-000203 0 Inside San José Competitive $200,970.75 11/18/2020 12/30/2020 1 Bateman Community Living LLC 666627 7 Both Competitive $409,000.00 2/1/2021 6/30/2021 5 Bateman Community Living LLC 667589 0 Inside San José Competitive $1,423,500.00 7/1/2021 6/30/2022 12 Catholic Charities OC-000036 4 Inside San José Non-competitive $914,550.00 3/17/2020 12/30/2020 9 Catholic Charities OC-000044 1 Outside San José Non-competitive $385,450.00 3/17/2020 9/30/2020 6 Catholic Charities 666564 6 Inside San José Non-competitive $2,586,169.00 12/31/2020 6/30/2022 18 Healing Grove Health Center 666438 6 Inside San José Competitive (CIG) $1,330,197.00 10/15/2020 7/31/2021 10 Hunger At Home 665913 10 Inside San José Non-competitive $1,151,430.00 3/19/2020 1/31/2021 10 Hunger At Home 665912 9 Outside San José Non-competitive $821,020.00 3/19/2020 1/31/2021 10 Hunger At Home 666437 0 Inside San José Competitive (CIG) $250,000.00 10/15/2020 12/30/2020 3 Hunger At Home OC-000102 4 Inside San José Competitive (CIG) $445,177.00 12/31/2020 7/31/2021 7 Loaves & Fishes 666452 1 Inside San José Competitive (CIG) $1,136,479.00 10/15/2020 12/30/2020 3 Loaves & Fishes OC-000140 6 Inside San José Competitive (CIG) $3,639,908.00 12/31/2020 6/30/2022 18 Mama D 2nd Chance 666467 0 Inside San José Competitive (CIG) $98,860.00 10/15/2020 12/30/2020 3 Mama D 2nd Chance OC-000143 4 Inside San José Competitive (CIG) $101,278.00 12/31/2020 7/31/2021 7 Nob Hill Catering 666699 6 Both Competitive $496,000.00 2/1/2021 5/31/2021 4 Off the Grid OC-000024 9 Inside San José Competitive $14,313,659.00 10/21/2020 3/31/2022 17 Off the Grid OC-000026 9 Inside San José Competitive $5,897,057.00 10/21/2020 3/31/2022 17 Revolution Foods 665830 1 Both Non-competitive $2,612,587.00 3/30/2020 8/7/2020 4 Revolution Foods 666210 0 Inside San José Non-competitive $784,529.70 6/23/2020 8/31/2020 2 Revolution Foods 666178 0 Outside San José Non-competitive $162,600.00 6/23/2020 8/31/2020 2 Revolution Foods 666532 5 Both Non-competitive $1,366,552.70 11/10/2020 12/31/2021 14 San José Unified School District 666076 0 Inside San José Non-competitive $2,120,654.00 3/23/2020 6/12/2020 3 School of Arts and Culture at
Mexican Heritage Plaza 666540 0 Inside San José Competitive (CIG) $98,524.00 10/15/2020 12/30/2020 3
1 Number of amendments and options to extend each contract. 2 Bateman Community Living LLC was doing business as TRIO Community Meals.
C-2
Provider
Base
Agreement Ext.1 Jurisdiction Selection
Not to Exceed
(Full Term)
Term
Start
Term
End Months
School of Arts and Culture at
Mexican Heritage Plaza OC-000168 4 Inside San José Competitive (CIG) $97,930.00 12/31/2020 7/31/2021 7 Second Harvest of Silicon Valley 666530 0 Inside San José Non-competitive $2,639,000.00 7/1/2020 12/30/2020 6 Sourcewise 666509 2 Inside San José Competitive (CIG) $621,418.00 10/15/2020 6/30/2021 9 Team San Jose 665915 11 Inside San José Non-competitive $2,545,133.00 3/31/2020 1/31/2021 10 Team San Jose 665916 11 Outside San José Non-competitive $793,336.00 3/31/2020 1/31/2021 10 Team San Jose 666626 17 Both Competitive $3,906,000.00 2/1/2021 6/30/2022 17 The Health Trust 665951 5 Unspecified Non-competitive $725,350.00 5/31/2020 9/30/2020 4 The Health Trust 665948 5 Outside San José Non-competitive $204,710.00 5/31/2020 9/30/2020 4 The Health Trust 000063 7 Inside San José Competitive $2,541,000.00 11/2/2020 6/30/2022 20 Veggielution 665922 3 Inside San José Non-competitive $342,300.00 6/24/2020 12/30/2020 6 Veggielution 666449 1 Inside San José Competitive (CIG) $151,658.00 10/15/2020 12/30/2020 3 Veggielution OC-000112 4 Inside San José Competitive (CIG) $177,657.00 12/31/2020 7/31/2021 7 World Central Kitchen 665919 6 Inside San José Non-competitive $5,553,848.96 5/11/2020 7/31/2021 15 World Central Kitchen 665920 6 Outside San José Non-competitive $4,370,113.44 5/11/2020 7/31/2021 15 YMCA 666448 1 Inside San José Competitive (CIG) $332,799.00 10/15/2020 12/30/2020 3 YMCA OC-000099 4 Inside San José Competitive (CIG) $362,910.00 12/31/2020 7/31/2021 7 Source: Auditor compilation and analysis of contracts for direct food distribution from March 2020 through June 2022, as well a s documentation for competitive bid or proposal processes and quarterly contracts reports. The table does not include food boxing, necessities, or other services.
TO: JOE ROIS F
ROM: Lee Wilcox
CITY AUDITOR
SUBJECT: SEE BELOW DATE: October 6, 2022
Approved Date
SUBJECT:
COVID-19 FOOD DISTRIBUTION EXPENDITURES: THE CITY
SHOULD ADDRESS GAPS IN EMERGENCY DOCUMENTATION
AND PROCEDURES
BACKGROUND
The Administration has reviewed t
he report from the City Auditor entitled COVID-19 Food
Distribution Expenditures: The City Should Address Gaps in Emergency Documentation and Procedures, which contains five recommendations described below. This memorandum captures the Administration response to each recommendation and presents an overview of the work required to implement the recommendations and projected target dates for completion.
RECOMMENDATIONS AND ADMINISTRATION’S RESPONSE
Administration Response: The Adminis
tration agrees with this recommendation.
Recommendation #1: For FEMA and ARPA funded expenditures, the Administration should document in its emergency cost recovery files:
specific justification for all so le-source and non-competitive contracts, as well as any changes to existing contracts beyond the scope of the original agreement, including appearances of conflicts of interest and efforts made to identify potential conflicts, cost or price analysis for all purchases and contract modifications over the City’s formal bidding threshold, and
other information as required to document compliance with feder al requirements for competitive procurements (e.g., affirmative steps to include minority-owned firms in solicitation lists and separate negotiation of profit for solely responsive bidders).
For expenses where the Administration is unable to document compliance with appropriate requirements, it should reallocate those expenses to alternate funding sources. 10/3/2022
JOE ROIS, CITY AUDITOR
October 4, 2022
Subject: Response to the City Auditor’s Report: COVID-19 Food Distribution Expenditures
Yellow: The Finance Department onboarded seven limit-dated positions, funded through June 30, 2023, to administer the City’s COVID-19 grants, including timely programmatic and expenditure reporting, compiling and centralizing expenditure documentation (contracts, purchase orders, invoices, and proofs of payment), and supporting the City through grantor audits. In response to this audit recommendation, further documentation around procurement will be reviewed and maintained in the emergency cost recovery files, including the following:
Specific justification for all sole-source and non-competitive contracts and changes to existing contracts beyond the scope of the original agreement, including appearances of conflicts of interest and efforts made to identify potential conflicts; cost or price analysis for all purchases and contract amendments over the City’s formal bidding threshold; and
other information required to document compliance with federal requirements for competitive procurements.
Identification of permanent staffing resources will need to be evaluated during the 2023-2024 operating budget development process to adequately implement this recommendation and maintain a centralized grants management team within the Finance Department. In addition to the audit recommendations identified in this audit, the same limit-dated positions are responsible for implementing several recommendations made by the City Auditor in the Citywide Grants Management audit, dated April 14, 2022. The Administration anticipates an 18-month work plan to complete the compliance assessment of the existing documentation against appropriate requirements, gaps thereof, and make recommendations to reallocate expenses to alternate funding sources.
Target Completion Date: June 30, 2024
Administration Response: The Administration agrees with this recommendation.
Recommendation #2: To verify service delivery and reduce the potential for questioned costs from grant agencies, Parks, Recreation and Neighborhood Services in coordination with the Finance Recovery Group should:
Using a risk-based approach, collect sample documentation from food vendors to support reported service levels and eligibility of contracted populatio ns where the City does not currently have detailed data on service delivery. Documentation should support that grant funds met contract terms.
As needed, collect documentation to supplement or clarify invoi ces that do not tie to service reports.
JOE ROIS, CITY AUDITOR
October 4, 2022
Subject: Response to the City Auditor’s Report: COVID-19 Food Distribution Expenditures
Green: The Parks, Recreation and Neighborhood Services Department (PRNS) recognizes that the practices in this recommendation were not applied consistently in its initial food distribution efforts. However, the Department has taken steps to integrate these practices into its work plan for many of its current agreements. Most recently, PRNS integrated the “City of San José’s Grants Manual: Policies and Procedures” with the PRNS “Contract Development Handbook.” Each is used by the PRNS’s Strategic Partnerships Unit to set reporting and data collection expectations with partnered organizations in the FDG program.
These two documents guide decision-making regarding grant procurement processes, agreement development, grant administration, grant monitoring, site visits, and close-out procedures. In response to this audit recommendation, the information found in both documents will be reviewed and updated to remain consistent with current standards. To address the need for verification of service delivery and to reduce the potential for questioned costs from grant agencies, PRNS will, in coordination with the Finance Recovery Group:
Utilize a risk-based approach to collect, review, and cross-reference sample documentation from partner agencies during site visits and when staff receives invoices for payment; Cross-reference participant intake forms with food distribution sign-in sheets or service delivery confirmation documents;
Compare invoice totals with itemized service and expenditure reports to validate that the contracted target populations are being served and that the disbursement of funds is commensurate with activities performed;
Provide agencies with technical assistance to address discrepancies between required documentation and contractual obligations, as needed; and Retroactively apply these practices to the food distribution agreements executed during the COVID-19 pandemic.
Target Completion Date: June 30, 2024
Administration Response: The Administration agrees with this recommendation.
Green: Efforts are underway to update the City’s Emergency Operations Plan (EOP) to include a variety of lessons-learned identified in after-action review processes. Specifically, updates related to this recommendation will be addressed. The Office of Emergency Management is currently updating the City’s EOP and will address this recommendation.
Recommendation #3: To prepare for the next emergency, the Administration should update the Emergency Operations Plan to reassign the Purchasing Division’s roles and responsibilities to ensure segregation of duties and formalize procurement tools as developed by staff during the COVID-19 emergency.
JOE ROIS, CITY AUDITOR
October 4, 2022
Subject: Response to the City Auditor’s Report: COVID-19 Food Distribution Expenditures
Target Completion Date: June 30, 2023
Administration Response: The Administration agrees with this recommendation.
Yellow: Since the initial phase of the pandemic, the Finance Department has contracted with a disaster cost recovery consultant to support the City with complying with the rules and regulations for multiple COVID-19 related sources; providing guidance regarding expenditure eligibility, duplication of benefits risk and avoidance, documentation requirements and improvements in current City grants management and administration processes; and performing pre-audit activities to identify and resolve documentation and process gaps in preparation for future audits. To continue these services, the Finance Department is issuing a Request for Proposal (RFP) with a scope of services which includes, among other deliverables, a review of existing policies and procedures and recommendations on enhancing the City’s processes. In consultation with the consultant, the Finance Department will develop Citywide processes in accordance with the Uniform Guidance (Code of Federal Regulations. Title 2 Part 200, which establishes uniform administrative requirements, cost principles, and audit requirements for Federal awards to non-Federal entities). These processes will guide City staff in the review of submitted documentation and information verification through site visits and desk reviews. Once developed, the Finance Department will coordinate with the City Manager’s Office of Emergency Management to include reference to the guidance within the Emergency Operations Plan.
Target Completion Date: June 30, 2024
Recommendation #4: To increase emergency preparedness, the Administration should establish processes in accordance with Uniform Guidance for City staff to review submitted documentation and verify information through site visits and desk reviews, and reference such guidance within the Emergency Operations Plan.
Recommendation #5: The Parks, Recreation and Neighborhood Services Department should update its contract development and management guidance to incorporate clear expectations on validating costs and verifying information through documentation and invoice reviews, site visits to program sites and administrative premises, and desk reviews based on levels of risk.
JOE ROIS, CITY AUDITOR
October 4, 2022
Subject: Response to the City Auditor’s Report: COVID-19 Food Distribution Expenditures
Administration Response: The Administration agrees with this recommendation.
Green: The Administration agrees with this recommendation. To establish clear expectations on validating costs and verifying information, PRNS will update its operating procedures with the following:
Specify the acceptable service report documentation staff will use to verify service deliverables and ensure that they coincide with contractual obligations. Update the site visit checklist to include guidelines on reviewing required documents such as intake forms, invoices, and service reports.
Update the procedure for reviewing invoices, including how to address discrepancies between invoices and reporting documents.
Target Completion Date: June 30, 2023
CONCLUSION
The Administration thanks the City Auditor’s Office for the comprehensive audit of the COVID- 19 Food Distribution Expenditures. The audit report provides recommendations that will strengthen interdepartmental program communication and processes, enhance management and oversight, improve overall performance, foster accountability, and reduce risk. The report is focused, and the recommendations are fair and practical.
LEE WILCOX
A s s i s t a n t C i t y M a n a g e r
For questions, please contact Luz Cofresí-Howe, Assistant Director of Finance, (408) 535-7041, [email protected].