Date:
To:

October 2, 2019
David Jang, California Department of Education

From:

Price Paige and Company, Internal Auditors for Fresno Unified School
District

Re:

FRESH FRUIT AND VEGETABLE PROGRAM FINAL REPORT

Mr. Jang,
We have completed our investigation of the Fresno Unified School District’s (the “District”) Fresh
Fruit and Vegetable Program (“FFVP”). The FFVP investigation was conducted as a result of a
request by the District’s Audit Committee in response to a vendor allegation that a competing
vendor was overcharging the District for fruits and vegetables and that pricing was not in
compliance with the awarded bid.

VENDOR INVOICE TESTING
During the 2015-16 school year, the District procured fruits and vegetables for the FFVP under a
competitive bid for the first time. The successful bidder, 1st Quality Produce (the “Vendor”), was
awarded the contract for that year with two additional one-year extensions available. The Vendor
ultimately elected to extend the bid prices for the subsequent two periods (school years 2016-17
and 2017-18). The objective of our audit procedures was to determine whether there were any
price discrepancies between what the Vendor originally bid on certain fruit and vegetable items
compared to what the Vendor ultimately invoiced to the District.
Our review of the potential price discrepancies spanned over three fiscal years, from school year
2015-16 through 2017-18. All invoices for that three year period were reviewed. The total number
of vendor invoices reviewed during that period was approximately 29,000. We compared the
Vendor’s itemized invoice, showing the individual fruit and vegetable items purchased, to the
amount that was on the vendor’s original bid. We have summarized the results of our testing into
two separate categories: 1) Invoices with price differences from original bid and 2) Invoices for
fruits and vegetables that were not included in the District’s request for proposal or vendor original
bid (substitute items).

 Invoices with Price Differences from Original Bid
Invoices summarized in this category represent fruit and vegetable items that were invoiced by
the Vendor in which the item description matches what was on the bid, but the price does not.
For example, if the original vendor bid states that an item was for “Apple Slices 2 oz.” for a
cost of $0.21/unit and the vendor invoiced this item description but charged $0.28/unit, this
was considered an exception and price discrepancy.
Invoices with Prices Not on Original Bid (Substitute Items)
Invoices summarized in this category represent fruit and vegetable items that were invoiced by
the Vendor in which the exact item description was not on the original bid. The District and
Vendor refer to these items as “substitute items”. For example, if the original bid states that
an item was for “Apple Slices 2 oz.” for a cost of $0.21/unit and the Vendor invoiced an item
with the description of “Apple Slices Blended ½ Cup”, this was considered to be a substitute
item since the item that was invoiced was not on the original bid. Due to the required flexible
nature of the program, the District had significan.t purchases that were not on the original bid.
Preliminary Results of Price Testing
After analyzing and auditing approximately 29,000 vendor invoices between the three school years
of 2015-16 through 2017-18, we have determined that price discrepancies do exist between what
the Vendor originally bid compared to what the Vendor ultimately invoiced per item to the District.
The total number of invoices reviewed, summarized per month, including the price discrepancies
has been included in Exhibit A through C. Items that were purchased by the District that were not
on the original bid are also summarized with totals indicating they were substitute items.
The total amount of potential price discrepancies categorized under “Invoices with price
differences from original bid” was $701,164.16 for the three school years indicated above. The
total amount of substitute items purchased for which there was no bid totaled $4,169,330.55 for
the three school years indicated above.
1ST QUALITY INVOICE TESTING
The results of the vendor invoice testing above was shared with the vendor, 1st Quality Produce,
outlining the items that have been identified as price discrepancies and substitute items. The
Vendor has represented that these price discrepancies are actually substitute items, in which the
Vendor delivered to the District, product that was different or had a different size/quantity than
what was on the original 16-01 bid. During a conference call with the California Department of
Education representatives on March 20, 2019, CDE agreed that we should further investigate and
review a total of 15 invoices (from the original price discrepancy population) to determine if the
vendor’s explanation was valid.
1st Quality Produce was receptive and cooperative in allowing us to review their supporting
documentation and accounting software for the 15 items selected. We met with 1st Quality
Produce’s representatives on April 10, 2019 to review the supporting documentation available and
we have concluded our review. Below is a summary of the 15 item review, categorized as follows:
-2-

 Cleared – Vendor invoices that are considered “cleared” are invoices that 1st Quality Produce
had sufficient documentation and objective evidence to support the fact that a different item or
quantity/size was delivered to the District, although the Vendor’s invoice indicated it was an
item on the original 16-01 bid.
Results: We’ve determined that four (4) vendor invoices met this description and are
considered cleared.
Cleared, revised pricing – Vendor invoices that are considered “cleared, revised pricing” are
invoices in which 1st Quality Produce requested a pricing adjustment from the District, and
that revised pricing matched what was invoiced by 1st Quality Produce.
Results: We’ve determined that two (2) vendor invoices met this description and are
considered cleared, revised pricing, if the revised pricing is considered valid.
Uncleared – Vendor invoices that are considered “uncleared” are invoices that 1st Quality did
not have sufficient and objective evidence to support the fact that a different item was delivered
to the District. In many instances, 1st Quality Produce had internal software information and
production records available for review, but we could not objectively substantiate that a
different product or size/quantity was delivered to the District. 1st Quality Produce provided
internal calculations that showed a larger quantity of product was delivered when compared to
the original bid specifications. While those internal calculations appear to be reasonable and
practical, they include assumptions and estimates that we could not objectively measure.
Results: We’ve determined that five (5) vendor invoices met this description and are
considered uncleared.
Exceptions – Vendor invoices that are considered “exceptions” are invoices in which the item
description matches what was on the original bid, and the vendor did not have sufficient
evidence to support that a different item or quantity/size was delivered.
Results: We’ve determined that four (4) vendor invoices met this description and are
considered exceptions.

-3-

 DISTRICT’S PREVENTATIVE ACTION PLAN
The District recognizes the need to maintain strong internal controls to prevent these issues from
reoccurring. The District has implemented a Preventative Action Plan to address these issues,
some of which have already been implemented. Below is a summary of the Preventative Action
Plan with key steps and implementation date.

1.

2.

3.

4.

5.

6.

Key Step
Enhanced the bid specifications of Bid 19-08,
(FFVP bid for 2018-19 FY) by expanding the
number of items on the bid from 48 in the 2015
bid to 146. This should mitigate the need for
“substitutions” without already having a
pre-identified bid cost.
Modified the bid specification by utilizing more
“standard” case counts, fruit sizes (i.e. small,
medium, large) or weight designations. This
should help improve order fulfillment and again
mitigate the need for product substitutions. It
will also allow staff to more effectively compare
products received to bid pricing.
Award the rebid of the FFVP program to two
vendors. The current bid, 19-08, was pregrouped to split the participating school sites into
geographic regions with the goal of
approximately the same number of students in
each region. The intent of this was to improve
order fulfillment by reducing the ordering
quantities borne by a single bidder and improve
logistics by having each awarded group of
schools in relative proximity of each other
(delivery must be completed daily, early morning,
within a designated window of time).
Vendor invoicing of the FFVP is provided to the
District in electronic (Excel) format to improve
the ability to monitor usage and identify potential
invoicing discrepancies versus invoices on reams
of paper (daily invoices for each of 57 schools).
Monitoring and review of the invoicing and
payment process have been enhanced by the
addition of staff and more layers of review. This
team now includes a budget technician, an
accountant, a district supervisor, business
operations manager, and a food services director.
An email template has been developed to assist in
communication by those monitoring and
processing invoicing

Implementation Date
Board of Education approved award of
Bid 19-08, Fresh Fruit and Vegetable
Program on December 12, 2018

Board of Education approved award of
Bid 19-08, Fresh Fruit and Vegetable
Program on December 12, 2018

Board of Education approved award of
Bid 19-08, Fresh Fruit and Vegetable
Program on December 12, 2018

Electronic (Excel) invoices from both
FFVP vendors implemented as of
January 7, 2019

January 7, 2019

January 8, 2019

 7. Food Services administration will be working
with site staff to develop protocols for receipt of
fruit/vegetable orders received on a daily basis.
This will assist in identifying order
fulfillment/discrepancy issues and subsequent
communication and reporting related to the item.
8. Concerns related to the intent to maximize annual
grant funding (“use it or lose it”) drove some of
the program decisions in the past. This will be
minimized or eliminated going forward through
staff training and more procurement training.
9. The District's internal auditor has reviewed these
proposed preventative measures to ensure that the
procurement controls are adequate. District
internal auditor will spot check implementation
quarterly which may decrease to semiannually
depending on the results of the monitoring.

10. The District has drafted a temporary price
increase protocol. This will ensure consistency
and proper documentation to support invoices.

11. Food Services and Procurement staff have
received training from outside experts that are
consistent with all applicable laws and district
policies.

12. The District's internal auditor has communicated
with the District’s audit committee and
recommended that the District’s external auditors
include the FFVP.

-5-

January 7, 2019

Staff will conduct weekly meetings
with Food Services and Purchasing
Departments to monitor procurement
processes and internal controls.
The internal auditors have commenced
their monitoring of the proposed
preventative measures and has
conducted spot checks during
November 2018, confirming
preventative measures are in
place. The internal auditors will
schedule additional spot checks on a
semiannual basis during the current
fiscal year. The first monitoring will
commence the week of October 21st
and they expect to issue their
monitoring report by the end of
November 2019.
As of this date no price increases have
been approved for the produce
vendors. A temporary price increase
protocol procedure is in the process of
being finalized.
Staff attended a two-day Procurement
training provided by the Institute of
Child Nutrition and the California
Department of Education on January
24-25, 2019. Staff will continue to
participate in training as they become
available.
The Internal Auditors sent a letter on
February 19, 2019 to the District’s
external auditing firm, Crowe
Horwath, advising them of the FFVP
matter informing them to consider
testing this program in the upcoming
audit. The external auditors will
include the FFVP in its audit of the
District for the fiscal year 2018/2019.

 13. The District will continue to communicate with
the Public Integrity Unit of the District’s attorney
office as the District’s investigation goes forward.
14. The District has self-reported the price
discrepancies to California Department of
Education and will continue to communicate
regarding prior contract management
deficiencies.

Implementation timeline forthcoming.

Communications and updates are
being provided to California
Department of Education on an ongoing basis.

We have reviewed the above Preventative Action Plan to ensure the corrective actions properly
address the risks identified in relation to the procurement, vendor invoicing and reconciliation
process. We will continue conducting periodic monitoring of the FFVP to ensure that these issues
do not reoccur.

***************************

Please feel free to contact us should there be any questions regarding this report.
Respectfully submitted,

Price Paige & Company
Internal Auditors of the Fresno Unified School District
cc:

Lozano Smith LP
Fresno Unified School District

-6-

 Fresno Unified School District
Fresh Fruit and Vegetable Program
For the Year Ended June 30, 2016
Exhibit A

Invoices with price differences from original bid:

August
September
October
November
December
January
February
March
April
May
June
Total

Total Invoices Invoices Without
Reviewed
Match
365
209
1,110
955
1,260
680
742
315
798
371
849
529
959
591
904
479
1,118
420
1,115
324
233
80
9,453
4,953

% Difference
$ Difference
57.26% $
4,443.96
86.04%
23,604.53
53.97%
29,151.24
42.45%
27,881.53
46.49%
23,330.93
62.31%
45,115.64
61.63%
56,936.97
52.99%
45,177.00
37.57%
46,943.69
29.06%
24,341.26
34.33%
2,629.78
52.40% $
329,556.53

Invoices with prices not on original bid (substituted items):

August
September
October
November
December
January
February
March
April
May
June
Total

Total Invoices Invoices Without
Reviewed
Match
365
104
1,110
102
1,260
580
742
427
798
427
849
320
959
368
904
425
1,118
698
1,115
791
233
153
9,453
4,395

% Difference
$ Difference
28.49% $
7,487.48
9.19%
8,420.04
46.03%
104,450.64
57.55%
74,143.28
53.51%
85,452.61
37.69%
59,836.62
38.37%
69,980.88
47.01%
84,056.90
62.43%
148,022.48
70.94%
262,912.14
65.67%
77,955.85
46.49% $
982,718.92

 Fresno Unified School District
Fresh Fruit and Vegetable Program
For the Year Ended June 30, 2017
Exhibit B

Invoices with price differences from original bid:

August
September
October
November
December
January
February
March
April
May
June
Total

Total Invoices Invoices Without
Reviewed
Match
456
285
1,226
806
1,179
228
862
117
681
56
960
239
950
392
1,289
612
782
234
1,241
143
200
9,826
3,112

% Difference
$ Difference
62.50% $
11,589.50
65.74%
14,770.68
19.34%
24,299.81
13.57%
8,415.97
8.22%
5,416.71
24.90%
28,560.17
41.26%
36,535.47
47.48%
73,143.02
29.92%
38,753.30
11.52%
41,389.22
0.00%
31.67% $
282,873.85

Invoices with prices not on original bid (substituted items):

August
September
October
November
December
January
February
March
April
May
June
Total

Total Invoices Invoices Without
Reviewed
Match
456
171
1,226
420
1,179
951
862
745
681
625
960
721
950
558
1,289
677
782
548
1,241
1,098
200
200
9,826
6,714

% Difference
$ Difference
37.50% $
44,344.77
34.26%
36,080.73
80.66%
214,905.46
86.43%
165,550.09
91.78%
121,850.71
75.10%
144,123.69
58.74%
134,221.49
52.52%
167,860.30
70.08%
116,828.28
88.48%
308,549.32
100.00%
62,961.37
68.33% $ 1,517,276.21

 Fresno Unified School District
Fresh Fruit and Vegetable Program
For the Year Ended June 30, 2018
Exhibit C

Invoices with price differences from original bid:

August
September
October
November
December
January
February
March
April
May
June
Total

Total Invoices Invoices Without
Reviewed
Match
138
1,228
1,266
229
838
309
632
206
973
281
969
171
975
57
1,143
10
1,183
137
9,482
1,263

% Difference
$ Difference
0.00% $
0.00%
18.09%
13,179.98
36.87%
14,609.96
32.59%
13,022.55
28.88%
24,628.91
17.65%
16,908.84
5.85%
6,030.60
0.87%
352.94
0.00%
0.00%
13.32% $
88,733.78

Invoices with prices not on original bid (substituted items):

August
September
October
November
December
January
February
March
April
May
June
Total

Total Invoices Invoices Without
Reviewed
Match
138
138
1,228
1,228
1,266
1,037
838
529
632
426
973
692
969
798
975
917
1,143
1,133
1,183
1,183
137
137
9,482
8,218

% Difference
$ Difference
100.00% $
29,905.81
100.00%
131,663.09
81.91%
170,576.68
63.13%
91,983.80
67.41%
70,398.64
71.12%
126,029.44
82.35%
146,911.92
94.05%
330,967.08
99.13%
247,485.11
100.00%
280,790.95
100.00%
42,622.90
86.67% $ 1,669,335.42