Audit 308606

2023 – 006 Procurement and Suspension and Debarment Federal Agency: Department of the Treasury Federal Program Title: Coronavirus State and Local Fiscal Recovery Funds (ARPA) ALN: 21.027 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 1505-0271 3/3/2021 – 12/31/2024 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), the City of Nogales must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.324, the non-Federal entity must perform a cost or price analysis in connection with every procurement action in excess of the Simplified Acquisition Threshold including contract modifications. The method and degree of analysis is dependent on the facts surrounding the particular procurement situation, but as a starting point, the non-Federal entity must make independent estimates before receiving bids or proposals. Non-federal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred. “Covered transactions” include contracts for goods and services awarded under a non-procurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000 or meet certain other criteria as specified in 2 CFR section 180.220). All non-procurement transactions entered into by a pass-through entity (i.e., subawards to subrecipients), irrespective of award amount, are considered covered transactions, unless they are exempt as provided in 2 CFR section 180.215. When a non-Federal entity enters into a covered transaction with an entity at a lower tier, the non- Federal entity must verify that the entity, as defined in 2 CFR section 180.995 and agency adopting regulations, is not suspended or debarred or otherwise excluded from participating in the transaction. This verification may be accomplished by: (1) checking the System for Award Management (SAM) Exclusions maintained by the General Services Administration (GSA) and available at SAM.gov | Home (click on Search Record, then click on Advanced Search-Exclusions) (Note: The OMB guidance at 2 CFR part 180 and agency implementing regulations still refer to the SAM Exclusions as the Excluded Parties List System (EPLS)), (2) collecting a certification from the entity, or (3) adding a clause or condition to the covered transaction with that entity (2 CFR section 180.300). SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (CONTINUED) 2023 – 006 Procurement and Suspension and Debarment (Continued) Condition: Audit procedures included selection and testing of five competitively procured vendor contracts. No evidence of procurement documentation provided for review.  Five out of five vendors tested for procurement did not provide support for the procurement method used, price/bid comparison, and cost analysis performed.  Two out five vendors tested over with purchases over $100,000 did not provide support for the control in place for the review and approval by the City Manager.  Five out of five vendors tested did not provide support for the SAMS verification check that the winning vendor was not suspended nor debarred from receiving federal funds prior to awarding the contract. Questioned costs: Unknown Context: See “Condition.” Cause: The City’s procurement, suspension and debarment policies and procedures are in compliance with Uniform Grant Guidance but were not properly adhered to. The City notes that no contracts or agreements were set up with the vendors, as they were locally established and had valid business licenses with the City. Effect: The City is not in compliance with uniform grant guidance requirements related to procurement, suspension, and debarment. Repeat Finding: No Recommendation: The City of Nogales should enhance and/or modify existing controls over procurement, suspension and debarment policies and procedures to ensure adherence to all uniform grant guidance requirements. This could include implementing a more robust checklist that should be completed, signed off by management and included with each procurement which has all required items noted such as cost/price analysis and verification of suspension and debarment of vendors. Views of responsible officials: See corrective action plan. Corrective action plan: See corrective action plan.

2023 – 007 Reporting Federal Agency: Department of the Treasury Federal Program Title: Coronavirus State and Local Fiscal Recovery Funds (ARPA) ALN: 21.027 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 1505-0271 3/3/2021 – 12/31/2024 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per the Compliance and Reporting Guidance : State and Local Fiscal Recovery Funds (SLFRF) Version 5.2, 2. Annual Reporting: The following recipients are required to submit annual Project and Expenditure Reports: • Tribal governments that are allocated less than $30 million in SLFRF funding • Metropolitan cities and counties with a population below 250,000 residents that are allocated less than $10 million in SLFRF funding and NEUs that are allocated less than $10 million in SLFRF funding For these recipients, the initial Project and Expenditure Report covered from March 3, 2021 to March 31, 2022 and was required to be submitted to Treasury by April 30, 2022. The subsequent annual reports will cover one calendar year and must be submitted to Treasury by April 30. 3. Required Information: The following information is required in Project and Expenditure Reports for both quarterly and annual reporting: Projects: Provide information on all SLFRF funded projects. Projects are defined as a grouping of closely related activities that together are intended to achieve a specific goal or are directed toward a common purpose. These activities can include new or existing eligible government services or investments funded in whole or in part by SLFRF funding. For each project, the recipient is required to enter the project name, identification number (created by the recipient), project expenditure category (see Appendix 1), description, and status of completion. Project descriptions must describe the project in sufficient detail to provide an understanding of the major activities that will occur, and must be between 50 and 250 words. Project descriptions for the emergency relief from natural disasters eligible use category must describe the natural disaster the recipient is responding to, including the type of event, and how the emergency relief is related to and reasonably proportional to the natural disaster. a. Projects should be defined to include only closely related activities directed toward a common purpose. Recipients should review the Required Programmatic Data described in 3.g. below and define their projects at a sufficient level of granularity. Note: For each project, the recipient is asked to select the appropriate Expenditure Category based on the scope of the project (see Appendix 1). Projects should be scoped to align to a single Expenditure Category. For select Expenditure Categories, the recipient also is asked to provide additional programmatic data. Condition: Audit procedures included testing the Annual SLFRF Compliance Report. During the testing of the Compliance report, it was noted that the report’s Project Description and explanation of how the revenue replacement funds were allocated to government services did not agree with the provided expenditure support for the current fiscal year.  Reported Project Description: The City of Nogales used the money for ongoing Public Safety expenditures. Provided expenditures support contained Covid-19 emergency response purchases, public health purchases and water and sewer infrastructure cost.  Reported explanation of how revenue replacement funds were allocated to government services: Paid the PSPRS current employer portion for fire and police for FY23. Provided expenditure support did not contain PSPRS expenditures. Questioned costs: Unknown Context: See “Condition.” Cause: Current controls are not at the correct precision level to detect errors in the answers/explanations reported prior to submission. Effect: The City is not in compliance with Compliance and Reporting Guidance: State and Local Fiscal Recovery Funds Version 5.2, 2.grant guidance requirements related to reporting. Repeat Finding: No Recommendation: The City of Nogales should enhance and/or modify existing controls over reporting to in order to prevent reporting noncompliance and ensure adherence to all grant guidance requirements. Views of responsible officials: See corrective action plan. Corrective action plan: See corrective action plan.

2023 – 006 Procurement and Suspension and Debarment Federal Agency: Department of the Treasury Federal Program Title: Coronavirus State and Local Fiscal Recovery Funds (ARPA) ALN: 21.027 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 1505-0271 3/3/2021 – 12/31/2024 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per 2 CFR 200.303(a), the City of Nogales must establish and maintain effective internal control over the Federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. These internal controls should be in compliance with guidance in the “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Per 2 CFR 200.324, the non-Federal entity must perform a cost or price analysis in connection with every procurement action in excess of the Simplified Acquisition Threshold including contract modifications. The method and degree of analysis is dependent on the facts surrounding the particular procurement situation, but as a starting point, the non-Federal entity must make independent estimates before receiving bids or proposals. Non-federal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred. “Covered transactions” include contracts for goods and services awarded under a non-procurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000 or meet certain other criteria as specified in 2 CFR section 180.220). All non-procurement transactions entered into by a pass-through entity (i.e., subawards to subrecipients), irrespective of award amount, are considered covered transactions, unless they are exempt as provided in 2 CFR section 180.215. When a non-Federal entity enters into a covered transaction with an entity at a lower tier, the non- Federal entity must verify that the entity, as defined in 2 CFR section 180.995 and agency adopting regulations, is not suspended or debarred or otherwise excluded from participating in the transaction. This verification may be accomplished by: (1) checking the System for Award Management (SAM) Exclusions maintained by the General Services Administration (GSA) and available at SAM.gov | Home (click on Search Record, then click on Advanced Search-Exclusions) (Note: The OMB guidance at 2 CFR part 180 and agency implementing regulations still refer to the SAM Exclusions as the Excluded Parties List System (EPLS)), (2) collecting a certification from the entity, or (3) adding a clause or condition to the covered transaction with that entity (2 CFR section 180.300). SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (CONTINUED) 2023 – 006 Procurement and Suspension and Debarment (Continued) Condition: Audit procedures included selection and testing of five competitively procured vendor contracts. No evidence of procurement documentation provided for review.  Five out of five vendors tested for procurement did not provide support for the procurement method used, price/bid comparison, and cost analysis performed.  Two out five vendors tested over with purchases over $100,000 did not provide support for the control in place for the review and approval by the City Manager.  Five out of five vendors tested did not provide support for the SAMS verification check that the winning vendor was not suspended nor debarred from receiving federal funds prior to awarding the contract. Questioned costs: Unknown Context: See “Condition.” Cause: The City’s procurement, suspension and debarment policies and procedures are in compliance with Uniform Grant Guidance but were not properly adhered to. The City notes that no contracts or agreements were set up with the vendors, as they were locally established and had valid business licenses with the City. Effect: The City is not in compliance with uniform grant guidance requirements related to procurement, suspension, and debarment. Repeat Finding: No Recommendation: The City of Nogales should enhance and/or modify existing controls over procurement, suspension and debarment policies and procedures to ensure adherence to all uniform grant guidance requirements. This could include implementing a more robust checklist that should be completed, signed off by management and included with each procurement which has all required items noted such as cost/price analysis and verification of suspension and debarment of vendors. Views of responsible officials: See corrective action plan. Corrective action plan: See corrective action plan.

2023 – 007 Reporting Federal Agency: Department of the Treasury Federal Program Title: Coronavirus State and Local Fiscal Recovery Funds (ARPA) ALN: 21.027 Pass-Through Agency: N/A Pass-Through Number(s): N/A Award Number and Period: 1505-0271 3/3/2021 – 12/31/2024 Statistically Valid Sample: No, and not intended to be a statistically valid sample Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or specific requirement: Per the Compliance and Reporting Guidance : State and Local Fiscal Recovery Funds (SLFRF) Version 5.2, 2. Annual Reporting: The following recipients are required to submit annual Project and Expenditure Reports: • Tribal governments that are allocated less than $30 million in SLFRF funding • Metropolitan cities and counties with a population below 250,000 residents that are allocated less than $10 million in SLFRF funding and NEUs that are allocated less than $10 million in SLFRF funding For these recipients, the initial Project and Expenditure Report covered from March 3, 2021 to March 31, 2022 and was required to be submitted to Treasury by April 30, 2022. The subsequent annual reports will cover one calendar year and must be submitted to Treasury by April 30. 3. Required Information: The following information is required in Project and Expenditure Reports for both quarterly and annual reporting: Projects: Provide information on all SLFRF funded projects. Projects are defined as a grouping of closely related activities that together are intended to achieve a specific goal or are directed toward a common purpose. These activities can include new or existing eligible government services or investments funded in whole or in part by SLFRF funding. For each project, the recipient is required to enter the project name, identification number (created by the recipient), project expenditure category (see Appendix 1), description, and status of completion. Project descriptions must describe the project in sufficient detail to provide an understanding of the major activities that will occur, and must be between 50 and 250 words. Project descriptions for the emergency relief from natural disasters eligible use category must describe the natural disaster the recipient is responding to, including the type of event, and how the emergency relief is related to and reasonably proportional to the natural disaster. a. Projects should be defined to include only closely related activities directed toward a common purpose. Recipients should review the Required Programmatic Data described in 3.g. below and define their projects at a sufficient level of granularity. Note: For each project, the recipient is asked to select the appropriate Expenditure Category based on the scope of the project (see Appendix 1). Projects should be scoped to align to a single Expenditure Category. For select Expenditure Categories, the recipient also is asked to provide additional programmatic data. Condition: Audit procedures included testing the Annual SLFRF Compliance Report. During the testing of the Compliance report, it was noted that the report’s Project Description and explanation of how the revenue replacement funds were allocated to government services did not agree with the provided expenditure support for the current fiscal year.  Reported Project Description: The City of Nogales used the money for ongoing Public Safety expenditures. Provided expenditures support contained Covid-19 emergency response purchases, public health purchases and water and sewer infrastructure cost.  Reported explanation of how revenue replacement funds were allocated to government services: Paid the PSPRS current employer portion for fire and police for FY23. Provided expenditure support did not contain PSPRS expenditures. Questioned costs: Unknown Context: See “Condition.” Cause: Current controls are not at the correct precision level to detect errors in the answers/explanations reported prior to submission. Effect: The City is not in compliance with Compliance and Reporting Guidance: State and Local Fiscal Recovery Funds Version 5.2, 2.grant guidance requirements related to reporting. Repeat Finding: No Recommendation: The City of Nogales should enhance and/or modify existing controls over reporting to in order to prevent reporting noncompliance and ensure adherence to all grant guidance requirements. Views of responsible officials: See corrective action plan. Corrective action plan: See corrective action plan.