FINDING 2023-002
Subject: Water and Wastewater Disposal Systems for Rural Communities - Procurement
Federal Agency: Department of Agriculture
Federal Program: Water and Waste Disposal Systems for Rural Communities
Assistance Listings Number: 10.760
Federal Award Numbers or Years (or Other Identifying Numbers): EDA Grant / 06-79-06190,
RD Loan 01 / 06-79-06190
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Other Matters
Condition and Context
Federal regulations allow for informal procurement methods when the value of the procurement for
property or services does not exceed the simplified acquisition threshold, which is set at $250,000 unless
a lower, more restrictive threshold is set by a non-federal entity. As Indiana Code has set a more restrictive
threshold of $150,000, informal procurement methods are permitted when the value of the procurement
does not exceed $150,000. This informal process allows for methods other than the formal bid process.
The informal process is divided between two methods based on thresholds. Micro-purchases, typically for
those purchases $10,000 or under, and small purchase procedures for those purchases above the micropurchase
threshold, but below the simplified acquisition threshold. Micro-purchases may be awarded
without soliciting competitive price rate quotations. If small purchase procedures are used, then price or
rate quotations must be obtained from an adequate number of qualified sources.
INDIANA STATE BOARD OF ACCOUNTS
16
CITY OF PETERSBURG
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
During the audit period, the City had five vendors with purchases over the $150,000 threshold that
were considered simplified acquisition procurements. Only one vendor was selected for testing due to the
procurement requirements being tested on the other four vendors during the prior audit. For the one vendor,
the City could not provide the procurement history or the rationale for the method of procurement, the
selection of vendor, or the basis for price. The total dollar amount spent with this vendor during 2023 was
$414,465.
The lack of internal controls and noncompliance were isolated to the one vendor noted above.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
(a) Establish and maintain effective internal control over the Federal award that provides
reasonable assurance that the non-Federal entity 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 'Standards for
Internal Control in the Federal Government' issued by the Comptroller General of the
United States or the 'Internal Control Integrated Framework', issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). . . ."
2 CFR 200.318 states in part:
"(a) The non-Federal entity must have and use documented procurement procedures,
consistent with State, local, and tribal laws and regulations and the standards of this section,
for the acquisition of property or services required under a Federal award or subaward. The
non-Federal entity's documented procurement procedures must conform to the procurement
standards identified in §§ 200.317 through 200.327. . . .
(i) The non-Federal entity must maintain records sufficient to detail the history of procurement.
These records will include, but are not necessarily limited to, the following: Rationale for the
method of procurement, selection of contract type, contractor selection or rejection, and the
basis for the contract price. . . ."
2 CFR 200.320(b) states in part:
"Formal procurement methods. When the value of the procurement for property or services
under a Federal financial assistance awards exceeds the SAT, or a lower threshold established
by a non-Federal entity, formal procurement methods are required. Formal procurement
methods require following documented procedures. Formal procurement methods also require
public advertising unless a non-competitive procurement can be used in accordance with §
200.319 or paragraph (c) of this section. The following formal methods of procurement are
used for procurement of property or services above the simplified acquisition threshold or a
value below the simplified acquisition threshold the non-Federal entity determines to be
appropriate:
(1) Sealed bids. A procurement method in which bids are publicly solicited and a firm
fixed-price contract (lump sum or unit price) is awarded to the responsible bidder
whose bid, conforming with all the material terms and conditions of the invitation for
bids, is the lowest in price. . . .
INDIANA STATE BOARD OF ACCOUNTS 17
CITY OF PETERSBURG
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(2) Proposals. A procurement method in which either a fixed price or cost-reimbursement
type contract is awarded. Proposals are generally used when conditions are not
appropriate for the use of sealed bids. . . ."
Cause
The City was unable to provide documentation to demonstrate they had properly procured services.
A proper system of internal controls was not designed by management of the City. Embedded within a
properly designed or implemented internal control system should be internal controls consisting of policies
and procedures. Policies reflect the City's management statements of what should be done to effect internal
controls, and procedures should consist of actions that would implement these policies.
Effect
Without the proper implementation of an effectively designed system of internal controls, the City
cannot demonstrate it obtained an adequate number of price or rate quotations prior to selecting a vendor.
Therefore, the City could have overpaid for the services obtained.
Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of
the federal award could result in the loss of future federal funding to the City.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that management of the City strengthen its system of internal controls to ensure
that an adequate number of price or rate quotations are obtained. We also recommended strengthening
its policies and procedures to ensure appropriate supporting documentation for federal programs is retained
to be presented for audit.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
FINDING 2023-002
Subject: Water and Wastewater Disposal Systems for Rural Communities - Procurement
Federal Agency: Department of Agriculture
Federal Program: Water and Waste Disposal Systems for Rural Communities
Assistance Listings Number: 10.760
Federal Award Numbers or Years (or Other Identifying Numbers): EDA Grant / 06-79-06190,
RD Loan 01 / 06-79-06190
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Other Matters
Condition and Context
Federal regulations allow for informal procurement methods when the value of the procurement for
property or services does not exceed the simplified acquisition threshold, which is set at $250,000 unless
a lower, more restrictive threshold is set by a non-federal entity. As Indiana Code has set a more restrictive
threshold of $150,000, informal procurement methods are permitted when the value of the procurement
does not exceed $150,000. This informal process allows for methods other than the formal bid process.
The informal process is divided between two methods based on thresholds. Micro-purchases, typically for
those purchases $10,000 or under, and small purchase procedures for those purchases above the micropurchase
threshold, but below the simplified acquisition threshold. Micro-purchases may be awarded
without soliciting competitive price rate quotations. If small purchase procedures are used, then price or
rate quotations must be obtained from an adequate number of qualified sources.
INDIANA STATE BOARD OF ACCOUNTS
16
CITY OF PETERSBURG
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
During the audit period, the City had five vendors with purchases over the $150,000 threshold that
were considered simplified acquisition procurements. Only one vendor was selected for testing due to the
procurement requirements being tested on the other four vendors during the prior audit. For the one vendor,
the City could not provide the procurement history or the rationale for the method of procurement, the
selection of vendor, or the basis for price. The total dollar amount spent with this vendor during 2023 was
$414,465.
The lack of internal controls and noncompliance were isolated to the one vendor noted above.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
(a) Establish and maintain effective internal control over the Federal award that provides
reasonable assurance that the non-Federal entity 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 'Standards for
Internal Control in the Federal Government' issued by the Comptroller General of the
United States or the 'Internal Control Integrated Framework', issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). . . ."
2 CFR 200.318 states in part:
"(a) The non-Federal entity must have and use documented procurement procedures,
consistent with State, local, and tribal laws and regulations and the standards of this section,
for the acquisition of property or services required under a Federal award or subaward. The
non-Federal entity's documented procurement procedures must conform to the procurement
standards identified in §§ 200.317 through 200.327. . . .
(i) The non-Federal entity must maintain records sufficient to detail the history of procurement.
These records will include, but are not necessarily limited to, the following: Rationale for the
method of procurement, selection of contract type, contractor selection or rejection, and the
basis for the contract price. . . ."
2 CFR 200.320(b) states in part:
"Formal procurement methods. When the value of the procurement for property or services
under a Federal financial assistance awards exceeds the SAT, or a lower threshold established
by a non-Federal entity, formal procurement methods are required. Formal procurement
methods require following documented procedures. Formal procurement methods also require
public advertising unless a non-competitive procurement can be used in accordance with §
200.319 or paragraph (c) of this section. The following formal methods of procurement are
used for procurement of property or services above the simplified acquisition threshold or a
value below the simplified acquisition threshold the non-Federal entity determines to be
appropriate:
(1) Sealed bids. A procurement method in which bids are publicly solicited and a firm
fixed-price contract (lump sum or unit price) is awarded to the responsible bidder
whose bid, conforming with all the material terms and conditions of the invitation for
bids, is the lowest in price. . . .
INDIANA STATE BOARD OF ACCOUNTS 17
CITY OF PETERSBURG
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(2) Proposals. A procurement method in which either a fixed price or cost-reimbursement
type contract is awarded. Proposals are generally used when conditions are not
appropriate for the use of sealed bids. . . ."
Cause
The City was unable to provide documentation to demonstrate they had properly procured services.
A proper system of internal controls was not designed by management of the City. Embedded within a
properly designed or implemented internal control system should be internal controls consisting of policies
and procedures. Policies reflect the City's management statements of what should be done to effect internal
controls, and procedures should consist of actions that would implement these policies.
Effect
Without the proper implementation of an effectively designed system of internal controls, the City
cannot demonstrate it obtained an adequate number of price or rate quotations prior to selecting a vendor.
Therefore, the City could have overpaid for the services obtained.
Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of
the federal award could result in the loss of future federal funding to the City.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that management of the City strengthen its system of internal controls to ensure
that an adequate number of price or rate quotations are obtained. We also recommended strengthening
its policies and procedures to ensure appropriate supporting documentation for federal programs is retained
to be presented for audit.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.