FINDING 2024-002 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Suspension and Debarment Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): FY 2021 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-003. INDIANA STATE BOARD OF ACCOUNTS 16 CITY OF RICHMOND SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context Prior to entering into subawards and covered transactions with the COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF), recipients are required to verify that such contractors and subrecipients are not suspended, debarred, or otherwise excluded. "Covered transactions" include, but are not limited to, contracts for goods and services awarded under a nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking the Excluded Parties List System (EPLS), collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. The City had a process in place to determine if vendors were suspended or debarred; however, internal controls were not sufficient to ensure that all vendors with covered transactions exceeding $25,000 were verified to not be suspended or debarred from receiving federal funds. A sample of five covered transactions totaling $667,753 that equaled or exceeded $25,000 paid from SLFRF funds was selected for testing. For one of the transactions tested in the amount of $98,583, the City did not retain documentation showing that it verified that the vendor was not suspended or debarred from receiving federal funds prior to issuing the payment. 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). . . ." Cause The City had not designed or implemented effective policies and procedures to verify that contractors were not suspended or debarred or otherwise excluded from participating in federal programs prior to entering into covered transactions using SLFRF funds. While an internal control process was in place, it did not ensure that all vendors were not suspended or debarred from receipt of federal grant funds for goods and services. Effect Without the proper implementation of an effectively designed system of internal controls, the City could not ensure that all contractors paid with federal funds were eligible to participate in federal programs. Any program funds the City used to pay contractors that have been suspended or debarred would be unallowable, and the funding agency could potentially recover the funds. Questioned Costs There were no questioned costs identified. INDIANA STATE BOARD OF ACCOUNTS 17 CITY OF RICHMOND SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommended that management of the City establish a proper system of internal controls and develop policies and procedures to ensure contractors that are paid $25,000 or more, all or in part with federal funds, are not suspended, debarred, or otherwise excluded prior to entering into any contracts. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.