Audit 370005

Finding 2024-001 – Material Weakness regarding Procurement Identification of the Federal Program: Grantor: Department of Health and Human Services Program Name: Congressional Directives Assistance Listing No.: 93.493 Criteria or Specific Requirement: Section 200.303 of the Uniform Guidance states the following regarding internal control: “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).” Title 2, Subtitle A, Chapter II, Part 200, Subpart D 200.320 - Procurement methods - outlines the acceptable methods of procurement. Purchases below the simple acquisition threshold, but above the micro-purchase threshold, require price and rate quotations to be obtained from an adequate number of qualified sources. Condition: The Hospital did not retain documentation of either (i) competitive bidding or (ii) consideration of circumstances for noncompetitive procurement for the installation of the equipment purchased under the grant, which was above the micro-purchase threshold. Section III – Federal Award Findings and Questioned Costs (continued) Cause: The Hospital’s control framework did not verify applicable procurement requirements were documented and retained prior to entering a procurement transaction. Effect or Potential Effect: The lack of effective internal controls to ensure the purchasing policy in place is followed and appropriate contemporaneous documentation is retained could result in noncompliance with procurement requirements. Questioned Costs: As there was no documentation to evidence either (i) competitive bidding occurred or (ii) consideration of circumstances for noncompetitive procurement occurred at the time of procurement, the known questioned costs are $336,160. However, as this cost for the installation of the equipment was included within the budget submitted as part of the grant application, this cost for the installation of the equipment was an allowable cost under the grant agreement. Context: During the testing of the two purchases above the micro-purchase threshold, one purchase did not have adequate documentation retained at the time of procurement outlining that competitive bidding occurred, or there were circumstances evident that would allow for noncompetitive procurement. Recommendation: Management should enhance their process for reviewing purchases made using federal funds to verify that appropriate procurement requirements are being performed prior to entering into a transaction and that adequate contemporaneous documentation is retained to evidence that such procurement requirements were satisfied. Views of Responsible Officials: Management acknowledges the finding related to procurement documentation for the installation of equipment purchased under the grant. We recognize the importance of maintaining effective internal controls to ensure compliance with procurement requirements under the Uniform Guidance. The hospital has reviewed the circumstances surrounding this transaction and agrees that documentation supporting either (i) the competitive bidding process or (ii) the justification for noncompetitive procurement was not adequately retained. While the cost was included in the approved budget and was an allowable expense under the grant agreement, we understand that the absence of contemporaneous documentation represents a material weakness in our internal control framework. Subsequent to the procurement in question, the Hospital solicited and obtained an additional bid from another qualified source to validate that the original vendor’s pricing was reasonable and consistent with market expectations. Although this does not substitute for obtaining bids prior to procurement, it provides assurance that the transaction was consistent with the principles of fair and open competition. Management has prepared a Corrective Action Plan to strengthen procurement controls, improve documentation retention, and provide staff training to ensure future compliance with Uniform Guidance requirements.