TThe City did not have adequate internal controls for ensuring compliance with federal suspension and debarment requirements. Assistance Listing Number and Title: 14.231 COVID – 19 Emergency Solutions Grant Program Federal Grantor Name: U.S. Department of Housing and Urban Development Federal Award/Contract Number: N/A Pass-through Entity Name: Grant County Pass-through Award/Contract Number: 20-4613C-100 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Description of Condition The Emergency Solutions Grant Program (ESG) provides grants to states, metropolitan cities, urban counties and territories for the rehabilitation or conversion of buildings for use as emergency shelter for homeless people, the payment of certain expenses related to operating emergency shelters, essential services related to emergency shelters and street outreach for homeless people, and homelessness prevention and rapid rehousing assistance. The City spent $634,997 in ESG award funds in 2021. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Federal requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the City enters into contracts or purchases goods and services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that the contractors are not suspended, debarred or otherwise excluded from participating in federal programs. The City may verify this by obtaining a written certification from the contractor, adding a clause or condition into the contract that states the contractor is not suspended or debarred, or checking for exclusion records in the U.S. General Services Administration’s System for Award Management at SAM.gov. The City must verify this before entering into the contract, and must maintain documentation demonstrating compliance with this federal requirement. Our audit found the City did not have adequate controls to verify two contractors it paid more than $25,000 in federal funds were not suspended or debarred from participating in federal programs. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition The City experienced staff turnover during this time and as a result, did not verify and retain documentation showing the contractors were not suspended or debarred. Effect of Condition The City did not obtain a written certification from the contractor, insert a clause into the contract or check for exclusion records at SAM.gov to verify two contractors paid in part using federal funds were not suspended or debarred before contracting with them. Without adequate internal controls, the City cannot ensure the contractors it paid with federal funds were eligible to participate in federal programs. Any program funds the City used to pay contractors that were suspended or debarred would be unallowable, and the awarding agency could potentially recover them. Because we subsequently verified the contractors were not suspended or debarred, we are not questioning costs. Recommendation We recommend the City strengthen internal controls to ensure all contractors it pays $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs before contracting with or purchasing from them. City’s Response It is unclear what processes were in place during FY 2021 to check for suspension and debarment requirements as the City had experienced substantial turnover during this time. Staff that were responsible for the contracts may not have been aware of the requirement to obtain written certification from the contractor or to check for suspension or debarment. Contracts now include a clause in the contract and contractors are required to submit certification that they are not suspended or debarred before executing the contract. The City will continue to review and ensure that this requirement is being met on every contract that is executed by the City. Auditor’s Remarks We appreciate the City’s commitment to resolving the conditions noted, and we will evaluate the City’s corrective actions during our next audit. Applicable Laws and Regulations Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689. Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303 Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.