Finding 2025-001 Internal control deficiency and noncompliance over procurement and suspension and debarment. Identification of the federal program: Assistance Listing Number 93.493: • Congressional Directives • U.S. Department of Health and Human Services • Federal award identification number – CE146487 • Federal award year – 7/1/2024 – 6/30/2025 • Pass-through entity – The Board of Regents of the University of Oklahoma Health Sciences Center • Pass-through entity identifying numbers: H79FG000747 and H79FG001034 Criteria or specific requirement (including statutory, regulatory, or other citation): Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.303, Internal controls: 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, 200.318, General procurement standards: (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; (b) non-Federal entities must maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders; (c) (1) the non-Federal entity must maintain written standards of conduct covering conflicts of interest and governing the actions of its employees engaged in the selection, award, and administration of contracts. Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.318, General procurement standards: (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. Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.319, Competition: (a) All procurement transactions for the acquisition of property or services required under a Federal award must be conducted in a manner providing full and open competition consistent with the standards of this section and 200.320. Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.320, Methods of procurement to be followed: The non-Federal entity must have and use documented procurement procedures, consistent with the standards of this section and 200.317, 200.318, and 200.319 for any of the following methods of procurement used for the acquisition of property or services required under a Federal award or sub-award: (a) (2) Small purchases – (i) Small purchase procedures. The acquisition of property or services, the aggregate dollar amount of which is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources as determined appropriate by the non-Federal entity; (b) Formal procurement methods. When the value of the procurement for property or services under a Federal financial assistance award exceeds the simplified acquisition threshold, 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; (2) Proposals. A procurement method in which either a fixed price or cost-reimbursement type contract is awarded. Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.320, Methods of procurement to be followed: (c) Noncompetitive procurement. There are specific circumstances in which noncompetitive procurement can be used. Noncompetitive procurement can only be awarded if one or more of the following circumstances apply: (1) The acquisition of property or services, the aggregate dollar amount of which does not exceed the micro-purchase threshold; (2) The item is available only from a single source; (3) The public exigency or emergency for the requirement will not permit a delay resulting from publicizing a competitive solicitation; (4) The Federal awarding agency or pass-through entity expressly authorizes a noncompetitive procurement in response to a written request from the non-Federal entity; or (5) After solicitation of a number of sources, competition is determined inadequate. Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.324, Contract cost and price: (a) 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. Title 2, Subtitle A, Chapter II, Part 200, Subpart C 200.214, Suspension and debarment: Non-Federal entities are subject to the non-procurement debarment and suspension regulations that restrict awards, subawards, and contracts with certain parties that are debarred, suspended, or otherwise excluded from or ineligible for participation in Federal assistance programs or activities. Title 2, Subtitle A, Chapter I, Part 180, Subpart C 180.300: What must I do before I enter into a covered transaction with another person at the next lower tier? When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by (a) checking SAM Exclusions; (b) Collecting a certification from that person; or (c) adding a clause or condition to the covered transaction with that person. Condition: During our testing over procurement, we observed management did not have documented procurement procedures that conformed to the procurement standards identified in 2 CFR section 200.318 to 200.327 and written standards of conduct covering conflicts of interest and governing the actions of its employees engaged in the selection, award, and administration of contracts. Management did not have internal controls in place over procurements to ensure price or rate quotations were obtained from an adequate number of qualified sources, formal procurements to ensure sealed bids or proposals were obtained through public advertising, and completion of a cost or price analysis in connection with all procurement actions exceeding the simplified acquisition threshold. Management did not maintain records for procurements to document the history of procurement, including the rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price. In addition, during our testing over suspension and debarment, we observed management did not retain support for internal control documentation for all vendors, evidencing that the vendors were searched for suspension and debarment upon entering into a contract supported with federal funds. Cause: Management did not have internal controls in place over the compliance requirements as stated in the criteria or specific requirement section above. Effect or potential effect: Procurements were not supported by internal controls and could potentially include unreasonable prices or rates. In addition, if a search for suspension and debarment is not conducted, the entity could contract with vendors that are suspended or debarred. Questioned costs: $1,385,165 – Assistance Listing Number 93.493 Federal award identification number – CE146487 Pass-through entity identifying numbers: H79FG000747 and H79FG001034 Questioned costs were computed as all procurements selected for testing. Questioned costs for each award are as follows: • CE146487: $60,874 • H79FG000747: $119,479 • H79FG001034: $1,204,812 Questioned costs means an amount, expended or received from a Federal award, that (1) is noncompliant or suspected noncompliant with Federal statutes, regulations, or the terms and conditions of the Federal award or (2) at the time of the audit, lacked adequate documentation to support compliance. Context: During our testing over procurements, we selected five vendors for testing with total expenditures of $1,385,165 from a population of procurements totaling $1,425,361, subject to formal procurement procedures. We observed management did not have internal controls in place to ensure the compliance requirements as stated in the criteria or specific requirement section above were performed for any of the five procurements selected for testing. For suspension and debarment, we selected five vendors for testing totaling $1,385,165. Management was unable to provide documentation that internal controls were executed for any of the vendors selected for testing. Identification as a repeat finding, if applicable: No. Recommendation: Management should create documented procurement procedures that conform to the procurement standards identified in 2 CFR section 200.318 through 200.327 and written standards of conduct covering conflicts of interest and governing the actions of its employees engaged in the selection, award, and administration of contracts. Management should develop and implement internal controls over procurements to ensure price or rate quotations are obtained from an adequate number of qualified sources, formal procurements to ensure sealed bids or proposals are obtained through public advertising, and completion of a cost or price analysis in connection with all procurement actions exceeding the simplified acquisition threshold. Management should maintain records for procurements to document the history of procurement, including the rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price. Management should create documented suspension and debarment procedures and develop and implement internal controls to ensure vendors were searched for suspension and debarment at the time of awarding a contract supported by federal funding and retain evidence supporting such procedures. Management should review the procurements identified as questioned costs to identify if any improper payments were made to the entity. Views of responsible officials: We agree with the finding that internal controls were not sufficient to maintain compliance with federal procurement standards under Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.318 to 200.327 for a non-federal entity. However, the funds were expended for the intended purpose of the federal award. The Company is committed to implementing internal controls to ensure procurement related to federal awards follow 2 CFR section 200.318 to 200.327. The Company will update the procurement policy to ensure it complies with the requirements of 2 CFR section 200.318 through 200.327, which includes the written standards of conduct covering conflicts of interest, governing the actions of its employees who select, award, and administer procurement contracts. This policy will include procedures to ensure proper procurement for purchases to ensure sufficient price quotations are obtained from the required number of qualified sources, proper sealed bids or proposals are obtained through public advertising, an appropriate cost or price analysis is performed for procurement actions exceeding the simplified acquisition threshold, documentation is retained, and proper oversight is exercised to demonstrate compliance with 2 CFR section 200.318 through 200.327.