Audit 409992

Finding Number: 2024-004 Assistance Listing Number and Title: AL # 10.760 Water and Waste Disposal Systems for Rural Communities Federal Award Identification Number / Year: 2021 Federal Agency: U.S. Department of Agriculture Compliance Requirement: Procurement and Suspension and Debarment Pass-Through Entity: N/A Repeat Finding from Prior Audit? No Noncompliance and Material Weakness 2 C.F.R. § 417.10 gives regulatory effect, as supplemented, to the United States Department of Agriculture for 2 C.F.R. 180. 2 C.F.R. § 180.305 states that Non-Federal entities are prohibited from entering into a covered transaction with parties that are suspended or debarred or whose principals are suspended or debarred, unless the Federal agency responsible for the transaction grants an exception under 2 CFR § 180.135. 2 C.F.R. § 180.200 identifies “covered transactions” as nonprocurement or procurement transactions at the primary tier, between a Federal agency and a person; or at the lower tier, between a participant in a covered transaction and another person. Procurement contracts for goods and services awarded under a nonprocurement transaction (e.g., grant or cooperative agreement) are covered transactions if the contracts are expected to equal or exceed $25,000 or meet certain other specified criteria outlined in 2 C.F.R. § 180.220. All nonprocurement transactions as defined in 2 C.F.R. § 180.970 (i.e., subawards to subrecipients), irrespective of award amount, are considered covered transactions, unless exempt by 2 C.F.R. § 180.215. When a non-Federal entity enters into a covered transaction, the non-Federal entity must verify that the entity is not suspended or debarred or otherwise excluded. This verification may be accomplished by checking SAM exclusions (https://sam.gov/content/home); collecting a certification from the entity or adding a clause or condition to the covered transactions with that entity. The City did not have the proper internal controls in place to verify that all entities, with whom the City had entered into covered transactions, had not been suspended or debarred. During testing of procurement and suspension and debarment for the Water and Waste Disposal Systems for Rural Communities program, we noted one instance in which the program had a payment to a vendor of more than $25,000 and there was no evidence the City checked the SAM exclusions, collected a certification from the entity, or added a clause or condition to the contract with the vendor. Due to the deficient internal control structure, the required verification was not completed for the covered transaction tested during 2024. Failing to have the appropriate controls in place may result in vendors receiving federal funds that are suspended or debarred. Prior to contracting with a vendor that will be paid with federal funds, the City should verify the vendor is not suspended or debarred by checking the SAM exclusions, collecting a certification from the vendor, or adding a clause or condition to the covered transaction with the vendor.