FINDING 2025-002 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): SLT-9293 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion 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, collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. During the audit period, the City paid a contractor $1,875,887 with the SLFRF funds for the Steury Avenue and Lincoln Avenue Reconstruction and Drainage Improvements project, which met the $25,000 threshold for suspension and debarment verification. However, the City did not believe the contract with the vendor required the Procurement and Suspension and Debarment compliance requirement. As such, the City did not verify the contractor's suspension or debarment status prior to payment to ensure contractors were not suspended, debarred, or otherwise excluded or disqualified from participating in federal assistance programs or activities. The lack of internal controls and noncompliance were systemic issues throughout the audit period. 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). . . ." 2 CFR 200.214 states: "Non-federal entities are subject to the non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689, 2 CFR part 180. The regulations in 2 CFR part 180 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." INDIANA STATE BOARD OF ACCOUNTS 16 CITY OF GOSHEN SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 31 CFR 19.300 states: "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 the EPLS; or (b) Collecting a certification from that person if allowed by this rule; or (c) Adding a clause or condition to the covered transaction with that person." Cause The City had not designed or implemented effective policies and procedures to verify that vendors were not suspended or debarred or otherwise excluded from participating in federal programs prior to entering into covered transactions using the 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 cannot ensure contractors paid with federal funds are eligible to participate in federal programs. Any program funds the City used to pay contractors who have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. Furthermore, noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City establish and implement a formal system of internal controls to ensure compliance with the suspension and debarment requirements. This should include developing and strengthening written policies and procedures to verify, prior to entering into a contract or making payments of $25,000 or more with federal funds, that contractors are not suspended, debarred, or otherwise excluded from participation in federal assistance programs. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.