31 CFR § 19.305(a) 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 31 CFR § 19.120. 31 CFR § 19.200 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 31 CFR § 19.220. All nonprocurement transactions as defined in 31 CFR § 19.970 (i.e., subawards to subrecipients), irrespective of award amount, are considered covered transactions, unless exempt by 31 CFR § 19.215. 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 Coronavirus State and Local Fiscal Recovery Funds, we noted the City paid two vendors more than $25,000 and there was no evidence the City checked the SAM exclusions, collected a certification from the vendors, or added a clause or condition to the covered transaction with each vendor. Due to the deficient internal control structure, the required verification was not completed for the covered transactions in the Coronavirus State and Local Fiscal Recovery Funds during Fiscal Year 2025. Failing to have the appropriate controls in place may result in vendors receiving federal funds that are suspended or debarred. This noncompliance also resulted in the opinion over this major federal program being qualified. The City should establish and implement a policy that ensures, that prior to contracting with vendors that will be paid with federal funds, the City verifies the vendor is not suspended or debarred by checking the SAM exclusions, collects a certification from the vendor, or adds a clause or condition to the covered transaction with the vendor.
2 CFR 1000.10 provides that, except for the deviations set forth elsewhere in this Part, the Department of Treasury adopts the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards set forth at 2 CFR part 200. 2 CFR 200.302(b)(2) further states, in part, the financial management system of each non-Federal entity must provide for accurate, current, and complete disclosures of the financial results of each Federal award or program in accordance with the reporting requirements set forth in §§ 200.328 and 200.329. 31 CFR § 35.4(c) requires, in part, that during the period of performance, recipients shall provide periodic reports providing detailed accounting of the uses of funds. Additionally, the U.S. Department of the Treasury Coronavirus Local Fiscal Recovery Fund (SLFRF) Award Terms and Conditions, Section 3, provides that "Recipient agrees to comply with any reporting obligations established by Treasury as they relate to this award." The U.S. Department of the Treasury requires non-entitlement unit’s (NEU’s) that are allocated less than $10 million in SLRF Funding to submit an annual Project and Expenditure Report. This report is required to include project descriptions, obligations and expenditures including current period obligation, cumulative obligation, current period expenditure, and cumulative expenditure, and other information. Due to deficiencies in the City's internal controls over SLFRF reporting, the City understated current period obligations by $82,787 in the annual project and expenditure report for the period of April 1, 2024 to March 31, 2025. Additionally, the City overstated current period obligations by $1,399,323 and understated current period expenditures by $1,389,245 in the annual project and expenditure report for the period of April 1, 2025 to March 31, 2026. Failure to prepare and submit accurate reports for all required data elements, including obligation and expenditure amounts, could result in the Department of Treasury taking action against the City for failure to comply with programmatic requirements, such as eliminating or reducing future grant funding or imposing penalties. This noncompliance also resulted in the opinion over this major federal program being qualified. The City should establish and implement policies and procedures to review the reports prior to submission to ensure the reports are accurate, current and complete.