Finding Text
2022-002 The City did not have adequate internal controls for ensuring compliance with federal suspension and debarment requirements.
Assistance Listing Number and Title: 21.027 – COVD-19 State and Local Fiscal Recovery Funds
Federal Grantor Name: U.S. Department of the Treasury
Federal Award/Contract Number: 1505-0271
Pass-through Entity Name: N/A
Pass-through Award/Contract
Number: N/A
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
The objective of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program is to respond to the COVID-19 pandemic’s negative effects on public health and the economy, provide premium pay to essential workers during the pandemic, provide government services to the extent COVID-19 caused a reduction in revenues collected, and make necessary investments in water, sewer or broadband infrastructure. In 2022, the City spent $406,007 of program funds.
Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls.
Federal regulations 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 or services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify the contractors have not been suspended, debarred or otherwise excluded. The City may verify this by collecting 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 keep documentation demonstrating compliance with this federal requirement. Federal regulations also prohibit recipients from contracting with parties suspended or debarred from doing business with the federal government.
Description of Condition
During the fiscal year 2022, the City paid $338,559 to two contractors with monies from Coronavirus State and Local Fiscal Recovery Funds. The City did not have controls in place to verify and maintain documentation demonstrating that all parties receiving $25,000 or more in federal funds were not suspended or debarred before entering into new contracts with them. The City did not obtain a written certification, include a clause in the contract or check sam.gov to verify that both contractors were not suspended or debarred.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
The City did not clearly assign responsibility to ensure this requirement was met. City officials originally indicated this was handled at the department level; however, the departments responsible for these purchases were unaware of the requirement.
Effect of Condition
The City did not obtain written certifications, insert a clause into the contracts or check sam.gov to verify both contractors were not suspended or debarred.
Without this verification, the City increases its risk of providing federal funds to contractors that are excluded from participating in federal programs. Any payments the City made to an ineligible party would be unallowable and the federal grantor could potentially recover them.
The City subsequently verified the contractors were not suspended or debarred. Therefore, we are not questioning costs for these payments.
Recommendation
We recommend the City develop internal controls to ensure contractors it pays $25,000 or more, all or in part with federal funds, are not suspended or debarred before entering into new contracts with them.
City’s Response
The City concurs with this finding. The city will provide training to all managers about requirements of federal projects and require that verification of the suspension and debarment search when federal funds are being spent are sent to the finance department for retention. As noted by the finding, all contractors/vendors were not suspended.
Auditor’s Remarks
We appreciate the steps the City is taking to resolve this issue. We will review the corrective action taken during our next audit.
Applicable Laws and Regulations
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.
Title 2 CFR Part 180, OMB Guidelines on Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.