Finding 1073385 (2023-005)

FINDING 2023-005 Subject: COVID-19: Coronavirus State and Local Fiscal Recovery Funds - US 12 Stormwater Drainage Improvement Project - 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): TRSW222046 Pass-Through Entity: Indiana Finance Authority 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 SLFRF award funds, 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 (EPLS), collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. The City's policies related to suspension and debarment requirements included the Board of Public Works completing a review of each bid packet to ensure the bidder submitted a statement indicating if they were not suspended or debarred. There was one contract that equaled or exceeded $25,000 during the audit period, which was selected for testing to verify the City followed its procedures related to suspension and debarment. One contract was identified and tested during the audit period. The contract in the amount of $148,795 was for the construction work on the US 12 Stormwater Drainage Improvement project by the City Sanitary District. Although bids were obtained for the construction project, the vendor's suspension and debarment status was not verified prior to payment. The lack of internal controls and noncompliance were isolated to the contract noted above. INDIANA STATE BOARD OF ACCOUNTS 22 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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). . . ." 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 system of internal controls as established by management of the City was not properly implemented to ensure that the policies and procedures in place related to suspension and debarment were appropriately followed. Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As such, the City cannot ensure the contractors paid with federal funds are eligible to participate in federal program. Any program funds the City used to pay contractors that 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 management of the City establish a proper system of internal controls, including strengthening its policies and procedures to ensure that all contractors that are paid $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs before entering into contracts. INDIANA STATE BOARD OF ACCOUNTS 23 CITY OF MICHIGAN CITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.