Finding 1073423 (2023-001)

FINDING 2023-001 Subject: Equitable Sharing Program - Procurement and Suspension and Debarment Federal Agency: Department of Justice Federal Program: Equitable Sharing Program Assistance Listings Number: 16.922 Federal Award Number or Year (or Other Identifying Number): FY2022 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion INDIANA STATE BOARD OF ACCOUNTS 13 CITY OF HOBART SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context Prior to entering into subawards and covered transactions with Equitable Sharing Program award funds, recipients are required to verify that vendors 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 System for Award Management (SAMs) exclusions, collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. The City's policies and procedures for this program related to the suspension and debarment requirements included checking the SAMs exclusions, collecting a certification from the vendor, or adding a clause or condition to the covered transaction with that person/vendor. A population of ten covered transactions was identified. Three transactions for equipment totaling $283,062 were selected for testing. For all three covered transactions tested, documentation to show that suspension and debarment was verified prior to entering into the contract could not be provided. The lack of effective 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 180.300 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 SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause The City's system of internal controls was not properly implemented to ensure that the policies and procedures in place would be completed timely prior to payment or that adequate supporting documentation of one of the three methods would be maintained. INDIANA STATE BOARD OF ACCOUNTS 14 CITY OF HOBART SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot ensure contractors paid with federal funds are eligible to participate in federal programs. 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 funds. 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 implementing procedures to ensure that contractors paid $25,000 or more, all or in part with federal funds, are not suspended, debarred, or otherwise excluded prior to entering into any contracts. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.