Finding 1075291 (2023-002)

FINDING 2023-002 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): FY 2023 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Condition and Context Suspension and Debarment Prior to entering into subawards and covered transactions with 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 (EPLS), collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. Due to the U.S. Department of the Treasury's (Treasury) determination that the revenue loss eligible use category does not give rise to subawards, the Town was only required to comply with suspension and debarment requirements related to covered transactions. INDIANA STATE BOARD OF ACCOUNTS 16 TOWN OF PENDLETON SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Upon inquiry of the Town, in order to review the procedures in place for verifying that an entity with which it plans to enter into a covered transaction is not suspended, debarred, or otherwise excluded, the Town explained they were aware of the suspension and debarment requirements related to the SLFRF awards; however, the Town did not retain documentation of SAM.gov checks nor was a clause always included in a contract. A population of four covered transactions for goods or services, totaling $720,504, that equaled or exceeded $25,000 paid from SLFRF funds during the audit period was identified. A sample of two transactions, totaling $666,643, was selected for testing. For one of the two transactions, the Town did not verify the vendor's suspension and debarment status prior to payment. 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). . . ." 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 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 Town was unable to provide documentation to demonstrate they checked SAM.gov to verify the contractor was not suspended or debarred. Although the Town verified the contractor's suspension and debarment status, no documentation was retained to document the search or results. Effect Without the proper implementation of an effectively designed system of internal controls, the Town cannot ensure the vendors paid with federal funds are eligible to participate in federal programs. Any program funds the Town used to pay vendors that have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. INDIANA STATE BOARD OF ACCOUNTS 17 TOWN OF PENDLETON SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Questioned Costs There were no questioned costs identified. Recommendation We recommended that the Town strengthen its system of internal controls to ensure that all vendors 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 any covered transactions. In addition, we recommended strengthening policies and procedures to ensure appropriate supporting documentation for federal programs is retained to be presented for audit. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.