Finding 1075398 (2023-005)

FINDING 2023-005 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): SWIF223990 Pass-Through Entity: Indiana Finance Authority Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Condition and Context Prior to entering into subawards and covered transactions with the COVID-19 - Coronavirus 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 entity, or adding a clause or condition to the covered transaction with that person or entity. All covered transactions involving one vendor for goods or services that equaled or exceeded $25,000 that were paid from SLFRF funds related to the State Water Infrastructure Fund (SWIF) grant funds during the audit period were selected for testing. Supporting documentation for the transactions were examined to determine whether the City verified the suspension and debarment status of the vendor prior to payment. The examined supporting documentation did not include evidence the City verified the suspension and debarment status of the vendor paid federal funds. Upon inquiry, it was identified that the City had not established policies and procedures related to suspension and debarment requirements. As such, the City did not verify the vendor was neither suspended nor debarred or otherwise excluded or disqualified from participating in federal assistance programs or activities 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 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 A proper system of internal controls which would include a review of suspension and debarment identification process documentation was not designed by management of the City. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the City's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, the City cannot ensure the vendors paid with federal funds are eligible to participate in federal programs. Any program funds the City used to pay vendors that have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the City establish and implement a 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, debarred, or otherwise excluded from participating in federal programs prior to entering into any covered transactions. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.