Finding 1075824 (2023-004)

FINDING 2023-004 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): CY2022 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context The County elected to receive the standard revenue loss allowance, allowing it to claim its total COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) allocation of $6,293,126 as revenue loss to use for government services. As such, all SLFRF program funds to date were expended under the revenue loss eligible use category. The U.S. Department of the Treasury (Treasury) determined that there are no subawards under this eligible use category, and that recipients' use of revenue loss funds would not give rise to subrecipient relationships as there is no federal program or purpose to carry out in the case of the revenue loss portion of the award. INDIANA STATE BOARD OF ACCOUNTS 20 CLINTON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Prior to entering into subawards and covered transactions with federal 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 or services awarded under a nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000. 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 Treasury's determination that the revenue loss eligible use category does not give rise to subawards, the County was only required to comply with suspension and debarment requirements related to covered transactions. Covered transactions in the amount of $1,730,492 were made during the audit period to three vendors. Of the three vendors used by the County, one vendor contract included a suspension and debarment clause. However, for the two remaining vendors, the County did not check the ELPS, nor was a certification collected from the vendors, nor was a clause in the agreements. Although the County had a policy to include a clause in vendor contracts related to covered transactions, the County did not have effective internal controls to ensure that the suspension and debarment clause was added to all the contracts. The lack of effective internal controls and noncompliance were isolated to the two vendors noted above. 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 established by management of the County was not properly implemented to ensure that the policies and procedures in place related to suspension and debarment resulted in adequate supporting documentation being retained for audit. INDIANA STATE BOARD OF ACCOUNTS 21 CLINTON COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system is incapable of effectively preventing, or detecting and correcting, material noncompliance. As a result, no documentation was available for the status of two vendors to whom payment equal to or in excess of $25,000 was paid. Any program funds the County used to pay contractors 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 the County's management strengthen its system of internal controls 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 any contracts. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.