FINDING 2023-003
Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery
Funds - Procurement and 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
Pass-Through Entity: Indiana State Department of Health
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Modified Opinion
Repeat Finding
This is a repeat finding from the immediately prior audit report. The prior audit finding number was
2022-003.
Condition and Context
Procurement
The Indiana State Department of Health created the Health Issues and Challenges Grant
Program to provide funding to local and statewide service providers and planning organizations
through the American Rescue Plan Act. The funds were to be used to prevent or reduce the
prevalence of health issues or improve the health and behavioral health of Indiana residents.
The City applied for and was awarded the Health Issues and Challenges grant in the amount
of $447,112.
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Federal regulations allow for informal procurement methods when the value of the procurement
for property or services does not exceed the simplified acquisition threshold, which is set at
$250,000 unless a lower, more restrictive threshold is set by a nonfederal entity. As Indiana
Code has set a more restrictive threshold of $150,000, informal procurement methods are
permitted when the value of the procurement does not exceed $150,000. This informal process
allows for methods other than the formal bid process. The informal process is divided between
two methods based on thresholds. Micro-purchases, typically for those purchases $10,000 or
under, and small purchase procedures for those purchases above the micro-purchase
threshold, but below the simplified acquisition threshold. Micro-purchases may be awarded
without soliciting competitive price rate quotations. If small purchase procedures are used,
then price or rate quotations must be obtained from an adequate number of qualified sources.
Four vendors fell within the small purchase threshold. Two of the four small purchases were
selected for testing. For the two vendors tested, totaling $71,889, the City did not obtain price
or rate quotes. The micro-purchase threshold may be increased, but the City did not provide
documentation that the threshold had been increased. Documentation detailing the history of
procurement, which must include the rationale for the procurement method used, was not
available for audit.
The lack of internal controls and noncompliance were systemic 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 200.318 states in part:
"(a) The non-Federal entity must have and use documented procurement procedures,
consistent with State, local, and tribal laws and regulations and the standards of this section,
for the acquisition of property or services required under a Federal award or subaward. The
non-Federal entity's documented procurement procedures must conform to the procurement
standards identified in §§ 200.317 through 200.327. . . .
(i) The non-Federal entity must maintain records sufficient to detail the history of procurement.
These records will include, but are not necessarily limited to, the following: Rationale for the
method of procurement, selection of contract type, contractor selection or rejection, and the
basis for the contract price. . . ."
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2 CFR 200.320 states in part:
"The non-Federal entity must have and use documented procurement procedures, consistent
with the standards of this section and §§ 200.317, 200.318, and 200.319 for any of the following
methods of procurement used for the acquisition of property or services required under a
Federal award or sub-award.
(a) Informal procurement methods. When the value of the procurement for property or
services under a Federal award does not exceed the simplified acquisition threshold (SAT),
as defined in § 200.1, or a lower threshold established by a non-Federal entity, formal
procurement methods are not required. The non-Federal entity may use informal
procurement methods to expedite the completion of its transactions and minimize the
associated administrative burden and cost. The informal methods used for procurement
of property or services at or below the SAT include: . . .
(2) Small purchases —
(i) Small purchase procedures. The acquisition of property or services, the aggregate
dollar amount of which is higher than the micro-purchase threshold but does not
exceed the simplified acquisition threshold. If small purchase procedures are used,
price or rate quotations must be obtained from an adequate number of qualified
sources as determined appropriate by the non-Federal entity. . . ."
Part 4 of the Treasury's Compliance and Reporting Guidance states: ". . . recipients are expected
to have procurement policies and procedures in place that comply with the procurement standards outlined
in the Uniform Guidance . . ."
Cause
A proper system of internal controls 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
internal control system cannot be capable of effectively preventing, or detecting and correcting, material
noncompliance. As a result, proper procurement procedures were not adhered to for all vendors.
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 documented procedures consistent with
state and local laws for the acquisition of property or services required under a federal award or subaward
as outlined in the code of federal regulations. In additions, we recommended the City adhere to the
procurement policies.
INDIANA STATE BOARD OF ACCOUNTS
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CITY OF NEW CASTLE
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Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.