FINDING 2024-003
Subject: Water and Waste Disposal Systems for Rural Communities -
Procurement and Suspension and Debarment
Federal Agency: Department of Agriculture
Federal Program: Water and Waste Disposal Systems for Rural Communities
Assistance Listings Number: 10.760
Federal Award Number and Year (or Other Identifying Number): FY2024
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Other Matters
INDIANA STATE BOARD OF ACCOUNTS
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TOWN OF PAOLI
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Repeat Finding
This is a repeat finding from the immediately prior audit report. The prior audit finding number was
2023-002.
Condition and Context
As part of sound management of the federal award, the Town was responsible for implementing a
system of internal controls that would ensure compliance with the applicable requirements. The Town had
not properly designed or implemented such a system, which would include appropriate segregation of
duties, that would likely be effective in preventing, or detecting and correcting, noncompliance.
The Town entered into contracts with three vendors in a prior year to provide goods and services
for the duration of the Town's wastewater plant construction project. The total contract expenditures for all
three vendors fell under the simplified acquisition threshold. The Town paid all three vendors with grant
funds during the audit period, and all three were selected for testing accordingly.
For two of the vendors, the Town properly procured the goods and services through the bidding
process. For the third vendor, with disbursements totaling $106,269 in 2024, the Town was unable to
provide any documentation that the procurement method used was appropriate or that the procurement
provided full and open competition or rationale to support the determination to limit competition.
Additionally, the history of the procurement, including rationale for the method of procurement, selection of
the vendor, and the basis for the price, was not adequately documented.
The lack of internal controls and noncompliance were isolated to one vendor 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. . . ."
INDIANA STATE BOARD OF ACCOUNTS
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TOWN OF PAOLI
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
2 CFR 200.320 states in part:
". . . (b) Formal procurement methods. When the value of the procurement for property or
services under a Federal financial assistance awards exceeds the SAT, or a lower threshold
established by a non-Federal entity, formal procurement methods are required. Formal
procurement methods require following documented procedures. Formal procurement
methods also require public advertising unless a non-competitive procurement can be used in
accordance with § 200.319 or paragraph (c) of this section. The following formal methods of
procurement are used for procurement of property or services above the simplified acquisition
threshold or a value below the simplified acquisition threshold the non-Federal entity
determines to be appropriate:
(1) Sealed bids. A procurement method in which bids are publicly solicited and a firm
fixed-price contract (lump sum or unit price) is awarded to the responsible bidder
whose bid, conforming with all the material terms and conditions of the invitation for
bids, is the lowest in price. The sealed bids method is the preferred method for
procuring construction, if the conditions.
(i) In order for sealed bidding to be feasible, the following conditions should be
present:
(A) A complete, adequate, and realistic specification or purchase description is
available;
(B) Two or more responsible bidders are willing and able to compete effectively
for the business; and
(C) The procurement lends itself to a firm fixed price contract and the selection of
the successful bidder can be made principally on the basis of price.
(ii) If sealed bids are used, the following requirements apply:
(A) Bids must be solicited from an adequate number of qualified sources,
providing them sufficient response time prior to the date set for opening the bids,
for local, and tribal governments, the invitation for bids must be publicly advertised;
(B) The invitation for bids, which will include any specifications and pertinent
attachments, must define the items or services in order for the bidder to properly
respond;
(C) All bids will be opened at the time and place prescribed in the invitation for
bids, and for local and tribal governments, the bids must be opened publicly;
(D) A firm fixed price contract award will be made in writing to the lowest
responsive and responsible bidder. Where specified in bidding documents, factors
such as discounts, transportation cost, and life cycle costs must be considered in
determining which bid is lowest. Payment discounts will only be used to determine
the low bid when prior experience indicates that such discounts are usually taken
advantage of; and
(E) Any or all bids may be rejected if there is a sound documented reason.
INDIANA STATE BOARD OF ACCOUNTS
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TOWN OF PAOLI
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(2) Proposals. A procurement method in which either a fixed price or cost-reimbursement
type contract is awarded. Proposals are generally used when conditions are not
appropriate for the use of sealed bids. They are awarded in accordance with the
following requirements:
(i) Requests for proposals must be publicized and identify all evaluation factors and
their relative importance. Proposals must be solicited from an adequate number
of qualified offerors. Any response to publicized requests for proposals must be
considered to the maximum extent practical;
(ii) The non-Federal entity must have a written method for conducting technical
evaluations of the proposals received and making selections;
(iii) Contracts must be awarded to the responsible offeror whose proposal is most
advantageous to the non-Federal entity, with price and other factors considered;
and
(iv) The non-Federal entity may use competitive proposal procedures for qualifications
based procurement of architectural/engineering (A/E) professional services
whereby offeror's qualifications are evaluated and the most qualified offeror is
selected, subject to negotiation of fair and reasonable compensation. The method,
where price is not used as a selection factor, can only be used in procurement of
A/E professional services. It cannot be used to purchase other types of services
though A/E firms that are a potential source to perform the proposed effort.
(c) Noncompetitive procurement. There are specific circumstances in which noncompetitive
procurement can be used. Noncompetitive procurement can only be awarded if one or more
of the following circumstances apply:
(1) The acquisition of property or services, the aggregate dollar amount of which does not
exceed the micro-purchase threshold (see paragraph (a)(1) of this section);
(2) The item is available only from a single source;
(3) The public exigency or emergency for the requirement will not permit a delay resulting
from publicizing a competitive solicitation;
(4) The Federal awarding agency or pass-through entity expressly authorizes a noncompetitive
procurement in response to a written request from the non-Federal entity; or
(5) After solicitation of a number of sources, competition is determined inadequate."
Cause
The vendor in question was an engineering firm that the Town has utilized for various projects over
the course of many years. For continuity purposes, the Town chose to limit competition when awarding the
contract but was unaware of the requirements necessary to do so. Since this was a multi-year award for
which the Town entered into the contract in a prior year, the Town was unable to correct the noncompliance
for the current audit period.
INDIANA STATE BOARD OF ACCOUNTS
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TOWN OF PAOLI
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Effect
Without a proper system of internal controls in place that operated effectively, noncompliance
remained undetected. As a result, proper procurement procedures were not adhered to for all vendors.
Without following the required methods for procurement, the Town could be overpaying for services.
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 funds to the Town.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the Town's management establish a proper system of internal controls to
ensure expenditures made from federal awards use the appropriate procurement method and retain the
documentation to support the procurement methods used in order to ensure compliance with the terms and
conditions of the federal award.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.