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FINDING 2024-002 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): IN0184 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context Suspension and Debarment Prior to entering into subawards and covered transactions with the COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) 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 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 System for Award Management (SAM) 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. The City did not have any policies or procedures in place related to the SLFRF suspension and debarment requirements. A population of three covered transactions totaling $2,056,140 that equaled or exceeded $25,000 paid from SLFRF funds were identified. All three covered transactions were selected for testing. For each of the three transactions, the City did not verify the vendors' suspension, debarment, or otherwise excluded from receiving federal funds 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 City had initially started checking vendors for suspension and debarment in years prior, but the official had heard somewhere it wasn't required and, therefore, stopped checking the System for Award Management (SAM) Excluded Parties List System (EPLS). They did not include the language in any of the covered transactions or obtain a certification. Therefore, the City was unable to provide documentation to demonstrate they had properly verified that contractors were neither suspended nor debarred or otherwise excluded or disqualified from participating in federal assistance programs or activities. Effect Without the proper implementation of an effectively designed system of internal controls, the City cannot ensure that contractors paid with federal funds are eligible to participate in federal programs. Any program funds the City 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 management of the City design and implement a 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 contracts. Views of Responsible Officials For views of responsible officials, refer to the Corrective Action Plan that is part of this report.