FINDING 2024-001 Subject: Federal Transit Cluster - Procurement and Suspension and Debarment Federal Agency: Department of Transportation Federal Program: Federal Transit Formula Grants Assistance Listings Number: 20.507 Federal Award Number and Year (or Other Identifying Number): IN-2022-018, IN-2024-003-00, IN-2018-028-06 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Condition and Context Procurement 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 customarily set at $250,000. However, Indiana Code 5-22-8 has a more restrictive threshold of $150,000 or less for when small purchase procedures may be used. 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. The City has a process in place that requires the Board of Public Works to approve bids and contracts, but the process did not operate effectively for one of three vendors tested who were subject to the small-purchase procurement requirements. One vendor was identified that fell within the small purchase threshold. Purchases from the vendor totaled $129,259. As such, price or rate quotations from an adequate number of qualified sources should have been obtained. However, the City did not obtain price or rate quotations for the purchases nor was full and open competition provided for the vendor. Additionally, there was no documentation available to support the rationale to limit competition nor was a contract awarded for the services provided. Suspension and Debarment Prior to entering into covered transactions with federal award funds, recipients are required to verify that vendors 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 SAMs exclusions, collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. Inquiry and fieldwork determined that the City had a process in place to verify that vendors were not suspended or debarred but the process was not operating effectively. There was no documented oversight, review, or approval process to ensure the process was completed timely. INDIANA STATE BOARD OF ACCOUNTS 14 CITY OF ANDERSON SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Two vendors were selected for suspension and debarment testing. We were able to determine that suspension and debarment searches on the SAM.GOV website were made, but we could not determine that the searches occurred prior to contracting with the vendor. For the first vendor, the documentation provided indicated that the search for suspension and debarment on the SAM.GOV website was done subsequent to the purchase of the equipment. For the second vendor, the date of the search on the SAM.GOV website could not be determined. Additionally, the suspension and debarment verification was done by one employee without evidence of oversite and review. The lack of internal controls and noncompliance was a systemic issue throughout the audit period for the federal awards IN-2022-018, IN-2024-003-00, and IN-2018-028-06. 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(a) states: "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." 2 CFR 1200.10 adopts the Office of Management and Budget (OMB) guidance in subparts A through I of 2 CFR part 180, as supplemented by this part, as the Department of Transportation policies and procedures for nonprocurement suspension and debarment. 2 CFR 180.300 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 SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." INDIANA STATE BOARD OF ACCOUNTS 15 CITY OF ANDERSON SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Cause Management had not designed or implemented a system of internal controls that would have ensured procedures were in place that would comply with the provisions of federal statutes, regulations, and the terms and conditions of the federal award in relation to the requirements of the Procurement and Suspension and Debarment compliance requirement. For the small purchases procurement requirement, several purchases from one vendor had occurred without the City noticing the small purchases threshold had been exceeded. For the requirement to check the suspension and debarment status, the City failed to document the date searched in one case and saved a search dated after the award date in another case. Effect The failure to design and implement an effective internal control system enabled noncompliance to remain undetected. Noncompliance with the provisions of federal statutes, regulations, and terms and conditions of the federal award could result in the reduction of future federal funding to the City. Questioned Costs There were no questioned costs identified.