FINDING 2024-002 Subject: Drinking Water State Revolving Fund - Procurement and Suspension and Debarment Federal Agency: Environmental Protection Agency Federal Program: Drinking Water State Revolving Fund Assistance Listings Number: 66.468 Federal Award Number and Year (or Other Identifying Number): DW 23 512703 Pass-Through Entity: Indiana Finance Authority Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Condition and Context An effective internal control system was not in place at the City in order to ensure compliance with requirements related to the grant agreement and the following compliance requirement: Procurement and Suspension and Debarment. Procurement - Policy The City did not have an approved procurement policy that reflected applicable state laws and regulations including procedures to avoid acquisition of unnecessary or duplicative items and procedures to ensure that all solicitations incorporate a clear and accurate description of the technical requirements for the material, product, or service to be procured. The City is required to have and use documented procurement procedures, which are 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. Suspension and Debarment Prior to entering into subawards and covered transactions with the Drinking Water State Revolving Fund, recipients are required to verify that such contracts and subrecipients are not suspended, debarred, or otherwise excluded. "Covered transactions" include, but are not limited to, contracts for goods and services awarded under procurement and nonprocurement transactions (i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking SAM exclusions, collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. INDIANA STATE BOARD OF ACCOUNTS 16 CITY OF JONESBORO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Upon the inquiry of the City to determine its policies and procedures related to suspension and debarment requirements, the City stated that a suspension and debarment clause is included in contracts or bid packets. Contracts and bid packets are reviewed by the Mayor and the Common Council. One covered transaction, totaling $718,000, was identified and tested. The City could not provide documentation that procedures were performed to verify that the vendor paid from the Drinking Water State Revolving Fund with contracts over $25,000 were not excluded or disqualified from participation in federal programs. 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 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 SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause A proper system of internal controls was not designed by the 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. The City failed to adopt a procurement policy as required for federal grants. Additionally, the City contracted with outside engineers and a CPA firm to manage the compliance requirement, and there was no documentation that showed a suspension or debarment clause was included in the contract or that was in the bid packet. INDIANA STATE BOARD OF ACCOUNTS 17 CITY OF JONESBORO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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, there was no procurement policy, and vendors to whom payments equal to or in excess of $25,000 were not verified to be not suspended, debarred, or otherwise excluded. Any program funds the City used to pay vendors that have been suspended or debarred could be unallowable, and the funding agency could potentially recover them. Additionally, 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 the City establish documented procurement 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 addition, we recommended that the City strengthen its system of internal controls to ensure that all vendors 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 covered transactions. We also recommended that the City gain a thorough understanding of the grant requirements to ensure compliance. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.