Finding Text
Procurement Federal Agency: U.S. Department of Housing and Urban Development Federal Program Name / Assistance Listing Number / Pass-Through Agency(ies) / Pass-Through Number(s): • COVID-19 - Substance Abuse and Mental Health Services Projects of Regional and National Significance, 93.243 o Passed through the State of California, Department of Health Care Services, 21-10299 Type of Finding: • Material Weakness in Internal Control over Compliance • Other Matters Criteria or specific requirement: 2 CFR Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award requires compliance with the provisions of procurement. These provisions include the following under 2 CFR Part 200318 (a) General Procurement Standards Documented procurement procedures. The recipient or subrecipient must maintain and use documented procedures for procurement transactions under a Federal award or subaward, including for acquisition of property or services. The grant agreement requires “Prior written authorization will be required before the Contractor enters into or is reimbursed for any subcontract for services costing $5,000 or more.” Shatterproof should have internal controls designed to ensure compliance with those provisions and maintain and use documented procedures for procurement transactions. Condition: During our testing, we noted Shatterproof did not have documented procurement procedures in place until 2025 and did not have adequate internal controls to ensure procurements were in compliance with the grant agreement. In addition the following items were noted: • A procurement should have been performed using a formal procurement method with open competition such as proposals, however, there was no documentation to evidence that this or a cost analysis was performed. • Two procurements within the small purchase thresholds had no evidence to support the performance of cost analysis. • For all seven procurements tested prior written authorizations as required in the grant agreement were not obtained. Questioned costs: None identified Context: • Shatterproof finalized their procurement policy in 2025, however these procedures were not in place during 2024 or in periods prior to 2024 when contracting occurred. • There was no policy or process in place to ensure the requirement under the grant agreement for prior written authorization was followed. • We noted that there was documentation of the process to vet and approve influencers although not fully compliant with the requirements of the Uniform Guidance. Cause: Internal controls over compliance with the provisions of procurement were not in place during 2024 or in periods prior to 2024 when contracting occurred. Effect: The lack of internal controls over these compliance requirements provides an opportunity for noncompliance. Repeat Finding: No Recommendation: We recommend Shatterproof implement their procurement policy and ensure a compliant procurement process has been followed and documented for vendors, including influencers, with costs charged to federal awards. We further recommend a process be put in place to identify and ensure compliance with additional requirements in grant agreements. Specifically Shatterproof should put a process in place to ensure they comply with the requirement in the grant agreement to obtain prior written authorization for services costing $5,000 or more. Views of responsible officials: There is no disagreement with the audit finding.