Finding Text
FINDING 2024-005 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 Fund Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): FY2023 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2023-004. INDIANA STATE BOARD OF ACCOUNTS 21 CITY OF NEW CASTLE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Condition and Context Suspension and Debarment The City elected to receive the standard revenue loss allowance, allowing it to claim its total SLFRF allocation from the U.S. Department of the Treasury (Treasury) of $3,870,958 as revenue loss to use for government services. As such, all SLFRF program funds were expended under the revenue loss eligible use category. The Treasury determined that there are no subawards under this eligible use category and that recipients' use of revenue loss funds would not give rise to subrecipient relationships given that there is no federal program or purpose to carry out in the case of the revenue loss portion of the award. Prior to entering into subawards and covered transactions with 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 Excluded Parties List System (EPLS), collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. Upon inquiry of the City in order to review the procedures in place for verifying that an entity with which it plans to enter into a covered transaction is not suspended, debarred, or otherwise excluded, the City divulged that it was unaware of the suspension and debarment requirements related to the SLFRF awards. Seven covered transactions that equaled or exceeded $25,000 were identified. Of the seven transactions, three were selected for testing, totaling $472,540. The City did not verify the vendors' suspension and debarment status prior to payment on any of the covered transactions. The City had policies or procedures in place to verify that contractors were neither suspended nor debarred or otherwise excluded or disqualified from participating in federal assistance programs or activities; however, there was no evidence to suggest that these policies or procedures had been followed. The 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: INDIANA STATE BOARD OF ACCOUNTS 22 CITY OF NEW CASTLE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (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 A proper system of internal controls was not designed by 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 Clerk-Treasurer took office January 1, 2024, and was inexperienced and lacked understanding of requirements for verifying and documenting the verification of the suspension and debarment status of vendors. Effect Without the proper implementation of an effectively designed system of internal controls, the City cannot ensure the 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 recovery them. Furthermore, 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 that the City strengthen its 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 participations in federal programs before entering into any contracts. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.