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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 Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): 2024 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 2023-002. Condition and Context As part of sound management of the federal award, the City was responsible for implementing a system of internal controls that would ensure compliance with the applicable requirements. The City had not properly designed or implemented such a system, which would include appropriate segregation of duties, that would likely be effective in preventing, or detecting and correcting, noncompliance. Prior to entering into subawards or covered transactions with COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) award funds, recipients are required to verify that vendors or subrecipients are not suspended, debarred, or otherwise excluded from receiving federal funds. "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 can 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. Four covered transactions exceeding $25,000 for goods or services that were paid using SLFRF funds were identified during the audit period and two of them were selected for testing. The City did not verify the vendor's suspension and debarment status prior to entering into the covered transaction with either vendor. The amount paid to both vendors totaled $785,268. 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 conducted business with the two vendors in question in prior years, and due to the existing business relationship, opted to utilize both vendors for projects using federal funds under the award. The City included the various methods for verifying a vendor's suspension and debarment status in its purchasing policy but did not follow the established policy. Effect Without a proper system of internal controls in place that operated effectively, the City entered into covered transactions without verifying that the vendors were not suspended, debarred, or otherwise excluded from receiving federal funds. As a result, material noncompliance occurred and remained undetected. Noncompliance with the provisions of federal statues, 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's management establish a proper system of internal control and follow the City's established purchasing policy to ensure procedures for entering into covered transactions are followed and to retain documentation of the verification of a vendor's suspension and debarment status. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.