Finding No.: 2022-012 Pass-Through Entity: Republic of the Marshall Islands Federal Agency: U.S. Department of the Interior AL Program: 15.875 Economic, Social and Political Development of the Territories Federal Award No.: Compact of Free Association Program, As Amended Area: Procurement and Suspension and Debarment Questioned Costs: $112,538 Criteria: Under the terms of the sub-awards administered by RepMar under the Compact of Free Association grant awards, RepMar authorizes the College to use its own procedures for procurement provided they meet the RepMar Procurement Code. RepMar’s Procurement Code states the following: (a) Section 126.7 - Award shall be made to the responsible offeror whose proposal is determined in writing to be the most advantageous to the Government taking into consideration price and the evaluation factors set forth in the Request for Proposals. No other factors or criteria shall be used in the evaluation. The contract file shall contain the basis on which the award is made. (b) Section 127 - Procurement of goods and services not exceeding $25,000 may be made in accordance with small purchase procedures promulgated by RepMar’s Policy Office. Small purchase procedures are those relatively simple and informal methods for securing services, supplies, or other property that do not cost more than $25,000. RepMar’s Ministry of Finance has previously declared that if small purchase procedures are used, price or rate quotations shall be obtained from an adequate number of qualified sources. (c) Section 128 - a contract may be awarded for supply, service, or construction item without competition when it is determined in writing that there is only one source for the required supply, service, or construction item. (d) Section 129 - Notwithstanding any other provision of this Chapter, the Chief Procurement Officer, the head of a Purchasing Agency, or a designee of either officer may make or authorize others to make emergency procurement when there exists a threat to public health, welfare, or safety under emergency conditions as defined in regulations promulgated by the Policy Office; provided, that such emergency procurement shall be made with such competition as is practicable under the circumstances. 2 CFR 200.318(h) states that the recipient or subrecipient must award contracts only to responsible contractors that possess the ability to perform successfully under the terms and conditions of a proposed contract. The recipient or subrecipient must consider contractor integrity, public policy compliance, proper classification of employees, past performance record, and financial and technical resources when conducting a procurement transaction. 2 CFR 200.214 states that recipients and subrecipients are subject to the non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689, as well as 2 CFR part 180. The regulations in 2 CFR part 180 restrict making Federal awards, subawards, and contracts with certain parties that are debarred, suspended, or otherwise excluded from receiving or participating in Federal awards. 2 CFR 180.300 states that when an entity enters into a covered transaction with another person at the next lower tier, the entity must verify that the person with whom the entity intends to do business is not excluded or disqualified by doing the following: (a) Checking SAM.gov Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person. 2 CFR 200.320 states that for micro-purchases, to the extent practicable, the recipient or subrecipient should distribute micro-purchases equitably among qualified suppliers. Per OMB Compliance Supplement April 2022, a non-federal entity must perform a cost or price analysis in connection with every procurement action more than the simplified acquisition threshold, including contract modifications, and that analysis supported the procurement action (2 CFR section 200.323 and 48 CFR section 15.404-3). 48 CFR section 15.404-3 states that: (a) The contracting officer is responsible for the determination of a fair and reasonable price for the prime contract, including subcontracting costs. The contracting officer should consider whether a contractor or subcontractor has an approved purchasing system, has performed cost or price analysis of proposed subcontractor prices, or has negotiated the subcontract prices before negotiation of the prime contract, in determining the reasonableness of the prime contract price. This does not relieve the contracting officer from the responsibility to analyze the contractor's submission, including subcontractor's certified cost or pricing data. (b) The prime contractor or subcontractor shall: (1) conduct appropriate cost or price analyses to establish the reasonableness of proposed subcontract prices; (2) include the results of these analyses in the price proposal; and (3) when required by paragraph (c) of this subsection, submit subcontractor certified cost or pricing data to the Government as part of its own certified cost or pricing data. 2 CFR 200.303(a) states that the subrecipient must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the 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 COSO. Condition: For six (or 75%) of eight items, aggregating $121,524 in total non-payroll expenditures, supporting procurement documentation was not sufficient to substantiate compliance with the procurement method, as follows: Item # PO # PO Amount Description FY 2022 Expenditures Questioned Costs 1 21-PO-1165 $6,781 Materials and supplies $ 6,781 $ 6,781 2 22-PO-2494 $3,717 Representation and entertainment 3,717 3,717 3 , 4 22-PO-2949/ 22-PO-3402 $73,063 Minor repairs and maintenance 73,063 73,063 5 22-PO-3458 $24,750 Repair – vehicles or equipment 24,750 24,750 6 22-PO-2166 $10,000 Repair – vehicles or equipment 4,227 4,227 $112,538 $112,538 For item # 1, there was no vendor quotations on file. For item #s 2, 5 and 6, there were no adequate vendor quotations on file. were no documentation on file to support compliance with 48 CFR section 15.404-3. Moreover, the College has no internal control policies and procedures over verification that an entity with which the College plans to enter into a covered transaction is not debarred, suspended, or otherwise excluded. Cause: The College did not follow internal control policies and procedures over documentation of the procurement process to satisfy compliance with the applicable procurement requirements. Furthermore, the College lacks internal control policies and procedures over 1) verification that an entity with which the College plans to enter into a covered transaction is not debarred, suspended, or otherwise excluded; 2) distribution of micro-purchases equitably among qualified suppliers; 3) compliance with 48 CFR section 15.404-3. Effect: The College is not in compliance with the applicable procurement requirements. The total questioned cost is $112,538. Identified as a Repeat Finding: 2021-009 Recommendation: Responsible personnel should ensure that documentation is adequate to comply with the applicable procurement requirements. Specifically, documentation should indicate the history of procurement, including the solicitation process and rationale for contractors or vendor selection. Furthermore, the College should establish internal control policies and procedures over 1) verification that an entity with which the College plans to enter into a covered transaction is not debarred, suspended, or otherwise excluded; 2) distribution of micro-purchases equitably among qualified suppliers; 3) compliance with 48 CFR section 15.404-3. Views of Auditee and Planned Corrective Actions: The College agrees with the finding and provides details in its Corrective Action Plan.