Finding No.: 2024-002 For procurements using federal funds, GMHA is permitted to use a Simplified Acquisition Threshold up to the federal limit, which is currently set at $250,000 or $7.5 million for commercial goods. The Code of Federal Regulations (CFR) permits a non-federal entity to use a SAT up to the federal limits, without having to follow threshold limitations imposed by state or local law. The set of criteria employed by the Ernst & Young is incomplete, and fails to give proper deference to the legal opinions of licensed attorneys. In determining to follow the federal SAT, GMHA considered the guidance of a memorandum from the Office of the Attorney General indicating substantively the same legal analysis as follows. See Memorandum from Deputy Attorney General, Solicitor Division to Chief Deputy Attorney General, Federal Simplified Acquisition Threshold and Micro-purchase Threshold, Ref: AG 22-0410 (Sept. 14, 2022). When presented with this memorandum, the auditors refused to accept its instructions stating: “We were unable to follow why the Attorney General considered the definition of a non-Federal entity in applying the requirements of §§ 200.318 through 200.327. In reviewing the aforementioned sections, there was no reference to non-Federal entities.” This statement evidences the auditors’ fundamental misunderstanding of the law. The auditors based their analysis on an amended version of the CFR, which became effective only January 2025. According the definitions in the Code of Federal Regulations in effect during the relevant 2023-2024 audit period, Guam is both a “State” and a “Non-Federal entity.” Guam Memorial Hospital Authority also falls within the definition of “Hospital” and “subrecipient.” As relevant here, 2 CFR 200.1 states: State means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and any agency or instrumentality thereof exclusive of local governments. Non-Federal entity (NFE) means a State, local government, Indian Tribe, Institution of Higher Education (IHE), or nonprofit organization that carries out a Federal award as a recipient or subrecipient. Hospital means a facility licensed as a hospital under the law of any State or a facility operated as a hospital by the United States, a State, or a subdivision of a State. Subrecipient means an entity, usually but not limited to non-Federal entities, that receives a subaward from a pass-through entity to carry out part of a Federal award; but does not include an individual that is a beneficiary of such award. A subrecipient may also be a recipient of other Federal awards directly from a Federal awarding agency. As a Non-Federal entity, GMHA also is required to abide by the definition of “simplified acquisition threshold.” According to 2 CFR 200.1: Simplified acquisition threshold means the dollar amount below which a non-Federal entity may purchase property or services using small purchase methods (see § 200.320). Non-Federal entities adopt small purchase procedures in order to expedite the purchase of items at or below the simplified acquisition threshold. The simplified acquisition threshold for procurement activities administered under Federal awards is set by the FAR at 48 CFR part 2, subpart 2.1. The non-Federal entity is responsible for determining an appropriate simplified acquisition threshold based on internal controls, an evaluation of risk, and its documented procurement procedures. However, in no circumstances can this threshold exceed the dollar value established in the FAR (48 CFR part 2, subpart 2.1) for the simplified acquisition threshold. Recipients should determine if local government laws on purchasing apply. (emphasis added). This definition applies to purchasing by all non-federal entities—including GMHA. Title 2 CFR 200.317 provides: When procuring property and services under a Federal award, a State must follow the same policies and procedures it uses for procurements from its non-Federal funds. The State will comply with §§ 200.321, 200.322, and 200.323 and ensure that every purchase order or other contract includes any clauses required by § 200.327. All other non-Federal entities, including subrecipients of a State, must follow the procurement standards in §§ 200.318 through 200.327. (emphasis added). As a subrecipient of Guam, GMHA would also be required to follow 2 CFR 200.320(a)(2)(ii), which reiterates that: “The non-Federal entity is responsible for determining an appropriate simplified acquisition threshold based on internal controls, an evaluation of risk and its documented procurement procedures which must not exceed the threshold established in the FAR.” The CFR treats the requirement that a state or local entity follow (1) its own “policies and procedures” and (2) its own small purchase “threshold” as separate requirements. The CFR applicable to most federal funds—including ARPA—only requires the hospital to follow the local “policies and procedures.” 2 CFR 200.317. The CFR requires GMHA—as a non-federal entity—to separately make a determination of an appropriate small purchase threshold based on a number of factors specific to GMHA, provided it does not exceed the federal SAT. 2 CFR 200.1; 2 CFR 200.320(a)(2)(ii). Procurement method selection is essentially a two-step process: (1) Make a substantive determination about the monetary cost of a proposed procurement and determine whether it is below or above an applicable threshold. Which side of a threshold a procurement falls on (and some other factors) will determine the method—sole source, RFQ, RFP, IFB—that will be used. (2) After the method is determined, an entity is then pointed to specific policies and procedures applicable to that type of procurement. The relevant factors for determining a recipient-specific SAT include an entity’s “internal controls, an evaluation of risk, and its documented procurement procedures.” 2 CFR 200.1; 2 CFR 200.320(a)(2)(ii). For a portion of the relevant procurement period, the CFR also stated: “When applicable, a lower simplified acquisition threshold used by the non-Federal entity must be authorized or not prohibited under State, local, or tribal laws or regulations.” This section was amended effective approximately October 1, 2024. Now, it no longer requires the recipient or sub-recipient to ascertain whether this entity-specific threshold is “authorized or not prohibited under State, local, or tribal laws or regulations.” But even under the prior version, the entity only needed to consider the authorization or lack of prohibition under state or local law if it was adopting a “lower simplified acquisition threshold” than the federal SAT. 2 CFR 200.320(a)(2)(ii) (effective until Sept. 30, 2024) (emphasis added). GMHA determined that the federal SAT levels were appropriate, and—in any event—local law does not prohibit GMHA from adopting the federal SAT when using federal funds. GMHA’s use of the federal SAT for procurements using federal funds has been a decades long practice of our materials management, so a suggestion that it is unauthorized would be a finding quite inconsistent with GMHA’s internal controls. Highlighting the distinctness or difference between the “policies and procedures” and “threshold” requirements, is the fact that “simplified acquisition procedures” and “simplified acquisition threshold” are defined separately. See 48 CFR 2.101. And the two requirements are discussed separately in the section of the CFR discussing “informal procurement methods.” 2 CFR 200.320. Additionally, the small purchase “procedures” applicable to federal agencies, FAR Part 13, are contemplated in an entire section that is separate from the rules about the controlling SAT or other threshold. Finally, in other portions of the CFR—such as federal highway funds—the government has specifically instructed state entities to follow both the state or local “procedures” and the state or local “threshold. 23 CFR 172.7(a)(2). When the CFR wants the state government to follow state SATs, it will specifically do so. It has not put that instruction in 2 CFR 200.320. Guam law also specifically directs all persons within the Government of Guam to comply with the applicable federal law and regulations that are in conflict with or are not reflected in the Procurement Code. 5 GCA § 5501. In other words: Guam law requires GMHA to follow the federal rules. Specifically, here, the federal requirement that GMHA determine an appropriate SAT is not reflected in the local laws. GMHA, thus, must comply with the federal requirement that GMHA make a recipient-specific determination of an appropriate SAT. Even the Guam Legislature understands that the law operates in the same manner as the Attorney General’s memorandum. During a legislative hearing on June 25, 2024, Senator Sabina Perez recited the same analysis, recognizing that Guam agencies can use the federal simplified acquisition threshold when expending federal funds. See Guam Legislature, Public Hearing Bill No. 134-39 (COR) at *1:46:00-1:46:31 (June 25, 2025), available at https://www.youtube.com/live/ciXo1EEXJZI. In deciding the federal SAT applies, GMHA was also guided by precedent and guidance issued to other government entities. In 2015, when the Guam Department of Education was under a federal third-party fiduciary, it was still employing the lower local small purchase threshold. GDOE was instructed that this was inappropriate because federal law supersedes Guam law on the SAT. The federal fiduciary—consistent with USDOE instructions—required GDOE to follow the federal SAT. See Letter from John E. Hampford, Alvarez & Marsal, to Jon J.P. Fernandez, Superintendent of Guam Department of Education (Dec. 30, 2015); see also Letter from Jon J.P. Fernandez, Superintendent of Guam Department of Education to Attorney General Leevin T. Camacho and Public Auditor Benjamin J.F. Cruz (July 20, 2020). Thus, other Guam agencies have been instructed by the federal government to use the federal SAT. This is also bolstered by the case law. The Guam Supreme Court has ruled that the CARES Act funding was a federal appropriation for a specific purpose, “outside the control of the Guam Legislature.” See Story-Bernardo v. Gov’t of Guam, 2023 Guam 27 ¶ 46. ARPA funding is substantively similar to CARES Act funds, simply with additional permitted uses. Local law cannot dictate how these federal funds are spent. GMHA also considered case law from Texas federal court where a self-styled “whistleblower” sued the City of Burleson, Texas for allegedly spending in excess of their own SAT. Under Burleson’s own regulations, the local SAT was $10,000, see Rule 5.1, City Council Policy 36, City of Burleson Purchasing Policy (adopted July 2, 2018, revised Oct. 16, 2023). However, the lawsuit alleged that the city was spending in excess of this $10,000 SAT. The federal judge in that court stated: “In addition, the regulations show that “formal purchasing methods are not required” for purchases that are less than the “simplified acquisition threshold.” 2 C.F.R. § 200.1(2021). The simplified acquisition threshold is set at $250,000. 48 C.F.R. § 2.101(2021). However, Mr. Eder's complaint incorrectly alleges “upon information and belief” that the simplified acquisition threshold is $10,000. Doc. No. 37 at 12, ¶27(b). Mr. Eder's apparent misreading of the threshold for formal purchasing is central to his claim under the FCA, and it appears this concern may have arisen from simply misreading the rules, rather than any reasonable dispute under the law.” Eder v. City of Burleson, Civil No. 3:23-CV-00948-K, 2024 WL 4771408 at *5 (N.D. Tex., Nov. 13, 2024). Thus, the federal court recognized that the lower local SAT did not control. The only relevant SAT was the federal one. GMHA’s determination to use the maximum SAT allowed by the federal CFR is thus appropriate. The federal CFR rule requiring a recipient-specific SAT determination supersedes the local thresholds. If the procurement is under the federally-allowed $250,000 SAT, GMHA must still follow the local small purchase procedures. See in part 5 GCA § 5213. The auditors’ view of Guam law appears to be a clear outlier, inconsistent with a plain reading of both federal and Guam law, the opinions of both federal and local courts, the memorandum from the Attorney General’s Office, the understanding of the Guam Legislature, and the reasoned opinion of Hospital Legal Counsel. The auditors’ finding is also inconsistent with decades of GMHA procurement practice. The questioned costs based on this finding should be removed. The auditors’ (1) inability to even reference the relevant definitions from the CFR in effect at the time of the relevant audit period and (2) unwillingness to accept the legal opinions from licensed attorneys, should be a finding on the auditors’ peer review.