AL number: 14.231 and 21.027, AL title: Emergency Solutions Grant Program and Coronavirus State and Local Fiscal Recovery Funds Federal award identification number and year:LAHSA agreements: GT-BH-ABH-021, GT-BH-RTV-001, GT-BH-RTV-002, GT-BH-RTV-003, GT-BH-RTV-004, GT-BH-RTV-009, GT-TLS-N-013, GTRRH- RR-02, GT-CH-WS-001, GT-1878-2102-001. California Department of Housing and Community Development 21-HK-17231, 21-HK-17171, 21-HK- 17192, County of Los Angeles ARPA funds awarded in 2022. Name of federal agency: U.S. Department of Housing and Urban Development and U.S. Department of the Treasury Name of pass-through entity: County of Los Angeles, Los Angeles Homeless Services Authority, California Department of Housing and Community Development Repeat finding: No Criteria: Under 2 CFR §200.318-326, non-federal entities must adhere to procurement standards for purchases made with federal funds. Key requirements include: - Full and Open Competition: Procurement transactions must be conducted to ensure open competition and prevent practices that may unduly restrict competition (2 CFR §200.319(a)). - Documentation of Procurement History: Entities must maintain records that detail the procurement history, including the rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price (2 CFR §200.318(i)). - Use of Non-Competitive Procurement: Non-competitive procurement is only allowed under limited circumstances, such as when the item is available from a single source, there is a public emergency, or after solicitation of multiple sources, competition is deemed inadequate (2 CFR §200.320(c)). Condition: The organization incurred expenditures of approximately $52 million for the acquisition and renovation of motels into permanent housing using federal funds under the SLFRF program. However: - No documentation was available to demonstrate compliance with federal procurement standards, including the contractor solicitation process, selection method, or the basis for the contract price. - It is unclear whether the contractor was selected through a competitive process, or if justification for non-competitive procurement was appropriately documented as required by 2 CFR §200.320(c). - Contractor costs totaled approximately $7.8 million of the $52 million expended during the year. - The buyer and seller used the same real estate agent for the acquisition transactions. The organization also did not maintain documentation for vendors used in its Emergency Solutions Grant Program sites. These vendors consisted primarily of food providers and security services. Cause: The organization did not establish or follow sufficient internal controls to ensure compliance with federal procurement requirements, including maintaining the required documentation for procurement activities. Effect or potential effect: The lack of procurement documentation creates a significant risk that noncompliant practices occurred, such as non-competitive procurement or payments exceeding fair market value. Questioned cost: N/A Recommendation: Implement comprehensive procurement policies and procedures that comply with federal regulations under 2 CFR §200.318-326. Ensure all procurement transactions are documented, including evidence of competitive bidding or justification for non-competitive procurement under 2 CFR §200.320(c). Conduct staff training on procurement standards for federal awards, focusing on documentation, competition, and conflict of interest requirements. Perform periodic internal reviews to confirm compliance with procurement policies. Consult with California’s HCD regarding their expectations of contractor selection policies for the HomeKey program. Views of responsible officials: Management acknowledges this finding, which occurred during a period of rapid program expansion when procurement infrastructure had not yet been fully developed. Since the audit period, we have completely overhauled our procurement process to ensure full compliance with the Federal procurement standards. We have implemented a formal procurement policy, created a dedicated Procurement sub-department within Finance, hired a Procurement Supervisor and support team, and launched a new procurement software platform to ensure proper solicitation, documentation, approval routing, and record retention for all Federally funded programs. These upgrades establish consistent competitive bidding, justification procedures, conflict-of-interest safeguards, and transparent procurement. In addition, we have strengthened oversight, provided staff training on Federal procurement standards, and embedded monitoring practices to ensure ongoing compliance. Management is confident these substantial structural improvements have significantly reduced the risk of noncompliance and positioned the organization for full alignment with federal procurement standards going forward.