Finding Text
Finding 2025-001 – I. Procurement Identification of the federal program: Federal Agency: U.S. Department of Health and Human Services Assistance Listing: 93.493, Congressional Directives Award Period: July 1, 2024 through June 30, 2025 Criteria or specific requirement (including statutory, regulatory or other citation): Section 200.303 of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) states the following regarding internal control: “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).” Condition: UC Health did not appropriately design and execute internal controls over their procurement process outside of general construction costs when utilizing federal funds to ensure that all federal requirements were satisfied and documented, including retention of documentation to evidence performance of controls. Cause: The controls designed by UC Health pertaining to the procurement process outside of general construction costs did not include formal policies that outlined the required competitive solicitation process. Further, outside of procurement for general construction, controls have not been established to retain documentation over the applied procurement approach or resulting decisions made, including evidence of bids received. Effect or potential effect: The absence of controls requiring formal documentation over the procurement process resulted in expenditures made without a competitive solicitation process, which could have resulted in expenditures of federal funds that were not financially responsible. Questioned costs: $519,857 Context: From May 2024 through June 2025 $3,091,285 of costs were incurred on the federally funded project. This total was allocated between general construction costs ($2,073,952) and other expenditures ($1,017,333), with other expenditures relating to consulting services, medical equipment, non-medical equipment, and information technology hardware. The competitive bidding for the general construction costs occurred prior to the period under audit. Procurement for the other expenditures was completed in the fiscal year ended June 30, 2025. While the other expenditures related to purchases from a group of vendors that were approved internally and consistently utilized by UC Health, no formal documentation regarding bidding processes was available to validate compliance with federal requirements. The $1,017,333 total of other expenditures was multiplied by the 51.1% Federal Percentage Share computed in the grant application to arrive at the $519,857 questioned cost reported. This balance represents the full balance of the federal portion of project expenditures that did not go through the federally required bidding process. Identification as a repeat finding, if applicable: Not applicable. Recommendation: Management should establish internal control processes over the procurement process that align with the federal requirements. This includes maintenance of formal policies that align with federal requirements and that outline the procurement options and situation in which each will be applied, including explicit statement of the applicable micro-purchase threshold and simplified acquisition threshold. The internal control established should include formal documentation retention steps to evidence applied the applied procurement strategy, bids received, and rationale for vendor selection. Views of responsible officials: Management agrees with the finding and will update policies and procedures to ensure that all federal requirements around procurement approaches are satisfied and formally documented.