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FINDING 2021-003 Subject: Water and Waste Disposal Systems for Rural Communities - Suspension and Debarment Federal Agency: Department of Agriculture Federal Program: Water and Waste Disposal Systems for Rural Communities Assistance Listings Number: 10.760 Federal Award Number and Year (or Other Identifying Number): 17-10389 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context An effective internal control system was not in place at the Town to ensure compliance with requirements related to the grant agreement and the suspension and debarment portion of the Procurement and Suspension and Debarment compliance requirement. Prior to entering into subawards and covered transactions with federal funds, recipients are required to verify that contractors and vendors are not suspended, debarred, or otherwise excluded from receiving those federal funds. "Covered transactions" include, but are not limited to, contracts for goods and services awarded under procurement and nonprocurement transactions (i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking SAM exclusions online, collecting a certification from that vendor/contractor, or adding a clause or condition to the covered transaction with that vendor/contractor. INDIANA STATE BOARD OF ACCOUNTS 18 TOWN OF KNIGHTSTOWN SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The Town had three contracted vendors related to this project with combined federal expenditures of $2,125,306 during the audit period including its engineering and two main construction firms. The Town could not provide documentation that procedures were performed to verify that each of these vendors paid from the grant were not excluded or otherwise disqualified from participation in federal programs. 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). . . ." 2 CFR 180.300 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 intend to do business is not excluded or disqualified. You do this by: (a) Checking the SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause Town officials were unaware of the grant's requirements regarding suspension and debarment. The Town did not have a documented federal procurement policy to ensure that the suspension and debarment status of contractors and vendors receiving federal funds was verified prior to entering into the covered transactions or contracts. Effect Without the proper implementation of an effectively designed system of internal controls, the Town cannot ensure the vendors paid with federal funds are eligible to participate in federal programs. Any program funds the Town used to pay vendors that have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions or the federal award could result in the loss of future federal funding to the Town. Questioned Costs There were no questioned costs identified. INDIANA STATE BOARD OF ACCOUNTS 19 TOWN OF KNIGHTSTOWN SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Recommendation We recommended that the Town adopt a federal procurement policy and implement a system of internal controls to ensure that all contractors and vendors that are paid $25,000 or more, all or in-part with federal funds, are not suspended or debarred from participating in federal programs before entering into any covered transactions. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.