FINDING 2025-003 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Suspension and Debarment Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Numbers and Years (or Other Identifying Numbers): CY 2021, SLFRP2104 Pass-Through Entity: Allen County, Indiana Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context The Town elected to receive the standard revenue loss allowance, allowing the Town to claim its total State and Local Fiscal Recovery Funds (SLFRF) allocation of $1,546,403 as revenue loss to use for government services. As such, all SLFRF program funds were expended under the revenue loss eligible use category. The U.S. Department of the Treasury (Treasury) determined that there are no subawards under this eligible use category and that recipients' use of revenue loss funds would not give rise to subrecipient relationships given that there is no federal program or purpose to carry out in the case of the revenue loss portion of the award. Additionally, the Town received a subaward of SLFRF program funds from Allen County totaling $1,732,298 to undertake eligible water tower and water main extension projects. Prior to entering into subawards and covered transactions with SLFRF award funds, recipients are required to verify that such contractors and subrecipients are not suspended, debarred, or otherwise excluded. "Covered transactions" include, but are not limited to, contracts for goods and services awarded under a nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking the Excluded Parties List System (EPLS), collecting a certification from that person or entity, or adding a clause or condition to the covered transaction with that person or entity. Due to the Treasury's determination that the revenue loss eligible use category does not give rise to subawards, the Town was only required to comply with suspension and debarment requirements related to covered transactions. Upon inquiry of the Town, five covered transactions for goods or services that equaled or exceeded $25,000 that were paid from SLFRF funds during the audit period were selected for testing. Each transaction was examined to determine whether the Town verified the suspension and debarment status of the vendor prior to payment. There was no evidence provided for audit indicating that the Town checked the EPLS, collected a certification from that person or entity, or added a clause or condition to the covered transaction with that person or entity. As such, the Town did not verify the vendor was neither suspended nor debarred, or otherwise excluded or disqualified, from participating in federal assistance programs or activities prior to payment for the following covered transactions. Under the Direct Grant through the Treasury, the following covered transactions were identified: The first covered transaction in the amount of $171,813 was for the purchase of a street sweeper. The second covered transaction in the amount of $240,921 was for construction of additional water treatment plant capacity. The third covered transaction in the amount of $198,662 was for a local road and street improvement project. Under the pass-through grant through Allen County, the following covered transactions were identified: The fourth covered transaction in the amount of $856,590 was for the construction of an extension of a water main. The fifth covered transaction in the amount of $866,149 was for the construction of water tank and site improvements. 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). . . ." 31 CFR 19.300 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 EPLS; or (b) Collecting a certification from that person if allowed by this rule; or (c) Adding a clause or condition to the covered transaction with that person." Cause A proper system of internal controls, including policies and procedures, was not designed or implemented by management of the Town to prevent and detect noncompliance. The Town entered into covered transactions without determining whether vendors were neither suspended nor debarred or otherwise excluded or disqualified from participating in federal assistance programs or activities. Effect Without the proper implementation of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. As such, the Town could have entered into a covered transaction with a vendor that was suspended or debarred or otherwise excluded or disqualified from participating in federal assistance programs or activities. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Town implement its system of internal controls to ensure that all contractors that are paid $25,000 or more, all or in part with federal funds, are not suspended, debarred, or otherwise excluded from participating in federal programs prior to entering into any contracts. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.