Finding Text
FINDING 2025-002 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 Number and Year (or Other Identifying Number): 1505-0271 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Condition and Context Prior to entering into subawards and covered transactions with the COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (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 adding a clause or condition to the covered transaction with that person. The City did not have policies or procedures in place to address the SLFRF suspension and debarment requirements. During the audit period, the City entered into one covered transaction totaling $860,000, which met the $25,000 threshold for verification. However, the City did not verify the vendor's suspension or debarment status prior to payment because no process existed to ensure contractors were not suspended, debarred, or otherwise excluded or disqualified from participating in federal assistance programs or activities. 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 200.214 states: "Non-federal entities are subject to the non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689, 2 CFR part 180. The regulations in 2 CFR part 180 restrict awards, subawards, and contracts with certain parties that are debarred, suspended, or otherwise excluded from or ineligible for participation in Federal assistance programs or activities." INDIANA STATE BOARD OF ACCOUNTS 16 CITY OF HUNTINGTON SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 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 The City was not aware of the suspension and debarment requirements associated with the SLFRF grant. Because the City does not typically receive large federal awards, it did not have formal policies or procedures in place to verify vendors' suspension and debarment status. The City hired a consultant to provide guidance related to a large reconstruction project and to assist with federal grant requirements; however, the City relied on this general guidance and did not establish its own process to ensure compliance with the suspension and debarment requirement. Effect Without the proper implementation of an effectively designed system of internal controls, the City cannot ensure contractors paid with federal funds are eligible to participate in federal programs. Any program funds the City used to pay contractors who have been suspended or debarred would be unallowable, and the funding agency could potentially recover them. Furthermore, noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the City. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City establish and implement a formal system of internal controls to ensure compliance with suspension and debarment requirements. This should include developing and strengthening written policies and procedures to verify, prior to entering into a contract or making payments of $25,000 or more with federal funds, that contractors are not suspended, debarred, or otherwise excluded from participation in federal assistance programs. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.