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FINDING 2025-001 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): ARP Act Compliance Requirement: Procurement and Suspension and Debarment Audit Finding: Material Weakness INDIANA STATE BOARD OF ACCOUNTS 13 CITY OF EAST CHICAGO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2024-001. Condition and Context During the audit period, the COVID-19 - Coronavirus State and Local Fiscal Recovery Funds (SLFRF) totaling $4,593,666 were expended under the water, sewer, and broadband eligible use categories. The City entered into two contracts with one vendor for two projects under the water, sewer, and broadband eligible use category during the audit period. Total payments made to the vendors during the audit period were $4,593,666, all of which were subject to suspension and debarment provisions. Prior to entering into subawards and covered transactions with the 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. The City's policy related to suspension and debarment requirements included the Executive Secretary of the Engineering and Board of Works (Executive Secretary) verifying the SAMs exclusions. Per inquiry with the City, the Executive Secretary verified the vendor was not suspended or debarred by checking the SAMs exclusions; however, a documented internal control process was not in place to ensure that suspension and debarment was verified according to City policy. The lack of internal controls was a systemic issue 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). . . ." Cause A policy over suspension and debarment requirements was in place. The policy put the responsibility for the SAM search to the department and/or board utilizing federal funds. However, the policy did not state how the City was going to ensure the department and/or board utilizing federal funds implemented the policy. INDIANA STATE BOARD OF ACCOUNTS 14 CITY OF EAST CHICAGO SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Effect Without the proper implementation of an effectively designed system of internal controls, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the City's management strengthen its policy and implement procedures to ensure its compliance with requirements related to suspension and debarment. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.