Finding 2025-004: Procurement Material Noncompliance and Material Weakness in Internal Control over Compliance Federal Program: Health Center Program (Assistance Listing 93.224) Criteria: Federal procurement standards require non-Federal entities to maintain procurement records sufficient to detail the history of the procurement, including the rationale for the method of procurement, contractor selection, and the basis for contract price. Micro-purchases may be awarded without soliciting competitive quotations only if the non-Federal entity considers the price to be reasonable. Small purchase procedures require price or rate quotations from an adequate number of qualified sources. Noncompetitive (sole-source) procurements may be used only in limited circumstances and must be supported by documentation demonstrating the applicable justification. Additionally, management is responsible for establishing and maintaining effective internal controls to provide reasonable assurance that procurement transactions comply with applicable federal requirements. Condition: Management represented that the procurement method is identified and documented for purchases charged to federal programs. However, the Organization does not have a formal review and approval process to verify that the procurement method selected is appropriate, adequately supported, and documented in accordance with federal procurement requirements. During testing of 68 procurement transactions charged to the Health Center Program, we noted the following exceptions: Thirteen procurements were identified as sole-source procurements; however, no documentation was maintained to support the use of the noncompetitive procurement method or demonstrate that one of the allowable sole-source criteria was met. Sixteen procurements were identified as micro-purchases; however, no documentation was maintained to support price reasonableness or demonstrate that the aggregate procurement transaction qualified for micro-purchase treatment. Thirty-six procurements were identified as micro-purchases; however, based on the aggregate value of purchases with the vendor, the procurements exceeded the micro-purchase threshold and should have been procured using, at a minimum, small purchase procedures requiring price or rate quotations from an adequate number of qualified sources. Cause: Management has not established a formal review and approval process to verify the accuracy of procurement method determinations or ensure procurement documentation is maintained in accordance with federal requirements. As a result, purchases are not consistently evaluated for aggregation, price reasonableness, competitive procurement requirements, or sole-source justification prior to being charged to the federal program. Effect: Because procurement methods are not subject to an effective review and approval process, there is an increased risk that purchases may not be procured using the method required under federal regulations or may lack sufficient supporting documentation. Consequently, the Organization cannot demonstrate compliance with federal procurement requirements, including requirements related to competition, price reasonableness, and sole-source procurements. Questioned Costs: Undeterminable. Although the purchases were supported by invoices and were recorded as program expenditures, management did not maintain sufficient documentation to support the procurement method utilized or compliance with applicable procurement requirements. As a result, we could not determine the amount of federal expenditures, if any, that would have been different had the procurements been conducted in accordance with federal procurement standards. Context: During our testing of 68 procurement transactions charged to the Health Center Program, 65 transactions were identified with procurement documentation deficiencies. Exceptions included unsupported sole-source procurements, micro-purchases lacking documentation of price reasonableness, and purchases classified as micro-purchases that exceeded the applicable threshold when evaluated in the aggregate and should have been subject to more stringent procurement procedures. These exceptions indicate a systemic deficiency in controls over procurement method determinations, documentation, review, and approval. Repeat Finding: This is not a repeat finding. Recommendation: We recommend management implement formal procedures requiring review and approval of procurement method determinations before purchases are charged to federal programs. Procedures should include documenting aggregate purchase evaluations, retaining evidence supporting price reasonableness for micro-purchases, obtaining and retaining required quotations for small purchases, documenting any sole-source justification, and maintaining procurement records sufficient to support compliance with federal procurement requirements. Management should also implement an independent review process to verify that procurement documentation is complete and the procurement method selected is appropriate and compliant with federal regulations. Management Response: Management concurs with the finding. The Organization recognizes that procurement procedures and related documentation requirements were not consistently followed and that adequate controls were not in place to ensure compliance with federal procurement standards. Management will conduct a comprehensive review of procurement policies and procedures and will implement formal review requirements for procurement method determinations. To support these efforts, management is hiring a Purchasing Coordinator who will be responsible for all aspects of the Organization’s procurement function and for ensuring that all purchases are conducted in accordance with the Organization’s written procurement policies and the procurement standards of the Office of Management and Budget (OMB) Uniform Guidance (2 CFR 200.317 through 200.327). Additional procedures will require documentation of price reasonableness, competitive quotations, sole-source justifications, and aggregate vendor purchase evaluations, as applicable. The Purchasing Coordinator will determine and document the appropriate procurement method for each purchase, obtain and retain required quotations, and maintain complete procurement files for all purchases charged to federal awards. Personnel involved in purchasing activities will receive additional training on Uniform Guidance procurement requirements, and management will implement monitoring procedures to verify compliance on an ongoing basis. To maintain appropriate segregation of duties, the Accounting Department will independently review procurement files before payment to verify that documentation is complete and that the selected procurement method is appropriate and compliant with federal requirements.