The District did not have adequate internal controls to ensure compliance with federal procurement requirements.
Description of Condition
The purpose of the Health Center Program is to improve the health of underserved communities and vulnerable populations in the United States by ensuring continued access to comprehensive, culturally competent and quality primary health care services. The District spent $1,468,524 through this program to provide primary and preventive health care services to underserved communities. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of
established controls.
Federal regulations also require recipients to follow their own documented procurement procedures, which must conform to the Uniform Guidance procurement standards found in 2 CFR 200.318-327. The procedures must reflect the most restrictive of applicable federal requirements, state laws or local policies.
When using federal funds to purchase goods or services, governments must apply the most restrictive of federal requirements, state law or local policies by obtaining quotes or following a competitive bidding process, depending on the estimated cost of the purchase or project.
The District’s adopted policy includes procedures for the purchase of supplies, materials, equipment and services. However, the thresholds do not conform to the
most restrictive of $75,000 for public works contracts, and the policy does not include required elements to conform with Uniform Guidance requirements.
In addition, the District entered into two contracts for public work projects during the audit period. One contract was for the installation of a modular building for
$745,172, and the other was for a clinic renovation for $247,250. Both projects were partially paid with federal funds, and they required competitive bidding. Our
audit found the District did not follow proper procurement procedures for these projects to ensure compliance with Uniform Guidance requirements.
We consider these deficiencies in internal controls to be a material weakness.
Cause of Condition
District employees did not know about the policy requirements. Additionally, District officials said that obtaining quotes for these projects was the most economical process because the District has previously experienced difficulties with obtaining contractors within its remote location.
Effect of Condition
Without written procedures in place, the District is at greater risk of noncompliance with the most restrictive of federal, state, or local procurement methods when
procuring contractors paid all or in part with federal funds.
Since the District did not comply with federal procurement requirements to formally bid two public work projects, it cannot demonstrate it received the best
price for the services provided.
Recommendation
We recommend the District ensure its written procurement procedures comply with the most restrictive of federal, state or local requirements, as required by Uniform Guidance. We also recommend the District strengthen its internal controls over procuring public work projects to ensure compliance with federal procurement requirements.
District’s Response
During the planning phase of each project, the District, working closely with its architectural firm, conducted extensive research on available contractors within
the region with specific experience in construction for health care practice. It was determined that while there are an adequate number of contractors in the area;
there is a robust housing construction trend occurring at present. As a result, contractors with specific experience health care construction conveyed they were
not interested in the size of the District project to consider submitting a bid. The project then became a single source with only one vendor interested in submitting
a bid for the work proposed. It was not feasible or economical to publicize the solicitation through appropriate periodicals of general circulation and trade press
to solicit bids to maximize competition.
The procurement for the prefabricated modular building was a unique circumstance where there are a limited number of vendors that can supply the
product needed by the District within a reasonable geographic vicinity. The product needed by the District within a reasonable geographic vicinity. The District
obtained written proposals from three known supplies of the specialty item for procurement. The request included specifications that defines the item of service
needed that allowed for the vendor to properly respond.
A cost and price analysis was conducted based on the response from the bids solicited. The final award was based on price as well as the lack of competition due
to limited specialty suppliers.
For this project, competition was determined inadequate due to the limited number of specialty vendors with the ability to fulfill the District requirements of a
prefabricated structure. Therefore, it was not deemed feasible or economical to publicize the solicitation through appropriate periodicals of general circulation
and trade presses.
Auditor’s Remarks
We thank the District for its cooperation and assistance during the audit and will review the status of this issue during the next audit.
Applicable Laws and Regulations
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards
(Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs
and comply with federal program requirements.
The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing
Standards, section 935, Compliance Audits, paragraph 11.
Title 2 CFR Part 200, Uniform Guidance, section 318, describes general procurement standard requirements for auditees to follow. All procurement transactions for the acquisition of property or services required under a federal award must be conducted in a manner providing full and open competition consistent with the standards of this section.