Finding 19965 (2022-001)

Material Weakness Repeat Finding
Requirement
I
Questioned Costs
-
Year
2022
Accepted
2023-08-23
Audit: 18421
Organization: City of Richmond (IN)

AI Summary

  • Core Issue: The City failed to verify that contractors were not suspended or debarred before entering into covered transactions, leading to a repeat finding of noncompliance.
  • Impacted Requirements: Compliance with 2 CFR 200.303 and 2 CFR 180.300, which mandate effective internal controls and verification of vendor eligibility.
  • Recommended Follow-Up: Establish a robust system of internal controls and develop clear policies and procedures for verifying contractor eligibility prior to contract execution.

Finding Text

FINDING 2022-001 Subject: Formula Grants for Rural Areas and Tribal Transit Program - Suspension and Debarment Federal Agency: Department of Transportation Federal Programs: COVID-19 - Formula Grants for Rural Areas and Tribal Transit Program, Formula Grants for Rural Areas and Tribal Transit Program Assistance Listings Number: 20.509 Federal Award Numbers and Years (or Other Identifying Numbers): 1803911O, 1804311O Pass-Through Entity: Indiana Department of Transportation Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Modified Opinion Repeat Finding This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2021-003. Condition and Context Prior to entering into subawards and covered transactions with Formula Grants for Rural Areas and Tribal Transit Program 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 non-procurement transaction (i.e., grant agreement) that are expected to equal or exceed $25,000. The verification is to be done by checking the SAM exclusions, collecting a certification from that person, or adding a clause or condition to the covered transaction with that person. Upon inquiry of the City, in order to review the procedures in place for verifying that an entity with which it plans to enter into a covered transaction is not suspended, debarred, or otherwise excluded, the City divulged there were no procedures in place. A population of one covered transaction for goods or services that equaled or exceeded $25,000 paid from Formula Grants for Rural Areas and Tribal Transit Program funds during the audit period was identified. The one transaction, totaling $137,180, was selected for testing. The City did not verify the vendor's suspension and debarment status prior to payment due to the City not having any policies or procedures in place to verify that contractors were neither suspended nor 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 180.300 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 SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause A proper system of internal controls was not designed by management of the City. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the City's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. 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. As a result, vendors to whom payments equal to or in excess of $25,000 were not verified to be not suspended, debarred, or otherwise excluded. 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 management of the City establish a proper system of internal controls and develop policies and procedures to ensure contractors and subrecipients, as appropriate, are not suspended, debarred, or otherwise excluded prior to entering into any contracts or subawards. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

Corrective Action Plan

FINDING 2022-001 Contact Person Responsible for Corrective Action: Emily Palmer, Controller Contact Phone Number: 765-983-7218 Views of Responsible Official: We concur with the finding. Description of Corrective Action: After the 2022 Exit Conference the City Controller met with the Assistant City Attorney and Purchasing Manager the decision was made to include a suspension and debarment clause into our federal contracts going forward. The City?s contract request form has been updated to include a check box to be marked when an employee is requesting a contract utilizing federally awarded dollars. Anticipated Completion Date: January 3, 2023

Categories

Procurement, Suspension & Debarment Subrecipient Monitoring

Other Findings in this Audit

  • 19966 2022-001
    Material Weakness Repeat
  • 19967 2022-002
    Material Weakness
  • 596407 2022-001
    Material Weakness Repeat
  • 596408 2022-001
    Material Weakness Repeat
  • 596409 2022-002
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
21.027 Coronavirus State and Local Fiscal Recovery Funds $3.07M
11.307 Economic Adjustment Assistance $945,615
97.036 Disaster Grants - Public Assistance (presidentially Declared Disasters) $184,661
20.106 Airport Improvement Program $83,917
20.205 Highway Planning and Construction $72,339
93.391 Activities to Support State, Tribal, Local and Territorial (stlt) Health Department Response to Public Health Or Healthcare Crises $70,999
93.991 Preventive Health and Health Services Block Grant $48,132
20.509 Formula Grants for Rural Areas and Tribal Transit Program $41,650
16.922 Equitable Sharing Program $28,307
20.526 Buses and Bus Facilities Formula, Competitive, and Low Or No Emissions Programs $1,952
20.600 State and Community Highway Safety $1,868