Finding 401434 (2023-001)

Identification of the federal program: Federal Agency: United States Department of Health and Human Services, Health Resources and Services Administration (HRSA) Pass-Through Entities: North Dakota Department of Health, South Dakota Department of Health and Minnesota Department of Health Assistance Listing: 93.155; COVID-19 Rural Health Research Centers Award Numbers: Various Award Year: FY 2021 – 2023 Criteria or specific requirement (including statutory, regulatory or other citation): 2 CFR Section 200.303 of the Uniform Guidance states the following regarding internal control: “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).” The Uniform Guidance 2 CFR Section 200.213 states, “Non-federal entities are subject to the non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689, 2 CFR Part 180. These regulations 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”.   In addition, Uniform Guidance 2 CFR Section 200.320 (c) states: “There are specific circumstances in which noncompetitive procurement can be used. Noncompetitive procurement can only be awarded if one or more of the following circumstances apply: (1) The acquisition of property or services, the aggregate dollar amount of which does not exceed the micro-purchase threshold; (2) The item is available only from a single source; (3) The public exigency or emergency for the requirement will not permit a delay resulting from publicizing a competitive solicitation; (4) The Federal awarding agency or pass-through entity expressly authorizes a noncompetitive procurement in response to a written request from the non-Federal entity; or (5) After solicitation of a number of sources, competition is determined inadequate.” Further, Uniform Guidance 2 CFR Section 200.320(a)(2) states: Small purchases – “The acquisition of property or services, the aggregate dollar amount of which is higher than the micro-purchase threshold but does not exceed the simplified acquisition threshold. If small purchase procedures are used, price or rate quotations must be obtained from an adequate number of qualified sources as determined appropriate by the non-Federal entity.” Condition: We noted the following matters during our testing of Procurement and Suspension and Debarment compliance requirements: • A third-party vendor performed the suspension and debarment validation process for Sanford. The third-party vendor does not have a SOC 1 (System and Organization Controls) Report. For a portion of the year, Sanford relied on the suspension and debarment checks performed by the third-party vendor for results concluding no match without completing a validation control to ensure the results provided by the third-party vendor were accurate. • We noted instances where the vendor screening for suspension and debarment was not performed prior to setting up the vendor in the System and procuring the goods/services. Section III—Federal Award Findings and Questioned Costs (continued) • For certain procurement transactions tested, we noted Sanford did not adhere to the compliance requirements and did not follow its procurement policy by maintaining documentation related to cost/price analysis or sole-source procurement and completing the sole-source justification forms timely. Cause: Sanford utilizes a third-party vendor to perform suspension and debarment checks on its vendors, both during the vendor setup process as well as ongoing monitoring of active vendors. Sanford did not add an additional validation control until August 2023 to ensure that the suspension and debarment checks performed by the third-party vendor aligned with the governmental suspension and debarment database when the search resulted in no match. In addition, Sanford did not follow its procurement policy and perform the vendor screening for suspension and debarment prior to setting up the vendor in the system and transacting with the vendors. Furthermore, Sanford, prior to entering into the procurement transaction, did not complete the sole-source justification forms, or maintain documentation to support the sole-sourced procurements for those procurement transactions that exceeded the small purchase threshold. Effect or potential effect: Sanford’s screening for suspension and debarment through the third-party vendor results may not be accurate for the period January 1, 2023 through July 31, 2023. Further, by not performing the vendor screening for suspension and debarment prior to transacting with the vendor, Sanford could have potentially entered into a business transaction with suspended or debarred parties. Sanford did not comply with the federal procurement requirements and its procurement policy by not maintaining adequate documentation to support the cost/price analysis or sole sourced vendor selections in addition to not timely completing the sole source justification forms.   Section III—Federal Award Findings and Questioned Costs (continued) Questioned costs: $307,249 determined as the amount of the procurement expenditures included in the Schedule of Expenditures of Federal Awards for two procurement transactions that had inadequate documentation to justify sole source selection. Context: To ensure compliance with 2 CFR Section 200.213, Sanford conducts both preventive and detective controls in its vendor setup and monitoring process to ensure new vendors and active vendors are not suspended or debarred. A consistent vendor setup process is followed for each new vendor that Sanford transacts with, regardless of whether the vendor transactions are funded through federal grant funding or through other sources. To prevent a suspended or debarred vendor from being added as a new vendor, the vendor is checked against the suspension and debarment database electronically before completion of the vendor setup. Subsequent to vendor setup, Sanford also monitors the status of its vendors to ensure the vendor’s status has not changed. We selected 25 new vendors to verify that the suspension and debarment screening was performed and performed timely. We noted for 3 of the 25 vendors, the suspension and debarment screening was not performed prior to setting up the vendor in the system and for 1 of these vendors, Sanford had entered into a transaction prior to performing the suspension and debarment screening. We selected 8 procurement transactions that exceeded the small purchase threshold. Of the 8 transactions, 4 transactions did not follow the federal procurement standards and Sanford’s procurement policy which requires sole source documentation be completed prior to procuring the items. Additionally, for 2 of these 4 transactions, Sanford did not have sufficient documentation maintained to support the cost/price analysis performed or justification to support the sole source selection of the vendors. Total federal expenditures subject to suspension and debarment is $2,870,421, and federal expenditures exceeding the micro purchase threshold is $2,298,733. Total federal expenditures under the program, as reported on the SEFA, is $2,870,421. Identification as a repeat finding, if applicable: This finding is a repeat of Finding 2022-001 in the prior year. Recommendation: Management should ensure that the suspension and debarment screening is performed prior to entering into the transaction with the vendor and also ensure that it follows the procurement policy to verify suspension and debarment of the vendor prior to setting up the vendor in the system. In addition, Management should ensure that any sole sourced purchases or when quotes are obtained, that those be documented prior to entering into the procurement transaction. Views of responsible officials: Sanford continues to document periodic validation of the suspension and debarment search results performed by the third-party vendor for vendor searches that yield no suspension and debarment match. Additionally, as part of the periodic validation, Sanford will include a validation to ensure a suspension and debarment search is completed prior to setting the vendor up in the system. Sanford will re-educate appropriate staff regarding the process to verify a suspension and debarment search is completed prior to setting up the vendor in the system. Sanford’s preventative and detective controls and operating procedures provide reasonable assurance over the effectiveness of the controls necessary to prevent the risk of federal funds being paid to vendors that are suspended or debarred. Sanford’s preventive and detective controls and operating procedures provide reasonable assurance over the effectiveness of the controls necessary to prevent the risk of federal funds being utilized for items that do not adhere to the procurement standards. Sanford will re-educate applicable parties and enhance its procedural documentation regarding procurement. Sanford will implement a monthly review process of federal funds utilized for procurement.