Finding 401757 (2023-003)

Criteria or specific requirement: The Code of Federal Regulations, 2 CFR 180.200, prohibits non-federal entities from contracting or making subawards under covered transactions to parties that are suspended or debarred. Covered transactions include contracts for goods and services awarded under a non-procurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000 or meet certain other criteria as specific in 2 CFR 180.220. All non-procurement transactions entered into by a passthrough entity (i.e., subawards to subrecipients), irrespective of award amount, are considered covered transactions, unless they are exempt as provided in 2 CFR 180.215. The non-federal entity must verify when entering into a covered transaction with a lower entity, as defined in 2 CFR 180.995, that the lower entity is not suspended or debarred. This verification can be accomplished by the following methods: (1) checking SAM exclusions, (2) collecting a certification from the entity, or (3) adding a clause or condition to the covered transaction with that entity, as defined in 2 CFR 180.300. Condition: During our testing of internal control over suspension and debarment for subrecipients, we noted that the Company did not have effective controls over compliance. Context: In our sample of 9 subaward agreements, we noted that there were 7 instances in which the Company did not have evidence of verification that the subrecipient was not suspended or debarred prior to entering into a covered transaction. Cause: Management was initially unaware of the requirements. Management was made aware of the requirements through discussions with grantor agency but was unclear on what entities should be reviewed for this compliance requirement. Effect: The Company could inappropriately disburse federal funds for subawards for entities that may be suspended or debarred. Recommendation: We recommend the Company utilize standard forms and procedures to document verification that parties are not suspended or debarred prior to entering into a covered transaction with a subrecipient. Views of responsible officials: There is no disagreement with the audit finding.