FINDING 2022-003Subject: COVID-19 - Coronavirus State and Local Fiscal RecoveryFunds - Procurement and Suspension and DebarmentFederal Agency: Department of the TreasuryFederal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery FundsAssistance Listings Number: 21.027Federal Award Numbers and Years (or Other Identifying Numbers): FY 2021, SWIF222533Pass-Through Entities: Direct, Indiana Finance AuthorityCompliance Requirement: Procurement and Suspension and DebarmentAudit Findings: Material Weakness, Modified OpinionCondition and ContextProcurementThe Indiana General Assembly allocated $100 million of federal State and Local FiscalRecovery Funds (SLFRF) to the Indiana Finance Authority (IFA) to provide grants for drinkingwater, stormwater, and wastewater projects that protect and improve public health throughoutthe State. As such, the IFA created the Water Infrastructure Grant Program which consists oftwo grants, the State Water Infrastructure Fund (SWIF) and Transportation and Stormwater(TRSW). The City applied for and was awarded a SWIF grant in the amount of $5,500,000.Federal regulations allow for informal procurement methods when the value of the procurementfor property or services does not exceed the simplified acquisition threshold, which is customarilyset at $250,000. However, Indiana Code 5-22-8 has a more restrictive threshold of$150,000 or less for when small purchase procedures may be used. Indiana Code providesthat the proper purchasing method would be the bidding process, unless the purchase meetscertain other qualifications.Two vendors fell within the simplified acquisition threshold. The total dollar value of the twocovered transactions was $8,825,455. Of that amount, $1,880,565 was paid to the vendors in2022. For one vendor, paid $365,512, the City did not have contract files to document thehistory of the procurement, including the rationale for the method of procurement, nor selectionof the contract. In addition, there was no documentation that a cost or price analysis wasperformed.The lack of internal controls and noncompliance were systemic throughout the audit period.Suspension and DebarmentThe City elected to receive the standard revenue loss allowance, allowing them to claim theirtotal SLFRF allocation from the U.S. Department of the Treasury (Treasury) of $3,863,645 asrevenue loss to use for government services. As such, all SLFRF program funds wereexpended under the revenue loss eligible use category. The Treasury determined that thereare no subawards under this eligible use category, and that recipients' use of revenue lossfunds would not give rise to subrecipient relationships given that there is no federal program orpurpose to carry out in the case of the revenue loss portion of the award. In addition, the City'sSWIF award funded with SLFRF program funds, in the amount of $5,500,000, is subject tosuspension and debarment requirements.Prior to entering into subawards and covered transactions with SLFRF award funds, recipientsare required to verify that such contractors and subrecipients are not suspended, debarred, orotherwise excluded. "Covered transactions" include, but are not limited to, contracts for goodsand services awarded under a non-procurement transaction (i.e., grant agreement) that areexpected to equal or exceed $25,000. The verification is to be done by checking the ExcludedParties List System (EPLS), collecting a certification from that person, or adding a clause orcondition to the covered transaction with that person. Due to the Treasury's determination thatthe revenue loss eligible use category does not give rise to subawards and the fact the City didsubgrant any of its SWIF award, the City was only required to comply with suspension anddebarment requirements related to covered transactions.Upon inquiry of the City in order to review the procedures in place for verifying that an entitywith which it plans to enter into a covered transaction is not suspended, debarred, or otherwiseexcluded, the City divulged that they were unaware of the suspension and debarment requirementsrelated to the SLFRF awards. Nine covered transactions that equaled or exceeded$25,000 were identified. All nine transactions, totaling $2,339,050, were selected for testing.The City did not verify the vendors' suspension and debarment status prior to payment on anyof the covered transactions due to the City not having any policies or procedures in place toverify that contractors were neither suspended nor debarred, or otherwise excluded or disqualifiedfrom participating in federal assistance programs or activities.The lack of internal controls and noncompliance were systemic issues throughout the audit period.Criteria2 CFR 200.303 states in part:"The non-Federal entity must:(a) Establish and maintain effective internal control over the Federal award that providesreasonable assurance that the non-Federal entity is managing the Federal award incompliance with Federal statutes, regulations, and the terms and conditions of the Federalaward. These internal controls should be in compliance with guidance in 'Standards forInternal Control in the Federal Government' issued by the Comptroller General of theUnited States or the 'Internal Control Integrated Framework', issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). . . ."2 CFR 200.318 states in part:"(a) The non-Federal entity must have and use documented procurement procedures,consistent with State, local, and tribal laws and regulations and the standards of this section,for the acquisition of property or services required under a Federal award or subaward. Thenon-Federal entity's documented procurement procedures must conform to the procurementstandards identified in this part. . . .(i) The non-Federal entity must maintain records sufficient to detail the history of procurement.These records will include, but are not necessarily limited to, the following: Rationalefor the method of procurement, selection of contract type, contractor selection or rejection, andthe basis for the contract price. . . ."CauseA proper system of internal controls was not designed by management of the City. Embeddedwithin a properly designed and implemented internal control system should be internal controls consistingof policies and procedures. Policies reflect the City's management statements of what should be done toeffect internal controls, and procedures should consist of actions that would implement these policies.EffectWithout the proper implementation of an effectively designed system of internal controls, theinternal control system cannot be capable of effectively preventing, or detecting and correcting, materialnoncompliance. As a result, proper procurement procedures were not adhered to for all vendors andvendors 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 ofthe federal award could result in the loss of future federal funding to the City.Questioned CostsThere were no questioned costs identified.RecommendationWe recommended that management of the City establish a proper system of internal controls anddevelop policies and procedures to ensure proper procurement methods are adhered to for all purchasesof good and services and that contractors and subrecipients, as appropriate are not suspended, debarred,or otherwise excluded prior to entering into any contracts or subawards.Views of Responsible OfficialsFor the views of responsible officials, refer to the Corrective Action Plan that is part of this report.