FINDING 2023-002
Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery
Funds - Procurement and Suspension and Debarment
Federal Agency: Department of the Treasury
Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds
Assistance Listings Number: 21.027
Federal Award Number and Year (or Other Identifying Number): FY2023
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
Procurement
Federal regulations require formal procurement methods when the value of the procurement
for property or services exceeds the simplified acquisition threshold (SAT), which is set at
$250,000 unless a lower more restrictive threshold is set by a nonfederal entity. As Indiana
Code has a more restrictive threshold of $150,000, this threshold and formal procurement
methods must be used when procuring goods and services in excess of $150,000. Formal
procurement methods require following documented procedures and obtaining sealed bids or
proposals.
The Town had a documented procurement policy; however, the Town did not follow its policy
for one of the two vendors that exceeded the simplified acquisition threshold. The vendor, paid
$2,419,821, was chosen without obtaining sealed bids or proposals, nor was a formal contract
entered into with the vendor. Furthermore, there was no documentation detailing the history
of the procurement or the Town's justification for limiting competition.
The lack of effective internal controls and noncompliance were isolated to the one vendor noted
above.
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SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Suspension and Debarment
Prior to entering into subawards and covered transactions with the State and Local Fiscal
Recovery Funds (SLFRF) 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
nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed
$25,000. The verification is done by checking the Excluded Parties List System (EPLS),
collecting a certification from that vendor, or adding a clause or condition to the covered
transaction with that vendor.
The Town's policies related to the SLFRF suspension and debarment requirements included a
clause or condition added to covered transactions expected to equal or exceed $25,000 with
that vendor. Three vendors were identified as having transactions that equaled or exceeded
$25,000. All three vendors were selected for testing.
The three vendors, with total expenditures of $4,333,484, were reviewed. For all three vendors,
the Town did not have documented evidence that the clause was included in the contract with
the vendor nor that any other methods were employed to verify the vendor was not suspended,
debarred, or other excluded prior to entering into the transactions.
The lack of internal controls and noncompliance were systematic 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 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. The
non-Federal entity's documented procurement procedures must conform to the procurement
standards identified in §§ 200.317 through 200.327. . . .
(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: Rationale for the
method of procurement, selection of contract type, contractor selection or rejection, and the
basis for the contract price. . . ."
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SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
2 CFR 200.324(a) states:
"The Non-Federal entity must perform a cost or price analysis in connection with every
procurement action in excess of the Simplified Acquisition Threshold including contract
modifications. The method and degree of analysis is dependent on the facts surrounding the
particular procurement situation, but as a starting point, the non-Federal entity must make
independent estimates before receiving bids or proposals."
2 CFR 200.320 states in part:
". . . (b) Formal procurement methods. When the value of the procurement for property or
services under a Federal financial assistance awards exceeds the SAT, or a lower threshold
established by a non-Federal entity, formal procurement methods are required. Formal
procurement methods require following documented procedures. Formal procurement
methods also require public advertising unless a non-competitive procurement can be used in
accordance with § 200.319 or paragraph (c) of this section. The following formal methods of
procurement are used for procurement of property or services above the simplified acquisition
threshold or a value below the simplified acquisition threshold the non-Federal entity
determines to be appropriate:
(1) Sealed bids. A procurement method in which bids are publicly solicited and a firm
fixed-price contract (lump sum or unit price) is awarded to the responsible bidder
whose bid, conforming with all the material terms and conditions of the invitation for
bids, is the lowest in price. The sealed bids method is the preferred method for
procuring construction, if the conditions.
(i) In order for sealed bidding to be feasible, the following conditions should be
present:
(A) A complete, adequate, and realistic specification or purchase description is
available;
(B) Two or more responsible bidders are willing and able to compete effectively
for the business; and
(C) The procurement lends itself to a firm fixed price contract and the selection of
the successful bidder can be made principally on the basis of price.
(ii) If sealed bids are used, the following requirements apply:
(A) Bids must be solicited from an adequate number of qualified sources, providing
them sufficient response time prior to the date set for opening the bids, for
local, and tribal governments, the invitation for bids must be publicly
advertised;
(B) The invitation for bids, which will include any specifications and pertinent
attachments, must define the items or services in order for the bidder to
properly respond;
(C) All bids will be opened at the time and place prescribed in the invitation for
bids, and for local and tribal governments, the bids must be opened publicly;
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(Continued)
(D) A firm fixed price contract award will be made in writing to the lowest
responsive and responsible bidder. Where specified in bidding documents,
factors such as discounts, transportation cost, and life cycle costs must be
considered in determining which bid is lowest. Payment discounts will only be
used to determine the low bid when prior experience indicates that such
discounts are usually taken advantage of; and
(E) Any or all bids may be rejected if there is a sound documented reason.
(2) Proposals. A procurement method in which either a fixed price or cost-reimbursement
type contract is awarded. Proposals are generally used when conditions are not
appropriate for the use of sealed bids. They are awarded in accordance with the
following requirements:
(i) Requests for proposals must be publicized and identify all evaluation factors and
their relative importance. Proposals must be solicited from an adequate number of
qualified offerors. Any response to publicized requests for proposals must be
considered to the maximum extent practical;
(ii) The non-Federal entity must have a written method for conducting technical
evaluations of the proposals received and making selections;
(iii) Contracts must be awarded to the responsible offeror whose proposal is most
advantageous to the non-Federal entity, with price and other factors considered; and
(iv) The non-Federal entity may use competitive proposal procedures for qualifications
based procurement of architectural/engineering (A/E) professional services whereby
offeror's qualifications are evaluated and the most qualified offeror is selected, subject
to negotiation of fair and reasonable compensation. The method, where price is not
used as a selection factor, can only be used in procurement of A/E professional
services. It cannot be used to purchase other types of services though A/E firms that
are a potential source to perform the proposed effort.
(c) Noncompetitive procurement. 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 (see paragraph (a)(1) of this section);
(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."
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SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
31 CFR 19.300 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 do business is not excluded or disqualified. You do this
by:
(a) Checking the EPLS, or
(b) Collecting a certification from that person if allowed by this rule, or
(c) Adding a clause or condition to the covered transaction with that person."
Cause
The Town did not adhere to its procurement policy as written. Instead, a vendor was selected
based on factors other than solicited bids. In addition, the Town was unable to provide documentation to
demonstrate they included a clause in contracts or otherwise verified contractors were not suspended,
debarred, or otherwise excluded prior to entering into the transaction as a direct result of the Town's policy
not addressing those vendors not requiring a contract and not following the policy for those vendors who
had a contract.
Effect
Without the proper implementation of an effectively designed system of internal controls, the Town
cannot ensure goods and services were properly procured. As a result, one vendor paid did not have
adequate documentation to support that the appropriate bid process was followed or that nonprocurement
procedures were permissible.
Furthermore, without the proper implementation of an effectively designed system of internal
controls, the Town cannot ensure the vendors paid with federal funds are eligible to participate in federal
programs. Any program funds the Town used to pay vendors that have been suspended or debarred would
be unallowable.
Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of
the federal award could result in the loss of future funding to the Town.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommend that management of the Town 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 contracts or subawards, and document
reasons for vendors that are chosen without adhering to formal procurement methods.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.