Finding 496296 (2023-002)

Material Weakness
Requirement
I
Questioned Costs
-
Year
2023
Accepted
2024-09-10
Audit: 319185
Organization: City of Petersburg (IN)

AI Summary

  • Core Issue: The City of Petersburg failed to provide necessary documentation for procurement over $150,000, indicating a lack of internal controls.
  • Impacted Requirements: Noncompliance with federal procurement standards (2 CFR 200.303, 200.318, and 200.320) raises concerns about proper vendor selection and pricing.
  • Recommended Follow-Up: Establish and implement robust internal controls and procurement procedures to ensure compliance and prevent potential overpayments and loss of federal funding.

Finding Text

FINDING 2023-002 Subject: Water and Wastewater Disposal Systems for Rural Communities - Procurement Federal Agency: Department of Agriculture Federal Program: Water and Waste Disposal Systems for Rural Communities Assistance Listings Number: 10.760 Federal Award Numbers or Years (or Other Identifying Numbers): EDA Grant / 06-79-06190, RD Loan 01 / 06-79-06190 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Condition and Context Federal regulations allow for informal procurement methods when the value of the procurement for property or services does not exceed the simplified acquisition threshold, which is set at $250,000 unless a lower, more restrictive threshold is set by a non-federal entity. As Indiana Code has set a more restrictive threshold of $150,000, informal procurement methods are permitted when the value of the procurement does not exceed $150,000. This informal process allows for methods other than the formal bid process. The informal process is divided between two methods based on thresholds. Micro-purchases, typically for those purchases $10,000 or under, and small purchase procedures for those purchases above the micropurchase threshold, but below the simplified acquisition threshold. Micro-purchases may be awarded without soliciting competitive price rate quotations. If small purchase procedures are used, then price or rate quotations must be obtained from an adequate number of qualified sources. INDIANA STATE BOARD OF ACCOUNTS 16 CITY OF PETERSBURG SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) During the audit period, the City had five vendors with purchases over the $150,000 threshold that were considered simplified acquisition procurements. Only one vendor was selected for testing due to the procurement requirements being tested on the other four vendors during the prior audit. For the one vendor, the City could not provide the procurement history or the rationale for the method of procurement, the selection of vendor, or the basis for price. The total dollar amount spent with this vendor during 2023 was $414,465. The lack of internal controls and noncompliance were isolated to the one vendor noted above. 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. . . ." 2 CFR 200.320(b) states in part: "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. . . . INDIANA STATE BOARD OF ACCOUNTS 17 CITY OF PETERSBURG SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) (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. . . ." Cause The City was unable to provide documentation to demonstrate they had properly procured services. A proper system of internal controls was not designed by management of the City. Embedded within a properly designed or 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 City cannot demonstrate it obtained an adequate number of price or rate quotations prior to selecting a vendor. Therefore, the City could have overpaid for the services obtained. 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 strengthen its system of internal controls to ensure that an adequate number of price or rate quotations are obtained. We also recommended strengthening its policies and procedures to ensure appropriate supporting documentation for federal programs is retained to be presented for audit. 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 2023-002 Finding Subject: Water and Wastewater Disposal Systems for Rural Communities – Procurement Summary of Finding: One vendor was not procured according to the simplified acquisition threshold. Contact Person Responsible for Corrective Action: Tammy Selby Contact Phone Number and Email Address: 812-354-8511 tselby@petersburg.in.gov Views of Responsible Officials: We concur with the finding. Description of Corrective Action Plan: In the future, we will bid out all professional services. We will follow our same policies for bidding out to other vendors. Anticipated Completion Date: December 31, 2024

Categories

Procurement, Suspension & Debarment

Other Findings in this Audit

  • 1072738 2023-002
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
10.760 Water and Waste Disposal Systems for Rural Communities $7.78M
21.027 Coronavirus State and Local Fiscal Recovery Funds $137,919
97.083 Staffing for Adequate Fire and Emergency Response (safer) $104,215