Finding 2023-001 – Internal control deficiency and noncompliance over Procurement.
Identification of the federal program:
Assistance Listing Number 93.738:
• PPHF: Racial and Ethnic Approaches to Community Health Program financed solely by Public Prevention and Health Funds
• COVID-19 – PPHF: Racial and Ethnic Approaches to Community Health Program financed solely by Public Prevention and Health Funds
• U.S. Department of Health and Human Services
• Federal Award Identification Number – NU58DP006604
• Federal Award Year – September 30, 2018 to September 29, 2023
Criteria or specific requirement (including statutory, regulatory or other citation):
Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.303 – Internal controls. 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).
Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.318(i) – General procurement standards. 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.
Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.320 – Methods of procurement to be followed. The non-Federal entity must have and use documented procurement procedures, consistent with the standards of this section and 200.317, 200.318, and 200.319 for any of the following methods of procurement used for the acquisition of property or services required under a Federal award or sub-award: (a) (2) Small purchases – (i) Small purchase procedures. 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; (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; (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.
Condition:
Management did not have effective internal controls in place over the compliance requirements as stated in the criteria or specific requirement section above. Management did not maintain records for procurements sufficient to detail the history of procurement, including the rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price.
Cause:
Management did not have effective internal controls in place over the compliance requirements as stated in the criteria or specific requirement section above.
Effect or potential effect:
Small purchase procurements and noncompetitive procurements were not supported by effective internal controls and could potentially include unreasonable prices or rates.
Questioned costs:
$43,694 – Assistance Listing Number 93.738, Award Identification Number – NU58DP006604
Questioned costs were computed by taking the total small purchase procurements that were not supported by adequate documentation of $43,694.
Context:
During our testing over small purchase procurements, we obtained a listing of small purchase procurements and selected a sample of 6 which represented the entire population. The total value of the small purchase procurements was $236,269.
There were 2 ($43,694) out of 6 ($236,269) selections where management did not maintain records for procurements sufficient to detail the history of procurement, including the rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price.
Identification as a repeat finding, if applicable:
No.
Recommendation:
We recommend management develop and implement effective internal controls to ensure the compliance requirements over procurements are performed. In addition, management should review the items identified as questioned costs to identify if any improper payments were made to the entity.
Views of responsible officials:
This finding was due to two process failures.
The first relates to a lack of adequate documentation whereby PHS entered into a contract with the New Mexico Department of Health to provide services under the REACH immunization program as a sole source procurement. The allowability of this cost is not in question. The scope of work was presented to and approved by the CDC before the procurement was initiated. However, the justification for use of the New Mexico Department of Health as a sole source contractor was not adequately documented.
The second failure was due to a lack of awareness and ineffective communication regarding the applicability of Federal procurement requirements to certain advertising services procured for the REACH immunization program. This breakdown occurred as the PHS Communications and Brand Management Department coordinating the procurement of the services does not typically engage with Federally funded projects and was not made aware of the applicable requirements by the Community Health department who had received the funding and was requesting the services. The realization that advertising needs for the REACH immunization project would exceed the micro purchase threshold and trigger the need for a different process for the Communications department was overlooked and not communicated effectively. The advertising costs included in this finding are allowable. The finding occurred because the costs exceeded the micro purchase threshold and were not competitively bid.
Presbyterian agrees that the lack of awareness in this situation created a scenario where the required efforts and documentation necessary to justify a sole source procurement were not met. It should be noted, however, that Presbyterian has awareness of the procurement requirements in the code of federal regulations governing such matters and strives to be compliant with those requirements. This is evidenced by the following:
• A robust policy governing procurements under federal awards that aligns with the procurement requirements within 2 CFR 200.
• Annual required training for all Leaders (Directors and above) that includes risks associated with grant funding and incorporates a link to the federal procurement policy.
• A Federal Conflict of Interest policy to mitigate and remediate conflicts of interest that would be associated with procurements under federal awards.
• A rigorous process to ensure compliance with subaward and contractual agreements.
• No fraud has ever been detected or suspected with any of Presbyterian’s federal awards.
• Internal processes in place to approve purchases made directly by programs with grant funding.
• Monthly transactions reviews performed to confirm appropriateness and identification of any necessary corrections prior to closing the accounting period as well as budget to actual tracking.
Presbyterian acknowledges that despite the processes and policies listed above, additional education and ongoing training and communication of Federal procurement requirements are necessary to mitigate future procurement issues. Presbyterian believes that enhancing training, education and communication as well as process revisions and written procedures will effectively mitigate this risk.
A corrective action plan has been developed that will focus on four specific areas:
1) Communication & Awareness of process failures that led to the finding.
2) Training & Education, broadly at an enterprise level and targeted to areas engaged in federal funding.
3) Written Procedures and Toolkits to facilitate actions that result in compliant procurements under Federal funding and updates to the existing policy governing procurements under Federal funding to clarify the responsibilities for communication of applicability of Federal procurement requirements.
4) Collaboration with the Communications department to ensure processes exist to support competitive bids for advertising services as needed.