FINDING 2023-003
Subject: Water and Waste Disposal Systems for Rural Communities -
Procurement and Suspension and Debarment
Federal Agency: Department of Agriculture
Federal Program: Water and Waste Disposal Systems for Rural Communities
Assistance Listings Number: 10.760
Federal Award Number and Year (or Other Identifying Number): FY 2023
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
Procurement - Policy
The Town did not have an approved procurement policy that reflected applicable state laws
and regulations including procedures to avoid acquisition of unnecessary or duplicative items
and procedures to ensure that all solicitations incorporate a clear and accurate description of
the technical requirements for the material, product, or service to be procured.
The Town is required to have and use documented procurement procedures, which are
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.
Suspension and Debarment
Prior to entering into subawards and covered transactions with the Water and Waste Disposal
Systems for Rural Communities award funds, recipients are required to verify that such
contracts and subrecipients are not suspended, debarred, or otherwise excluded. "Covered
transactions" include, but are not limited to, contracts for goods and services awarded under
procurement and nonprocurement transactions (i.e., grant agreement) that are expected to
equal or exceed $25,000. The verification is to be done by checking SAM exclusions, collecting
a certification from that person, or adding a clause or condition to the covered transaction with
that person.
Upon inquiry of the Town to determine its policies and procedures related to suspension and
debarment requirements, the Town stated that a suspension and debarment clause is included
in contracts. Contracts are reviewed by the President of the Town Council. Four covered
transactions, totaling $20,152,969, were identified and tested. The Town could not provide
documentation that procedures were performed to verify that three of the four vendors paid
from the Water and Waste Disposal Systems for Rural Communities award funds with contracts
over $25,000 were not excluded or disqualified from participation in federal programs.
Additionally, the Town had two agreements subject to the Buy America Build America (BABA)
provisions. The Town could not provide documentation that procedures were performed to
ensure the Buy America domestic preference provisions were included in either agreement nor
was a BABA waiver obtained.
INDIANA STATE BOARD OF ACCOUNTS
19
TOWN OF FRANKTON
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
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(a) states:
"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."
2 CFR 180.300 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 intend to do business is not excluded or disqualified. You
do this by:
(a) Checking SAM Exclusions; or
(b) Collecting a certification from that person; or
(c) Adding a clause or condition to the covered transaction with that person."
2 CFR 184.4 states in part:
"(a) Applicability of Buy America Preference to infrastructure projects. The Buy America
Preference applies to Federal awards where funds are appropriated or otherwise made
available for infrastructure projects in the United States, regardless of whether infrastructure is
the primary purpose of the Federal award.
(b) Including the Buy America Preference in Federal awards. All Federal awards with
infrastructure projects must include the Buy America Preference in the terms and conditions.
The Buy America Preference must be included in all subawards, contracts, and purchase
orders for the work performed, or products supplied under the Federal award. . . ."
INDIANA STATE BOARD OF ACCOUNTS
20
TOWN OF FRANKTON
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Cause
A proper system of internal controls was not designed by the management of the Town. Embedded
within a properly designed and implemented internal control system should be internal controls consisting
of policies and procedures. Policies reflect the Town's management statements of what should be done to
effect internal controls, and procedures should consist of actions that would implement these policies. The
Clerk-Treasurer was new to the position as of January 1, 2024. The former Clerk-Treasurer was not
knowledgeable on the compliance requirements of the federal award. The Town contracted with outside
engineers to manage the compliance requirement, and there was no documentation that BABA provisions
or a waiver was obtained for the contracts nor that they included a suspension or debarment clause. Lastly,
a procurement policy nor documentation that vendors were not suspended or debarred was not provided
for review.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
internal control system cannot be capable of effectively preventing, or detecting and correcting, material
noncompliance. As a result, vendors to whom payments equal to or in excess of $25,000 were not verified
to be not suspended, debarred, or otherwise excluded. In addition, the BABA provisions were not appropriately
included in infrastructure projects.
Any program funds the Town used to pay vendors that have been suspended or debarred would
be unallowable, and the funding agency could potentially recover them. Additionally, 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 Town.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended the Town establish documented procurement procedures consistent with state
and local laws for the acquisition of property or services required under a federal award or subaward as
outlined in the code of federal regulations. In addition, we recommended that the Town strengthen its
system of internal controls to ensure that all vendors that are paid $25,000 or more, all or in part with federal
funds, are not suspended or debarred from participating in federal programs before entering into any
covered transactions. Lastly, we recommended that the Town ensure all applicable contracts contain the
required BABA provisions.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.