FINDING 2023-003
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): FY 2023
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Other Matters
Repeat Finding
This is a repeat finding from the immediately prior audit report. The prior audit finding number was
2022-005.
Condition and Context
Procurement - Policy
The City had not established a purchasing policy that reflected applicable state laws and
regulations, including procedures to avoid the 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. Additionally,
the City did not maintain written standards of conduct covering conflicts of interest and
governing actions of its employees engaged in the selection, award, and administration of
contracts.
Procurement - Small Purchases
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 customarily
set 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. 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 micro-purchase 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.
The City did not obtain price or rate quotes for the one vendor tested that was less than the
simplified acquisition threshold of $150,000 but exceeded the $10,000 micro-purchase threshold.
The micro-purchase threshold may be increased, but the City did not provide documentation
that the threshold had been increased. Documentation detailing the history of procurement,
which must include the reason for the procurement method used, was not available for
audit.
INDIANA STATE BOARD OF ACCOUNTS
19
CITY OF MUNCIE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Suspension and Debarment
Prior to entering into subawards and covered transactions with COVID-19 - Coronavirus State
and Local Fiscal Recovery Funds (SLFRF), 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 a
nonprocurement transaction (i.e., grant agreement) that are expected to equal or exceed
$25,000. The verification is to be done by checking the Excluded Parties List System (EPLS),
collecting a certification from that person, or adding a clause or condition to the covered
transaction with that person. Due to the U.S. Department of the Treasury's determination that
the revenue loss eligible use category does not give rise to subawards, the City was only
required to comply with suspension and debarment requirements related to covered
transactions.
A population of nine covered transactions for goods or services were paid from SLFRF award
funds during the audit period. A sample of three transactions were selected for testing. Of the
three transactions tested, one vendor was not verified to not be suspended nor debarred or
otherwise excluded or disqualified from participating in federal assistance programs or
activities.
The lack of effective internal controls and noncompliance were isolated to the small purchase 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. . . .
INDIANA STATE BOARD OF ACCOUNTS
20
CITY OF MUNCIE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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 states in part:
"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) Informal procurement methods. When the value of the procurement for property or
services under a Federal award does not exceed the simplified acquisition threshold (SAT),
as defined in § 200.1, or a lower threshold established by a non-Federal entity, formal
procurement methods are not required. The non-Federal entity may use informal
procurement methods to expedite the completion of its transactions and minimize the
associated administrative burden and cost. The informal methods used for procurement
of property or services at or below the SAT include: . . .
(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."
Part 4 of the Treasury's Compliance and Reporting Guidance states: ". . . recipients are expected
to have procurement policies and procedures in place that comply with the procurement standards outlined
in the Uniform Guidance . . ."
Cause
The system of internal controls as established by management of the City was not effective at
ensuring all required aspects of a procurement policy were included and that small purchases adhered to
the procurement requirements. Embedded within a properly designed and 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 ensure their policy includes all the necessary elements and that the detailed history of procurement
including the method utilized are retained for audit.
INDIANA STATE BOARD OF ACCOUNTS 21
CITY OF MUNCIE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended management of the City 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 the City adhere
to the procurement policies and obtain required quotes and bids or adequately document a sole source
situation.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.