Finding Text
2023-002 The City did not have adequate internal controls for ensuring
compliance with federal suspension and debarment requirements.
Assistance Listing Number and Title: 21.027 – COVID 19 - State and
Local Fiscal Recovery Funds
Federal Grantor Name: U.S. Department of Treasury
Federal Award/Contract Number: N/A
Pass-through Entity Name: N/A
Pass-through Award/Contract
Number:
N/A
Known Questioned Cost Amount: $0
Prior Year Audit Finding: Yes, Finding 2022-001
Description of Condition
The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF)
is to respond to the COVID-19 pandemic’s negative effects on public health and
the economy, provide premium pay to essential workers during the pandemic,
provide government services to the extent COVID-19 caused a reduction in
revenues collected and make necessary investments in water, sewer or broadband
infrastructure. In fiscal year 2023, the City spent $5,155,314 to administer the
program.
Federal regulations require recipients to establish and maintain internal controls
that ensure compliance with program requirements. These controls include
understanding program requirements and monitoring the effectiveness of
established controls.
Federal requirements prohibit recipients from contracting with or purchasing from
parties suspended or debarred from doing business with the federal government.
Whenever the City enters into contracts or purchases goods and services that it
expects to equal or exceed $25,000, paid all or in part with federal funds, it must
verify that the contractors are not suspended, debarred or otherwise excluded from
participating in federal programs. The City may verify this by obtaining a written
certification from the contractor, adding a clause or condition into the contract that
states the contractor is not suspended or debarred or checking for exclusion records
in the U.S. General Services Administration’s System for Award Management at
SAM.gov. The City must verify this before entering into the contract and must
maintain documentation demonstrating compliance with this federal requirement.
Our audit found the City did not have adequate controls in place to verify that five
contractors it paid more than $25,000 in federal funds were not suspended or
debarred from participating in federal programs.
We consider this deficiency in internal controls to be a material weakness that led
to material noncompliance.
Cause of Condition
City staff said they were aware of the suspension and debarment requirements. The
purchasing department was responsible for checking SAM.gov for the federal
purchases. However, the departments that made the federal purchases did not tell
the purchasing department that the City was paying these contractors with federal
funds so it could verify contractors’ status.
Effect of Condition
The City did not obtain written certifications from the contractors, insert a clause
into the contracts or check for exclusion records at SAM.gov to verify that five
contractors it paid $428,912 using federal funds were not suspended or debarred
before contracting. Without adequate internal controls, the City cannot ensure the
contractors it paid with federal funds were eligible to participate in federal
programs. Any program funds the City used to pay contractors that have been
suspended or debarred would be unallowable, and the awarding agency could
potentially recover them. Because we subsequently verified the contractors were
not suspended or debarred, we are not questioning costs.
Recommendation
We recommend the City strengthen internal controls to ensure all contractors it pays
$25,000 or more, all or in part with federal funds, are not suspended or debarred
from participating in federal programs before contracting with or purchasing from
them.
City’s Response
The City understands the need to comply with federal requirements for suspension
and debarment. Due to the departure of the Purchasing Manager, leaving the
division shorthanded, all the components of the corrective action plan from last
year were not carried out. As such, Staff will move forward on implementing the
remaining parts of the corrective action plan, taking additional steps to further
strengthen its procedures that govern use of federal funds. Staff will seek to ensure
that there is a uniform understanding across multiple departments who may have
federal funding resources through training and job aids.
Auditor’s Remarks
We thank the City for its cooperation and assistance during the audit and
acknowledge its commitment to improving the condition described. We will review
the status of this issue during our next audit.
Applicable Laws and Regulations
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal Awards
(Uniform Guidance), section 516, Audit findings, establishes reporting
requirements for audit findings.
Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes
the requirements for auditees to maintain internal controls over federal programs
and comply with federal program requirements.
The American Institute of Certified Public Accountants defines significant
deficiencies and material weaknesses in its Codification of Statements on Auditing
Standards, section 935, Compliance Audits, paragraph 11.
Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide
Debarment and Suspension (Nonprocurement), establishes nonprocurement
debarment and suspension regulations implementing Executive Orders 12549 and
12689.