Finding 499170 (2023-002)

2023-002 The City did not have adequate controls for ensuring compliance with federal suspension and debarment requirements. Assistance Listing Number and Title: 21.027 – COVID-19 – Coronavirus 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: N/A 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 $6,447,025 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 no 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 three 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 The City purchased from two contractors using other governments’ contracts in a process commonly referred to as “piggybacking.” City staff did not know they must verify the contractors are not suspended or debarred before piggybacking. Also, staff responsible for monitoring part of the program did not have adequate training and did not have a clear understanding of the suspension and debarment requirements for one contractor. Effect of Condition The City did not obtain a written certification from the contractor, insert a clause into the contract or check for exclusion records at SAM.gov to verify three contractors it paid $292,013 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 were suspended or debarred would be unallowable, and the awarding agency could potentially recover the funds. Because we subsequently verified the contractors were not suspended or debarred, we are not questioning costs. Recommendation We recommend the City provide staff with training on the suspension and debarment requirement and strengthen internal controls to ensure all contractors it pays $25,000 or more, all or part with federal funds, are not suspended or debarred from participating in federal programs before contracting with them. City’s Response Expertise in Federal procurement requirements is primarily held by individuals who regularly manage federal grants. The instances noted in the audit involve activities conducted by personnel who are not typically involved with federal grants. The City acknowledges the need for enhanced safeguards to ensure that such infrequent activities are correctly identified as grant-funded, and that appropriate procedures are followed. Further, the City received a similar finding for fiscal year 2021. It is important to note that two of the three instances identified were either procured in 2021, but not included in the 2021 finding or were procured in 2022 before the 2021 audit finding was issued. While the 2023 audit identified instances related to 2023 payments, the opportunity to address any issues after 2021 has already passed. Auditor’s Remarks We appreciate the City’s commitment to resolve this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular 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.