Finding Text
FINDING 2023-004
Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - 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 Numbers): CY 2023
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
The City calculated a revenue loss allowance and claimed a Coronavirus State and Local Fiscal
Recovery Funds (SLFRF) allocation of $11,564,216 as revenue loss to use for government services. All
SLFRF program funds expended in 2023 were expended under the revenue loss eligible use category.
The U.S. Department of the Treasury (Treasury) determined that there are no subawards under this eligible
use category, and that recipients' use of revenue loss funds would not give rise to subrecipient relationships
given that there is no federal program or purpose to carry out in the case of the revenue loss portion of the
award.
Prior to entering subawards and covered transactions with SLFRF award funds, recipients are
required to verify that such contractors 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, collecting a certification from
that person, or adding a clause or condition to the covered transaction with that person. Due to 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 contracts.
During the engagement, the City stated that certifications were collected when covered transactions
were entered into by the City to verify that an entity with which it plans to enter into a covered transaction
is not suspended, debarred, or otherwise excluded or disqualified from participating in federal assistance
programs or activities. Nine covered transactions were paid from SLFRF funds to nine different vendors
for goods or services that equaled or exceeded $25,000 during the audit period. Four of the nine covered
transactions were selected for tested. For two of four transactions tested, the City had not verified the
vendor's suspension and debarment status.
The lack of internal controls and noncompliance were systemic 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). . . ."
31 CFR 19.300 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 the EPLS; or
(b) Collecting a certification from that person if allowed by this rule; or
(c) Adding a clause or condition to the covered transaction with that person."
Cause
The City was unable to provide documentation to demonstrate it had collected a certification, per
its procedures, to ensure vendors were not suspended or debarred prior to entering into covered transactions
that exceeded $25,000.
Effect
Without the proper implementation of an effectively designed system of internal controls, the City
cannot ensure the vendors paid with federal funds are eligible to participate in federal programs. Any
program funds the City used to pay vendors that have been suspended or debarred would be unallowable,
and the funding agency could potentially recover them. Furthermore, noncompliance with the provisions
of federal statutes, regulations, and the terms and conditions or the federal award could result in the loss
of future federal funding to the City.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the City 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.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.