Finding 2023-005 – Internal Control Deficiency and Noncompliance Over Procurement
Identification of the federal program:
Federal grantor: United States Department of Health and Human Services
Assistance listing no.: 93.048
Program name: Special Programs for the Aging, Title IV, and Title II, Discretionary Projects
Criteria or specific requirement (including statutory, regulatory, or other citation):
Section 200.303 of the Uniform Guidance states the following regarding internal control: “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).”
Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.318(i) – General procurement standards states: “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.”
Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.320 – Methods of procurement to be followed states: ”The non-Federal entity must have and use documented procurements 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) (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; (b) Formal procurement methods. When the value of the procurement for property or services under a Federal financial assistance award exceeds the simplified acquisition threshold, or a lower threshold established by a non-federal entity, formal procurement methods are required. Formal procurement methods require following documented procedures. Formal procurement methods also require public advertising unless a non-competitive procurement can be used in accordance with § 200.319. The following formal methods of procurement are used for procurement of property or services above the simplified acquisition threshold or a value below the simplified acquisition threshold the non-Federal entity determines appropriate: (1) Sealed bids. A procurement method in which bids are publicly solicited and a firm fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid, conforming with all the material terms and conditions of the invitation for bids, is the lowest in price. (2) Proposals. A procurement method in which either a fixed price or cost-reimbursement type contract is awarded.”
Title 2, Subtitle A, Chapter II, Part 200, Subpart C, 200.214 – Suspension and debarment states: “Non-Federal entities are subject to the non-procurement debarment and suspension regulations that restrict awards, subawards, and contracts with certain parties that are debarred, suspended, or otherwise excluded from or ineligible for participation in Federal assistance programs or activities.”
Condition:
AdviseWell, Inc. did not have internal controls in place throughout the audit period to sufficiently document the history of procurement, including the rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price or sole source justification if warranted.
Additionally, management did not have evidence of internal controls being in place throughout the audit period to document that vendors were not suspended or debarred prior to entering into a procurement transaction.
AdviseWell, Inc. did not have or use documented procurements procedures throughout the audit period.
Cause:
Management did not have effective internal controls in place throughout the audit period over the compliance requirement as stated in the criteria section above.
Effect or potential effect:
Procurements were not supported by effective internal controls and could potentially include unreasonable prices or missing documentation to support the procurements made. If suspension and debarment searches are not conducted, the organization could contract with vendors that are suspended or debarred. Lack of written policies and procedures is out of compliance with the federal requirements and could lead to disallowed procurements.
Questioned costs:
$80,082. Questioned costs were determined based on the expenditures of the procurements.
Context:
For five procurements selected for testing totaling $80,082 out of a total population of procurements of $145,646, required documentation was not available supporting the history of the procurement, including rationale for sole source selection.
As the written procurement policy was not in place throughout the year and/or documentation of debarment searches on vendors was not maintained throughout the year, we were unable to test these controls.
Identification as a repeat finding, if applicable:
This is a repeat finding – Finding 2022-004.
Recommendation:
AdviseWell, Inc. should develop and implement effective internal controls throughout the audit period to ensure procurements are in accordance with the federal guidelines.
AdviseWell, Inc. should search for suspension and debarment prior to entering into a procurement transaction and retain documentation that the search was conducted prior to entering into the transaction. AdviseWell, Inc. should periodically search recurring vendors for suspension and debarment and retain documentation to support that the search was conducted.
View of responsible officials:
Management agrees with the finding. A procurement policy was established in October 2023 in accordance with the federal requirements, and documentation for each procurement was retained subsequent to October 2023. Management began retaining documentation that searches were conducted for vendors for suspension and debarment prior to entering into the procurement and on a periodic basis for recurring vendors.