FINDING 2024-002
Subject: Water and Waste Disposal Systems for Rural Communities -
Procurement and Suspension and Debarment
Federal Agency: Department of Agriculture
Federal Program: Water and Waste Disposal Systems for Rural Communities
Assistance Listings Number: 10.760
Federal Award Number and Year (or Other Identifying Number): BAN-2
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Other Matters
Condition and Context
As part of sound management of the federal award, the City was responsible for implementing a
system of internal controls that would ensure compliance with the applicable requirements. The City had
not properly designed or implemented such a system, which would include appropriate segregation of
duties, that would likely be effective in preventing, or detecting and correcting, noncompliance.
INDIANA STATE BOARD OF ACCOUNTS
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CITY OF HUNTINGBURG
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
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 set at $250,000 unless
a lower, more restrictive threshold is set by a nonfederal entity. As Indiana Code has set a more restrictive
threshold of $150,000, informal procurement methods are permitted when the value of the procurement
does not exceed $150,000. 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 micropurchase
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.
Procurement - Simplified Acquisition
During the audit period, the City had two vendors with purchases over the $150,000 threshold
that were considered simplified acquisition procurements. Both vendors were tested. For one
vendor, the City could not provide the procurement history or the rationale for the method of
procurement, the selection of vendor, or the basis for price. The total amount spent with this
vendor was $2,391,895.
Procurement - Policy
The City provided its purchasing policy for review, but it did not include the applicable federal
regulations, such as 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.
Suspension and Debarment
Prior to entering into subawards and covered transactions with, 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.
A population of four covered transactions for goods or services were paid from USDA award
funds during the audit period. A sample of two vendors were selected for testing. Of the two
vendors 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 internal controls and noncompliance were isolated to the same single vendor for both
the simplified acquisition and the suspension and debarment issues as noted above.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
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CITY OF HUNTINGBURG
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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. . . .
(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(b) states in part:
"Formal procurement methods. When the value of the procurement for property or services
under a Federal financial assistance awards exceeds the SAT, 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 or paragraph (c) of this section. 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 to be
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. Proposals are generally used when conditions are not
appropriate for the use of sealed bids. . . ."
2 CFR 180.300 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 SAM Exclusions; or
(b) Collecting a certification from that person; or
(c) Adding a clause or condition to the covered transaction with that person."
INDIANA STATE BOARD OF ACCOUNTS
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CITY OF HUNTINGBURG
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Cause
The vendor in question was an engineering firm that the City originally hired to do a study at $40,000
in 2018 related to the wastewater treatment plant project. Through the years, the City did amendments to
the contract to include more engineering services and did not advertise for bids or verify that the engineering
firm was not suspended or debarred from receiving federal funds.
Effect
Without the proper implementation of an effectively designed system of internal controls, the City
cannot ensure that the services obtained provided full and open competition or the basis of the price. In
addition, the City cannot ensure the vendors paid were 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.
Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of
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's management establish a proper system of internal controls to
ensure expenditures made from federal awards use the appropriate procurement method and retain the
documentation to support the procurement methods used in order to ensure compliance with the terms and
conditions of the federal award. We recommended that management of the City establish a proper system
of internal controls and develop policies and procedures to ensure contractors and subrecipients, as
appropriate, are not suspended, debarred, or otherwise excluded prior to entering into contracts or
subawards. We also recommended strengthening its policies and procedures to ensure appropriate
supporting documentation for federal programs is retained to be presented for audit.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.