FINDING 2024-001
Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery
Funds - Procurement and 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 Number): 2021
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Modified Opinion
Repeat Finding
This is a repeat finding from the immediate prior audit report. The prior audit finding number was
2023-001.
Condition and Context
An effective internal control system was not designed or implemented at the City to ensure compliance
with requirements related to the grant agreement and the Procurement and Suspension and
Debarment compliance requirement.
Procurement
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
customarily set at $250,000. However, Indiana Code 5-22-8 has a more restrictive threshold
of $150,000 or less for when small purchase procedures may be used. This informal process
allows for methods other than the formal bid process. Micro-purchases are typically for those
purchases $10,000 or under, and small purchase procedures are for those purchases above
the micro-purchase 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.
One vendor was identified that fell within the small purchase threshold. Purchases from the
vendor totaled $40,458. As such, price or rate quotations from an adequate number of qualified
sources should have been obtained. However, the City did not obtain price or rate quotations
for the purchases, nor was full and open competition provided for the vendor. Additionally,
there was no documentation available to support the rationale to limit competition.
Suspension and Debarment
The City elected to receive the standard revenue loss allowance, allowing the City to claim
$10,000,000 of its total COVID-19 - State and Local Fiscal Recovery Funds (SLFRF) allocation
of $16,549,045 as revenue loss to use for government services. 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 into 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 (EPLS), collecting
a certification from that person, or adding a clause or condition to the covered transaction with
that person or entity. 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.
The City's policies related to SLFRF suspension and debarment requirements include the
Board of Public Works completing a review of each bid packet to ensure the bidder submitted
a statement indicating if they were not suspended or debarred or an employee from the City
Controller's office checking the Sam.gov website. There were 13 covered transactions
identified that equaled or exceeded $25,000, and 2 covered transactions, totaling $251,334,
were selected for testing. For both of the transactions tested, the City did not verify the
suspension or debarment status prior to payment.
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 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." 2 CFR 200.318(a) states:
"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 nonfederal
entity's documented procurement procedures must conform to the procurement
standards identified in §§ 200.317 through 200.327."
2 CFR 200.320 states in part:
"The non-Federal entity must have and use documented procurement 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) Informal procurement methods. When the value of the procurement for property or
services under a Federal award does not exceed the simplified acquisition threshold (SAT),
as defined in § 200.1, or a lower threshold established by a non-Federal entity, formal
procurement methods are not required. The non-Federal entity may use informal procurement
methods to expedite the completion of its transactions and minimize the associated
administrative burden and cost. The informal methods used for procurement of property
or services at or below the SAT include: . . .
(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. . . ."
Cause
The City did not follow the City's established policy to ensure the proper procurement of services
and supplies and to verify suspension and debarment status for covered transactions.
Effect
Without the proper implementation of an effectively designed system of internal controls, the internal
control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance.
The City did not use the proper method of procurement to choose a vendor. In addition, the City
did not ensure the contractors paid with federal funds are 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 funding agency could potentially recover them. Furthermore, 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 management of the City follow the City's established policies to ensure
compliance with requirements related to procurement and suspension and debarment.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.