FINDING 2024-002
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): TRSW222046
Pass-Through Entity: Indiana Finance Authority
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Modified Opinion
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.
The grant covered one project with one vendor that fell within the simplified acquisition
threshold. Payments to the vendor for the project totaled $189,741 with $120,452 of that
amount was grant funds. As such, the formal bid process should have been followed. The City
did not perform bid procedures or provide the rationale for the method of procurement, the
selection of vendor, or the basis for price. Additionally, the City did not obtain a written contract
for the services. Suspension and Debarment
Prior to entering into subawards and covered transactions with federal 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 SAM
exclusions, collecting a certification from that person, or adding a clause or condition to the
covered transaction with that person or entity.
The City's policies related to COVID-19 - Coronavirus State and Local Fiscal Recovery Funds
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. As noted above, the grant covered one project with one vendor utilized and
the City did not verify the suspension or debarment status prior to payment for this vendor.
The lack of internal controls and noncompliance was isolated to the instance noted above.
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). . . ."
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: . . .
(b) Formal Procurement Methods. When the value of the procurement for property or
services under a Federal financial assistance award 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. The sealed bids method is the preferred method for
procuring construction, if the conditions. . . .
(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. . . ."
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."
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 its 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.