FINDING 2022-006 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 Number): OMB Approved No 1505-0271 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Condition and Context The County elected to receive the standard revenue loss allowance, allowing the County to claim up to $10 million of its total State and Local Fiscal Recovery Funds (SLFRF) allocation of $4,637,050 as revenue loss to use for government services. As such, all SLFRF program funds expended in 2022 were under the revenue loss eligible use category. The 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 non-procurement 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. Due to the Treasury's determination that the revenue loss eligible use category does not give rise to subawards, the County was only required to comply with suspension and debarment requirements related to contracts. The County's policies related to SLFRF suspension and debarment requirements were as follows: for all vendor procurement contracts a suspension and debarment clause was included; however, if the purchase is expected to exceed $25,000, but not require a procurement contract, then a certification is requested from the vendor. In the event a certification is not provided by the vendor, the County Auditor checks the SAMs exclusions. Of the six transactions that equaled or exceeded $25,000 that were paid from SLFRF funds during the audit period, two were selected for testing to verify the County followed its procedures related to suspension and debarment. One transaction in the amount of $118,840 was made for the purchase of communications equipment. The contract between the vendor and the County included a suspension and debarment clause. The second transaction selected for testing in the amount of $33,170 was made to repair/replace the drain. A formal contract was not required and was not entered into with the vendor. However, proof of a certification from the vendor, or a SAMs exclusion check by the County could not be provided for audit. 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). . . ." 2 CFR 200.214 states in part: "Non-federal entities and contractors are subject to the non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689, 2 CFR part 180. The regulations . . . 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." 31 CFR 19.300 states in part: "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 system of internal controls as established by management of the County was not properly implemented to ensure that the policies and procedures in place related to suspension and debarment were appropriately followed. 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. As a result, vendors to whom payments equal to or in excess of $25,000 were not verified to be not suspended, debarred, or otherwise excluded. 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 County. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the County establish a proper system of internal controls, including strengthening its policies and procedures to ensure its compliance with requirements related to 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.