Finding Text
Reference Number: 2022-001 Category of Finding: Procurement and Suspension and Debarment Type of Finding: Significant Deficiency and Instance of Noncompliance Federal Agency: U.S. Department of Housing and Urban Development Federal Assistance Listing Number: 14.889 Federal Program Title: Choice Neighborhoods Implementation Grants Federal Award Number and Year: CA9G007CNG114; 2015 Criteria: Title 2 - Grants and Agreements, Subtitle A - Office of Management and Budget Guidance for Grants and Agreements, Chapter II - Office of Management and Budget Guidance, Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Subpart D - Post Federal Award Requirements Standards for Financial and Program Management ?200.303 Internal controls (2 CFR 200.303): 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 and the ?Internal Control Integrated Framework,? issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Title 2 - Grants and Agreements. Subtitle A - Office of Management and Budget Guidance for Grants and Agreements. Chapter I - Office of Management and Budget Governmentwide Guidance for Grants and Agreements. Part 180 ? OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Non-procurement). Subpart C ? Responsibilities of Participants Regarding Transactions Doing Business With Other Persons ?180.300 (2 CFR 180.300): When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom they intend to do business is not excluded or disqualified. You may do this by: (a) Checking SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or a condition to the covered transaction with that person. Condition: While the City has a process in place for verifying that the person is not excluded or disqualified, we noted that two out of the three contract agreements reviewed did not include a suspension and debarment certification clause indicating the contractor was not suspended or debarred from participation in federally funded contracts. There was no other documentation available to demonstrate that the verification of suspension and debarment was performed prior to entering into the covered transactions. Based on subsequent review of the System for Award Management (SAM) exclusions, the two contractors were not suspended or debarred. Cause: Through inquiry of City personnel, the department responsible for administering the program does not regularly handle federally funded programs and were not made aware of the suspension and debarment requirements. Effect: Failure to verify suspension and debarment results in noncompliance with 2 CFR ?180.300, as well as a risk that federal funds could be used to pay subrecipients and vendors that are suspended or debarred. Questioned Costs: No questioned costs were identified. Context: The federal funds disbursed to vendors for the fiscal year ended June 30, 2022 totaled $1,486,507. Three vendor contracts were selected for testing. Disbursements made under the three vendor contracts totaled $1,389,548. For two of the three vendor contracts, there was no evidence that verification of suspension and debarment was performed prior to entering into the covered transactions. Total disbursements made associated with the two vendor contracts was $392,500 for the fiscal year ended June 30, 2022. Recommendation: We recommend that when the City enters into arrangements involving federal funds and the administration of federal programs, departments and the personnel responsible for carrying out the objectives of the programs are trained and knowledgeable of the laws, regulations, terms and conditions governing the federal program. Furthermore, we recommend that prior to entering into covered transactions with vendors involving federal funds, the City should establish a process for verifying through SAM whether the vendors are suspended or debarred, maintaining of the verification documentation, or adding a clause into the vendor contract providing for the vendor certification of their suspension or debarment status. Views of Responsible Officials and Corrective Action Plan: Management?s response is reported in ?Management?s Response and Corrective Action Plan? included in a separate section at the end of this report.