Finding 2022-001: Internal control deficiency and noncompliance over Procurement and Suspension and Debarment. Identification of the federal program: Research and Development Cluster See findings text for the table. Criteria or specific requirement (including statutory, regulatory or other citation): Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.303 ? Internal controls. 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). Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.318(i) ? General procurement standards states: 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. Title 2, Subtitle A, Chapter II, Part 200, Subpart D, 200.320 ? Methods of procurement to be followed ? the non-Federal entity must have and use documented procurements 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) (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; (b) Formal procurement methods ? when the value of the procurement for property or services under a Federal financial assistance award exceeds the simplified acquisition threshold, formal procurement methods are required. Formal procurement methods require following documented procedures. The following formal methods of procurement are used for procurement of property or services above the simplified acquisition threshold ? (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. Title 2, Subtitle A, Chapter II, Part 200, Subpart C 200.214 ? Suspension and debarment ? Non-Federal entities are subject to the non-procurement debarment and suspension regulations that 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. Condition: During our testing over small purchase procurements and formal procurement methods, we observed management did not have effective internal controls in place to ensure that price or rate quotations were obtained from an adequate number of qualified sources at the time of procurement and sealed bids or proposals were obtained. In addition, during our testing over suspension and debarment, we observed management did not have effective internal controls in place to ensure vendors with covered transactions greater than $25,000 were not suspended or debarred. Cause: Management did not have effective internal controls in place over the compliance requirement as stated in the criteria or specific requirement section above. Effect or potential effect: Small purchase procurements and formal procurement methods were not supported by effective internal controls and could potentially include unreasonable prices or rates. In addition, if a search for suspension and debarment is not conducted, the entity could contract with vendors that are suspended or debarred. Questioned costs: $560,068 ? Assistance Listing Numbers 10.025, 10.310, 12.351, 12.420, 12.910, 93.103, 93.113, 93.121, 93.172, 93.226, 93.242, 93.273, 93.286, 93.301, 93.307, 93.310, 93.353, 93.361, 93.393, 93.394, 93.395, 93.396, 93.397, 93.398, 93.399, 93.837, 93.838, 93.839, 93.847, 93.853, 93.855, 93.859, 93.865, 93.866, 93.867, 93.879. See corresponding award identification numbers in the identification of federal award section above. Questioned costs were computed by taking the total small purchase procurements, formal procurements, and suspension and debarment procurements that were not supported by adequate documentation of $196,639 ($54,000 + $28,560 + $114,079), $300,300, and $63,129, respectively for a total of $560,068. Context: Testing over procurement and suspension and debarment were performed over City of Hope and Translational Genomics Research Institute separately as they operate under different internal control environments. During our testing over small purchase procurements for City of Hope, we obtained a listing of 26 small purchase procurements and selected a sample of 5. The total value of the 5 small purchases selected was $282,719 out of the total population of $1,510,159. There was 1 ($54,000) out of 5 ($282,719) selections where management didn't follow its procurement policy to fill out the "Supplier Selection Justification" form, which is required to be completed for all small purchase procurements. There was 1 ($28,560) out of 5 ($282,719) selections where price or rate quotations were not obtained from an adequate number of qualified sources at the time of procurement. There were 2 ($114,079) out of 5 ($282,719) selections where management didn?t follow its procurement policy to evaluate existing contracts at the end of the contract term. During our testing over formal procurements for City of Hope, we obtained a listing of 2 formal procurements and selected a sample of 2. The total value of the 2 formal procurements were $663,744. There was 1 ($300,300) out of 2 ($663,744) selections where management didn?t follow its procurement policy to evaluate existing contracts at the end of the contract term. During our testing over suspension and debarment for Translational Genomics Research Institute, we obtained a listing of 18 vendors with covered transactions greater than $25,000 and selected a sample of 6. The total value of the 6 vendors selected was $244,467 out of the total population of $1,332,111. There was 1 ($63,129) out of 6 ($244,467) selections where a search for suspension and debarment was not completed. Identification as a repeat finding, if applicable: No. Recommendation: We recommend that management develop and implement effective internal controls to ensure small purchase procurements were supported by price or rate quotations from an adequate number of qualified suppliers, formal methods of procurement included sealed bids or proposals, and vendors with covered transactions greater than $25,000 were not suspended or debarred. Views of responsible officials: In response to this finding City of Hope will implement the following: 1. Procurement Operations to provide training to reinforce current policy requirements. Training will also include Strategic Sourcing and Research personnel to emphasize procurement guidelines prior to requisition submission. 2. Corporate Accounting will select a sample size of federally funded procurement spend to ensure controls have been appropriately remediated. 3. Procurement and Sourcing department will review current long-term contracts pertaining to federal funding to ensure adherence with documented compliance standards. 4. To ensure controls are operating effectively around suspension and debarment reviews, finance leadership will work with the purchasing department to update internal control policies to confirm there is a full review of all vendors engaged to work on federally funded programs. 5. Purchasing department will perform a review of existing contracts to ensure suspension and debarment reviews have been completed.