Finding Text
2022-001 The City did not have adequate internal controls for ensuring compliance with federal procurement requirements. Assistance Listing Number and Title: 10.760 ? Waste and Water Disposal Systems for Rural Communities Federal Grantor Name: U.S. Department of Agriculture Federal Award/Contract Number: N/A Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background During fiscal year 2022, the City spent $904,897 in grant funds from the Waste and Water Disposal Systems for Rural Communities program. The objective of this program is to assist rural communities in obtaining safe drinking water and adequate waste disposal facilities. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established program controls. Federal regulations require recipients to follow their own documented procurement procedures, which must conform to the Uniform Guidance procurement standards found in 2 CFR 200.318-327. The procedures must reflect the most restrictive of applicable federal requirements, state laws or local policies. The entity must also have written standards of conduct that cover conflicts of interest and expectations for its employees who are involved in selecting, awarding, and administrating contracts and purchases. Description of Condition Our audit found the City did not have adequate internal controls for ensuring compliance with federal procurement requirements. Specifically, the City did not have procurement policies or procedures to ensure compliance with federal requirements. Further, the City did not have a conflict of interest policy. We consider this deficiency in internal controls to be a material weakness, which led to material noncompliance. Cause of Condition This is the City?s first federal program audit since 2014. Since the City does not regularly manage federal funds, staff did not know about the requirement to have written conflict of interest and procurement policies and procedures. Effect of Condition Without written policies and procedures, the City is at a greater risk of noncompliance with the most restrictive of federal, state or local procurement methods and standards of conduct requirements when using federal funds to procure contractors. Although the City did not have policies in place, we verified that it properly procured the contractor for the project we reviewed. Recommendation We recommend the City develop written policies and procedures that conform with Uniform Guidance (2 CFR 200.318-327) for procurement activity and conflict of interest requirements. City?s Response The City will develop and adopt written policies and procedures that conform with Uniform Guidance (2 CFR 200.318-327) for procurement activity and conflict of interest requirements. Auditor?s Remarks We appreciate the steps the City is taking to resolve this issue. We will review the corrective action taken during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 CFR Part 200, Uniform Guidance, sections 317 through 327, Procurement Standards, establishes requirements for procurement and conflict of interest policies related to federal program expenditures.