FINDING 2022-005
Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Procurement
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): FY 2022
Pass-Through Entity: Department of the Treasury
Compliance Requirement: Procurement and Suspension and Debarment
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
The City had not properly designed or implemented a system of internal controls, which would
include appropriate segregation of duties, that would likely be effective in preventing, or detecting and
correcting, noncompliance.
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. Indiana Code provides that the proper purchasing method would
be the bidding process, unless the purchase meets certain other qualifications.
INDIANA STATE BOARD OF ACCOUNTS
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SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Six vendors fell within the simplified acquisition threshold. All six vendors were selected for testing.
For three of the vendors tested, there were no requests for proposals received and no documentation to
support the history of the procurement, including the rationale for the method of procurement, nor selection
of the contract. In addition, there was no documentation that a cost or price analysis was performed for the
three contracts.
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 200.318 states in part:
"(a) 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
non-Federal entity's documented procurement procedures must conform to the procurement
standards identified in §§ 200.317 through 200.327. . . .
(i) 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. . . ."
2 CFR 200.324(a) states:
"The non-Federal entity must perform a cost or price analysis in connection with every
procurement action in excess of the Simplified Acquisition Threshold including contract
modifications. The method and degree of analysis is dependent on the facts surrounding the
particular procurement situation, but as a starting point, the non-Federal entity must make
independent estimates before receiving bids or proposals."
2 CFR 200.320 states in part:
"The non-Federal entity must have and use document 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. . . .
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SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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.
(i) In order for sealed bidding to be feasible, the following conditions should be
present:
(A) A complete, adequate, and realistic specification or purchase description
is available;
(B) Two or more responsible bidders are willing and able to compete
effectively for the business; and
(C) The procurement lends itself to a firm fixed price contract and the selection
of the successful bidder can be made principally on the basis of price.
(ii) If sealed bids are used, the following requirements apply:
(A) Bids must be solicited from an adequate number of qualified sources,
providing them sufficient response time prior to the date set for opening the
bids, for local, and tribal governments, the invitation for bids must be publicly
advertised;
(B) The invitation for bids, which will include any specifications and pertinent
attachments, must define the items or services in order for the bidder to
properly respond;
(C) All bids will be opened at the time and place prescribed in the invitation for
bids, and for local and tribal governments, the bids must be opened publicly;
(D) A firm fixed price contract award will be made in writing to the lowest
responsive and responsible bidder. Where specified in bidding documents,
factors such as discounts, transportation cost, and life cycle costs must be
considered in determining which bid is lowest. Payment discounts will only be
used to determine the low bid when prior experience indicates that such
discounts are usually taken advantage of; and
(E) Any or all bids may be rejected if there is a sound documented reason.
. . ."
INDIANA STATE BOARD OF ACCOUNTS
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CITY OF MUNCIE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Cause
The system of internal controls as established by the City was not properly implemented to ensure
that goods and services that exceeded the simplified acquisition threshold were properly procured. A
proper system of internal controls was not designed by management of the City. Embedded within a
properly designed and implemented internal control system should be internal controls consisting of policies
and procedures. Policies reflect the City's management statements of what should be done to effect internal
controls, and procedures should consist of actions that would implement these policies.
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, proper procurement procedures were not adhered to for all vendors.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that management of the City establish a proper system of internal controls, and
develop policies and procedures to ensure proper procurement procedures are adhered to for all purchases
of good and services paid with federal awards.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.