2022-001 The City did not have adequate internal controls for ensuring compliance with federal suspension and debarment requirements.
Assistance Listing Number and Title: 21.027, COVID-19 – Coronavirus State and Local Fiscal Recovery Funds
Federal Grantor Name: U.S. Department of the Treasury
Federal Award/Contract Number: SLT-1740
Pass-through Entity Name: N/A
Pass-through Award/Contract Number: N/A
Known Questioned Cost Amount: $0
Prior Year Audit Finding: Yes, Finding 2021-002
Background
The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) is to respond to the COVID-19 pandemic’s negative effects on public health and the economy, provide premium pay to essential workers during the pandemic, provide government services to the extent COVID-19 caused a reduction in revenues collected, and make necessary investments in water, sewer, or broadband infrastructure. In 2022, the City spent $3,685,273 in program funds for the provision of government services.
Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls.
Federal requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the City enters into contracts or purchases for goods or services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify the contractors have not been suspended, debarred or otherwise excluded.
The City may verify a contractor’s status by obtaining a written certification from the contractor, adding a clause or condition into the contract that states the contractor is not suspended or debarred, or checking for exclusion records in the U.S. General Services Administration’s System for Award Management at SAM.gov. The City must perform this verification before entering into the contract or paying the contractor more than $25,000, and it must maintain documentation demonstrating compliance with this federal requirement.
Description of Condition
Our audit found the City’s internal controls were inadequate for ensuring staff verified the suspension and debarment status of contractors paid $25,000 or more, all or in part with federal funds. Specifically, in 2022, the City did not verify three out of the four contractors we tested were not suspended or debarred from participating in federal programs before entering into contracts or paying them.
We consider this deficiency in internal controls to be a material weakness, which led to material noncompliance.
Cause of Condition
In response to the prior audit recommendation, the City implemented controls to address suspension and debarment verification, including a centralized control to review charges to the American Rescue Plan Act fund for both new and existing contracts where federal funding was allocated. However, the City’s control focused on transactions within the fund itself. During the audit period, funding was transferred into a capital project fund for the Library Commons Project. The centralized control did not take transactions in this fund into account.
In addition, while the Library Commons Project fund was overseen by staff who were aware of the suspension and debarment verification requirements, they misunderstood them and the control was not uniformly applied for all contract types. This resulted in staff not reviewing suspension and debarment for professional services contracts.
Effect of Condition
The City did not obtain a written certification, insert a clause into the contract, or check SAM.gov to verify the status of three contractors. Without this verification, the City increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Additionally, any payments the City made to an ineligible party would be unallowable, and the awarding agency could potentially recover them.
We subsequently verified the contractors were not suspended and debarred, so we are not questioning costs.
Recommendation
We recommend the City strengthen internal controls to ensure all contractors it expects to pay $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs, and maintain documentation demonstrating compliance with this requirement.
City’s Response
The City concurs with this finding. Full training with all staff responsible for expending federal funds has occurred. All vendors utilizing federal funding have been reviewed and debarment has been completed. As noted by the finding, all contractors/vendors were not suspended. Monthly reviews of federal funds will be performed to assure compliance.
Auditor’s Remarks
We appreciate the City’s commitment to resolve this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular 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.
Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.
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.