Finding Text
FINDING 2023-001 – Procurement and Suspension and Debarment-Significant Deficiency over
Internal Controls over Compliance
Federal Agency: U.S. Department of Housing and Urban Development
Program: Emergency Solutions Grant
Assistance Listing Number: 14.231
Compliance Requirement: Procurement and Suspension and Debarment (I)
Pass-Through Agency: Los Angeles Homeless Services Authority
Award Number: GT-BH-PHKCO-016
Criteria: Title 2 U.S. Code of Federal Regulations § 200.303 states that federal award recipients must establish and maintain effective internal control over the federal award that provides reasonable assurance that it is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award. Federal award recipients are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred. “Covered transactions” include contracts for goods and services awarded under a non-procurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000 or meet certain other criteria as specified in Title 2 U.S. Code of Federal Regulations § 180.220.
Per 2 CFR §180.300 when a federal award recipient enters into a covered transaction with another person at the next lower tier, it must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by:
(a) Checking the EPLS; or
(b) Collecting a certification from that person if allowed by this rule; or
(c) Adding a clause or condition to the covered transaction with that person.
Per 2 CFR §200.318 (c )(1) Ethics and conflict of interest, the entity must maintain written standards of conduct covering conflicts of interest and governing the actions of its employees engaged in the selection, award, and administration of contracts. The policy should ensure that no one with a conflict of interest participates in the selection, award, or administration of a federal contract.
Condition/Context: We selected two out of a universe of three vendors that had covered transactions over the covered transactions threshold. National Health Foundation was unable to provide supporting evidence documenting that it had verified either entity was not excluded or disqualified before National Health Foundation went under contract with those vendors. However, a subsequent review did show both vendors were not on the excluded or disqualified listing. The written policies at National Health Foundation include the requirement to attach evidence of the debarment verification when submitting an invoice for payment.
The procurement policy effective during the audit period did not include the required written ethics and conflicts of interest standard to avoid actual or apparent conflict of interest involving expenditures of federal grant awards. National Health Foundation has a conflict-of-interest policy for employees to adhere to; however, the specific consideration for anyone who participates in the selection, awarding, or administration of a contract with federal funding was not included.
Effect: Vendors to whom payments equal to or in excess of $25,000 may not be verified to be not suspended, debarred, or otherwise excluded. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in accidental engagement with excluded vendors.
Cause: The system of internal controls as established by management of National Health Foundation was not properly implemented to ensure that the policies and procedures in place related to procurement and suspension and debarment were appropriately documented.
Repeat finding: No.
Recommendation: We recommended that management of National Health Foundation establish a proper system of internal controls, including strengthening its policies and procedures to ensure its compliance with requirements related to procurement and suspension and debarment. The use of standard forms or templates could help document verification that parties are not suspended or debarred before National Health Foundation goes under contract with such an entity. Additionally, we recommend the conflict-of-interest policy be amended to properly include all required verbiage for federal procurement contracts.
Views of responsible officials: Management agrees with the recommendation.