TOWN OF WEST TERRE HAUTELocal Government

FINDING 2020-003 Subject: Water and Waste Disposal Systems for Rural Communities - Procurement and Suspension and Debarment Federal Agency: Department of Agriculture Federal Program: Water and Waste Disposal Systems for Rural Communities Assistance Listings Number: 10.760 Federal Award Number and Year (or Other Identifying Number): FY 2020 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters This is a repeat finding from the immediately prior audit report. The prior audit finding number was 2019-003. Condition and Context An effective internal control system, which would include segregation of duties, was not in place at the Town to ensure compliance with requirements related to the grant agreement and the Procurement and Suspension and Debarment compliance requirement. Procurement The Town's procurement policy did not address all procurement standards as outlined in 2 CFR 200.318 through 2 CFR 200.326. The Town did not follow the appropriate procurement process for two of the vendors paid with grant funds for the program. Bids were not obtained for a vendor that qualified for the Exceeds Simplified Acquisition threshold procurement category, and quotes were not obtained for the vendor that qualified for the Small Purchase procurement category. Suspension and Debarment The Town was not able to provide documentation that the four vendors with purchases in excess of $25,000 were verified to ensure the vendor was not suspended or debarred from participation in federal award programs. The contracts with these vendors did not contain a suspension and debarment clause. The lack of internal controls and noncompliance were systemic issues, which occurred 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(a) states: "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 Federal award or subaward. The nonFederal entity's documented procedures must conform to the procurement standards identified in ?? 200.317 through 200.327." 2 CFR 200.318(i) states: "The non-Federal entity must maintain records sufficient to detail the history of the 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." 7 CFR 1780.75 states in part: "In addition to provisions required for a valid and legally binding contract, any recipient of Agency funds shall include the following contract provisions in all contracts. (a) Remedies. Contracts for more than Simplified Acquisition Threshold shall contain provisions or conditions which allow for administrative, contractual, or legal remedies in instances where contractors violate or breach contract terms, and provide for such sanctions and penalties as maybe appropriate. A realistic liquidated damage provision should be included in all contracts for construction. (b) Termination. All contracts exceeding $10,000, shall contain suitable provisions for termination by the owner including the manner by which it will be effected and the basis for settlement. In addition, such contracts shall describe conditions under which the contract may be terminated for default as well as conditions where the contract may be terminated because of circumstances beyond the control of the contractor. . . . (d) Equal employment opportunity. All contracts awarded in excess of $10,000 by owners shall contain a provision requiring compliance . . . (m) Debarment and suspension. A contract award (see 2 CFR 180.220) must not be made to parties listed on the governmentwide exclusions in the System for Award Management (SAM), in accordance with the OMB guidelines at 2 CFR part 180, as supplemented by 2 CFR part 417, 'Debarment and Suspension.' SAM exclusion records contain the names of parties debarred, suspended, or otherwise excluded by agencies, as well as parties declared ineligible under statutory or regulatory authority other than Executive Order 12549. . . ." 2 CFR 180.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause Management had not developed an effective internal control system that would have ensured compliance with the grant agreement and the Procurement and Suspension and Debarment compliance requirement. Effect The failure to establish an effective internal control system enabled noncompliance to go undetected. Noncompliance with the grant agreement and the Procurement and Suspension and Debarment compliance requirement could have resulted in the loss of federal funds to the Town. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the Town's management establish a system of internal control to ensure compliance and comply with the grant agreement and the Procurement and Suspension and Debarment compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2019-003 Subject: Water and Waste Disposal Systems for Rural Communities - Procurement and Suspension and Debarment Federal Agency: Department of Agriculture Federal Program: Water and Waste Disposal Systems for Rural Communities Assistance Listings Number: 10.760 Federal Award Number and Year (or Other Identifying Number): FY 2019 Compliance Requirement: Procurement and Suspension and Debarment Audit Findings: Material Weakness, Other Matters Condition and Context An effective internal control system, which would include segregation of duties, was not in place at the Town in order to ensure compliance with requirements related to the grant agreement and the Procurement and Suspension and Debarment compliance requirement. Procurement The Town's procurement policy did not address all procurement standards outlined in 2 CFR 200.318 through 2 CFR 200.326. The Town did not follow the appropriate procurement process for three of the vendors paid with grant funds for the program. Bids were not obtained for a vendor that qualified for the Exceeds Simplified Acquisition threshold procurement category, and quotes were not obtained for the two vendors that qualified for the Small Purchase procurement category. Suspension and Debarment The Town was not able to provide documentation that the four vendors with purchases in excess of $25,000 were verified to ensure the vendor was not suspended or debarred from participation in federal award programs. The contracts with these vendors did not contain a suspension and debarment clause. The lack of internal controls and noncompliance were systemic issues, which occurred 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(a) states: "The non-Federal entity must use its own documented procurement procedures which reflect applicable State, local, and tribal laws and regulations, provided that the procurements conform to applicable Federal law and the standards identified in this part." 2 CFR 200.318(i) states: "The non-Federal entity must maintain records sufficient to detail the history of the 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." 7 CFR 1780.75 states in part: "In addition to provisions required for a valid and legally binding contract, any recipient of Agency funds shall include the following contract provisions in all contracts. (a) Remedies. Contracts for more than Simplified Acquisition Threshold shall contain provisions or conditions which allow for administrative, contractual, or legal remedies in instances where contractors violate or breach contract terms, and provide for such sanctions and penalties as maybe appropriate. A realistic liquidated damage provision should be included in all contracts for construction. (b) Termination. All contracts exceeding $10,000, shall contain suitable provisions for termination by the owner including the manner by which it will be effected and the basis for settlement. In addition, such contracts shall describe conditions under which the contract may be terminated for default as well as conditions where the contract may be terminated because of circumstances beyond the control of the contractor. . . . (d) Equal employment opportunity. All contracts awarded in excess of $10,000 by owners shall contain a provision requiring compliance . . . (m) Debarment and suspension. A contract award (see 2 CFR 180.220) must not be made to parties listed on the governmentwide exclusions in the System for Award Management (SAM), in accordance with the OMB guidelines at 2 CFR part 180, as supplemented by 2 CFR part 417, 'Debarment and Suspension.' SAM exclusion records contain the names of parties debarred, suspended, or otherwise excluded by agencies, as well as parties declared ineligible under statutory or regulatory authority other than Executive Order 12549. . . ." 2 CFR 180.300 states: "When you enter into a covered transaction with another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking SAM Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person." Cause Management had not developed an effective internal control system that would have ensured compliance with the grant agreement and the Procurement and Suspension and Debarment compliance requirement. Effect The failure to establish an effective internal control system enabled noncompliance to go undetected. Noncompliance with the grant agreement and the Procurement and Suspension and Debarment compliance requirement could have resulted in the loss of federal funds to the Town. Questioned Costs There were no questioned costs identified. Recommendation We recommended that the Town's management establish a system of internal control to ensure compliance and comply with the grant agreement and the Procurement and Suspension and Debarment compliance requirement. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

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