CITY OF SOUTH BENDLocal Government

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS City of South Bend January 1, 2020 through December 31, 2020 2020-001 The City lacked adequate internal controls for ensuring compliance with federal procurement requirements. CFDA Number and Title: 10.760, Water and Waste Disposal Systems for Rural Communities Federal Grantor Name: Department of Agriculture Federal Award/Contract Number: N/A Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Questioned Cost Amount: $0 Description of Condition The Water and Waste Program is designed to assist rural communities in obtaining safe drinking water and adequate waste disposal facilities, which are prerequisites for economic growth. During fiscal year 2020, the City spent $638,419 in federal loan funds awarded by the Department of Agriculture Rural Utilities Service. The City used program funding on one project during fiscal year 2020. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Additionally, federal regulations require grant recipients to follow their own written procurement procedures, which must reflect the most restrictive of applicable federal, state or local laws. These procedures must conform to federal procurement standards to ensure recipients follow the most restrictive thresholds and methods when using federal funds. The City?s written procurement policy does not include federal, state or local procurement requirements specifically outlining federal regulations for public works contracts. We consider this control deficiency to be a material weakness. The issue was not reported as a finding in the prior audit. Cause of Condition The City was unaware of the requirement to update its written procurement policies and procedures for compliance with federal regulations. Effect of Condition Without updated 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 requirements when using federal funds to procure contractors. Although the City did not update its written policy before procuring, it did comply with federal requirements for the solicitation and awarding of the public works contract for the water treatment plant upgrade project. Recommendation We recommend the City update and maintain its written procurement policy and ensure it conforms to federal procurement standards. City?s Response The City of South Bend accepts the Schedule of Federal Award finding as presented in their report to the city. The City of South Bend has not received a Federal Audit in 13 years and was unaware of the required Procurement Policy that is now mandatory for all federally funded projects. The city is currently working with our city attorney to update our current policies and procedures for compliance with federal regulations. Once the policy is updated it will become part of all of the city's project files including those facilitated by second party consultants. Auditor?s Remarks We appreciate the City?s commitment to address these concerns. We will review the status of the District?s corrective action 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, section 318 General procurement standards, establishes requirements for documented procurement procedures which reflect applicable state, local, and federal laws and regulations.