Common Single Audit Findings and Remediation Series: Procurement, Suspension and Debarment, Part II

October 2019 | Article

By Kurt Schlicker

Procurement regulations are complex and often difficult to work through. Implementing a proper procurement policy is essential to avoiding non-compliance and audit findings.

Some of the most common findings related to procurement focus on the bidding process, obtaining quotes and required contract provisions.

Quotes
Under Uniform Guidance, small acquisitions require an “adequate” number of quotes. The regulations do not restrict the type of quotes or the number of quotes. Therefore, the choice usually defaults to either state law, if applicable, or local policy on the number and types of quotes required.

The risk related to this requirement is in document retention. Quotes can be sourced through a number of methods (online, email, verbal, written), so determining the manner in which the quotes are retained is key to proving compliance.

One option is to implement a checklist that asks if the quotes were obtained and evidence retained. We recommend documenting the quotes on this checklist, the dates obtained, and rationale for selection. This could satisfy the requirement and avoid retaining a lot of separate documents.

Another possible option is to set up a procurement file for small purchases (and bids), with each quote. Either option will satisfy the retention of quotes and should allow your organization to avoid findings. Regardless of the method used, there should also be internal controls in place. These controls allow for approval by an authorized reviewer prior to purchase authorization.

Competitive Bidding
Regardless of the type of bid, the base requirement states purchases over the simplified acquisition threshold (or lower depending on state law or local policy) must be competitively procured through a formal solicitation process. This formal competitive bidding process can be quite cumbersome due to the timing, administrative involvement, evaluation and contract negotiation. This lengthy solicitation process opens up risk in relation to using noncompetitive exemptions inappropriately.

There are four allowable exemptions to competitive bidding under federal procurement standards:

  1. Sole-source
  2. Emergency purchase
  3. Prior written approval from grantor
  4. Lack of adequate bid responses to the bid solicitation

Common audit findings relate to the use of either the sole-source or emergency purchase justifications inappropriately. A sole-source purchase truly means the good or service is only reasonably available from one vendor. An emergency purchase refers to a purchase where the public may be harmed by a delay.

The best way to combat these types of audit findings is documentation. Determine if documentation is adequate to prove to an auditor that it truly was sole-source or an emergency. Your organization’s authorized reviewer should assess any non-competitive purchase considerations to ensure they meet the criteria and document approval.

Suspension and Debarment

Suspension is the temporary ban on receiving federal funds.
Debarment is the permanent ban on receiving federal funds.

One of the more common audit findings relates to the inappropriate or irresponsible use of federal funds. When an individual, vendor, or organization does not appropriately or responsibly use federal funds, they may be prohibited from receiving future federal funds resulting in suspension and debarment.

 

The federal government requires organizations to make sure they are not providing federal funds to organizations that are suspended or debarred. Organizations must evaluate procurements over $25,000 or on sub-awards under a pass-through/subrecipient relationship of any dollar amount to ensure they are meeting compliance with this requirement. There are three possible ways to satisfy compliance:

  1. Certification from the entity
  2. Independent excluded parties list system (EPLS) check
  3. Inclusion as a contract provision

The method selected depends on the nature of your organization. If entering into a contract, suspension and debarment is required as part of the terms and conditions provision. However, if the transaction did not require a formal contract, retaining the EPLS check or the signed certification is a must to avoid a finding.

How often your organization checks suspension and debarment also depends on the facts and circumstances. For recurring vendors operating on large multiple-year contracts, best practice is to perform an independent check at least once a year. For non-recurring vendors, for new or large contracts, and for change orders to existing contracts, the requirement should be met prior to entering into the contract or making contract amendments. For subrecipients, the verification should be performed for every sub-award prior to final issuance. To avoid non-compliance, the review for suspension and debarment compliance should be part of your internal controls, policies, and procedures. It should also be part of the review process relating to quotes or bidding requirements.

Contract Provisions
Many organizations rely on their attorneys to develop and write boilerplate contract templates. Unfortunately, not every attorney is aware of federal requirements under Uniform Guidance and the boilerplate contract templates may not contain the required provisions. Each grant may have some specific contract provisions that must be required. However, there are standard provisions required for every federally funded contract under Uniform Guidance.

Best practice to avoid non-compliance is to ensure these requirements are provided to the person responsible for approving the contract language so these provisions can be included on your templates.

Procurement, Suspension and Debarment continues to be one of the most complex compliance requirements to follow under federal standards. Incorporating the sound policies from Part I of the Procurement article and the processes and internal controls discussed above will help navigate and simplify the requirements.

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