United States: Common Single Audit Findings And Remediation Series: Procurement, Suspension And Debarment, Part I

Last Updated: August 8 2019
Article by Kurt Schlicker

When Uniform Guidance became effective in December 2014, changes to the procurement regulations were so impactful that the OMB granted a two-year delayed implementation election. When the two years were almost up, the OMB granted an additional year of delayed implementation. Some organizations chose to implement immediately, but many chose to implement as late as possible.

Compliance with Uniform Guidance procurement standards was mandatory for all organizations beginning in calendar year 2018 or fiscal year ending 2019. Unfortunately, even with the implementation being delayed, Procurement, Suspension and Debarment testing under Uniform Guidance is resulting in many findings. Moreover, some of these findings are severe and could result in significant questioned costs with federal agencies.

Procurement regulations are complex, and there are many nuances that are difficult to work through. Therefore, this article will examine the policies and procedures that lead to findings and the pitfalls to avoid; future articles will highlight other common findings related to procurement with a focus on the bidding process, obtaining quotes and required contract provisions.

Policies and Procedures

Under Uniform Guidance, organizations are required to procure goods and services in accordance with their own documented policies and procedures. The caveat is that such policies and procedures must be compliant with local, state and federal laws and regulations. Some states have statutes that are not compliant with federal procurement regulations, which is part of the challenge. If they are not careful, an organization may be following state law but not considering the federal requirements.

Funding Sources

One strategy relating to procurement used by some organizations is to bifurcate their policies and procedures by funding source. For example, if the source is non-federal, the organization uses the local/state policies and procedures. If the funding source is federal, the federal regulations apply. This may sound advantageous in theory, but caution should be exercised if proceeding down this path due to the indirect relationship that procurement has in relation to the cost principles and matching requirements.

Under §200.306, costs must be allowable under Subpart E – Cost Principles to be used as a source of match. In Subpart E, under §200.403, costs must be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-federal entity. This means allowable costs used for the match must follow the same federal procurement procedures as a federal procurement would follow. If organizations are bifurcating their policies, they run the risk of improperly using costs as a match because they have not followed the required procurement requirements. If an organization is completely confident that a purchase with local funds will not be involved in a federal project in any way, it could follow a less restrictive policy, depending on the complexity and size of the organization. However, every organization should analyze their own environment and risk factors. Consider the potential for error and the exposure to risk facing your organization if you design a bifurcated policy.

Most Restrictive

To avoid the potential for errors that could result by having a bifurcated procurement policy determined by funding source, the best practice is to have one policy that uses the most restrictive of any of the local, state, or federal laws. In this case, no matter the funding source, the organization is always compliant. The disadvantage of this approach is administrative implementation challenges. In some states, there may be significant divergence from federal regulations. For example, many states have a lower competitive bidding threshold (i.e. $50,000 or $100,000) but allow for more exemptions. If the policies are updated for the lower threshold, the state exemptions versus the federal exemptions cannot be ignored. Many are raising concerns over additional workload. Is the organization equipped with enough FTE's in the purchasing department to handle the increased workload? Will procurement be efficient enough to complete work timely, or will there be delays in time-sensitive purchasing decisions? These are all valid considerations. Unfortunately, the new policies may require more workload or cause delays. Organizations need to have a full understanding of the local, state and federal regulations and may consider mapping out the various differences in the requirements by expenditure thresholds. The key to avoiding findings is to write a policy that meets all the requirements but remains practical in application.

Incomplete Policies

Everything discussed above may seem overwhelming. The best approach is to take it one step at a time and work through the problem areas with all relevant parties (i.e. management, grantors, those charged with governance). However, because of the initial time commitment to establish complete and compliant policies, some entities ignore the policy details and default to extremely vague policies.

I examined a procurement policy a year ago for an organization that was one sentence, "We follow state and federal requirements when purchasing goods and services." I was surprised because when they received a finding for their policies, they asked why. This policy was more of a statement. What it failed to do was document the processes and internal controls in place to ensure the organization complied with the procurement requirements. Writing a lengthy procedure document may be tedious; however, when done correctly, it should provide employees a clear, step-by-step process to follow that ensures compliance. In addition, internal controls can be built directly into these procedures to protect the organization. I would encourage everyone to take the time to draft detailed procedures while considering the size and complexity of their organization. The requirements under §200.317 - §200.326, as well as any applicable local and state law, should be reviewed in detail.

Procurement, Suspension and Debarment is one of the most complex compliance requirements in Uniform Guidance. The key to compliance is working through the complexity, one step at a time, and building a robust set of procedures to ensure compliance. If organizations successfully accomplish this, employees will have an easier time adhering to the policy and findings will be less likely to occur.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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