Uniform Guidance Procurement: What to Expect in Your Single Audit

Posted on Jun 3, 2019

Grace periods are history and, by now, not-for-profit organizations (NFPs) administering Federal grants subject to the Uniform Guidance must have procurement policies in place and operating in accordance with it. As mentioned in our previous article, the Uniform Guidance contained procurement standards that resulted in significant changes to how many NFPs procure goods and services under Federally funded awards. Naturally, this leaves many NFPs wondering – How are the procurements of goods and services subject to requirements of the Uniform Guidance going to be audited as part of the Single Audit, and how can we prepare? To provide insights into these questions, NFPs can consult the Compliance Supplement issued by the U.S. Office of Management and Budget (OMB).

OMB issues annual guidance to auditors in what is titled the OMB Compliance Supplement. Among other important information, the OMB Compliance Supplement provides auditors, in Part 3, a detailed discussion of the Uniform Guidance compliance requirements, audit objectives, and suggested audit procedures. Auditors are to apply judgement in designing audit procedures. The following is a listing of the suggested audit procedures for procurement as detailed in Part 3.2:

Obtain the entity’s procurement policies and verify that the policies comply with the compliance requirements highlighted above.

The first suggested audit step is to obtain the NFP’s procurement policies and determine if they comply with the procurement requirements contained in the Uniform Guidance. This procedure focuses on the Uniform Guidance procurement requirements highlighted in Part 3 of the OMB Compliance Supplement. It includes the following:

  • Meet the general Uniform Guidance procurement standards
  • Conduct procurements in a manner providing full and open competition
  • Purchasing thresholds align with the procurement methods detailed in the Uniform Guidance
  • Cost/price analysis performed when required by the Uniform Guidance
  • Contract provisions detailed in Appendix II of the Uniform Guidance are included when required

NFPs are encouraged to take their procurement policy and, in a checklist-like fashion, ensure it addresses the Uniform Guidance requirements highlighted in Part 3.2, as well as the Uniform Guidance itself located at 2 Code of Federal Regulations Part 200.317 through 200.326.

Once the auditors have determined the NFP’s procurement policy complies with the Uniform Guidance, all subsequent testing will be based on the details of the NFP’s procurement policy. For this reason, it is important that NFP staff be trained on, understand, and comply with the details of their procurement policy.

Verify that the entity has written standards of conduct that cover conflicts of interest and govern the performance of its employees engaged in the selection, award, and administration of contracts (2 CFR section 200.318(c) and 48 CFR sections 52.203-13 and 52.303-16).

If the NFP already has these referenced written standards of conduct, this audit step is easy to perform. If not, this could likely result in a finding for the NFP. In preparation, NFPs should obtain their written standards of conduct and conflict of interest policies and review them to ensure that, first, they exist. Secondly, that the policies cover employees engaged in procurement activities as required in the above referenced parts of the Uniform Guidance.

Ascertain if the entity has a policy to use statutorily or administratively imposed in-State or local geographical preferences in the evaluation of bids or proposals. If yes, verify that these limitations were not applied to federally funded procurements except where applicable Federal statutes expressly mandate or encourage geographic preference (2 CFR section 200.319(b)).

Most NFP procurement policies do not include procurement procedures requiring the use of in-State or local geographical preferences in purchasing decisions. However, if the NFP’s procurement policy does provide geographical preferences, this audit step is to have auditors specifically test to ensure that those preferences were not used in goods or services purchased with Federal funds. The Uniform Guidance prohibits these types of preferences from being applied to Federally funded procurements.

Select a sample of procurements and perform the following procedures:

Now, this is the portion of the audit that will really get granular. From the detailed listing of goods and services directly charged to the Federal award being audited, a sample selection of procurements will be made. Auditors will be inquiring about when the purchases were procured to determine what standards apply (existing OMB Circular vs. Uniform Guidance) and inquiring about what purchase method was utilized (micro-purchase, small purchase, etc.) in order to select the audit sample and design tests of compliance. The following audit procedures will be performed over the procurement sample selection made:

a. Examine contract files and verify that they document the history of the procurement, including the rationale for the method of procurement, selection of contract type, basis for  contractor selection, and the basis for the contract price (2 CFR section 200.318(i) and 48 CFR part 44 and section 52.244-2)

For the selected sample, auditors will be requesting documentation supporting that the Federal procurement standards were followed through application of the NFP’s procurement policy. This will, of course, depend on whether the OMB Circular vs. Uniform Guidance standards apply but, just as important, is the documentation supporting the procedures required by the NFP’s own procurement policy.

As noted, the history of the procurement will be tested. For example, when testing a procurement under the small purchase method, the auditor will be viewing not only the price or rate quote supporting the procurement decision, but the auditor will also be viewing the other price or rate quotes obtained (i.e. losing quotes) as part of the procurement process. If the NFP’s procurement policy requires that three price or rate quotes are required, then the auditors will be requesting documentation supporting the three price or rate quotes obtained.

b. For grants and cooperative agreements, verify that the procurement method used was appropriate based on the dollar amount and conditions specified in 2 CFR section 200.320. Current micro-purchase and simplified acquisition thresholds can be found in the FAR (48 CFR subpart 2.1, “Definitions”)

For the selected sample, auditors are required to conclude whether the proper procurement method was used based on the NFP’s procurement policy, applicable standards, and details surrounding the sample being tested. To help with this, ensure that auditors are provided documentation supporting the rationale for the procurement method that was selected and used.

c. Verify that procurements provide full and open competition (2 CFR section 200.319 and 48 CFR section 52.244-5).

Auditors will be focused on whether the NFP applied their procurement policy in ensuring full and open competition. This would include ensuring that the NFP did not apply purchasing procedures that are restrictive of competition as discussed in the Uniform Guidance.

d. Examine documentation in support of the rationale to limit competition in those cases where competition was limited and ascertain if the limitation was justified (2 CFR sections 200.319 and 200.320(f) and 48 CFR section 52.244-5).

This procedure will be performed on selected samples where noncompetitive procurement procedures were used by the NFP. The Uniform Guidance contains restrictive language at 2 CFR Part 200.320(f) stating that noncompetitive procurements can only be used when one of the following circumstances exist:

(1) The item is available only from a single source;

(2) The public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation;

(3) The Federal awarding agency or pass-through entity expressly authorizes noncompetitive proposals in response to a written request from the non-Federal entity; or

(4) After solicitation of a number of sources, competition is determined inadequate.

Auditors will be requesting documentation from the NFP justifying how one of the circumstances above existed for the selected procurement sample.

e. Ascertain if cost or price analysis was performed in connection with all procurement actions exceeding the simplified acquisition threshold, including contract modifications, and that this analysis supported the procurement action (2 CFR section 200.323 and 48 CFR section 15.404-3).

Though the procurement standards do not specify how the cost or price analysis is to be performed, auditors will be looking for documentation supporting that a cost or price analysis was performed when required, and in accordance with the NFP’s procurement policy.

Verify consent to subcontract was obtained when required by the terms and conditions of a cost reimbursement contract under the FAR (48 CFR section 52.244-2).

Only applicable to contracts subject to the Federal Acquisition Regulations, this audit procedure will focus on obtaining the contracting officer’s written consent for the NFP (contractor) to enter into a particular subcontract

Many NFPs were required to make signification revisions to existing procurement policies in order to meet the procurement requirements under the Uniform Guidance. For many, the Single Audit will be the first time an external auditor has tested the NFP’s implementation of the Uniform Guidance procurement requirements. Having a procurement policy that meets the Uniform Guidance requirements, and the appropriate internal controls in place to ensure the procurement policy is being followed, will be critical in ensuring that NFPs continue to comply with the requirements of their Federal awards.

For help establishing a strong procurement policy, contact a Clark Nuber advisor.

© Clark Nuber PS, 2019. All Rights Reserved

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