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COVID-19 Federal Assistance e311

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Due Diligence & Fraud Protection

How can a municipality avoid fraud in the procurement process?

Some steps that cities may consider include, but are not limited to, the following:

  • Perform a check to ensure contractors and suppliers are not prohibited from work on federally funded contracts. A contract should not be granted to parties listed on the federal government-wide Excluded Parties List.[1] The federal government maintains a public database to identify companies and individuals who are excluded from working on federal projects. Cities should keep a record of the checks they make.  https://www.sam.gov/SAM/pages/public/searchRecords/advancedPIRSearch.jsf 
    • If awarding a new contract, this check should be included in your evaluation criteria prior to notification of award.
  • Many states and cities have their own debarment lists and these can be checked as well. The Office of the Inspector General for the U.S. General Services provides a helpful search tool that helps identify debarment lists by state.  Cities should keep a record of the checks they make. https://www.gsaig.gov/content/suspension-and-debarment-sites-state.
  • Non-Federal entities should award contracts only to responsible contractors possessing the ability to perform successfully under the terms and conditions of a proposed procurement. Consideration will be given to such matters as contractor integrity, compliance with public policy, record of past performance, financial and technical resources, and capacity to perform the proposed scope of services.[2] Even under emergency situations, basic due diligence steps can be taken, such as checking your state’s Secretary of State Business Registration Database to attempt to ensure the relevant company is duly registered to conduct business, performing an internet check to see if any red flags surface regarding the company and owner, and reviewing past performance evaluations if applicable.
  • Maintain oversight to ensure that contractors perform in accordance with terms, conditions, and specifications of their contracts or purchase orders.[3] Examples of some oversight tools are conducting regular audits, ensuring sufficient supervision and/or regular project spending and work completion reports from vendors, and having written standards of conduct in place covering conflicts of interest and governing the performance of employees engaged in the selection, award, and administration of contracts. Cities should keep records of all actions taken.
  • If time does not permit adequate acquisition planning and market research, an agency can consider limiting the value and length of a contract to address only its immediate needs. This approach allows the agency to plan strategically for ongoing requirements. Options may be included and exercised, if necessary, to allow continuous service.[4]
  • If utilizing pre-existing, competitively-bid contracts for emergency services, cities can ensure that the scope of work provided is consistent with the scope of work in the original contract. Change orders to substantially add new scope, services, or time not covered by the original contract and solicitation may be considered a “cardinal change,” making the contract non-competitive and non-compliant with federal procurement requirements.[5] Changes to the contract should follow the processes outlined in the contract itself.
  • If procuring new goods or services, cities should ensure that any solicitation is clear on the scope of services being sought, including any criteria used to evaluate a bidder’s responsiveness or responsibility. Awarded vendors will need to demonstrate both responsiveness – that they have met the criteria outlined in the solicitation – and responsibility – that they have the reputational, technical, and financial capacity to perform the services proposed for the contract.[6] Awarding a vendor who did not comply with the terms of the solicitation, or where evaluation criteria for the award was not consistently or clearly applied or documented, may raise concern on the validity of the award.
  • If sufficiently robust, follow your already established procurement processes, whether they are for emergency contracts or otherwise.  Maintain records sufficient to detail the history of the procurement, including but not limited to rationale for the method of procurement, the selection of the contractor/vendor, and the basis for the contract price.[7] Documentation is key to transparency and for preparing for future audits.
  • Immediately notify in writing the federal agency awarding the assistance of violations of federal law involving fraud, bribery, or gratuity violations potentially affecting the Federal award.[8]
  • Require contractors/vendors to include a signed certification attesting to the accuracy of submitted invoices. Establish processes to review invoices against a vendor’s progress reports to ensure that the project is completing the scope as outlined by the contract, change order, or your direction, and that the timelines are consistent with the terms of the contract.
  • Establish and promote an anonymous COVID-19 Fraud whistleblower hotline for employees, the public and contractors. Hotline posters should be posted at government facilities, distributed to contractors/vendors, and placed in public areas that are most likely to be observed by the members of the community. Creating posters in multiple languages can be helpful. Contractors and vendors should be reminded in their contracts of their absolute responsibility to report any suspicion of fraud to the hotline.
  • If mistakes are made during the procurement process, document the issue and note the corrective action taken. [9]

Last Revised: April 14, 2021

 

[1] 2 CFR Section 200.521 Federal Award Administration

[2] 2 CFR Section 200.318 General Procurement Standards

[3] 2 CFR Section 200.318 General Procurement Standards

[5] 2 CFR Section 200.319 Competition, 200.320 Methods of Procurement to be followed

[6] 2 CFR Section 200.318 General Procurement Standards (h), (i) and 200.319 Competition (d)

[7] 2 CFR Section 200.318 General Procurement Standards

[8] 2 CFR Section 200.113 Mandatory Disclosures

[9] 2 CFR 200.24 Cooperative Audit Resolutions