Nonprofit Accounting Basics

Protecting Your Organization and Federal Funds: The Role of Procurement Policies in Risk Management

Implementing spending requirements protects against the improper use of funds. The federal government embraces this concept and places significant requirements on the procurement process for federal awards. These requirements are designed to ensure that purchases are made in a way that promotes competition, transparency, and accountability, and that the federal government receives the best value for the money it spends.

The large number of weaknesses found in the procurement process during Single Audits1 indicates the complexity of these requirements. Create and consistently follow a procurement policy and ensure that all applicable procurement requirements are followed and documented to protect the organization and federal funds. Noncompliance with procurement standards places the organization at significant risk.

Procurement Policy

A written policy describing the process of procuring goods and services paid for by a federal award is always a requirement. Specifically, a procurement policy should consider the following:

  • A written conflict of interest policy is required to prevent real or apparent conflicts.
  • Full and open competition should be allowed for all goods and services acquired under a federal award.
  • Appropriate records must be retained to provide proof that each step in the procurement process was completed.
  • The organization should hire responsible contractors, considering factors such as contractor integrity, compliance with public policy, records of past performance, and the contractor's financial and technical resources.

Additional requirements may be necessary based on individual circumstances.

Method of Procurement

In addition to the general procurement policy requirements, the required method of procurement is dictated by the Uniform Guidance2 based upon the cost of the goods or services. These methods range from informal procurements for micro-purchases and purchases under the small acquisition threshold, to formal, competitive procurement methods based on thresholds established by the Federal Acquisition Regulation (3).

While informal procurement methods allow the organization to determine and document their own procurement process, considering internal controls and an evaluation of risk, formal procurement methods require public advertising and must follow a sealed bid or a proposal process. The sealed bid process focuses on finding the contractor with the lowest cost to award a firm fixed-price contract.  The proposal process, used when it is not reasonable to conduct a sealed bid procurement, considers cost and at least one additional qualitative factor to award either a fixed price or a cost-reimbursement type contract.

Non-competitive, or sole source, procurements are only allowed in certain circumstances and must be appropriately documented.

Additional Procurement Considerations

When moving through the procurement process, several additional considerations should be considered:

  • Contract Type: Fixed price and cost-reimbursement contracts are preferred. A time-and-materials contract should only be awarded when no other form of contract is suitable and must include a ceiling price to encourage the contractor to implement cost control and labor efficiency practices.
  • Contractor Selection: When selecting contractors, appropriate affirmative steps must be put in place to assure small and minority businesses, women owned businesses, and areas with a labor surplus are selected when possible.
  • Record Retention: A record of the full procurement process, including, but not limited to the initial contract requirements, the method of procurement selection, the contractor selection or rejection decisions, and the contract price, must be retained.

Suspension and Debarment

One of the commonly missed areas in the procurement process is the suspension and debarment review. This is a process to help organizations avoid doing business with non-responsible contractors. Before doing more than $35,000 in business4 with a contractor, a search for any outstanding suspensions or debarments must be completed and documented with a timestamp.5 The most widely used tool to complete this is operated by the System for Award Management (SAM).


Noncompliance with the Uniform Guidance procurement policy could result in disallowed costs, loss of funding, or legal action. Noncompliance may also result in audit findings, which can lead to the repayment of funds and potential legal action. Organizations that receive federal awards must ensure that they have established and implemented a comprehensive procurement policy that adheres to the Uniform Guidance requirements to avoid negative consequences.


Adhering to procurement requirements is crucial for organizations that receive federal awards to protect themselves and federal funds from potential risks. The procurement policy must be established and consistently followed, and all applicable procurement requirements must be documented to ensure transparency and accountability. Noncompliance with procurement standards can result in disallowed costs, loss of funding, or legal action, and audit findings can lead to the repayment of funds and potential legal action. Therefore, it is essential to ensure that the procurement policy complies with the Uniform Guidance requirements2 to avoid negative consequences. By following these guidelines, organizations can protect themselves and their funding while maximizing competition, transparency, and accountability in the procurement process.

1)  Procurement findings account for 33% of all single audit findings for local governments, as reported by the Office of the Washington State Auditor.
2)  For a complete list of procurement requirements, refer to the Uniform Guidance Procurement Standards in §200.317 - §200.327.
3)  The micro-purchase and small acquisition thresholds are defined by the Federal Acquisition Regulation
4)  The suspension and debarment threshold is defined by the Federal Acquisition Regulation.
5)  Frequently asked questions about the suspension and debarment purpose are available on the GSA website.