Audit 10426

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS City of Federal Way January 1, 2022 through December 31, 2022 2022-001 The City’s internal controls were inadequate for ensuring compliance with federal suspension and debarment requirements. Assistance Listing Number and Title: 21.027 – COVID-19 – Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Description of Condition During fiscal year 2022, the City spent $4,130,530 in federal funding from the Coronavirus State and Local Fiscal Recovery Funds (SLFRF). This program gives funding to respond to the COVID-19 pandemic’s negative effects on public health and the economy, provide premium pay to essential workers during the pandemic, provide government services to the extent COVID-19 caused a reduction in revenues collected, and make necessary investments in water, sewer, or broadband infrastructure. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Federal requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the City enters into contracts or purchases goods or services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that the contractors have not been suspended, debarred, or otherwise excluded. The City may accomplish this verification by obtaining a written certification from the contractor, adding a clause or condition into the contract that states the contractor is not suspended or debarred, or checking for exclusion records in the U.S. General Services Administration’s System for Award Management at SAM.gov. The City must perform this verification before entering into the contract, and it must maintain documentation demonstrating compliance with this federal requirement. Our audit found the City’s internal controls were inadequate for ensuring staff verified the suspension and debarment status of contractors for purchases exceeding $25,000, paid all or in part with federal funds. Specifically, the City did not verify that all five of the contractors we tested were not suspended or debarred from participating in federal programs before entering into contracts with them. We consider this deficiency in internal controls to be a material weakness, which led to material noncompliance. Cause of Condition City staff responsible for managing the SLFRF program attended several trainings to understand its requirements. However, City staff were not aware the requirement was applicable to costs charged to the SLFRF award under the program’s revenue replacement provisions. Effect of Condition Without adequate internal controls, the City increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the City made to an ineligible party would be unallowable, and the awarding agency could potentially recover them. The City subsequently verified the contractors were not suspended and debarred. Therefore, we are not questioning costs. Recommendation We recommend the City strengthen internal controls to ensure that all contractors paid $25,000 or more, all or in part with federal funds, are not suspended or debarred before entering into contracts with them. The City should also maintain documentation demonstrating compliance with this federal requirement. City’s Response The City concurs that maintaining strong internal controls is appropriate. Management is committed to taking immediate corrective action to ensure compliance with federal requirements. Since the enactment of the SLFRF, city staff has made significant efforts to keep up with the multiple and evolving guidelines rules and FAQs issued by Treasury, and attended numerous trainings. Lack of guideline clarity produced information sharing webinars hosted by reputable state-wide and nation-wide associations such as AWC and GFOA. City staff, management and governing body exercised initial restraint in approving projects for spending of SLFRF funding in order to avoid inadvertently violating a rule issued subsequently. One example is that exemption from Federal supplanting rules came out in later guidance and the City then proceeded relying on that explicit clarification. Our position on this finding is that the rule in question seems to have been clarified after the City’s opportunity to comply had passed. The City remains dedicated to ensuring Federal funds are spent in compliance with all governing laws and regulations. The City’s immediate change being implemented is to eliminate recipients that cannot 1) register on SAM.gov, 2) contractually attest compliance or 3) provide self-attestation. The City believes that adequate controls and procedures are in place and that internal training and communication are the appropriate corrective steps. Auditor’s Remarks We appreciate the City’s commitment to resolve this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS City of Federal Way January 1, 2022 through December 31, 2022 2022-001 The City’s internal controls were inadequate for ensuring compliance with federal suspension and debarment requirements. Assistance Listing Number and Title: 21.027 – COVID-19 – Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Description of Condition During fiscal year 2022, the City spent $4,130,530 in federal funding from the Coronavirus State and Local Fiscal Recovery Funds (SLFRF). This program gives funding to respond to the COVID-19 pandemic’s negative effects on public health and the economy, provide premium pay to essential workers during the pandemic, provide government services to the extent COVID-19 caused a reduction in revenues collected, and make necessary investments in water, sewer, or broadband infrastructure. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Federal requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the City enters into contracts or purchases goods or services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that the contractors have not been suspended, debarred, or otherwise excluded. The City may accomplish this verification by obtaining a written certification from the contractor, adding a clause or condition into the contract that states the contractor is not suspended or debarred, or checking for exclusion records in the U.S. General Services Administration’s System for Award Management at SAM.gov. The City must perform this verification before entering into the contract, and it must maintain documentation demonstrating compliance with this federal requirement. Our audit found the City’s internal controls were inadequate for ensuring staff verified the suspension and debarment status of contractors for purchases exceeding $25,000, paid all or in part with federal funds. Specifically, the City did not verify that all five of the contractors we tested were not suspended or debarred from participating in federal programs before entering into contracts with them. We consider this deficiency in internal controls to be a material weakness, which led to material noncompliance. Cause of Condition City staff responsible for managing the SLFRF program attended several trainings to understand its requirements. However, City staff were not aware the requirement was applicable to costs charged to the SLFRF award under the program’s revenue replacement provisions. Effect of Condition Without adequate internal controls, the City increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the City made to an ineligible party would be unallowable, and the awarding agency could potentially recover them. The City subsequently verified the contractors were not suspended and debarred. Therefore, we are not questioning costs. Recommendation We recommend the City strengthen internal controls to ensure that all contractors paid $25,000 or more, all or in part with federal funds, are not suspended or debarred before entering into contracts with them. The City should also maintain documentation demonstrating compliance with this federal requirement. City’s Response The City concurs that maintaining strong internal controls is appropriate. Management is committed to taking immediate corrective action to ensure compliance with federal requirements. Since the enactment of the SLFRF, city staff has made significant efforts to keep up with the multiple and evolving guidelines rules and FAQs issued by Treasury, and attended numerous trainings. Lack of guideline clarity produced information sharing webinars hosted by reputable state-wide and nation-wide associations such as AWC and GFOA. City staff, management and governing body exercised initial restraint in approving projects for spending of SLFRF funding in order to avoid inadvertently violating a rule issued subsequently. One example is that exemption from Federal supplanting rules came out in later guidance and the City then proceeded relying on that explicit clarification. Our position on this finding is that the rule in question seems to have been clarified after the City’s opportunity to comply had passed. The City remains dedicated to ensuring Federal funds are spent in compliance with all governing laws and regulations. The City’s immediate change being implemented is to eliminate recipients that cannot 1) register on SAM.gov, 2) contractually attest compliance or 3) provide self-attestation. The City believes that adequate controls and procedures are in place and that internal training and communication are the appropriate corrective steps. Auditor’s Remarks We appreciate the City’s commitment to resolve this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.