Audit 13629

2022-001 The City’s internal controls were inadequate for ensuring compliance with federal requirements for suspension and debarment. 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: Washington State Department of Commerce Pass-through Award/Contract Number: 22-96515-009 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) is 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. In 2022, the City spent $1,043,933 in program funds for the provision of government services and investments in sewer infrastructure. The City received $111,174 of these funds directly from U.S. Department of the Treasury. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding grant 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 the contractors have not been suspended, debarred or otherwise excluded. This also applies to all subrecipients who have received federal subawards from the City, regardless of the award amount. The City may accomplish this verification by collecting a written certification from the contractor or subrecipient, adding a clause or condition into the contract that states the contractor or subrecipient 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 or making the subaward, and it must maintain documentation demonstrating compliance with this federal requirement. Description of Condition 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 one contractor was not suspended or debarred from participating in federal programs before paying them $107,174 in 2022. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition The City typically uses a contracted engineering and architectural firm for project management on large construction projects. Staff are aware of the suspension and debarment requirement, and they confirm that the firm verifies each contractor’s status. However, the City did not have a process to ensure that staff completed the suspension and debarment verification for smaller construction projects that it managed. Effect of Condition Without adequate internal controls over suspension and debarment requirements, the City cannot guarantee it is paying federal funds only to eligible contractors. Additionally, the awarding agency could potentially recover any payments the City made to an ineligible contractor. We subsequently verified the contractor was not suspended and debarred, so we are not questioning costs. Recommendation We recommend the City strengthen internal controls to ensure all contractors it expects to pay $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs. City’s Response The City will develop written procedures, including a checklist, to ensure that contractors hired to perform work on federally funded projects are evaluated at the Sam.gov website to ensure they are not suspended or debarred. Auditor’s Remarks We appreciate the City’s efforts to resolve this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during the next single 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 Government wide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.

2022-001 The City’s internal controls were inadequate for ensuring compliance with federal requirements for suspension and debarment. 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: Washington State Department of Commerce Pass-through Award/Contract Number: 22-96515-009 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) is 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. In 2022, the City spent $1,043,933 in program funds for the provision of government services and investments in sewer infrastructure. The City received $111,174 of these funds directly from U.S. Department of the Treasury. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding grant 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 the contractors have not been suspended, debarred or otherwise excluded. This also applies to all subrecipients who have received federal subawards from the City, regardless of the award amount. The City may accomplish this verification by collecting a written certification from the contractor or subrecipient, adding a clause or condition into the contract that states the contractor or subrecipient 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 or making the subaward, and it must maintain documentation demonstrating compliance with this federal requirement. Description of Condition 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 one contractor was not suspended or debarred from participating in federal programs before paying them $107,174 in 2022. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition The City typically uses a contracted engineering and architectural firm for project management on large construction projects. Staff are aware of the suspension and debarment requirement, and they confirm that the firm verifies each contractor’s status. However, the City did not have a process to ensure that staff completed the suspension and debarment verification for smaller construction projects that it managed. Effect of Condition Without adequate internal controls over suspension and debarment requirements, the City cannot guarantee it is paying federal funds only to eligible contractors. Additionally, the awarding agency could potentially recover any payments the City made to an ineligible contractor. We subsequently verified the contractor was not suspended and debarred, so we are not questioning costs. Recommendation We recommend the City strengthen internal controls to ensure all contractors it expects to pay $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs. City’s Response The City will develop written procedures, including a checklist, to ensure that contractors hired to perform work on federally funded projects are evaluated at the Sam.gov website to ensure they are not suspended or debarred. Auditor’s Remarks We appreciate the City’s efforts to resolve this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during the next single 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 Government wide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.

2022-001 The City’s internal controls were inadequate for ensuring compliance with federal requirements for suspension and debarment. 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: Washington State Department of Commerce Pass-through Award/Contract Number: 22-96515-009 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) is 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. In 2022, the City spent $1,043,933 in program funds for the provision of government services and investments in sewer infrastructure. The City received $111,174 of these funds directly from U.S. Department of the Treasury. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding grant 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 the contractors have not been suspended, debarred or otherwise excluded. This also applies to all subrecipients who have received federal subawards from the City, regardless of the award amount. The City may accomplish this verification by collecting a written certification from the contractor or subrecipient, adding a clause or condition into the contract that states the contractor or subrecipient 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 or making the subaward, and it must maintain documentation demonstrating compliance with this federal requirement. Description of Condition 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 one contractor was not suspended or debarred from participating in federal programs before paying them $107,174 in 2022. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition The City typically uses a contracted engineering and architectural firm for project management on large construction projects. Staff are aware of the suspension and debarment requirement, and they confirm that the firm verifies each contractor’s status. However, the City did not have a process to ensure that staff completed the suspension and debarment verification for smaller construction projects that it managed. Effect of Condition Without adequate internal controls over suspension and debarment requirements, the City cannot guarantee it is paying federal funds only to eligible contractors. Additionally, the awarding agency could potentially recover any payments the City made to an ineligible contractor. We subsequently verified the contractor was not suspended and debarred, so we are not questioning costs. Recommendation We recommend the City strengthen internal controls to ensure all contractors it expects to pay $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs. City’s Response The City will develop written procedures, including a checklist, to ensure that contractors hired to perform work on federally funded projects are evaluated at the Sam.gov website to ensure they are not suspended or debarred. Auditor’s Remarks We appreciate the City’s efforts to resolve this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during the next single 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 Government wide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.

2022-001 The City’s internal controls were inadequate for ensuring compliance with federal requirements for suspension and debarment. 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: Washington State Department of Commerce Pass-through Award/Contract Number: 22-96515-009 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) is 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. In 2022, the City spent $1,043,933 in program funds for the provision of government services and investments in sewer infrastructure. The City received $111,174 of these funds directly from U.S. Department of the Treasury. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding grant 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 the contractors have not been suspended, debarred or otherwise excluded. This also applies to all subrecipients who have received federal subawards from the City, regardless of the award amount. The City may accomplish this verification by collecting a written certification from the contractor or subrecipient, adding a clause or condition into the contract that states the contractor or subrecipient 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 or making the subaward, and it must maintain documentation demonstrating compliance with this federal requirement. Description of Condition 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 one contractor was not suspended or debarred from participating in federal programs before paying them $107,174 in 2022. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. Cause of Condition The City typically uses a contracted engineering and architectural firm for project management on large construction projects. Staff are aware of the suspension and debarment requirement, and they confirm that the firm verifies each contractor’s status. However, the City did not have a process to ensure that staff completed the suspension and debarment verification for smaller construction projects that it managed. Effect of Condition Without adequate internal controls over suspension and debarment requirements, the City cannot guarantee it is paying federal funds only to eligible contractors. Additionally, the awarding agency could potentially recover any payments the City made to an ineligible contractor. We subsequently verified the contractor was not suspended and debarred, so we are not questioning costs. Recommendation We recommend the City strengthen internal controls to ensure all contractors it expects to pay $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs. City’s Response The City will develop written procedures, including a checklist, to ensure that contractors hired to perform work on federally funded projects are evaluated at the Sam.gov website to ensure they are not suspended or debarred. Auditor’s Remarks We appreciate the City’s efforts to resolve this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during the next single 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 Government wide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.