The Transit Authority’s internal controls were inadequate for ensuring compliance with suspension, debarment and federal procurement requirements.
Assistance Listing Number and Title: 20.526 – Buses and Bus Facilities Formula, Competitive, and Low or No Emissions Program.
Federal Grantor Name: Federal Transit Administration
Federal Award/Contract Number: N/A
Pass-through Entity Name: Washington State Department of Transportation
Pass-through Award/Contract Number: PTD0486
Known Questioned Cost Amount: N/A
Prior Year Audit Finding: N/A
Background
The Transit Authority spent $873,562 in program funds from the Bus and Bus Facilities Formula, Competitive, and Low or No Emissions Program. The objective of the program is to provide financial assistance to replace, rehabilitate, and purchase buses and related equipment, as well as construct bus-related facilities through both formula and competitive selection procedures.
Federal regulations require federal award recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls.
Suspension and Debarment
Federal requirements prohibit grant recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the Transit Authority 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 or debarred or otherwise excluded. The Transit Authority may accomplish this verification by collecting 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 Transit Authority must perform this verification before entering into the contract and charging the costs to a federal award, and it must maintain documentation demonstrating compliance with this federal requirement.
Procurement
Federal regulations require recipients to follow their own documented procurement procedures, which must conform to the Uniform Guidance procurement standards found in 2 CFR § 200.318-327. The procedures must reflect the most restrictive of applicable federal requirements, state laws and local policies. When using federal funds to procure goods and services, governments must apply the most restrictive federal requirements, state law or local policies by obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity.
Additionally, state and federal requirements, as well as the Transit Authority’s policy, allow it to bypass normal procurement laws through a process commonly referred to as “piggybacking.” This process allows entities to purchase goods and services using contracts awarded by another government or group of governments via an interlocal agreement or cooperative. To comply with piggybacking requirements, the entity must enter into an agreement before it purchases services or goods from the other entity’s bid contract. If the Transit Authority uses such an agreement, federal regulations require it to confirm the awarding entity followed all procurement laws and regulations applicable to the awarding entity when selecting the contractor.
Description of Condition
Suspension and Debarment
The Transit Authority’s controls were ineffective for ensuring it verified the suspension and debarment status of contractors receiving $25,000 or more, all or in part with federal funds. The Transit Authority could not demonstrate it obtained a written certification, included a clause in the contract, or searched for exclusion records in SAM.gov to verify that one contractor subject to this requirement was not suspended or debarred before entering into the contract or charging costs to the federal award. The Transit Authority paid this contractor $873,562 in program funds during fiscal year 2022.
Procurement
Although the Transit Authority has an established written procurement policy, it does not conform to the most restrictive of federal, state and local requirements, and does not include all required procedures to follow when procuring purchases of materials, supplies and equipment through piggybacking. Additionally, the Transit Authority’s policy does not include other required procedures for procuring transactions, such as contracting with small and minority business owners, bonding requirements, contract cost or price analysis, contract provisions, and more.
Our audit found the Transit Authority did not perform competitive procurement procedures, nor did it establish an interlocal agreement to piggyback onto another entity’s contract before using $873,562 in program funds to purchase two buses. In addition, the Transit Authority did not review the other entity’s procurement documentation to ensure it followed competitive procurement procedures, nor did the Transit Authority complete a cost or price analysis to ensure the bus prices were reasonable.
We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance.
These issues were not reported as a finding in the prior audit.
Cause of Condition
Suspension and Debarment
Transit Authority employees knew about the requirement and gave us a copy of the SAM.gov printout. However, the printout was not dated, so staff were unable to demonstrate they verified the contractor’s status before entering into the purchase contract.
Procurement
The Transit Authority has historically received federal funding to purchase buses, and management has been intentional about having controls in place over procurement to ensure compliance with all applicable requirements. The state agency contract from which the Transit Authority historically purchased buses did not procure a contract in 2022. As a result, the Transit Authority purchased buses from another entity’s contract, and employees were not aware they needed to establish an interlocal agreement with that entity before purchasing, as state law requires. Additionally, employees did not know they needed to review support to ensure the other entity followed competitive procurement procedures, or that the Transit Authority needed to complete a cost or price analysis.
Effect of Condition
Suspension and Debarment
Without this verification, the Transit Authority increases its risk of providing federal funds to contractors that are excluded from participating in federal programs. Any payments the Transit Authority made to an ineligible party would be unallowable, and the federal grantor could potentially recover them.
We subsequently verified the contractor was not suspended and debarred, so we are not questioning costs.
Procurement
Without written procurement procedures, the Transit Authority is at greater risk of noncompliance with the most restrictive of federal, state, or local procurement methods when using federal funds to procure contractors.
Without effective internal controls over procurement and piggybacking procedures, the Transit Authority cannot demonstrate compliance with applicable federal procurement requirements. Additionally, the Transit Authority cannot ensure it received the best price for the bus purchases.
Recommendation
We recommend the Transit Authority strengthen internal controls to ensure it:
• Updates written policies and procedures that conform with Uniform Guidance (2 CFR 200.318-327) for all procurement activities
• Procures goods and services in accordance with federal regulations, state law, and its own procurement policies and procedures
• Verifies all contractors it expects to pay $25,000 or more, all or in part with federal funds, are not suspended or debarred before entering into contracts with them or charging costs to a federal award, and maintain documentation demonstrating compliance with this requirement
Transit Authority’s Response
Grant Transit Authority (GTA) was awarded funding through the FTA 5339 Bus and Bus Facilities Formula Grant Program in the 2019-2021 Biennium for two heavy-duty transit buses. During the period of 2020-2021 when GTA turned to the Washington Department of Enterprise Services (DES) to start the procurement process for these buses, it was determined that DES did not have a Master Contract in place for the purchase of heavy-duty buses and most likely would not have a contract in place for quite some time.
Several Washington State Transit Agencies reached out to WSDOT for direction and options, as we were all in the same predicament in having been awarded funding to replace aging heavy-duty buses but no Master Contract in place through Washington State for these procurements. WSDOT recommended the effected transit agencies utilize the Commonwealth of Virginia (State) Cooperative Purchasing Master Contract for those of us wishing to purchase heavy-duty buses from Gillig LLC. The GTA submitted the Commonwealth of Virginia Master Contract procurement document package to WSDOT for review and WSDOT acknowledged that they had previously reviewed and were familiar with this Master Contract for Gillig LLC buses and that it met the FTA required qualifications. The GTA was given authorization by WSDOT to move forward with obtaining the required procurement documents including a Board approved purchase order. Once acquired, the GTA submitted all documents to WSDOT and obtained the final approval to move forward. The GTA staffing involved with this procurement, assumed, and relied upon WSDOT’s approval, and did not realize the need for the agency itself to evaluate and ensure that the Commonwealth of Virginia Master Contract met and followed all FTA guidelines prior to procuring, and instead relied solely upon WSDOT’s approval.
Prior to obtaining approval from the Board for the Purchase Orders for two Gillig buses, GTA did perform a search in Sam.Gov to verify that Gillig LLC had not been debarred or suspended and had printed the results from this search. The printed document, however, did not have a date on it proving when it had been pulled. The vendor documents are updated in Sam.Gov on an annual basis and the pulled document did show that it was in effect for the year these vehicles were procured. The GTA has now corrected this process to ensure that all future procurements have dates on the Sam.gov search document prior to moving forward with the procurement. Additionally, WSDOT requires this document to be included in the approval packet of documents submitted to WSDOT for verification, prior to their approving the agency procurement.
The GTA is a rural transit and receives their grant funding as a pass-through from WSDOT versus being a direct FTA recipient. Therefore, the GTA relies upon the review, verifications and approvals provided by WSDOT for these procurements. One step that WSDOT failed to mention until after the fact, was the need for an Interlocal Agreement when piggybacking off another state contract. The GTA contacted the Commonwealth of Virginia when WSDOT sent a request asking us to obtain an Interlocal for our file. Because the Interlocal is not a requirement by the FTA, the Commonwealth of Virginia was not willing to sign an Interlocal at first, but after explaining that it was required by the State of Washington, the GTA finally received a signed Interlocal Agreement post procurement.
The Grant Transit Authority agrees with the finding and appreciates the conclusions of the audit and the recommendations provided. The GTA is committed to making necessary improvements to ensure compliance with Federal Policies, State Law, and Local Policies. The recommendations provided the goal have apprised the GTA of the need for updating our procurement policy and including written step by step procedures that will allow for management and staff to have a functional and practical document to follow while working towards a goal of strengthening our internal controls. The GTA will ensure that the written policy and procedures conform with the Uniform Guidance (2 CFR 200.318-327) for all procurement activities.
Auditor’s Remarks
We appreciate the steps the Transit Authority has taken to address these issues. We will follow up on the condition during the 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 200, Uniform Guidance, section 318, General procurement standards, establishes requirements for written procedures.
Title 2 CFR Part 200, Uniform Guidance, section 320, Methods of procurement to be followed, establishes requirements for procuring with Federal funds by nonfederal entities.
Title 2 CFR Part 180, OMB Guidelines on Agencies on Governmentwide Department and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.
The Transit Authority’s internal controls were inadequate for ensuring compliance with suspension, debarment and federal procurement requirements.
Assistance Listing Number and Title: 20.526 – Buses and Bus Facilities Formula, Competitive, and Low or No Emissions Program.
Federal Grantor Name: Federal Transit Administration
Federal Award/Contract Number: N/A
Pass-through Entity Name: Washington State Department of Transportation
Pass-through Award/Contract Number: PTD0486
Known Questioned Cost Amount: N/A
Prior Year Audit Finding: N/A
Background
The Transit Authority spent $873,562 in program funds from the Bus and Bus Facilities Formula, Competitive, and Low or No Emissions Program. The objective of the program is to provide financial assistance to replace, rehabilitate, and purchase buses and related equipment, as well as construct bus-related facilities through both formula and competitive selection procedures.
Federal regulations require federal award recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls.
Suspension and Debarment
Federal requirements prohibit grant recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the Transit Authority 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 or debarred or otherwise excluded. The Transit Authority may accomplish this verification by collecting 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 Transit Authority must perform this verification before entering into the contract and charging the costs to a federal award, and it must maintain documentation demonstrating compliance with this federal requirement.
Procurement
Federal regulations require recipients to follow their own documented procurement procedures, which must conform to the Uniform Guidance procurement standards found in 2 CFR § 200.318-327. The procedures must reflect the most restrictive of applicable federal requirements, state laws and local policies. When using federal funds to procure goods and services, governments must apply the most restrictive federal requirements, state law or local policies by obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity.
Additionally, state and federal requirements, as well as the Transit Authority’s policy, allow it to bypass normal procurement laws through a process commonly referred to as “piggybacking.” This process allows entities to purchase goods and services using contracts awarded by another government or group of governments via an interlocal agreement or cooperative. To comply with piggybacking requirements, the entity must enter into an agreement before it purchases services or goods from the other entity’s bid contract. If the Transit Authority uses such an agreement, federal regulations require it to confirm the awarding entity followed all procurement laws and regulations applicable to the awarding entity when selecting the contractor.
Description of Condition
Suspension and Debarment
The Transit Authority’s controls were ineffective for ensuring it verified the suspension and debarment status of contractors receiving $25,000 or more, all or in part with federal funds. The Transit Authority could not demonstrate it obtained a written certification, included a clause in the contract, or searched for exclusion records in SAM.gov to verify that one contractor subject to this requirement was not suspended or debarred before entering into the contract or charging costs to the federal award. The Transit Authority paid this contractor $873,562 in program funds during fiscal year 2022.
Procurement
Although the Transit Authority has an established written procurement policy, it does not conform to the most restrictive of federal, state and local requirements, and does not include all required procedures to follow when procuring purchases of materials, supplies and equipment through piggybacking. Additionally, the Transit Authority’s policy does not include other required procedures for procuring transactions, such as contracting with small and minority business owners, bonding requirements, contract cost or price analysis, contract provisions, and more.
Our audit found the Transit Authority did not perform competitive procurement procedures, nor did it establish an interlocal agreement to piggyback onto another entity’s contract before using $873,562 in program funds to purchase two buses. In addition, the Transit Authority did not review the other entity’s procurement documentation to ensure it followed competitive procurement procedures, nor did the Transit Authority complete a cost or price analysis to ensure the bus prices were reasonable.
We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance.
These issues were not reported as a finding in the prior audit.
Cause of Condition
Suspension and Debarment
Transit Authority employees knew about the requirement and gave us a copy of the SAM.gov printout. However, the printout was not dated, so staff were unable to demonstrate they verified the contractor’s status before entering into the purchase contract.
Procurement
The Transit Authority has historically received federal funding to purchase buses, and management has been intentional about having controls in place over procurement to ensure compliance with all applicable requirements. The state agency contract from which the Transit Authority historically purchased buses did not procure a contract in 2022. As a result, the Transit Authority purchased buses from another entity’s contract, and employees were not aware they needed to establish an interlocal agreement with that entity before purchasing, as state law requires. Additionally, employees did not know they needed to review support to ensure the other entity followed competitive procurement procedures, or that the Transit Authority needed to complete a cost or price analysis.
Effect of Condition
Suspension and Debarment
Without this verification, the Transit Authority increases its risk of providing federal funds to contractors that are excluded from participating in federal programs. Any payments the Transit Authority made to an ineligible party would be unallowable, and the federal grantor could potentially recover them.
We subsequently verified the contractor was not suspended and debarred, so we are not questioning costs.
Procurement
Without written procurement procedures, the Transit Authority is at greater risk of noncompliance with the most restrictive of federal, state, or local procurement methods when using federal funds to procure contractors.
Without effective internal controls over procurement and piggybacking procedures, the Transit Authority cannot demonstrate compliance with applicable federal procurement requirements. Additionally, the Transit Authority cannot ensure it received the best price for the bus purchases.
Recommendation
We recommend the Transit Authority strengthen internal controls to ensure it:
• Updates written policies and procedures that conform with Uniform Guidance (2 CFR 200.318-327) for all procurement activities
• Procures goods and services in accordance with federal regulations, state law, and its own procurement policies and procedures
• Verifies all contractors it expects to pay $25,000 or more, all or in part with federal funds, are not suspended or debarred before entering into contracts with them or charging costs to a federal award, and maintain documentation demonstrating compliance with this requirement
Transit Authority’s Response
Grant Transit Authority (GTA) was awarded funding through the FTA 5339 Bus and Bus Facilities Formula Grant Program in the 2019-2021 Biennium for two heavy-duty transit buses. During the period of 2020-2021 when GTA turned to the Washington Department of Enterprise Services (DES) to start the procurement process for these buses, it was determined that DES did not have a Master Contract in place for the purchase of heavy-duty buses and most likely would not have a contract in place for quite some time.
Several Washington State Transit Agencies reached out to WSDOT for direction and options, as we were all in the same predicament in having been awarded funding to replace aging heavy-duty buses but no Master Contract in place through Washington State for these procurements. WSDOT recommended the effected transit agencies utilize the Commonwealth of Virginia (State) Cooperative Purchasing Master Contract for those of us wishing to purchase heavy-duty buses from Gillig LLC. The GTA submitted the Commonwealth of Virginia Master Contract procurement document package to WSDOT for review and WSDOT acknowledged that they had previously reviewed and were familiar with this Master Contract for Gillig LLC buses and that it met the FTA required qualifications. The GTA was given authorization by WSDOT to move forward with obtaining the required procurement documents including a Board approved purchase order. Once acquired, the GTA submitted all documents to WSDOT and obtained the final approval to move forward. The GTA staffing involved with this procurement, assumed, and relied upon WSDOT’s approval, and did not realize the need for the agency itself to evaluate and ensure that the Commonwealth of Virginia Master Contract met and followed all FTA guidelines prior to procuring, and instead relied solely upon WSDOT’s approval.
Prior to obtaining approval from the Board for the Purchase Orders for two Gillig buses, GTA did perform a search in Sam.Gov to verify that Gillig LLC had not been debarred or suspended and had printed the results from this search. The printed document, however, did not have a date on it proving when it had been pulled. The vendor documents are updated in Sam.Gov on an annual basis and the pulled document did show that it was in effect for the year these vehicles were procured. The GTA has now corrected this process to ensure that all future procurements have dates on the Sam.gov search document prior to moving forward with the procurement. Additionally, WSDOT requires this document to be included in the approval packet of documents submitted to WSDOT for verification, prior to their approving the agency procurement.
The GTA is a rural transit and receives their grant funding as a pass-through from WSDOT versus being a direct FTA recipient. Therefore, the GTA relies upon the review, verifications and approvals provided by WSDOT for these procurements. One step that WSDOT failed to mention until after the fact, was the need for an Interlocal Agreement when piggybacking off another state contract. The GTA contacted the Commonwealth of Virginia when WSDOT sent a request asking us to obtain an Interlocal for our file. Because the Interlocal is not a requirement by the FTA, the Commonwealth of Virginia was not willing to sign an Interlocal at first, but after explaining that it was required by the State of Washington, the GTA finally received a signed Interlocal Agreement post procurement.
The Grant Transit Authority agrees with the finding and appreciates the conclusions of the audit and the recommendations provided. The GTA is committed to making necessary improvements to ensure compliance with Federal Policies, State Law, and Local Policies. The recommendations provided the goal have apprised the GTA of the need for updating our procurement policy and including written step by step procedures that will allow for management and staff to have a functional and practical document to follow while working towards a goal of strengthening our internal controls. The GTA will ensure that the written policy and procedures conform with the Uniform Guidance (2 CFR 200.318-327) for all procurement activities.
Auditor’s Remarks
We appreciate the steps the Transit Authority has taken to address these issues. We will follow up on the condition during the 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 200, Uniform Guidance, section 318, General procurement standards, establishes requirements for written procedures.
Title 2 CFR Part 200, Uniform Guidance, section 320, Methods of procurement to be followed, establishes requirements for procuring with Federal funds by nonfederal entities.
Title 2 CFR Part 180, OMB Guidelines on Agencies on Governmentwide Department and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.