2022-002 The City?s internal controls were inadequate for ensuring compliance with federal reporting requirements. Assistance Listing Number and Title: 12.610 ? Community Economic Adjustment Assistance for Compatible Use and Joint Land Use Studies Federal Grantor Name: Office of Local Defense Community Cooperation, U.S. Department of Defense Federal Award/Contract Number: W9124J1920006 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background In 2022, the City spent $5,069,089 through the Community Economic Adjustment Assistance for Compatible Use and Joint Land Use Studies program. The primary purpose of the program is to work with the City to structure the acquisition, protection and management of property interests identified under the agreement. 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 regulations require the City submit a Federal Financial Report (SF-425), which is used to report expenditures for federal grants annually. The reports are due within 30 days after the end of each reporting period. The report requires the disclosure of cash receipts, disbursements, and cash on hand for the grant during the reporting period. The report also includes disclosure of the indirect costs and program costs, and signature of a certifying person. Description of Condition Our audit found the City?s internal controls were inadequate for ensuring it completed and submitted the required annual report in 2022. Specifically, the City did not complete the SF-425 report, which is required in the terms and conditions of the award. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City management and staff knew that the report was required. However, City officials said the report is not mandated even though it is identified as required in the award?s terms and conditions. The City?s practice for all other grants has been to submit the SF-425 report only if the grantor sends an email to request it. Effect of Condition The City did not prepare and submit the required Federal Financial Report to its grantor. Failing to submit the required reports on time with accurate information diminishes the federal government?s ability to ensure accountability and transparency of federal spending. Recommendation We recommend the City establish internal controls to ensure required reports are submitted and accurate. City?s Response The City acknowledges that there was a lapse in compliance regarding the submission of the SF-425 report as required by the grant terms and federal regulations. This specific grant, which started in 2019 and finally materialized in 2022, was highly complex and multifaceted requiring coordination and interpretation with various external parties, including the granting agency, other agencies that provided matching funds, and outside legal counsel. The complexity of the grant structure and the need for meticulous interpretation contributed to the extended period for grant expenditures to materialize. The coordination with external parties was essential to ensure the grant funds were utilized in full compliance with the intricate grant terms and federal requirements. These interactions involved extensive negotiations, interpretations of grant provisions, and legal review. It took over 850 days to close this transaction due to the unique nature of this acquisition. The ACUB (Army Compatible Use Buffer) program provide the policy guidance for the CA (Cooperative Agreement) but ACUB processes are rarely if ever used for commercial property acquisitions. This necessitated a series of decisions at higher policy level authorities. Lakewood coordinated with federal, state, regional, county and JBLM (Joint Base Lewis McChord) in order to obtain the required funding for the purchase. All these authorities have their own policies and procedures. Additionally, much of the time this process was being implemented was during the COVID-19 pandemic and granting agencies time and availability were limited. In response to this finding and the challenges posed by the complexity of the grant, we took immediate corrective action and filed the SF-425. We have reviewed our internal controls and determined they are adequate for the typical grants we receive and attribute to this non-compliance to the highly complex nature of the grant as evidenced by the external parties involved and the timing of when the expenditures materialized. The City will continue to review its internal controls to ensure compliance. Auditor?s Remarks We appreciate the steps the City is taking to resolve this issue. We will review the condition 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 200, Uniform Guidance, section 329, Monitoring and reporting program performance, describes the requirements for auditees to perform oversight of the operations of the federal award supported activities to ensure compliance with applicable federal requirements and performance expectations.
2022-003 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: SLT 9045 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A N/A Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recover Funds (SLFRF) program 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 $1,903,054 in program funds. 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 contracts for 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. 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. Description of Condition Our audit found the City?s internal controls were inadequate for ensuring it 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 two contractors were not suspended or debarred from participating in federal programs before paying them $113,463 in fiscal year 2022. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City staff were aware of the federal suspension and debarment verification requirements. However, City staff were unable to provide documentation to support that they verified the contractors were not suspended or debarred. Effect of Condition The City did not obtain a signed certification, insert a clause into the contract, or check SAM.gov to verify two contractors were not suspended or debarred before entering into the contracts. Without this verification, the City increases its risk of awarding federal funds to parties that are excluded from participating in federal programs. Any payments the City made to an ineligible party would be unallowable, and the federal grantor could potentially recover them. The City subsequently verified the contractors were not suspended or 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 before entering into contracts with them. City?s Response The City did not verify suspension and debarment for two of its contractors because the City relied on United States Treasury guidance that such practice was not required for cities that elected the standard $10 million revenue loss for funds received through ARPA (American Rescue Plan Act). Specifically, the SLRF Final Rule FAQ 2.21 states ??as part of the revenue loss eligible use category, which is the broadest eligible use category that is capped by either the $10 million standard allowance (up to a recipient?s award size) or a recipient?s calculated revenue loss, recipients may use SLFRF funds on government services. These government services include any service traditionally provided by a government unless Treasury has stated otherwise. Eligible government services that may be covered under the revenue loss eligible use category include maintenance, improvement, or new construction of public school facilities, including those that address over-crowding and capacity constraints, support energy efficiency, and respond to health and safety concerns, among other purposes.? The City disagrees with the State Auditor?s Office in regards to inadequate internal controls. The issue here is a matter of interpretation of revenue loss ? the City?s position is that the federal funds received as replacement revenue for funds lost due to the pandemic could be used for any legitimate government purpose and without verification of suspension and debarment. Moving forward, the City will comply with the State Auditor?s Office requirement regarding verification of suspension and debarment for contractors funded with federal ARPA funded replacement revenue. Auditor?s Remarks We appreciate the steps the City is taking to resolve this issue. We will review the condition 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.
2022-002 The City?s internal controls were inadequate for ensuring compliance with federal reporting requirements. Assistance Listing Number and Title: 12.610 ? Community Economic Adjustment Assistance for Compatible Use and Joint Land Use Studies Federal Grantor Name: Office of Local Defense Community Cooperation, U.S. Department of Defense Federal Award/Contract Number: W9124J1920006 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background In 2022, the City spent $5,069,089 through the Community Economic Adjustment Assistance for Compatible Use and Joint Land Use Studies program. The primary purpose of the program is to work with the City to structure the acquisition, protection and management of property interests identified under the agreement. 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 regulations require the City submit a Federal Financial Report (SF-425), which is used to report expenditures for federal grants annually. The reports are due within 30 days after the end of each reporting period. The report requires the disclosure of cash receipts, disbursements, and cash on hand for the grant during the reporting period. The report also includes disclosure of the indirect costs and program costs, and signature of a certifying person. Description of Condition Our audit found the City?s internal controls were inadequate for ensuring it completed and submitted the required annual report in 2022. Specifically, the City did not complete the SF-425 report, which is required in the terms and conditions of the award. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City management and staff knew that the report was required. However, City officials said the report is not mandated even though it is identified as required in the award?s terms and conditions. The City?s practice for all other grants has been to submit the SF-425 report only if the grantor sends an email to request it. Effect of Condition The City did not prepare and submit the required Federal Financial Report to its grantor. Failing to submit the required reports on time with accurate information diminishes the federal government?s ability to ensure accountability and transparency of federal spending. Recommendation We recommend the City establish internal controls to ensure required reports are submitted and accurate. City?s Response The City acknowledges that there was a lapse in compliance regarding the submission of the SF-425 report as required by the grant terms and federal regulations. This specific grant, which started in 2019 and finally materialized in 2022, was highly complex and multifaceted requiring coordination and interpretation with various external parties, including the granting agency, other agencies that provided matching funds, and outside legal counsel. The complexity of the grant structure and the need for meticulous interpretation contributed to the extended period for grant expenditures to materialize. The coordination with external parties was essential to ensure the grant funds were utilized in full compliance with the intricate grant terms and federal requirements. These interactions involved extensive negotiations, interpretations of grant provisions, and legal review. It took over 850 days to close this transaction due to the unique nature of this acquisition. The ACUB (Army Compatible Use Buffer) program provide the policy guidance for the CA (Cooperative Agreement) but ACUB processes are rarely if ever used for commercial property acquisitions. This necessitated a series of decisions at higher policy level authorities. Lakewood coordinated with federal, state, regional, county and JBLM (Joint Base Lewis McChord) in order to obtain the required funding for the purchase. All these authorities have their own policies and procedures. Additionally, much of the time this process was being implemented was during the COVID-19 pandemic and granting agencies time and availability were limited. In response to this finding and the challenges posed by the complexity of the grant, we took immediate corrective action and filed the SF-425. We have reviewed our internal controls and determined they are adequate for the typical grants we receive and attribute to this non-compliance to the highly complex nature of the grant as evidenced by the external parties involved and the timing of when the expenditures materialized. The City will continue to review its internal controls to ensure compliance. Auditor?s Remarks We appreciate the steps the City is taking to resolve this issue. We will review the condition 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 200, Uniform Guidance, section 329, Monitoring and reporting program performance, describes the requirements for auditees to perform oversight of the operations of the federal award supported activities to ensure compliance with applicable federal requirements and performance expectations.
2022-003 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: SLT 9045 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A N/A Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recover Funds (SLFRF) program 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 $1,903,054 in program funds. 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 contracts for 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. 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. Description of Condition Our audit found the City?s internal controls were inadequate for ensuring it 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 two contractors were not suspended or debarred from participating in federal programs before paying them $113,463 in fiscal year 2022. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City staff were aware of the federal suspension and debarment verification requirements. However, City staff were unable to provide documentation to support that they verified the contractors were not suspended or debarred. Effect of Condition The City did not obtain a signed certification, insert a clause into the contract, or check SAM.gov to verify two contractors were not suspended or debarred before entering into the contracts. Without this verification, the City increases its risk of awarding federal funds to parties that are excluded from participating in federal programs. Any payments the City made to an ineligible party would be unallowable, and the federal grantor could potentially recover them. The City subsequently verified the contractors were not suspended or 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 before entering into contracts with them. City?s Response The City did not verify suspension and debarment for two of its contractors because the City relied on United States Treasury guidance that such practice was not required for cities that elected the standard $10 million revenue loss for funds received through ARPA (American Rescue Plan Act). Specifically, the SLRF Final Rule FAQ 2.21 states ??as part of the revenue loss eligible use category, which is the broadest eligible use category that is capped by either the $10 million standard allowance (up to a recipient?s award size) or a recipient?s calculated revenue loss, recipients may use SLFRF funds on government services. These government services include any service traditionally provided by a government unless Treasury has stated otherwise. Eligible government services that may be covered under the revenue loss eligible use category include maintenance, improvement, or new construction of public school facilities, including those that address over-crowding and capacity constraints, support energy efficiency, and respond to health and safety concerns, among other purposes.? The City disagrees with the State Auditor?s Office in regards to inadequate internal controls. The issue here is a matter of interpretation of revenue loss ? the City?s position is that the federal funds received as replacement revenue for funds lost due to the pandemic could be used for any legitimate government purpose and without verification of suspension and debarment. Moving forward, the City will comply with the State Auditor?s Office requirement regarding verification of suspension and debarment for contractors funded with federal ARPA funded replacement revenue. Auditor?s Remarks We appreciate the steps the City is taking to resolve this issue. We will review the condition 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.