FAC Explorer

Audit 319390

FY End
2023-12-31
Total Expended
$9.74M
Findings
2
Programs
10
Organization: City of Federal Way (WA)
Year: 2023 Accepted: 2024-09-11
Auditor: Office of the Washington State Auditor

Organization Exclusion Status:

Findings

ID Ref Severity Repeat Requirement
496464 2023-002 Material Weakness Yes I
1072906 2023-002 Material Weakness Yes I

Programs

ALN Program Spent Major Findings
21.027 Covid 19 - Coronavirus State and Local Fiscal Recovery Funds $4.08M Yes 1
14.248 Community Development Block Grants Section 108 Loan Guarantees $2.08M - 0
20.205 Highway Planning and Construction $267,359 - 0
16.710 Public Safety Partnership and Community Policing Grants $232,947 - 0
14.218 Community Development Block Grants/entitlement Grants $215,000 Yes 0
16.738 Edward Byrne Memorial Justice Assistance Grant Program $39,550 - 0
16.607 Bulletproof Vest Partnership Program $31,515 - 0
97.042 Emergency Management Performance Grants $28,125 - 0
14.218 Covid 19 - Community Development Block Grants/entitlement Grants $8,461 Yes 0
20.600 State and Community Highway Safety $3,726 - 0

Contacts

Name Title Type
YCXHVULLN4C5 Chase Donnelly Auditee
2538352521 Ngan Kim-Hoang Nguyen Auditor
No contacts on file

Notes to SEFA

Title: Note 1 Basis of Accounting Accounting Policies: The Schedule of Financial Assistance is prepared on the same basis of accounting as the City of Federal Way's financial statements. The City uses the modified accrual basis of accounting, which is the basis adapted to governmental fund-type measurement focus. All grants reported on this schedule have been accounted for in governmental fund types. Grant revenues are determined to be earned and available at the time related expenditures are incurred. For this reason, grant revenues to be received as reimbursement for expenditures incurred in the current year are also recognized as revenue in that year. De Minimis Rate Used: N Rate Explanation: The City of Federal Way did not use the new 10% de minimis indirect cost rate as covered in 200.414 Indirect (F&A) costs, and is currently only charging direct costs to grants received. The Schedule of Financial Assistance is prepared on the same basis of accounting as the City of Federal Way's financial statements. The City uses the modified accrual basis of accounting, which is the basis adapted to governmental fund-type measurement focus. All grants reported on this schedule have been accounted for in governmental fund types. Grant revenues are determined to be earned and available at the time related expenditures are incurred. For this reason, grant revenues to be received as reimbursement for expenditures incurred in the current year are also recognized as revenue in that year.
Title: Note 2 Indirect Cost Rate Accounting Policies: The Schedule of Financial Assistance is prepared on the same basis of accounting as the City of Federal Way's financial statements. The City uses the modified accrual basis of accounting, which is the basis adapted to governmental fund-type measurement focus. All grants reported on this schedule have been accounted for in governmental fund types. Grant revenues are determined to be earned and available at the time related expenditures are incurred. For this reason, grant revenues to be received as reimbursement for expenditures incurred in the current year are also recognized as revenue in that year. De Minimis Rate Used: N Rate Explanation: The City of Federal Way did not use the new 10% de minimis indirect cost rate as covered in 200.414 Indirect (F&A) costs, and is currently only charging direct costs to grants received. The City of Federal Way did not use the new 10% de minimis indirect cost rate as covered in 200.414 Indirect (F&A) costs, and is currently only charging direct costs to grants received.
Title: Note 3 Federal Loans Accounting Policies: The Schedule of Financial Assistance is prepared on the same basis of accounting as the City of Federal Way's financial statements. The City uses the modified accrual basis of accounting, which is the basis adapted to governmental fund-type measurement focus. All grants reported on this schedule have been accounted for in governmental fund types. Grant revenues are determined to be earned and available at the time related expenditures are incurred. For this reason, grant revenues to be received as reimbursement for expenditures incurred in the current year are also recognized as revenue in that year. De Minimis Rate Used: N Rate Explanation: The City of Federal Way did not use the new 10% de minimis indirect cost rate as covered in 200.414 Indirect (F&A) costs, and is currently only charging direct costs to grants received. The City of Federal Way was approved by the US Department of Housing and Urban Development Office of Community Planning and Development to receive a loan totaling $3,030,000 to finance the Performing Arts& Event Center economic development project. The loan was refinanced down to $2,712,000 in 2019. The balance of the loan as of 12/31/2023 is $1,917,000.
Title: Note 7 Program Costs Accounting Policies: The Schedule of Financial Assistance is prepared on the same basis of accounting as the City of Federal Way's financial statements. The City uses the modified accrual basis of accounting, which is the basis adapted to governmental fund-type measurement focus. All grants reported on this schedule have been accounted for in governmental fund types. Grant revenues are determined to be earned and available at the time related expenditures are incurred. For this reason, grant revenues to be received as reimbursement for expenditures incurred in the current year are also recognized as revenue in that year. De Minimis Rate Used: N Rate Explanation: The City of Federal Way did not use the new 10% de minimis indirect cost rate as covered in 200.414 Indirect (F&A) costs, and is currently only charging direct costs to grants received. The amounts shown as current year expenditures represent only the federal grant portion of the program costs. Entire program costs, including the City of Federal Way's portion, are more than shown. Such expenditures are recognized following, as applicable, either the cost principles in the OMB Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments, or the cost principles contained in Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, wherein certain types of expenditures are not allowable or are limited as to reimbursement.

Finding Details

Finding 2023-002
City of Federal Way January 1, 2023 through December 31, 2023 2023-002 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 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: Yes, Finding 2022-001 Description of Condition During fiscal year 2023, the City spent $4,084,370 in federal funding from the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program. 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 four of the 13 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 corrective action to ensure compliance with federal requirements and in fact did so immediately. Since the enactment of the SLFRF, city staff made significant efforts to keep up with the multiple and evolving guidelines rules and FAQs issued by Treasury and attended numerous trainings. The initial lack of guideline clarity resulted in 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. This is the second finding for the same issue because the timing of requirement awareness spanned two years. The rule in question was clarified in 2023, after the City’s opportunity to comply in 2022 and part of 2023 had passed, and the City acted to correct immediately. 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 was 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.
Finding 2023-002
City of Federal Way January 1, 2023 through December 31, 2023 2023-002 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 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: Yes, Finding 2022-001 Description of Condition During fiscal year 2023, the City spent $4,084,370 in federal funding from the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program. 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 four of the 13 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 corrective action to ensure compliance with federal requirements and in fact did so immediately. Since the enactment of the SLFRF, city staff made significant efforts to keep up with the multiple and evolving guidelines rules and FAQs issued by Treasury and attended numerous trainings. The initial lack of guideline clarity resulted in 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. This is the second finding for the same issue because the timing of requirement awareness spanned two years. The rule in question was clarified in 2023, after the City’s opportunity to comply in 2022 and part of 2023 had passed, and the City acted to correct immediately. 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 was 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.