City of Kennewick
January 1, 2023 through December 31, 2023
2023-001 The City’s internal controls were inadequate for ensuring compliance with 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: N/A
Description of Condition
The purpose of the Coronavirus State and Local Fiscal Recovery 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 fiscal year 2023, the City spent $3,020,912 to administer the program.
Federal regulations require recipients to establish and maintain 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 and services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that the contractors are not suspended, debarred or otherwise excluded from participating in federal programs. The City may verify this 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 verify this before entering into the contract, and it must maintain documentation demonstrating compliance with this federal requirement.
Our audit found the City did not have adequate controls to verify that four contractors it paid more than $25,000 in federal funds were not suspended or debarred from participating in federal programs.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
The City purchased from three contractors using other governments’ contracts, which is a process commonly referred to as “piggybacking.” City staff did not know they must verify the contractors are not suspended or debarred before piggybacking. Also, staff could not locate the suspension-and-debarment check they performed for one contractor.
Effect of Condition
The City did not obtain a written certification from the contractors, insert a clause into the contracts or check for exclusion records at SAM.gov to verify that four contractors it paid $1,922,944 using federal funds were not suspended or debarred before contracting with them. Without adequate internal controls, the City cannot ensure the contractors it paid with federal funds were eligible to participate in federal programs. Any program funds the City used to pay contractors that have been suspended or debarred would be unallowable, and the awarding agency could potentially recover the funds. Because we subsequently verified the contractors were not suspended or debarred, we are not questioning costs.
Recommendation
We recommend the City strengthen internal controls to ensure all contractors it pays $25,000 or more, all or part with federal funds, are not suspended or debarred from participating in federal programs before contracting with them.
City’s Response
The City concurs with the Auditor’s description, cause and effect of condition as outlined in the audit finding and will immediately implement the recommendation to strengthen its internal controls to ensure all contractors it pays $25,000 or more to, all or in part with federal funds, are not suspended or debarred from participating in federal programs. The City also would like to emphasize that there were no known questioned costs resulting from this audit finding and that none of the contractors reviewed during the audit were in fact suspended or debarred. In order to strengthen its internal controls to ensure compliance with suspension and debarment requirements, the City will no longer rely on state or federal agencies’ determinations or safeguards to ensure vendor eligibility when participating in intergovernmental cooperative purchasing agreements and will continue to follow its other existing internal controls to ensure compliance with suspension and debarment requirements. Specifically, before entering into transactions expected to exceed $25,000 of federal funding, the City will:
• Check for exclusions using the General Services Administration’s SAM.gov website (or that site’s successor), or
• Collect a certification from the vendor indicating that the vendor is not suspended or debarred from governmental contracts, or
Include a clause within the contract with the vendor. The clause will indicate that the vendor is not suspended or debarred from governmental contracts.
Auditor’s Remarks
We thank the City for its cooperation and assistance during the audit and acknowledge its commitment to taking immediate action on the condition described. We will review the status of this issue 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.
City of Kennewick
January 1, 2023 through December 31, 2023
2023-001 The City’s internal controls were inadequate for ensuring compliance with 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: N/A
Description of Condition
The purpose of the Coronavirus State and Local Fiscal Recovery 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 fiscal year 2023, the City spent $3,020,912 to administer the program.
Federal regulations require recipients to establish and maintain 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 and services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that the contractors are not suspended, debarred or otherwise excluded from participating in federal programs. The City may verify this 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 verify this before entering into the contract, and it must maintain documentation demonstrating compliance with this federal requirement.
Our audit found the City did not have adequate controls to verify that four contractors it paid more than $25,000 in federal funds were not suspended or debarred from participating in federal programs.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
The City purchased from three contractors using other governments’ contracts, which is a process commonly referred to as “piggybacking.” City staff did not know they must verify the contractors are not suspended or debarred before piggybacking. Also, staff could not locate the suspension-and-debarment check they performed for one contractor.
Effect of Condition
The City did not obtain a written certification from the contractors, insert a clause into the contracts or check for exclusion records at SAM.gov to verify that four contractors it paid $1,922,944 using federal funds were not suspended or debarred before contracting with them. Without adequate internal controls, the City cannot ensure the contractors it paid with federal funds were eligible to participate in federal programs. Any program funds the City used to pay contractors that have been suspended or debarred would be unallowable, and the awarding agency could potentially recover the funds. Because we subsequently verified the contractors were not suspended or debarred, we are not questioning costs.
Recommendation
We recommend the City strengthen internal controls to ensure all contractors it pays $25,000 or more, all or part with federal funds, are not suspended or debarred from participating in federal programs before contracting with them.
City’s Response
The City concurs with the Auditor’s description, cause and effect of condition as outlined in the audit finding and will immediately implement the recommendation to strengthen its internal controls to ensure all contractors it pays $25,000 or more to, all or in part with federal funds, are not suspended or debarred from participating in federal programs. The City also would like to emphasize that there were no known questioned costs resulting from this audit finding and that none of the contractors reviewed during the audit were in fact suspended or debarred. In order to strengthen its internal controls to ensure compliance with suspension and debarment requirements, the City will no longer rely on state or federal agencies’ determinations or safeguards to ensure vendor eligibility when participating in intergovernmental cooperative purchasing agreements and will continue to follow its other existing internal controls to ensure compliance with suspension and debarment requirements. Specifically, before entering into transactions expected to exceed $25,000 of federal funding, the City will:
• Check for exclusions using the General Services Administration’s SAM.gov website (or that site’s successor), or
• Collect a certification from the vendor indicating that the vendor is not suspended or debarred from governmental contracts, or
Include a clause within the contract with the vendor. The clause will indicate that the vendor is not suspended or debarred from governmental contracts.
Auditor’s Remarks
We thank the City for its cooperation and assistance during the audit and acknowledge its commitment to taking immediate action on the condition described. We will review the status of this issue 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.