2023-001 The City did not have adequate internal controls 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 the 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 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 2023, the City spent $1,152,896 in program funds for government services.
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 or services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify 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 internal controls in place to verify that seven 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 experienced turnover in the City Manager position and other key financial positions; therefore, we were unable to determine a cause. However, it appears the City was unaware that this requirement is applicable to these types of purchases for this award due because it lacked documentation and verification checks.
Effect of Condition
The City did not obtain written certifications from the contractors, insert a clause into the contracts or check for exclusion records at SAM.gov to verify that seven contractors it paid $410,211 using federal funds were not suspended or debarred before contracting. 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 were suspended or debarred would be unallowable, and the awarding agency could potentially recover them. 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 in part with federal funds, are not suspended or debarred from participating in federal programs before contracting with or purchasing from them.
City’s Response
The City of Sunnyside appreciates SAO staff and for their help in identifying opportunities for improvement. Most of the City’s leadership (City Manager, Public Works Director, Police and Fire Chief) are new to their role and unfamiliar with specific laws pertaining to government procurement.
The Finance staff will work more closely with all departments to continue to ensure that employees are responsible for understanding and complying with applicable state and/or federal laws when purchasing and contracting on behalf of the City. The City’s current Purchasing and Contracting policies will be updated to include additional information and checklists to help in ensuring the City meets all applicable state and/or federal laws.
Auditor’s Remarks
We thank the City for its cooperation and assistance during the audit and acknowledge its commitment to improve 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.
2023-001 The City did not have adequate internal controls 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 the 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 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 2023, the City spent $1,152,896 in program funds for government services.
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 or services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify 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 internal controls in place to verify that seven 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 experienced turnover in the City Manager position and other key financial positions; therefore, we were unable to determine a cause. However, it appears the City was unaware that this requirement is applicable to these types of purchases for this award due because it lacked documentation and verification checks.
Effect of Condition
The City did not obtain written certifications from the contractors, insert a clause into the contracts or check for exclusion records at SAM.gov to verify that seven contractors it paid $410,211 using federal funds were not suspended or debarred before contracting. 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 were suspended or debarred would be unallowable, and the awarding agency could potentially recover them. 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 in part with federal funds, are not suspended or debarred from participating in federal programs before contracting with or purchasing from them.
City’s Response
The City of Sunnyside appreciates SAO staff and for their help in identifying opportunities for improvement. Most of the City’s leadership (City Manager, Public Works Director, Police and Fire Chief) are new to their role and unfamiliar with specific laws pertaining to government procurement.
The Finance staff will work more closely with all departments to continue to ensure that employees are responsible for understanding and complying with applicable state and/or federal laws when purchasing and contracting on behalf of the City. The City’s current Purchasing and Contracting policies will be updated to include additional information and checklists to help in ensuring the City meets all applicable state and/or federal laws.
Auditor’s Remarks
We thank the City for its cooperation and assistance during the audit and acknowledge its commitment to improve 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.