Audit 368796

2024-001 The County’s Facilities Management Division did not have adequate internal controls and did not comply 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: SLFRP0152 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) is to respond to the COVID-19 pandemic’s negative effects on public health and the economy, provide government services to the extent COVID-19 caused a reduction in revenues collected, make necessary investments in water, sewer or broadband infrastructure, provide emergency relief from natural disasters or their negative economic impacts, fund projects eligible under certain programs administered by the U.S. Department of Transportation through three pathways and fund projects eligible under the programs established in Title I of the Housing and Community Development Act of 1974. In 2024, the County spent $138,643,719 in program funds for these activities. Federal regulations require recipients to establish, document and maintain effective 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, purchasing from and making subawards to parties suspended or debarred from doing business with the federal government. Whenever the County enters into contracts or purchases goods and services that it expects to equal or exceed $25,000, and for all subawards regardless of award amount, paid all or in part with federal funds, it must verify the contractors and subrecipients are not suspended, debarred or otherwise excluded from participating in federal programs. The County may verify this by obtaining a written certification from the contractor and subrecipient, adding a clause or condition into the contract that states the contractor or the subrecipient 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 County must verify this before entering into the contract and before making subawards, and must maintain documentation demonstrating compliance with this federal requirement. Description of Condition Although the County has a process to verify the suspension and debarment status for contractors it pays more than $25,000 and for subrecipients, our audit found the County did not follow this process. The County did not verify one contractor out of the nine contractors and subrecipients we tested, using a nonstatistical sample, was not suspended or debarred before purchasing from them. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition Staff were aware of the federal suspension and debarment verification requirements and usually verify this during the procurement process. However, staff were unaware that the requirement applies to contracts executed through the emergency purchase exemption allowing local governments to waive competitive procurement requirements for emergency purchases related to COVID-19, so they did not verify the contractor’s status. Effect of Condition and Questioned Costs The Facilities Management Division did not obtain a written certification from the contractor, insert a clause into the contract or check for exclusion records at SAM.gov to verify a contractor it paid $400,000 using federal funds was not suspended or debarred before contracting. Without adequate internal controls, the Facilities Management Division increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the Facilities Management Division made to an ineligible party would be unallowable, and the awarding agency could potentially recover them. The Facilities Management Division subsequently verified the contractor was not suspended or debarred. Therefore, we are not questioning costs. Recommendation We recommend the Facilities Management Division strengthen its internal controls to verify 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. County’s Response The Facilities Management Division (FMD) thanks the auditor for their work in this audit and agrees that one contractor was not checked for suspension or debarment prior to contract execution. FMD appreciates the auditor’s acknowledgement that the contractor was eligible to receive Federal funds so there was no monetary impact of this procedural lapse. FMD is committed to preventing future occurrences by launching training on procurement requirements for Federal financial assistance as further described in the corrective action plan. Auditor’s Remarks We thank the County for its cooperation and assistance during the audit and acknowledge its commitment to resolve this finding. 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 on Agencies on Governmentwide Department and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.