2023-002 The Town did not have adequate internal controls for ensuring compliance with federal suspension, debarment and procurement requirements, and it did not comply with federal suspension and debarment requirements. Assistance Listing Number and Title: 97.047 Building Resilient Infrastructure and Communities Federal Grantor Name: Department of Homeland Security Federal Award/Contract Number: EMS-2018-PC-001 Pass-through Entity Name: Washington State Military Department Pass-through Award/Contract Number: PDMC-PL-10-WA-2017-003 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background During fiscal year 2023, the Town spent $642,325 of the Building Resilient Infrastructure and Communities (BRIC) program. The objective of the program is to make federal funds available to local communities for hazard mitigation activities. The Town used the program funds to upgrade and relocate an existing watermain. 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. Suspension and debarment Federal requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the Town 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 20 Office of the Washington State Auditor sao.wa.gov verify the contractors are not suspended, debarred or otherwise excluded from participating in federal programs. The Town 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 Town must verify this before entering into the contract, and must maintain documentation demonstrating compliance with this federal requirement. Procurement Federal regulations require recipients to follow their own documented procurement procedures, which must conform to the Uniform Guidance procurement standards found in 2 CFR 200.318-327. The procedures must reflect the most restrictive of federal, state or local procurement thresholds and methods when using federal funds. Additionally, federal regulations require recipients to maintain written standards of conduct that cover conflicts of interest and govern the actions of employees involved in selecting, awarding or administrating contracts procured with federal funds. Description of Condition Suspension and Debarment Our audit found the Town did not have internal controls to verify two of the three contractors that 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. Procurement Our audit found the Town’s internal controls were ineffective for ensuring compliance with federal procurement requirements. Although the Town has a procurement policy, it does not conform with federal requirements. Specifically, the Town’s procurement policy does not include methods for procuring architectural and engineering services, public works projects and more, and the thresholds in the policy do not conform with the most restrictive requirements. Further, the Town did not have standards of conduct policies or procedures over conflicts of interest for officers or agents who award contracts, as federal regulations require. We consider this deficiency in internal controls to be a significant deficiency. 21 Office of the Washington State Auditor sao.wa.gov Cause of Condition Suspension and Debarment The Town experienced turnover among key staff, and current staff could not locate documentation to demonstrate compliance with federal suspension and debarment requirements. Procurement The Town does not regularly manage federal funds and as a result, staff were unaware of the requirement to have written standards of conduct and procurement policies or procedures that conform to federal procurement standards. Effect of Condition Suspension and Debarment The Town 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 contractors it paid $98,103 using federal funds were not suspended or debarred before contracting with them. Without adequate internal controls, the Town increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the Town made to an ineligible party would be unallowable, and the awarding agency could potentially recover them. We subsequently verified the contractors were not suspended or debarred. Therefore, we are not questioning costs. Procurement Without written policies and procedures that conform to federal procurement standards, the Town is at an increased risk of not complying with the most restrictive of federal, state or local procurement requirements when using federal funds to procure contractors. Although the Town’s procurement policy did not conform to federal procurement standards and it did not have a standards of conduct policy in place, we found the Town complied with federal requirements for soliciting and awarding the architectural and engineering services and public works contracts we tested. 22 Office of the Washington State Auditor sao.wa.gov Recommendation Suspension and Debarment We recommend the Town strengthen its internal controls to verify all contractors it pays $25,000, all or in part with federal funds, are not suspended or debarred from participating in federal programs and maintain documentation demonstrating compliance with this requirement. Procurement We recommend the Town update its procurement policies and procedures and develop written standards of conduct procedures that conform to federal procurement standards in Uniform Guidance (2 CFR 200.318-327). Town’s Response The Town of Coupeville acknowledges SAO’s recommendation regarding the need to strengthen internal controls regarding federal procurement, as well as to update the procurement policy to ensure full compliance with the Uniform Guidance including conflict of interest and ethics sections. In response, the Town is updating procurement contracts with suspension and debarment verbiage and aligning policy with the requirements outlined in the Uniform Guidance (2 CFR 200) ensuring that all procurement processes are conducted in accordance with federal regulations and standards of conduct. The Town further ensures all authorized purchasers within the Town of Coupeville will receive ongoing training in procurement policies particularly when engaging in grant activities. The Town of Coupeville would like to thank the State Auditor’s Office for its thorough review and the valuable recommendations provided in the recent audit report. We appreciate the time and effort the audit team took to identify areas where our internal controls and processes can be improved. We take these findings seriously and will continue to take proactive steps to enhance our processes and ensure accountability regarding our use of federal funds. Auditor’s Remarks We appreciate the Town's commitment to resolve this finding and thank the Town for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. 23 Office of the Washington State Auditor sao.wa.gov 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. Title 2 CFR Part 200, Uniform Guidance, section 318, General procurement standards, establishes requirements for written procedures.