City of SeaTac January 1, 2024 through December 31, 2024 2024-001 The City 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: 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 Background 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 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 City spent $2,228,050 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 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 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. Description of Condition Although the City has a process to verify the suspension and debarment status for contractors it pays $25,000 or more using federal funds, our audit found the City did not follow this process and did not verify one of the five contractors we tested were not suspended or debarred before entering into a contract with them. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City staff did not have a clear understanding of the suspension and debarment requirements and were not aware it applied to all contractors the City paid $25,000 or more, all or in part using federal funds. In addition, the City did not originally anticipate the contract exceeding the $25,000 threshold. Effect of Condition The City did not obtain a written certification from one of the contractors, insert a clause into the contract or check for exclusion records at SAM.gov to verify contractor it paid $100,989 using federal funds was not suspended or debarred before contracting. 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 contractor was not suspended or debarred. Therefore, we are not questioning costs. Recommendation We recommend the City strengthen its internal controls to verify all contractors it pays $25,000 or more, paid 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. City’s Response The City looks forward to the annual audit and appreciates the relationship with the local audit team and the Washington State Auditor’s Office (SAO). We also appreciate the opportunity to respond to the observations drawn by the staff of the Washington State Auditor’s Office. The City understands the importance of having internal controls in place for verifying contractors are not suspended or debarred from participating in federal programs. As is stated in the Cause of Condition, the City did not anticipate the payments to the vendor would exceed $25,000 and did not check if the vendor was suspended or debarred once it was determined the contract would exceed the threshold amount. The City will take this issue into consideration when receiving and appropriating federal grant funding in the future. As difficult as it is to receive an audit finding, the City values the auditor’s comments and recommendations and appreciates the knowledge and professionalism of their staff. Auditor’s Remarks We appreciate the steps the City is taking to resolve this issue. We will review the condition 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.