Stevens County January 1, 2021 through December 31, 2021 2021-001 The County’s internal controls were inadequate for ensuring compliance with federal procurement requirements. CFDA Number and Title: 20.205 – Highway Planning and Construction; 21.027 – COVID-19 – Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of Transportation, Federal Highway Administration; U.S. Department of the Treasury Federal Award/Contract Number: STPR-E331 (005), BRS-F334(002), BHS-Z933 (003), BHOS-10BA (001), HSIP-000S (577), STPR-G333 (004) Pass-through Entity Name: Washington State Department of Transportation (WSDOT) Pass-through Award/Contract Number: N/A Questioned Cost Amount: $0 Description of Condition Highway Planning and Construction Cluster The objectives of the Highway Planning and Construction Cluster are to: (1) assist states in the planning and development of an integrated, interconnected transportation system important to interstate commerce and travel by constructing and rehabilitating the National Highway System (NHS), including interstate highways and most other public roads; (2) provide aid for the repair of federal-aid highways following disasters; (3) foster safe highway design, and replace or rehabilitate structurally deficient or functionally obsolete bridges; and (4) to provide for other special purposes. During fiscal year 2021, the County spent $4,372,038 in federal funding for road improvement projects. Coronavirus State and Local Fiscal Recovery Funds The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) is to support state, local and tribal governments’ response to and recovery from the COVID-19 public health emergency. During fiscal year 2021, the County spent $1,378,893 in SLFRF funding for public safety vehicles, radio and medical equipment, computers, and building safety remodel supplies. Procurement procedures 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 regulations also 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 applicable federal requirements, state laws or local policies. When using federal funds to procure goods and services, governments must apply the more restrictive requirements by obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity. Although the County had a written procurement policy at the time of procurement, it did not conform to the most restrictive methods and thresholds for procuring public works projects, competitive proposals and small purchases. Additionally, the County’s policy did not include procedures for procuring transactions, such as micro-purchases, piggybacking, requesting proposals for architecture and engineering services, contract cost and price analysis, bonding requirements, and more. We consider these deficiencies in internal controls to be a material weakness that led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition County employees and officials misunderstood the federal procurement standards. They thought that the County’s current procurement policy met the standards required under Uniform Guidance, as the policy states that “all employees shall follow the most restrictive, local, state or federal procurement policy when using Federal Grant Funds to be in compliance with the Code of Federal Requirements (CFR part 200).” Additionally, for procurement performed for the Highway Planning and Construction Cluster, County employees thought that following WSDOT’s Local Agency Guidelines Manual (LAG Manual) and guidance from the Municipal Research and Services Center (MRSC) were sufficient for complying with federal procurement standards. Effect of Condition Although the County’s policy did not conform to Uniform Guidance, our testing found the County complied with federal requirements for competitive solicitation of public works contractors and purchases of goods and services. However, without updated written procurement procedures, the County is at greater risk of noncompliance with the most restrictive procedures when procuring contractors and goods and services with federal funds. Recommendation We recommend the County review and update its written procurement policy to conform to Uniform Guidance requirements (2 CFR § 200.318-327) for all procurement activities. County’s Response Stevens County will review and update the County's procurement policies to be compliance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Auditor’s Remarks We appreciate the county’s response and commitment to resolving this finding. We thank it for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular 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 200, Uniform Guidance, section 318, General procurement standards, establishes requirements for written procedures.