2024-002 The District did not have adequate controls and did not comply with federal suspension, debarment and procurement requirements. Assistance Listing Number and Title: 97.044 – Assistance to Firefighters Grant Federal Grantor Name: Department of Homeland Security Federal Award/Contract Number: EMW-20023-FG-04692; EMW-20023-FG-04692 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 During fiscal year 2024, the District spent $772,976 in federal funds from the Assistance to Firefighters Grant program. This program provides funding to protect the health and safety of the public and firefighting staff against fire and fire-related hazards. Federal regulations require recipients to establish, document and maintain internal controls that ensure compliance with program requirements. These controls include understanding the 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 District 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 verify the contractors are not suspended, debarred or otherwise excluded from participating in federal programs. The District 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 District 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 to purchase goods or services, governments must apply the most restrictive of either federal requirements, state laws or local policies by obtaining quotes or following a competitive bidding process, depending on the estimated purchase cost. The District must maintain documentation showing the procurement process it performed. Additionally, federal regulations also require recipients to maintain written standards of conduct that cover conflicts of interest and govern the actions of employees and officers involved in selecting, awarding and administering contracts procured with federal funds. Description of Condition Suspension and Debarment Our audit found the District did not have internal controls to verify the two 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. Procurement Our audit found the District’s internal controls were ineffective for ensuring it complied with federal procurement requirements. Although the District has an established procurement policy, it does not conform with federal requirements. Specifically, it does not include methods and thresholds for formal bids, small purchases and piggybacking or cooperative purchases. Further, the District does not have a standards of conduct policy covering conflicts of interest for employees or agents who award contracts, as federal regulations require. Additionally, the District did not retain documentation to show it procured a fire apparatus totaling $514,000 and cannot demonstrate it followed the most restrictive of federal, state or local procurement requirements for this purchase. We consider these deficiencies in internal controls to be a material weakness that led to material noncompliance. Cause of Condition Suspension and Debarment District staff were unaware of the federal requirements for suspension and debarment. Procurement Management and staff were unaware the District’s documented procurement procedures did not conform to federal procurement standards and did not know they should update them. They also did not know the District should have documented procedures covering standards of conduct. Further, current staff were unable to locate documentation to demonstrate compliance with procurement requirements as staff who no longer work for the District purchased the fire apparatus. Effect of Condition Suspension and Debarment The District 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 the contractors it paid $740,000 using federal funds were not suspended or debarred before contracting. Without adequate internal controls, the District increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the District made to an ineligible party would be unallowable, and the awarding agency could potentially recover them. The District 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 District is at an increased risk of not complying with the most restrictive of federal, state or local procurement methods and standards of conduct requirements when using federal funds. Without effective internal controls and retention of documents, the District cannot show it complied with federal procurement standards, allowed for full and open competition, and received the best price or selected the most qualified contractor. Recommendation Suspension and Debarment We recommend the District establish 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 and maintain documentation demonstrating compliance with this requirement. Procurement We recommend the District establish internal controls to comply with federal procurement requirements, including establishing written procurement and standards of conduct procedures that conform to federal procurement standards in Uniform Guidance (2 CFR 200.318-327), and retaining all procurement documentation to demonstrate compliance for purchases. District’s Response 1. Develop and Implement Comprehensive Procurement and Public Works Policies: The District will immediately develop and adopt robust written procurement and public works policies and procedures. These policies will ensure compliance with both federal regulations and Washington state law (RCW). The policies will include detailed procedures for: Vendor and Subcontractor Vetting: Incorporating explicit steps for checking potential vendors against the federal System for Award Management (SAM) database to ensure they are not suspended or debarred. This process will apply to all federally funded procurements, as well as any other procurements exceeding the federal threshold of $25,000 paid with federal funds. Competitive Bidding: Establishing clear thresholds for purchases and public works projects requiring minimal, informal, or formal competitive bidding, in line with state guidelines. Public Works Requirements: Mandating compliance with prevailing wage requirements and incorporating bonding and retainage rules for all public works projects. Documentation: Requiring detailed record-keeping for all procurement activities, including bids, vendor evaluations, and justification for contract awards. Contract Clauses: Including a standard contract clause affirming vendor understanding and compliance with federal debarment and suspension requirements. Policy Approval: Submitting the draft policies for review and adoption by the district’s governing body. Assigned to: Fire Chief and Administrative Assistant. 2. Conduct Staff Training: All relevant staff, particularly the Fire Chief and Administrative Assistant, will undergo mandatory training on the new policies and procedures. Training will cover the correct application of procurement rules, the importance of federal suspension and debarment checks, and proper documentation procedures. Assigned to: Fire Chief. 3. Implement Management Review and Oversight: The Fire Chief will conduct and document a review of all procurement and public works transactions to ensure compliance with the newly adopted policies before any contract is finalized, or a purchase order is issued. Assigned to: Fire Chief. 4. Establish Periodic Compliance Self-Assessment: The District will perform annual self-assessments of its procurement process to identify and correct any control weaknesses and ensure ongoing compliance with federal and state regulations. Auditor’s Remarks We thank the District 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 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. Title 2 CFR Part 200, Uniform Guidance, section 320, Methods of procurement to be followed, establishes requirements for procuring goods and services, including noncompetitive procurement.