SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS City of Pullman 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: 20.509 Formula Grants for Rural Areas and Tribal Transit Program; COVID 19 – Formula Grants for Rural Areas and Tribal Transit Program 21.027 COVID 19 – Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: Federal Transit Administration U.S. Department of the Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Transportation N/A Pass-through Award/Contract Number: PTD0622, PTD0623 N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2023-001 for 20.509 Background Formula Grants for Rural Areas and Tribal Transit Program The objectives of the Formula Grants for Rural Areas program are to initiate, improve and continue public transportation service in rural areas by providing financial assistance for operating, planning, administrative expenses, and the acquisition, construction, and improvement of facilities and equipment. The program specifically provides for the support of rural intercity bus service. In addition, the Rural Transit Assistance Program also provides additional funding for training, technical assistance, research and related support services to support rural transit service. During fiscal year 2024 the City spent $1,795,188 in Formula Grants for Rural Areas and Tribal Transit Program funds. Coronavirus State and Local Fiscal Recovery Funds 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 City spent about $7.8 million in program funds for these activities. Suspension and Debarment 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 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 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 must maintain documentation demonstrating compliance with this federal requirement. Description of Condition Formula Grants for Rural Areas and Tribal Transit Program Although the City has a process to verify the suspension and debarment status for contractors it pays more than $25,000, our audit found the City did not follow this process and did not verify all three contractors we tested were not suspended or debarred before purchasing from them. Coronavirus State and Local Fiscal Recovery Funds Although the City has a process to verify the suspension and debarment status for contractors it pays more than $25,000, our audit found the City did not follow this process and did not verify one of two contractors we tested was not suspended or debarred before purchasing from them. We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance. Cause of Condition Formula Grants for Rural Areas and Tribal Transit Program City staff responsible for managing this program were aware of the federal suspension and debarment verification requirements and normally verify this during the procurement process. However, staff were not aware they needed to perform this verification for all covered transactions and thought it only applied to capital project-related expenditures. Coronavirus State and Local Fiscal Recovery Funds City staff were aware of the federal suspension and debarment verification requirements and normally verify this during the procurement process. However, staff were not aware they needed to check suspension and debarment when entering into new project phase contracts with contractors that worked on other project phases in prior years. Effect of Condition The City did not obtain a written certification from the contractors, insert clauses into the contracts or check for exclusion records at SAM.gov to verify the contractors it paid $210,192 using federal funds for the Formula Grants for Rural Areas and Tribal Transit Program and $770,493 using federal funds for SLFRF were 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. We subsequently verified the contractors were 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, all or in part with federal funds, are not suspended or debarred from participating in federal programs. City’s Response City staff was not fully aware of the need to complete suspension and debarment verification on all transactions meeting the federal threshold including subsequent project phases and city-wide operational procurements. As noted by the Washington State Auditor’s Office, the contractor continued to remain free of suspension or debarment during the period and resulted in zero dollars in questioned costs. The city has refined its processes and training to include a verification that is compliant with usage of federal funds. Auditor’s Remarks We appreciate the City’s commitment to resolve this finding and thank the City for its cooperation and assistance during the audit. We will review corrective action taken during the 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.