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: 20.205 Highway Planning and Construction Federal Grantor Name: Federal Highway Administration, U.S. Department of Transportation Federal Award/Contract Number: A22AV01053, HLP-PB(010) - STPUS-6239 (002), HLP-PB(010) - STPUS-6239 (002) LA-9913, TAPUS-0030 (014) LA10744, CRPUS-6239 (003) LA10807 Pass-through Entity Name: WA State Department of Transportation (WSDOT) Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Highway Planning and Construction program is to provide funds for the planning, design, construction and rehabilitation of highways and bridge transportation systems. During fiscal year 2024, the City spent $4,005,201 in program funds. 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 Although the City has a process to verify the suspension and debarment status for contractors it pays $25,000 or more, our audit found the City did not follow this process and did not verify one of three contractors we tested was not suspended or debarred before purchasing from them. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition When the City initially procured the contractor, it did not intend to pay them with federal funds. However, when the City decided to pay the contractor using federal funds, it did not check if the contractor was suspended or debarred. Effect of Condition The City did not obtain a written certification, insert a clause into the contract or check for exclusion records at SAM.gov to verify the contractor it paid $XX,XXX using federal funds was not suspended or debarred before contracting with them. Without adequate internal controls, the City increases its risk of awarding 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, all or in part with federal funds, are not suspended or debarred from participating in federal programs. City’s Response Auditor’s Remarks 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.