City of Mattawa January 1, 2025 through December 31, 2025 2025-002 The City did not have adequate internal controls and did not comply with federal procurement requirements. Assistance Listing Number and Title: 66.447, Sewer Overflow and Stormwater Reuse Municipal Grant Program Federal Grantor Name: Environmental Protection Agency Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Ecology Pass-through Award/Contract Number: WQC-2024-Mattaw-00118 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background During fiscal year 2025, the City spent $844,559 in Sewer Overflow and Stormwater Reuse Municipal Grant Program funds. The program’s objective is to provide funds for the planning, design, or construction of treatment works to intercept, transport, control, treat, or reuse municipal combined sewer overflows, sanitary sewer overflows, or stormwater; and any other measures to manage, reduce, treat, or recapture stormwater or subsurface drainage water. The City used program funding to eliminate the Portage Avenue Lift Station and construct 5,100 linear feet of new gravity sewer main. 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 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 procure goods and services, governments must apply the more restrictive requirements of federal, state or local laws by obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity. The City must maintain documentation showing the procurement process it performed. Description of Condition Our audit found the City’s internal controls were ineffective for ensuring compliance with federal procurement requirements. Although the City has an established procurement policy, it does not conform with federal requirements. Specifically, it does not include the most restrictive thresholds and procedures for public works projects and professional services, and other required elements included in 2 CFR § 200.318-327. Additionally, our audit found the City did not have adequate controls to ensure it complied with procurement requirements, and it did not follow the most restrictive requirements when procuring an architectural and engineering firm. Specifically, the City used its on-call engineer for the service rather than advertising a request for proposals as federal regulations require. In 2025, the City entered into the contract totaling $298,000 and paid the engineer $77,185 in federal program funds. We consider these deficiencies in internal controls to be a material weakness that led to material noncompliance. Cause of Condition The City does not regularly receive federal audits. Although the City established a procurement policy, staff were unaware the City’s documented procurement procedures did not conform to federal procurement standards. Staff were unaware they had to solicit requests for proposals by project and thought the City could use the on-call engineer for this service. Effect of Condition Without written policies and procedures that conform to federal procurement standards, the City is at an increased risk of not complying with the most restrictive of federal, state or local procurement methods when using federal funds. Without effective internal controls, the City cannot demonstrate it complied with federal procurement standards, allowed for full and open competition, received the best price or selected the most qualified contractor. Recommendation We recommend the City update its procurement policy to conform with federal procurement requirements and strengthen internal controls to ensure it procures goods and services in accordance with federal procurement requirements and its own procurement policies and procedures. City’s Response The City of Mattawa appreciates SAO staff for help in identifying opportunities for improvement. The City will continue to update its procurement policies for compliance. The funding agency for the project was in agreement with utilizing the city’s yearly engineering procurement for services. The City now understands that, when it comes to federal funds, we would need to procure a separate engineering services proposal. Auditor’s Remarks We thank the City for its cooperation and assistance during the audit and acknowledge its commitment to improving this condition. 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 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.