City of Redmond January 1, 2024 through December 31, 2024 2024-001 The City did not have adequate internal controls for ensuring compliance with federal subrecipient monitoring requirements, and did not comply with federal suspension and debarment, and reporting requirements. Assistance Listing Number and Title: 21.027 – COVID-19 – Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: N/A 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 The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program 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 $1,619,030 in program funds for these activities. 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. 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 City enters into contracts or purchases goods or 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 Reporting Under the SLFRF program, direct recipients with a population less than 250,000 residents that are allocated less than $10 million in SLFRF funding must submit annual Project and Expenditure reports to the U.S. Department of the Treasury (Treasury). Treasury identified the following key line items in the report that contain critical information and must be accurate and complete: • Obligations and expenditures • Current period obligation • Cumulative obligation • Current period expenditure • Cumulative expenditure Subrecipient monitoring The City passed through $732,367 in program funds to seven subrecipients via subrecipient agreements. When the City passes on federal funds to subrecipients, federal regulations require it to monitor its subrecipients’ activities. This includes verifying subrecipients receive a federal single audit when required, following up and ensuring subrecipients take timely and appropriate corrective action on all audit findings, and issuing a management decision as required. Description of Condition Suspension and debarment Although the City has a process to verify the suspension and debarment status for contractors it pays $25,000 or more using federal funds, our audit found the City did not perform the verification for one of the five contractors we tested before entering into the contract. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Reporting The City did not have an effective process for ensuring it prepared an accurate and complete report based on supporting documentation and Treasury’s guidance for SLFRF. Specifically, the City’s reported current and cumulative expenditures and obligations for several projects were incorrect and not supported by its general ledger or other supporting documentation. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Subrecipient monitoring The City’s existing subrecipient monitoring procedures were not adequate and did not include annual verification of single audit requirements for its SLFRF program subrecipients, as federal regulations require. Also, the City did not ensure they received federal single audits when required and that it followed up with the results of those audits. We consider this deficiency in internal controls to be a significant deficiency. Cause of Condition Suspension and debarment City staff were aware of the federal suspension and debarment verification requirements and completed the required verifications. However, they were not aware that the verification for one of the five contractors tested was completed 76 days after the contract went into effect and after the City paid the contractor. Reporting Staff responsible for completing the reports did not have a comprehensive understanding of the reporting requirements and did not receive the appropriate training. Subrecipient monitoring City staff were not aware of the procedures necessary to verify whether the subrecipients received a single audit when required. Moreover, the City only required subrecipients to provide financial statements or single audit reports during the first year of the subrecipient contract. As a result, for contracts more than one year, the City does not perform this verification in subsequent years and may not identify when a subrecipient is required to receive a single audit. Effect of Condition Suspension and debarment The City did not obtain a written certification from the contractor, insert a clause into the contract or check for exclusion records at SAM.gov to verify the contractor it paid $49,976 using federal funds was not suspended or debarred before contracting with or purchasing from them. 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. The City subsequently verified the contractor was not suspended or debarred. Therefore, we are not questioning costs. Reporting We found the following errors in the project and expenditure report: • Status of completion for one project was incorrectly reported as “not started” despite $2 million in expenditures during the reporting period • Cumulative expenditures were underreported by $5,265,876 for four projects • Current period obligations were underreported by $2,015,876 for two projects • Current period expenditures were underreported by $4,544,917 for five projects Treasury uses the reports for oversight purposes, and any inaccurate information limits its ability to ensure transparency of program spending and fulfill its legal obligations. By not establishing adequate internal controls, the City cannot ensure that information reported to the federal awarding agency is complete and accurate. Subrecipient monitoring We tested six subrecipients and found the City did not monitor and obtain the subrecipients’ audits and was not aware of the audit results. Without this verification, the City cannot ensure it is properly monitoring its subrecipients and that the subrecipients complied with federal program requirements. Recommendation Suspension and debarment We recommend the City strengthen its internal controls to ensure 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. Reporting We recommend the City: • Establish internal controls to prepare accurate and complete reports • Provide resources and training necessary for staff to improve report preparation so that it complies with federal reporting guidance and system requirements • Review Treasury’s Compliance and Reporting Guidance and the Project and Expenditure Report User Guide for reporting requirements and instructions on correcting the data Subrecipient monitoring We recommend the City strengthen internal controls over subrecipient monitoring to ensure it verifies subrecipients receive a federal single audit when required and follows up on audit findings as applicable. City’s Response The City of Redmond takes seriously its responsibility to administer federal funds in compliance with the Uniform Guidance (2 CFR Part 200) and acknowledges the findings identified in this audit related to suspension and debarment verification, SLFRF reporting accuracy, and subrecipient monitoring. The City has reviewed each finding, confirmed the underlying facts, and taken corrective action to address both the specific instances identified and the broader control gaps that allowed them to occur. Independent of this audit, the City had already begun a citywide effort in 2025 to strengthen its grant management practices. This effort resulted in a new Grant Management Policy and Procedure Manual and accompanying Standard Operating Procedures (SOPs), approved by leadership and published citywide in April 2026. Every department attended an in-person presentation on the new policy and received training on available grant management resources. The SOPs establish specific, minimum standards for procurement and suspension/debarment verification, monitoring and reconciliation of allowable costs, subrecipient monitoring, and grant reporting — directly addressing the root causes identified in this audit. In 2025 and 2026, the City also created and filled new positions to centralize grant management functions citywide, adding a required second-party review of progress reports and reimbursement requests before submission to funding agencies. The City views the specific instances identified in this audit as isolated gaps that existed prior to these citywide improvements, and believes the policy, staffing, and procedural changes described below directly resolve them. Suspension and Debarment The City's standard contract templates for federally funded procurements include suspension and debarment verification requirements, and this requirement was in place for all applicable City contracts except the design contract at issue, where the verification was not completed and documented until 76 days after the contract's effective date. The City has since confirmed the contractor was not suspended, debarred, or otherwise excluded during the relevant period, and no federal funds were paid to an ineligible party. • Added a required step to the contract routing process to verify completion of the debarment check and attach verification documentation before a contract proceeds. • Confirmed debarment verification is included on applicable checklists for all work involving labor and/or federal funding of $25,000 or more, and re-emphasized to staff the requirement to complete and retain this verification before contract execution and fund disbursement. • Both Finance and Capital Projects have been made aware of this error. Capital Projects has confirmed its understanding that the SAM.gov check must be completed and documented before finalizing any applicable contract. • Finance is revising the contract routing form to add a required field confirming whether a contract will be paid partially or fully with grant funds, alerting Purchasing and Accounts Payable to confirm that verification was completed before any payment is released. • The new citywide SOPs define the required timing for suspension/debarment checks, closing the procedural gap that allowed this contract to proceed without documented, timely verification. • The City will update agreement boilerplates to require vendors to attest that they are not debarred. This will supplement the City's existing verification process performed before contract execution and fund disbursement. Reporting During 2025, City staff began developing a citywide Grant Management Policy and Procedure Manual and accompanying Standard Operating Procedures (SOPs) to strengthen the City's compliance with federal grant requirements. The manual was approved by leadership and published citywide in April 2026, and every department attended an in-person presentation on the new policy, along with training on how to access additional grant management resources. The new SOPs establish specific standards for grant reporting, including required reconciliation practices and review procedures intended to prevent the type of discrepancies identified in this finding. In 2025 and 2026, the City created and filled new positions to centralize grant management functions citywide. These positions are responsible for tracking grant deadlines and providing a required second-party review of progress reports and reimbursement requests before they are submitted to funding agencies. The City views this finding as an isolated gap that predates these citywide improvements and believes the staffing and procedural changes described below directly address the root cause identified. Corrective Action Taken • New centralized grant management positions now review and approve all progress reports and reimbursement requests before submission to the funding agency, ensuring a required two-party review of all external reporting. • The new SOPs require staff to reconcile grant transactions multiple times throughout the year, rather than solely at year-end, so discrepancies are identified and corrected well before reporting deadlines. Subrecipient Monitoring The City's subrecipient monitoring procedures required subrecipients to submit financial statements or Single Audit reports only during the initial application year and did not include a documented process for annual verification in subsequent years. As a result, for the six subrecipients tested, the City could not confirm whether required Single Audits were received or whether applicable audit findings had been addressed in years following the first year of the subaward agreement Corrective Action Taken • Staff who manage subawards have completed additional training on subrecipient monitoring requirements, including verification of Single Audit compliance. • Staff who manages subawards will update the sub-monitoring checklist to include “Single Audit” as part of update every year. • Revised risk assessment tools now specify a minimum required frequency for completing subrecipient risk assessments and reviewing subrecipient financial reports. • The new citywide SOPs establish a defined minimum frequency for subrecipient monitoring activities, including annual verification of Single Audit status for all active subrecipients. Auditor’s Remarks We thank the City for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the City’s corrective action 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. U.S. Department of the Treasury’s Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance, Part 2, Section B, page 21, provides the reporting requirements for the Project and Expenditure Report. Section V of the Treasury’s current Project and Expenditure Report User Guide provides guidance for editing and revising report data. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for passthrough entities, establishes subrecipient monitoring and management requirements for pass-through entities.