2025-001 The County did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Assistance Listing Number and Title: 11.463 Habitat Conservation Federal Grantor Name: National Oceanic and Atmospheric Administration, Department of Commerce Federal Award/Contract Number: NA23NMF4630090 NA23NMF4630025 NA24NMFX463C0038 Pass-through Entity Name: The Tulalip Tribes of Washington; Washington State Department of Fish and Wildlife Pass-through Award/Contract Number: N/A; 23-22747 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Habitat Restoration grant funds is to provide funds for habitat conservation activities including coastal and marine habitat restoration and protection. During fiscal year 2025, the County spent $3,688,636 in program funds. The County received subawards from the Tulalip Tribes of Washington and Washington State Department of Fish and Wildlife. The deficiency described below only impacts subawards the County received from the Tulalip Tribes of Washington. 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. Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the County must include a provision that the contractors and subcontractors must comply with those requirements and the Department of Labor’s regulations. This includes a requirement that the contractors and its subcontractors must submit certified payroll reports to the County weekly, for each week that laborers performed contract work. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition During fiscal year 2025, the County spent $2,189,879 in program funds to pay 21 contractors for the construction of waterway infrastructure to improve fish habitat. Our audit found the County did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the County did not include the required wage rate provisions in the contract. We consider this internal control deficiency to be a significant deficiency. Cause of Condition While County staff were aware of the federal wage rate requirements for the collection of weekly certified payrolls, they did not know about the federal guidelines that contracts needed to include specific language to meet federal wage rate requirements. Effect of Condition Without adequate internal controls to ensure it includes the wage rate clauses in its contracts, the County cannot demonstrate it complied with federal wage rate requirements. Additionally, because the County did not notify the contractor that the project was federally funded, the contractor submitted state-certified payroll reports instead of federal-certified payroll reports. The County could also be liable for paying any additional wages if the contractor and subcontractors did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the County strengthen internal controls to ensure compliance with federal wage rate requirements. This should include inserting wage rate clauses into contracts and obtaining federal certified payroll reports. County’s Response Controls are in place to ensure federal requirements are followed. All Specification Documents will undergo a mandatory compliance review by the contracting Division’s Contract Administrator and the Funding Coordinator prior to advertisement. This review will verify federal funding designation, confirm which federal terms apply based on funding source, and ensure that all required federal wage provisions are included. Auditor’s Remarks We appreciate the County’s commitment to resolve this finding and thank the County for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular 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 29 CFR, Section 5.5 – Contract provisions and related matters establishes the requirements for the contracting officer to insert in full in any contract in excess of $2,000 which is entered into for the actual construction, alteration and/or repair, including painting and decorating, of a public building or public work, or building or work financed in whole or in part with federal funds the clauses listed, which includes but is not limited to the minimum wages to be paid and payrolls and basic records to be maintained (submission of weekly certified payrolls).
2025-002 The County did not have adequate internal controls for ensuring compliance with federal time-and-effort and subrecipient monitoring requirements, and it did not comply with federal time-and- effort requirements. Assistance Listing Number and Title: 97.067 Homeland Security Grant Program Federal Grantor Name: U.S. Department of Homeland Security Federal Award/Contract Number: EMW-2021-SS-00083 EMW-2022-SS-00056 EMW-2023-SS-00063 EMW-2024-SS-05028 Pass-through Entity Name: Washington State Military Department Pass-through Award/Contract Number: E23-119 E23-117 E22-072 E22-097 E25-201 E24-125 E24-114 Known Questioned Cost Amount: $489,597 Prior Year Audit Finding: N/A Background The objective of the Homeland Security Grant Program (HSGP) is to support state, local, tribal, and territorial efforts to prevent acts of terrorism and other catastrophic events, and to prepare the nation for the threats and hazards that pose the greatest risk to the security of the United States. During fiscal year 2025, the County spent $1,413,801 in federal funds from HSGP. Of this amount, the County passed $170,996 to four subrecipients under seven subaward agreements. 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. Activities Allowed and Cost Principles The County is responsible for ensuring it supports all payroll costs it charges to the program with adequate time-and-effort documentation, as required by federal regulations. If the County initially allocates payroll expenditures to federal programs based on budgeted or estimated time or amounts, then it must periodically compare actual costs based on time-and-effort records to the estimates used. It must make all necessary adjustments, so the final amount charged to the federal award is accurate, allowable, and properly allocated. Subrecipient Monitoring Whenever the County passes on federal funds to subrecipients, federal regulations require the County to evaluate each subrecipient’s risk of noncompliance with federal requirements and to monitor subrecipient activities based on its risk assessment. The County is also required to monitor and ensure the subrecipient receives a federal single audit when required, follow up and ensure the subrecipient takes timely and appropriate action on audit findings, and issue a management decision as required. Description of Condition Activities Allowed and Cost Principles The County’s internal controls were ineffective for ensuring it supported all salaries and benefits it charged to the program with appropriate time-and-effort documentation, as federal regulations require. The County allocates payroll expenditures to federal programs based on budgeted or estimated time or amounts and did not maintain time-and effort records of actual time worked on the program. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Subrecipient Monitoring The County’s internal controls were not properly designed to ensure it performed and documented a risk assessment for each subrecipient and verified each subrecipient received a single audit and that it followed up with the results of that audit, when necessary, as federal regulations require. We consider this internal control deficiency to be a significant deficiency. Cause of Condition Activities Allowed and Cost Principles The County experienced staff turnover and current staff were not aware they could not charge costs to the program using an estimate. Additionally, they were not aware that records must show actual time worked on the program to support costs charged to the award. Subrecipient Monitoring Because of staff turnover, current staff were not aware of the need to perform and document a risk assessment for each subrecipient. Additionally, staff were not aware of the requirement to verify each subrecipient received a single audit if necessary. Effect of Condition and Questioned Costs Activities Allowed and Cost Principles The County did not obtain time-and-effort documentation for seven employees we tested whose payroll costs totaling $489,597 it charged to the program. Without adequate time-and-effort documentation, the County cannot demonstrate compliance with federal documentation requirements to support costs charged to federal programs. Further, the County cannot assure federal grantors that payroll costs it charged to the program were accurate and valid. The County could not provide signed time-and-effort records or alternative documentation to show the seven employees worked on the program. We are questioning $489,597 in costs charged to the program. Federal regulations require the State Auditor’s Office to report known and likely questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the County does not have adequate documentation to support expenditures. Subrecipient Monitoring The County did not perform and document a risk assessment for each subrecipient when it granted the subawards and did not verify whether each subrecipient received a single audit and was not aware of the audit results. The County cannot ensure it is properly monitoring its subrecipients and that the subrecipients complied with federal program requirements. During the audit, the County verified each of the subrecipients received a single audit as required. Recommendation We recommend the County establish and follow internal controls to ensure it complies with federal requirements for obtaining time-and-effort documentation to support payroll costs charged to the program. We further recommend the County evaluate and document each subrecipient’s risk of noncompliance with federal requirements and verify each subrecipient receives a single audit when required and retain documentation of this verification. Additionally, we recommend the County provide training to ensure staff overseeing compliance with federal programs are aware of all applicable requirements. County’s Response Snohomish County Department of Emergency Management (“County”) agrees that the County did not follow the required procedures per 2 CFR 200 associated with time and effort reporting. However, as part of the corrective action plan, beginning January 1, 2026 the County has implemented procedures to document and capture time-and-effort according to federal award requirements. Further, the County has included in its procedures going forward to have subrecipient risk assessment and subrecipient monitoring performed as required by the terms of the federal awards. However, we disagree with the finding of question costs for salaries. We demonstrated that 100% of the work done by non-M&A staff assigned to the grants was eligible, including time not charged to the grant. We demonstrated this by turning over the work plans of the staff and cross referencing them against the grant Statements of Work. We further addressed deliverables of the work performed, in terms of trainings and exercises conducted, partner meetings held, public messages disseminated, and Emergency Operations Center and communications equipment procured and maintained. Finally, we described the documentation to our grantor, Washington Emergency Management Division. They agreed that although the finding is warranted, they believe it should only be unsubstantiated costs rather than questioned costs in as much as the County demonstrated that the costs were eligible just not properly documented. We would agree with a finding of unsubstantiated costs but cannot agree with the finding of questioned costs. Auditor’s Remarks We appreciate the steps the County is taking to resolve this issue. Because the County was unable to provide sufficient documentation demonstrating the seven employees tested worked specifically on the program, federal regulations require the auditor to question the associated costs. We reaffirm our finding and will review the condition 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, Subpart E, Cost Principles, establishes requirements for determining allowable costs and supporting costs allocated to federal programs. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for passthrough entities, establishes subrecipient monitoring and management for passthrough entities.