Finding Text
2023-002 The County’s internal controls were inadequate for ensuring compliance with federal suspension and debarment 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: Washington State Department of Commerce
Pass-through Award/Contract Number: 21-46190-117
24-4619D-115
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
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 premium pay to essential workers during the pandemic, provide government services to the extent COVID-19 caused a reduction in revenues collected and make necessary investments in water, sewer or broadband infrastructure. In the fiscal year 2023, the County spent approximately $3.37 million in program funds for these activities.
Federal regulations require recipients to establish and maintain 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 County 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 were not suspended or debarred or otherwise excluded. The County 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 County must verify this before entering into the contract, and it must keep documentation demonstrating compliance with this federal requirement.
Description of Condition
Although the County has a process to verify the suspension and debarment status for contractors it pays more than $25,000, our audit found the County did not follow this process and did not verify two contractors were not suspended or debarred before purchasing from them.
We consider this deficiency in internal controls to be a material weakness that led to noncompliance.
Cause of Condition
When the County purchased an armored vehicle from another government’s contract through piggybacking, staff did not use the County’s standard process of checking SAM.gov for suspension and debarment exclusions or including suspension and debarment language in the contract. Instead, staff relied on the other government’s suspension and debarment verification to ensure compliance with this requirement. County staff did not realize that the County was also responsible for performing its own verification process.
When the County purchased a water pump, staff responsible for checking the SAM.gov website mistakenly checked exclusion records for a different contractor.
Effect of Condition
The County did not obtain a written certification, insert a clause into the contract or check exclusion records to verify that two of its 10 contractors were not suspended or debarred. The County paid $415,373 to these two contractors.
Without adequate internal controls, the County cannot ensure the contractors it pays with federal funds are eligible to participate in federal programs. Any program funds the County used to pay contractors that were suspended or debarred would be unallowable, and the federal grantor could potentially recover them.
During the audit, we verified these contractors were not suspended or debarred. Therefore, we are not questioning costs for these payments.
Recommendation
We recommend the County 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 before contracting with or purchasing from them. These controls should include verifying the suspension and debarment status of contractors independently when using piggybacking to purchase from them.
County’s Response
The County is committed to ensuring internal controls are adequate for compliance with federal suspension and debarment requirements. Management understands the seriousness of potentially awarding federal funds to ineligible parties and has taken steps to confirm that compliance is followed in future purchases using federal funds.
An updated purchasing and contracting policy and procedures was adopted by the Board of County Commissioners in December of 2023. The document includes an updated section on suspension and debarment regulations implementing Executive Orders 12549 and 12689, 2 CFR Part 180, per §200.213. County offices and departments will ensure and document that no agreement for goods or services is entered into with any entity or person who has been disqualified from participation in Federal programs or activities. Program staff will do this by checking the federal System for Award Management (SAM.gov) prior to the contract execution date. If the contractor is not listed in SAM.gov, the County has created a certification of no debarment or suspension form that the contractor can attest to or the attestation may be added to the contract. Both the SAM.gov check and/or the certification of no debarment form must be completed at or before contract execution and documentation will be maintained in each contract file.
The County is committed to providing training on federal grants at least annually to all county staff that work with them and anticipates full compliance with the suspension and debarment requirements moving forward.
Auditor’s Remarks
We appreciate the County’s quick response and commitment to resolving this finding. We thank it 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 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide Department and Suspension (Nonprocurement) establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.