Finding Text
The City lacked adequate internal controls to ensuring compliance
with federal suspension and debarment requirements.
Assistance Listing Number and Title: 59.059 – Congressional Grants
Federal Grantor Name: Small Business Administration
Federal Award/Contract Number: SBAHQ23I0019
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
During the fiscal year 2023, the City spent $1,000,000 of federal funding from the
congressional grant. The City received the congressional grant for the expansion of
the Lacey MakerSpace, which is a public workshop that provides space and tools
for residents to attend classes or create projects. The grant allowed the City to
expand the workshop’s size to provide more workspace opportunities for residents.
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 regulations prohibit recipients from contracting with or making subawards
to 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, and for all subawards regardless of award
amount, paid all or in part with federal funds, it must verify the contractor or
subrecipient were not suspended, debarred or otherwise excluded. The City may
verify this by checking for exclusion records in the U.S. General Services System
for Award Management at SAM.gov, obtaining a written certification from the
contractor or subrecipient or adding a clause or condition into the contract that
states the contractor or subrecipient is not suspended or debarred. The City must
verify this before entering into the contract or making the subaward, and it must
keep documentation demonstrating compliance with this federal requirement.
Description of Condition
The City did not have controls in place to verify and maintain documentation
demonstrating that a subrecipient was not suspended or debarred before entering
into an agreement with them. Specifically, the City paid one subrecipient $1 million
and did not verify the subrecipient was not suspended or debarred before making
the subaward.
We consider this deficiency in internal controls to be a material weakness that led
to material noncompliance.
Cause of Condition
The City was unaware that the suspension and debarment requirement was
applicable to subrecipients. The City also relies on including an attestation clause
in contracts that it did not use for the subrecipient contract.
Effect of Condition
Without adequate internal controls, the City increases its risk of awarding federal
funds to subrecipients that are excluded from participating in federal programs. Any
payments the City made to an ineligible party would be unallowable, and the federal
agency could potentially recover them. Dring the audit, the City subsequently
verified the subrecipient was not suspended or debarred. Therefore, we are not
questioning costs.
Recommendation
We recommend the City develop internal controls to ensure subrecipients it pays
all or in part with federal funds, are not suspended or debarred before making the
subaward. The City should also maintain documentation demonstrating compliance
with this federal requirement.
City’s Response
The City of Lacey acknowledges the auditor's finding regarding the need for
enhanced internal controls to verify that subrecipients are not suspended or
debarred before entering into agreements involving federal funds.
The City has overall strong internal controls surrounding the utilization of grant
dollars. Specific to the Congressional funds, the City had a number of mitigating
controls in place to ensure the appropriate use of the funds. The City, Saint
Martin’s University, and Thurston EDC are strong partners in making sure the
Lacey MakerSpace reaches its full potential and continues to enhance the
community. City leadership and the stated partners were thrilled to receive $1
million dollars to go towards the much-needed expansion of the Lacey MakerSpace.
After receiving the award, it became clear that moving to a subrecipient model with
Saint Martin’s University was the appropriate course of action. The City received
approval from the Small Business Administration (granting authority) to proceed
with this action. The City then drafted and executed an interlocal agreement with
Saint Martin’s University. The interlocal agreement clearly stated that, as a
subrecipient, Saint Martin’s University would adhere to all federal requirements.
The City also completed a subrecipient risk assessment with Saint Martin’s
University prior to finalizing the subrecipient model and were deemed to be a low
risk subrecipient. Saint Martin’s completed a suspension and debarment check on
the project’s contractor who ultimately received the funds.
The City will address its controls and oversight over grant contracts with
subrecipient agreements to ensure proper adherence to suspension and debarment
requirements. This will be accomplished by including a contract clause that
explicitly requires all subrecipients to certify that they are not suspended, debarred,
or otherwise excluded from federal programs. This clause will be applied to all
relevant agreements and contracts moving forward. The City has also initiated
communication with relevant City staff to ensure that they are fully aware of federal
requirements regarding suspension and debarment.
The City will implement a periodic review process to ensure continued compliance
with federal requirements. This includes regular audits of contracts and subawards
to confirm that all necessary documentation is in place and that the City’s internal
controls are functioning effectively.
The City of Lacey is committed to full compliance with all federal regulations and
takes the auditor’s finding seriously. We believe that the steps we have taken and
the controls we have put in place for future use will effectively address the issue
and prevent further occurrences. We appreciate the auditor’s recommendations
and will continue to monitor and enhance our internal controls to ensure the
integrity of our operations and the proper use of federal funds.
Auditor’s Remarks
We appreciate the steps the City is taking to resolve this issue. 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 180, OMB Guidelines on Agencies on Governmentwide
Debarment and Suspension (Nonprocurement), establishes nonprocurement
debarment and suspension regulations implementing Executive Orders 12549 and
12689.