SCHEDULE OF FEDERAL AWARD FINDINGS AND
QUESTIONED COSTS
City of Longview
January 1, 2023 through December 31, 2023
2023-002 The City overcharged costs to the federal program and had inadequate internal controls for ensuring compliance with federal equipment and suspension and debarment requirements.
Assistance Listing Number and Title: 20.513 – Enhanced Mobility of Seniors and Individuals with Disabilities
Federal Grantor Name: Federal Transit Administration
Federal Award/Contract Number: N/A
Pass-through Entity Name: WA Department of Transportation
Pass-through Award/Contract Number: GCB2622, PDT0619, PDT0308, PDT0004
Known Questioned Cost Amount: $35,031
Prior Year Audit Finding: N/A
Background
During fiscal year 2023, the City spent $1,298,447 in federal funding from the Enhanced Mobility of Seniors and Individuals with Disabilities program. The objective of this program is to enhance mobility for seniors and people with disabilities by providing funds for programs that serve the special needs of transit-dependent populations beyond traditional public transportation services and Americans with Disabilities Act complementary paratransit services.
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.
Description of Condition
Allowable activities and costs
The Washington State Department of Transportation operates the Enhanced Mobility of Seniors and Individuals with Disabilities program on a reimbursement basis, meaning the City must incur eligible costs before requesting reimbursement. While the City had adequate internal controls for ensuring it materially complied with the program’s allowable activities and allowable costs requirements, it submitted a claim for reimbursement for $35,031 in costs that the granting agency had already reimbursed.
Equipment management
Federal regulations require recipients to maintain proper records for equipment it purchased with federal funds. During the audit period, the City purchased seven buses that it partially paid for with federal funds. The City did not have adequate internal controls to track equipment it purchased with federal funds in accordance with federal program requirements. Specifically, the property records the City maintained did not include all of the elements it was required to track. Additionally, the City did not have a process to ensure it performed a physical inventory of the equipment it purchased and reconciled the inventory with its property records at least once every two years.
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 were 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.
Our audit found the City did not have adequate internal controls to verify that two contractors it paid more than $25,000 in federal funds were not suspended or debarred from participating in federal programs.
We consider these deficiencies in equipment management and suspension and debarment internal controls to be material weaknesses that led to material noncompliance.
Cause of Condition
Allowable activities and costs
The City changed who was responsible for submitting reimbursement requests during the year and in doing so, did not detect that it had already charged the costs to the program.
Equipment management
City staff responsible for tracking equipment did not know all the required elements the City needed to include in its property records to track equipment it purchased with federal funds and inventory requirements.
Suspension and debarment
City staff were aware of the federal suspension and debarment verification requirements and normally verify this during the procurement process. However, staff were unaware that the requirement applies to service contracts, including contract extensions, so they did not verify the contractors’ status for two service contract extensions.
Effect of Condition and Questioned Costs
Allowable activities and costs
The City charged $35,031 in costs to the program that were unallowable because the granting agency had already reimbursed the City for these costs. Therefore, we are questioning these costs.
Federal regulations require the Office of the Washington State Auditor to report known questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the City does not have adequate documentation to support expenditures.
Equipment management
Without adequate internal controls, the City cannot ensure it complied with federal equipment management requirements. The City’s property inventory records did not include all required information, such as the funding source, the federal award identification number (FAIN) and the percentage of federal participation. Because of the missing information, the City would not be able to determine which buses it purchased with federal funds and which federal funding source it used. Additionally, the City must meet federal requirements when disposing of equipment, and without the required federal information, it could dispose of equipment in an unallowable manner.
Our audit found the City could account for the equipment it acquired under this program during the audit period and it was using the equipment for purposes allowable under the program.
Suspension and debarment
The City did not obtain a written certification from the contractors, insert a clause into the contracts or check for exclusion records at SAM.gov to verify that two contractors it paid with federal funds were not suspended or debarred before contracting with them.
Without adequate internal controls, the City cannot ensure the contractors it paid with federal funds were eligible to participate in federal programs. Any program funds the City used to pay the contractors that were suspended or debarred would be unallowable, and the awarding agency could potentially recover them. Because we subsequently verified the contractors were not suspended or debarred, we are not questioning costs.
Recommendation
We recommend the City ensure it claims only allowable costs for reimbursement and that the claims do not include costs it previously submitted. The City should work with the granting agency to determine audit resolution for the questioned costs.
Additionally, we recommend the City establish internal controls to ensure it complies with federal requirements for equipment management and suspension and debarment. Specifically, the City should:
• Update property inventory records to contain all required elements to track equipment it purchased with federal funds
• Ensure it conducts a physical inventory once every two years
• Ensure 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
City’s Response
The City of Longview takes its responsibility over internal controls with the highest regard. Management is committed to ensuring the City has strong internal controls and appropriate procedures that demonstrate compliance with federal grant programs. In this regard, the City appreciates the Auditor’s review of the activities surrounding this federal program and will collaborate with appropriate staff to ensure a workable plan that addresses the recommendations in this schedule.
Auditor’s Remarks
We appreciate the City’s 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.
Title 2 CFR Part 200, Uniform Guidance, Subpart E, Cost Principles, establishes requirements for determining allowable costs and supporting costs allocated to federal programs.
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.
Title 2 CFR Part 200, Uniform Guidance, section 313, Equipment, establishes requirements for equipment purchased with Federal funds by non-Federal entities