2023-002 The County did not have adequate internal controls for ensuring compliance with federal requirements for suspension and debarment and subrecipient monitoring.
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: 21-4619C-127
CLH31030
SFY23-46141-003
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Description of Condition
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 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.
During 2023, the County spent $16,923,695 in program funds to cover additional costs it had incurred during the pandemic, including expenditures supporting public health, household utility relief and direct assistance payments to local businesses and nonprofit organizations financially affected by COVID-19. The program funds also included $7,472,700 passed through to nine subrecipients to fulfill some of the program’s objectives.
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.
Suspension and Debarment
Federal regulations prohibit recipients from contracting with, purchasing from or making subawards to parties suspended or debarred from doing business with the federal government. Whenever the County enters into contracts or purchases goods or services 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 contractors or subrecipients are not suspended, debarred or otherwise excluded from participating in federal programs. The County may verify this by obtaining a written certification from the contractor or subrecipient, adding a clause or condition into the contract that states the contractor or subrecipient 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 must maintain documentation demonstrating compliance with this federal requirement.
Our audit found the County did not have adequate controls in place to verify one subrecipient that received federal funding through an indirect award the County received through the Washington Statement Department of Commerce was not suspended or debarred from participating in federal programs.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Subrecipient Monitoring
Whenever the County passes on federal funding to subrecipients, federal regulations require it to clearly identify the award as a subaward by providing the information described in the regulation and including all applicable program requirements in the agreement. Further, the County must monitor its subrecipients to ensure they comply with the federal award’s terms and conditions.
During the audit period, the County contracted with nine subrecipients through 11 subaward agreements to carry out the SLFRF program’s objectives. However, in one of the 11 subaward agreements, the County did not include all required information to provide the subrecipient with applicable program requirements. This was for a subrecipient that received federal funding through an indirect award the County received through the Washington Statement Department of Commerce
We consider this deficiency in internal controls to be a significant deficiency.
Cause of Condition
Suspension and Debarment
The County typically includes a suspension and debarment clause in contracts that it intends to pay with federal funds. However, for this subaward agreement, County staff did not follow the established process to include the suspension and debarment clause in the agreement.
Subrecipient Monitoring
The County has a template contract to use with subrecipients that includes all the required elements. However, County staff did not use this template for one of the subaward agreements they entered into.
Effect of Condition
Suspension and Debarment
The County did not obtain a written certification from the subrecipient, insert a clause into a contract or check for exclusion records at SAM.gov to verify one subrecipient it paid $419,360 using federal funds was not suspended or debarred before contracting. Without adequate internal controls, the County cannot ensure the subrecipient it paid with federal funds was eligible to participate in federal programs. Any program funds the County used to pay a subrecipient that was suspended or debarred would be unallowable, and the awarding agency could potentially recover them. Because we subsequently verified the subrecipient was not suspended or debarred, we are not questioning costs.
Subrecipient Monitoring
The County did not include required elements in one of its subrecipient agreements. Specifically, the County did not include the following elements:
• Subrecipient’s unique entity identifier
• Federal award identification number
• Federal award date
• Amount of federal funds obligated
• Total amount of the federal award
• Name of federal awarding agency
• Assistance Listing Number and program title
• All federal program requirements imposed on the pass-through entity
Without this information, subrecipients are at an increased risk of not knowing that the award comes from a federal program and that they need to comply with specific program requirements, which could lead them to spend funds for unallowable purposes.
Recommendation
We recommend the County strengthen its internal controls to ensure:
• All subrecipients and contractors it expects to pay $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs
• It includes all federally required elements in its subrecipient agreements
County’s Response
We appreciate SAO’s efforts to help us improve program performance and compliance. In previous years, we have used a contract template for state and local fund sources and a separate contract template for federal funds that incorporates the appropriate suspension and debarment clauses and required sub-award elements. Because the funding we received from the State included a mix of state and local funds, we did always use the correct contract template. To correct this finding, OHHP will incorporate the appropriate suspension and debarment clauses and sub-award elements in all contracts going forward, regardless of fund source.
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 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes subrecipient monitoring and management requirements for pass-through entities.
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.