Finding Text
2023-002 The District’s internal controls were inadequate for ensuring compliance with federal procurement 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: City of Snohomish, Snohomish County
Pass-through Award/Contract Number: BH-22-AR-03-242, EL-22-AR-26-034
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
During fiscal year 2023, the District spent $292,149 in federal funds from the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program to provide mental health counseling, community resource navigation and early learning services. The objective of the 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.
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 program controls.
When using federal funds to purchase services, governments must apply the most restrictive of federal requirements, state laws or local policies by obtaining quotes or following a competitive bidding process, depending on the estimated cost of the purchase. District policy conforms to the most restrictive laws and requires that it must obtain price or rate quotations from a reasonable number (for example, more than one) of qualified sources for personal services costing between $10,000 and $250,000.
Description of Condition
The District contracted with an external staffing agency to obtain three mental health counselors’ services. The District entered into three separate contracts with the staffing agency for these services. The District paid the staffing agency, which then paid the counselors for their work.
The District’s internal controls were not effective for ensuring it complied with federal procurement requirements. Specifically, the District did not follow its policy for procuring and awarding the contracts to the staffing agency. The District paid the external staffing agency $184,680 for mental health counselor services and charged these costs to the federal program. We consider this internal control deficiency to be a material weakness that led to material noncompliance.
Cause of Condition
District staff misunderstood federal procurement requirements and believed that these services were for unique staffing situations and therefore exempt from competitive procurement. As a result, the District did not obtain more than one quote for staffing agency services as required.
Effect of Condition
Without soliciting more than one quote as required, the District cannot demonstrate that it complied with its policy and federal regulations and received the best price for the staffing agency services or selected the most qualified contractor.
Recommendation
We recommend the District strengthen internal controls to ensure staff responsible for procuring services understand and follow federal procurement requirements and the District’s own procurement policies and procedures.
District’s Response
The District agrees that it should have followed policy 6220, which requires the District to obtain price or rate quotations from a reasonable number of qualified sources for personal services costing between $10,000 and $250,000. The District will follow it’s policy for services purchased with Federal Funds in the future.
Auditor’s Remarks
We thank the District for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the District’s corrective action 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, section 318, General procurement standards, establishes requirements for written procedures and requirements for maintaining records sufficient to detail the history of procurement.
Title 2 CFR Part 200, Uniform Guidance, section 320, Methods of procurement to be followed, establishes requirements for procuring with Federal funds by nonfederal entities.