2023-001 The Council’s internal controls were inadequate for ensuring compliance with federal procurement and suspension and debarment requirements.
Assistance Listing Number and Title: 20.205 – Highway Planning and Construction Grant
Federal Grantor Name: Department of Transportation, Federal Highway Administration
Federal Award/Contract Number: N/A
Pass-through Entity Name: Washington State Department of Transportation
Pass-through Award/Contract Number: GCB3510, GCB3871, LA-9282
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
The Council spent $822,938 in federal Highway Planning and Construction program funds awarded from the Federal Highway Administration and passed through the Washington State Department of Transportation. The program’s objective is to provide funds for the planning, design, construction and rehabilitation of highways and bridge transportation systems.
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.
Procurement
Federal regulations require recipients to follow their own documented procurement procedures, which must conform to the Uniform Guidance procurement standards found in 2 CFR § 200.318-327. The procedures must reflect the most restrictive of applicable federal requirements, state laws or local policies. When using federal funds to procure goods and services, governments must apply the most restrictive requirements by obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity.
Council policy and federal requirements allow the governing body to waive competitive bidding requirements for purchases that are clearly and legitimately limited to a single source of supply. The Council must prepare and keep documentation supporting the applicable circumstance and rationale for noncompetitive procurement.
Suspension and debarment
Federal requirements prohibit grant recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the Council 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 are not suspended, debarred or otherwise excluded. This also applies to all subrecipients who received federal subawards from the Council, regardless of the award amount. The Council may verify this by collecting 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 Council must perform this verification before entering into the contract or making the subaward, and it must maintain documentation demonstrating compliance with this federal requirement
Description of Condition
Procurement
Our audit found the Council’s internal controls were ineffective for ensuring compliance with federal procurement requirements. Although the Council has a written procurement policy, it did not ensure its policy conformed to the most restrictive methods and thresholds for procuring public works projects, competitive proposals and small purchases. The Council’s policy also did not include other required elements such as micro-purchases, piggybacking, requesting proposals for architecture and engineering services, contract cost and price analysis, bonding requirements and more.
Additionally, the Council’s internal controls were ineffective for ensuring it complied with federal procurement requirements for personal services.
The Council paid one contractor $79,519 and designated it as sole source purchase; however, the Council did not retain enough documentation to demonstrate compliance for this procurement exemption. Further, the Council reentered into a contract with an existing contractor for $30,577 without competitively procuring for these services.
Suspension and debarment
Our audit found the Council did not have adequate controls to verify 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 internal controls to be material weaknesses that led to material noncompliance.
Cause of Condition
Procurement
Council staff were unaware of the requirement to update the Council’s procurement policies to conform to federal procurement standards and to retain documentation to show that the procurement exemptions met the procurement policy requirements. Additionally, this was the Council’s first federal audit and staff were not aware of the requirements to reevaluate an existing contract to determine if they needed to reprocure it.
Suspension and debarment
Council staff responsible for these purchases said they were not aware of the federal requirements for suspension and debarment.
Effect of Condition
Procurement
Without updated written procedures, the Council is at greater risk of noncompliance with following the most restrictive procurement methods when procuring contractors it paid all or in part with federal funds. In 2023, the Council awarded two personal services contracts for traffic flow data and traffic modeling assistance services, totaling $110,097, without competitively procuring them. Without effective internal controls, the Council cannot ensure it allowed for full and open competition, received the best price and complied with federal procurement requirements.
Suspension and debarment
The Council did not obtain written certifications from the contractors, insert a clause into the contracts or check for exclusion records at SAM.gov to verify that two contractors it paid $110,096 using federal funds were not suspended or debarred before contracting.
Without adequate internal controls, the Council cannot ensure the contractors it paid with federal funds were eligible to participate in federal programs. Any program funds the Council used to pay 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 Council strengthen internal controls to ensure it:
• Updates its procurement policy to conform to the most restrictive of federal, state or local requirements and follow the most restrictive procurement requirement
• Verifies all 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 before contracting with or purchasing from them
Council’s Response
Yakima Valley Conference of Governments has met with staff regarding procurement standards 2 CFR 200.318-327. We are implementing a purchase request form to be completed by management identifying the purchase requirement(s) to accurately document procurement methods and requirements. The purchase request form will be reviewed and approved by the Executive Director identifying the correct requirement for the purchase based on federal policy.
Yakima Valley Conference of Governments has updated their internal policy for procurement to reflect the federal thresholds for purchases.
Yakima Valley Conference of Governments has met with staff regarding suspension and debarment for purchases with federal funds. We are implementing a purchase request form to be completed by management requiring verification that the vendor is not suspended or debarred to be included in their purchase request. The purchase request form will be reviewed and approved by the Executive Director verifying documentation is included.
Yakima Valley Conference of Governments finance specialist will pull suspension and debarment before the first payment to vendor. The documentation will be attached to the invoice voucher.
Auditor’s Remarks
We thank the Council for its cooperation and assistance during the audit and acknowledge its commitment to improving the conditions described. We will review the status of this issue 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.
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.
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.