2023-001 The City did not have adequate internal controls for ensuring compliance with federal requirements for suspension and debarment.
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: N/A
Pass-through Award/Contract Number: N/A
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 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. In 2023, the City spent $893,927 in program funds to replace its reduced revenue.
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 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 and services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that the contractors have not been 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 controls in place to verify one contractor it paid more than $25,000 in federal funds 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.
Cause of Condition
The City’s practice is to verify the status of contractors on SAM.gov and print a copy of the verification as evidence. However, the City did not retain this support in its transition from local file storage to SharePoint cloud storage.
Effect of Condition
The City did not obtain written certification from the contractor, insert a clause into the contract or check for exclusion records at SAM.gov to verify one contractor it paid $203,135 using federal funds was not suspended or debarred before contracting. Without adequate internal controls, the City cannot ensure the contractor it paid with federal funds was eligible to participate in federal programs. Any program funds the City used to pay contractors that have been suspended or debarred would be unallowable, and the awarding agency could potentially recover them. Because we subsequently verified the contractor was not suspended or debarred, we are not questioning costs.
Recommendation
We recommend the City strengthen internal controls to 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 and retain evidence to support the verification.
City’s Response
The City of Sumner appreciates the opportunity to respond to the Washington State Auditor’s Office notification of a finding for the period ending December 31, 2023. The City of Sumner holds their responsibility for enabling internal controls to ensure compliance with federal requirements at the highest regard. Management is committed to ensuring the City’s internal controls and procedures ensure compliance with all requirements governing the administration of federal grant programs.
In 2022, the City Council ARPA Committee authorized procurement of two “Portland Loo” fabricated standalone restrooms for City parks, directing staff to proceed with the acquisition. The project acquired tangible goods with no associated installation or construction services; thus the purchase was completed with a purchase order instead of a goods and services contract. Our standard contract includes a clause requiring compliance with federal suspension and debarment requirements; however, our purchase order verbiage did not include compliance requirements in the standard terms and conditions. Although staff routinely reviews SAM.gov for all federally funded activity, a SAM.gov record for this purchase was not able to be located in the project files. When this oversight was discovered, staff immediately performed the suspension/debarment check on SAM.gov, and confirmed the vendor was not suspended or debarred from federal activity.
The lack of verification records of the suspension and debarment status of this vendor was an isolated incident. The vendor fabricates the “Portland Loo” under license from the City of Portland, and is not currently, nor has been, suspended/debarred from federal contracts. Readers of this report should be reassured that the City maintains strong internal controls, and there were no questioned costs in this matter.
The City appreciates the importance the Auditor applies to the need for internal controls and proper federal procurement. The City will immediately add language to our standard purchase order referencing compliance with federal procurement, including suspension and debarment, requirements. In addition, the City will continue to emphasize and encourage training opportunities for all staff involved in projects receiving federal participation.
Auditor’s Remarks
We thank the City for its cooperation and assistance during the audit and acknowledge its commitment to resolve this finding. We will review the condition 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 to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.