Finding 1106518 (2024-001)

Chelan-Douglas Transportation Council July 1, 2023 through June 30, 2024 2024-001 The Council did not have adequate internal controls and did not comply with federal suspension and debarment requirements. Assistance Listing Number and Title: 20.205 – Highway Planning and Construction Federal Grantor Name: U.S. 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: PTD0391, GCB 3856, GCB 3950, GCB1135 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Description of Condition In 2024, the Council spent $811,196 in federal funds from the Federal Highway Administration through the Highway Planning and Construction program, which gives funding to help state and local government agencies in the planning and development of an integrated, interconnected transportation system. Federal regulations require recipients to establish, document and maintain effective internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. 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 that the contractors have not been suspended, debarred or Office of the Washington State Auditor sao.wa.gov otherwise excluded from participating in federal programs. The Council 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 Council must verify this before entering into the contract and must maintain documentation demonstrating compliance with this federal requirement. Our audit found the Council’s internal controls were ineffective and it did not verify the suspension and debarment status of the one contractor it paid more than $25,000 in federal funds. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition The Council used a master contract agreement template from the Washington State Department of Transportation but accidently removed the suspension and debarment clause. Further, the Council was unaware of all the methods to verify the contractor is not suspended or debarred before entering into a contract with them. Effect of Condition The Council did not obtain a written certification from the contractor, insert a clause into the contract or check for exclusion records at SAM.gov to verify the contractor was not suspended or debarred before contracting. Without adequate internal controls, the Council cannot ensure the contractor it paid with federal funds was eligible to participate in federal programs. Any payments the Council made to an ineligible contractor 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 Council strengthen internal controls to verify 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 and maintain documentation demonstrating compliance with this federal requirement. Office of the Washington State Auditor sao.wa.gov Council’s Response The Council appreciates the opportunity to respond to the finding and acknowledges the conclusion of the Washington State Auditor’s Office. When the Council developed its Professional Services Agreement form, as a modified version of the Washington State Department of Transportation’s Standard Consultant Agreement for Local Agencies, it mistakenly omitted the certification exhibit on suspension and debarment. The Council is committed to continual improvement of its processes in order to safeguard public funds. As a result of this audit, the Council shall take immediate corrective action to remedy the deficiency identified by the State Auditor’s Office. Auditor’s Remarks We thank the Council for its cooperation and assistance during the audit and acknowledge its commitment to safeguarding public funds. 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 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.