The Transit did not have adequate internal controls and did not comply with federal suspension and debarment requirements.
Assistance Listing Number and Title:
20.513 Enhanced Mobility of Seniors and Individuals with Disabilities
Federal Grantor Name:
Federal Transit Administration
Federal Award/Contract Number:
N/A
Pass-through Entity Name:
WA Department of Transportation
Pass-through Award/Contract Number:
PTD0335, PTD0336
Known Questioned Cost Amount:
$0
Prior Year Audit Finding:
N/A
Background
During fiscal year 2024, the Transit spent $2,917,117 in federal funding from the Enhanced Mobility of Seniors and Individuals with Disabilities program. The objective of this program is to enhance mobility for seniors and people with disabilities by providing funds for programs that serve the special needs of transit dependent populations beyond traditional public transportation services and Americans with Disabilities Act complementary paratransit services.
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 Transit 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 the contractors are not suspended, debarred or otherwise excluded from participating in federal programs. The Transit 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 Transit must verify this before entering into the contract, and must maintain documentation demonstrating compliance with this federal requirement.
Description of Condition
Our audit found the Transit did not have internal controls to verify the contractors it paid more than $25,000 in federal funds were not suspended or debarred from participating in federal programs. Although the Transit verified the status of contractors it paid exclusively with federal funds, it did not have controls to verify the status of contractors it paid with both operating and federal funds.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
When submitting reimbursement, the Transit allocated $140,971 of its $15,357,881 in operating accounts payable expenses to the federal program. Transit staff did not realize that allocating operating expenses to the program makes them federal expenses and therefore subject to suspension and debarment requirements.
Effect of Condition
Using a nonstatistical sample, we found that for three of seven contractors we tested, the Transit did not obtain a written certification from the contractors, insert a clause into the contracts, or check for exclusion records at SAM.gov to verify contractors it paid $2,603 using federal funds were not suspended or debarred before contracting. Without adequate internal controls, the Transit increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the Transit made to an ineligible party would be unallowable, and the awarding agency could potentially recover them.
The Transit subsequently verified the contractors were not suspended or debarred. Therefore, we are not questioning costs.
Recommendation
We recommend the Transit strengthen its 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 and maintain documentation demonstrating compliance with this requirement.
Transit’s Response
Intercity Transit deeply appreciates the important work of the Washington State Auditor’s Office and values our partnership with the local audit team. Their professionalism and thoroughness play a vital role in helping our agency uphold transparency, accountability, and compliance with regulatory requirements. We are grateful for their commitment to protecting public resources and for bringing forward findings that help agencies like ours improve.
While Intercity Transit has a longstanding and commendable record of clean audits—a reflection of our staff’s diligence and commitment to responsible financial stewardship—this particular case presented an unexpected challenge. The unique structure of this federal operational grant, specifically the way costs were allocated, resulted in a broader requirement for all expenditures to comply with federal suspension and debarment provisions. Unfortunately, this nuance was not clearly identified by our agency, leading to a misunderstanding of the grant’s regulatory scope.
Looking ahead, Intercity Transit is fully committed to strengthening internal controls and implementing updated procedures to ensure compliance with all applicable regulations governing federal grant administration. Specifically, the following steps will be taken:
• Strengthen procurement procedures to align with all local, state, and federal requirements related to the use of federal funds;
• Update documentation standards to verify contractors and consultants working on federally funded projects are not suspended or debarred, using one or more of the following: staff search results, stand-alone certifications, and/or certification clauses in contracts;
• Enhance staff training by attending federal grant workshops to gain deeper knowledge of uniform guidance, levels of federal procurement, and associated documentation requirements.
We look forward to continued collaboration with the State Auditor’s Office as we work to strengthen our practices and remain responsible stewards of public funds.
Auditor’s Remarks
We thank the Transit for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the Transit’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 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.