Pacific Transit System January 1, 2024 through December 31, 2024 2024-001 The Transit did not have adequate internal controls and did not comply with federal suspension and debarment requirements. Assistance Listing Number and Title: 20.509 – COVID-19 Formula Grants for Rural Areas and Tribal Transit program Federal Grantor Name: U.S. Department of Transportation Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Transportation Pass-through Award/Contract Number: PTD0236, PTD0542, PTD0700, PTD0701 Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2023-001 Background The Formula Grants for Rural Areas provides financial assistance to rural communities for initiating, improving or continuing public transportation services. Rural communities can use funding for operating, planning and administrative expenses, or for acquiring, constructing, and improving facilities and equipment. The Transit spent $1,466,140 in program funds during fiscal year 2024. 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 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 in place to verify three contractors it paid more than $25,000 in federal funds were 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 Although Transit staff were aware of the requirements, they could not locate documentation to show that they verified the contractors suspension and debarment status. Effect of Condition The Transit did not obtain a written certification from the contractor, insert a clause into the contract, or check for exclusion records at SAM.gov to verity three contractors it paid $38,948, $28,936 and $27,621, respectively, 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. We 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 Pacific Transit will confirm all vendors selected for purchases of $25,000 or more are registered with SAM.gov and are not suspended or debarred from doing business with the federal government. 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.