Finding Text
2024-004 The City did not have adequate internal controls and did not comply with federal procurement requirements. 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: Washington Department of Commerce Pass-through Award/Contract Number: 24-4619D105 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program 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 2024, the City spent $735,630 in program funds to contract out the operation of its homeless shelter. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Procurement federal regulations require recipients to follow their own documented procedures, which must conform to the Uniform Guidance procurement standards found in 2 CFR § 200.318-327. When using federal funds to procure goods and services, governments must apply the most restrictive federal requirements, state law or local policies by obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity. Description of Condition Our audit found the City’s internal controls were ineffective for ensuring the City complied with federal program requirements. The City did not follow its policy or federal requirements to obtain bids for the operation of its homeless shelter before entering into a contract. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City staff are aware of federal procurement requirements; however, procurement activity is decentralized and performed at the department level. The City experienced turnover in positions responsible for reviewing contracts and ensuring procurement requirements were met. Effect of Condition The City did not perform a competitive process for selecting a contractor it paid $735,630 with federal funds. Without effective internal controls, the City cannot demonstrate it complied with federal procurement requirements, allowed for full and open competition, and received the best price. Recommendation We recommend the City strengthen internal controls to ensure it complies with applicable procurement requirements for purchased services. City’s Response The City of Longview appreciates the thorough review provided by the State Auditor’s Office and the finding regarding issues noted. We take these matters seriously and recognize the importance of strong internal controls and following procurement policy for demonstrating compliance with federal procurement requirements and ensuring the city receives the best price for purchased services. Auditor’s Remarks We thank the City for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the City’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. 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. 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.