SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS City of Spokane January 1, 2024 through December 31, 2024 2024-002 The City did not have adequate internal controls for ensuring compliance with federal suspension and debarment 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: SLT-0533 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, 2023-001 Background 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 2024, the City spent about $23.3 million in program funds for these activities. 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 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 the contractors are not 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. Description of Condition Although the City has a process to verify the suspension and debarment status for contractors it pays more than $25,000, our audit found the City did not follow this process and did not verify one of 13 contractors we tested was not suspended or debarred before purchasing from them. We consider this deficiency in internal controls to be a significant deficiency. Cause of Condition The City purchased a vehicle from one contractor using another government’s contract, in a process commonly referred to as “piggybacking.” City staff responsible for the purchase relied on the awarding agency’s suspension and debarment verification to ensure compliance with this requirement. By relying on the awarding agency, staff did not follow the City’s standard procedure of obtaining a written certification from the contractor. Effect of Condition The City did not obtain a written certification, insert a clause into the contract or check for exclusion records at SAM.gov to verify the contractor it paid $49,546 with federal funds was not suspended or debarred before contracting. Without adequate internal controls, the City increases its risk of awarding funds to contractors that are excluded from participating in federal programs. Any payments the City made to an ineligible party would be unallowable, and the awarding agency could potentially recover them. The City subsequently verified the contractor was not suspended or debarred. Therefore, we are not questioning costs. Recommendation We recommend the City 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. City’s Response The City understands the importance of verifying it is not contracting with, making purchases with, or making subawards to parties debarred or suspended from doing business with the federal government. The City did not contract with any parties who were debarred or suspended from doing business with the federal government during the audited period. The City currently has a contracting process to verify and document its contractors, consultants and vendors are neither debarred nor suspended. This process adds required certification language to all City agreements to document compliance. While this purchase was reviewed and the compliant status of the providers were verified through the existing cooperative agreement, the City’s process did not capture the needed requirement to verify at the lower tier. This was identified in the prior audit, and due to the timing of this issue and the prior audit finding, the corrections put in place to catch these kinds of purchases going forward had not been put in place yet, and the debarment search on this purchase occurred after the purchase had been made. The City has put into place a requirement that all subawards, purchase agreements and contracts involving federal funds over $25,000 include the required certification even if the contract is derived from “piggy backing” and includes debarment language. Every Contract that receives grant funding goes through the Grants office during the contracting approval process, and this debarment upload is something Grants office is now looking for before approving a contract to move further along the approval process. The City extends our appreciation to the State Auditor’s Office for assisting in identifying deficiencies in our procedures. We are dedicated to executing contracts and purchase agreements that are compliant with federal requirements and are confident that the additional implemented process will ensure compliance with suspension and debarment certification requirements. Auditor’s Remarks We appreciate the City’s commitment to resolve this finding and thank the City for its cooperation and assistance during the audit. We will review corrective action taken during the 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.