Finding Text
The District did not have adequate internal controls in place to ensure compliance with federal procurement requirements. Assistance Listing Number and Title: 21.027 – COVID-19 State and Local Fiscal Recovery Funds Federal Grantor Name: Department of Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: Yakima County Pass-through Award/Contract Number: 075-2024 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) is to respond to the COVID-19 pandemic’s negative effects on public health and the economy, provide government services to the extent COVID-19 caused a reduction in revenues collected, make necessary investments in water, sewer or broadband infrastructure, provide emergency relief from natural disasters or their negative economic impacts, fund projects eligible under certain programs administered by the U.S. Department of Transportation through three pathways and fund projects eligible under the programs established in Title I of the Housing and Community Development Act of 1974. During fiscal year 2024, the District spent $800,000 in program funds for its Collection System Improvement Project – Phase 2 which replaced high-priority aging sewer mains at risk for failure and rerouted sewers away from other vulnerable infrastructure. 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 regulations require recipients to follow their own documented procurement procedures, which must conform to the Uniform Guidance procurement standards found in 2 CFR 200.318-327. The procedures must reflect the most restrictive of federal, state or local procurement thresholds and methods when using federal funds. Description of Condition Our audit found the District did not have adequate internal controls for ensuring compliance with federal procurement requirements. Specifically, the District did not have written procurement procedures to ensure compliance with federal requirements. We consider this deficiency in internal controls to be a significant deficiency. Cause of Condition The District has not received federal funding in prior years, and this is its first single audit. Since the District did not regularly manage federal funds, staff were unaware of the requirement to have written procedures over procurement until it received the federal award in February 2024. The District adopted a written policy in May 2024, after the procurement action in 2023. Effect of Condition Without written policies and procedures, the District is at a higher risk of not complying with the requirement to follow the most restrictive of federal, state or local procurement methods and standards of conduct requirements when using federal funds to procure contractors. Although the District did not have written policies over procurement in place, it expected the project to be partially federally funded; therefore, it hired an engineering firm familiar with federal procurement requirements and properly procured the contractor for the project we reviewed. Recommendation We recommend the District strengthen its internal controls to ensure required policies and procedures are in place when procuring with federal funds, as required by Uniform Guidance. District’s Response This was the Districts first experience with federal funding. We have practiced appropriate internal controls but neglected to have a written formal policy. Upon realizing that we needed a formal written policy we drafted the steps we utilized to procure our contractor and supplies. That draft was then brought through our commissioner’s approval process. It was accepted formally by our Board of Commissioners on May 2024. Auditor’s Remarks We thank the District for its cooperation and assistande during the audit and acknowledge its commitment to improving the condition described. We will review 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 200, Uniform Guidance, section 318, General procurement standards, establishes requirements for written procedures. Title 2 CFR Part 200, Uniform Guidance, section 320, Methods of procurement to be followed, establishes requirements for procuring goods and services, including noncompetitive procurement.