The City did not have adequate internal controls and did not comply 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 Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2023-002 Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds program 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. In 2024, the City spent $10,752,667 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 or services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that the contractors have not been suspended, debarred or otherwise excluded from participating in federal programs. The City may verify 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 $25,000 or more using federal funds, our audit found the City did not follow this process and did not verify four out of nine contractors were not suspended or debarred before entering into contracts with them. We consider this deficiency in internal controls to be a material weakness, which led to material noncompliance. Cause of Condition City staff were aware of the federal suspension and debarment verification requirements and normally verify that the requirements are met during the procurement process. However, parks department staff did not follow established procedures to verify contractors were not suspended or debarred. Effect of Condition The City did not obtain a written certification from four contractors, insert a clause into the contracts or check for exclusion records at SAM.gov to verify contractors it paid $163,919 using federal funds were not suspended or debarred before contracting. Without adequate internal controls, the City increases its risk of awarding federal 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 contractors were 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 and maintain documentation demonstrating compliance with this federal requirement. City’s Response The City concurs that maintaining strong internal controls is appropriate and remains dedicated to ensuring Federal funds are spent in compliance with all governing laws and regulations. Management is committed to taking corrective action to ensure compliance with federal requirements and have done so immediately on notice of this instance. Since the enactment of the SLFRF, city staff made significant efforts to keep up with the multiple and evolving guidelines rules and FAQs issued by Treasury, and attended numerous trainings. City staff also enjoys good communication with State Auditors Office staff in order to stay abreast of new guidelines arising from training SAO attends. City staff took steps in prior years to eliminate recipients that cannot 1) register on SAM.gov, 2) contractually attest compliance or 3) provide self-attestation. The City also disseminated communication to staff alerting them to this finding and the need for vigilance and attention to checking Sam.gov for federal suspension and debarment. Communication to citywide purchasing staff has been repeated and reinforced. The City believes that adequate controls and procedures are in place and that internal training and communication are the appropriate corrective steps. Auditor’s Remarks We thank the City for its attention to this matter. We will review the corrective action taken during the City’s next single 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 Par 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.