2024-001 The City did not have adequate internal controls and did not comply with federal suspension and debarment requirements. Assistance Listing Number and Title: 21.017 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: Yakima County Pass-through Award/Contract Number: ARPA-38188 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. In 2024, the City spent $444,962 in program funds for City wide water meter replacement project passed through Yakima County and $75,600 for the Splash Park project from its direct award. 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 parties suspended or debarred from doing business with the federal government. Whenever the City enters into contracts 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 Our audit found the City did not have internal controls to verify two out of two contractors it paid more than $25,000 in federal funds were not suspended or debarred from participating in federal programs before purchasing from them. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition Although City staff said they were aware of the requirements, the City experienced turnover in the public works department and current staff could not locate documentation to show that they verified contractors’ suspension and debarment status. Effect of Condition The City did not obtain a written certification from the contractors, insert a clause into the contracts or check for exclusion records at SAM.gov to verify contractors it paid $513,387 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. We 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 requirement. City’s Response The City of Zillah acknowledges this finding. The City has established Purchasing and Contracting Policies and Procedures (Policy 2021-05, approved November 15, 2021) that incorporates federal and state procurement requirements. However, during the audit period, turnover and lapses in documentation resulted in The City will take the following corrective actions: 1. Enforce Policy 2021-05 – Staff will be required to follow existing procurement policy provisions for federally funded contracts. 2. Verification Procedures – For all federally funded contracts of $25,000 or more, the City will verify and document contractor status through: • Written contractor certifications, and/or • Inclusion of suspension/debarment clauses in contracts, and/or • Review of contractor status in SAM.gov before award. 3. Recordkeeping – The Clerk/Treasurer’s office will maintain centralized records of all verification documentation. 4. Staff Training – Finance and Public Works staff will receive refresher training on Policy 2021- 05 and federal procurement requirements. 5. Oversight – The City Administrator will conduct quarterly reviews of procurement files to confirm compliance. Auditor’s Remarks We thank the City for its cooperation and assistance during the audit and acknowledge its commitment to resolve this finding. We will review the corrective action taken 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.