Finding 1160363 (2024-001)

Material Weakness Repeat Finding
Requirement
I
Questioned Costs
-
Year
2024
Accepted
2025-10-13
Audit: 370746
Organization: City of Seatac (WA)

AI Summary

  • Core Issue: The City of SeaTac lacked adequate internal controls and did not comply with federal suspension and debarment requirements for contractors paid with federal funds.
  • Impacted Requirements: Federal regulations mandate verification of contractor eligibility for any contracts exceeding $25,000 funded by federal money, including checks against suspension or debarment lists.
  • Recommended Follow-Up: The City should enhance internal controls to ensure all contractors over the $25,000 threshold are verified for eligibility and maintain proper documentation to demonstrate compliance.

Finding Text

City of SeaTac January 1, 2024 through December 31, 2024 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: 21.027 – 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: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A 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 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 $2,228,050 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 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 it 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 one of the five contractors we tested were not suspended or debarred before entering into a contract with them. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City staff did not have a clear understanding of the suspension and debarment requirements and were not aware it applied to all contractors the City paid $25,000 or more, all or in part using federal funds. In addition, the City did not originally anticipate the contract exceeding the $25,000 threshold. Effect of Condition The City did not obtain a written certification from one of the contractors, insert a clause into the contract or check for exclusion records at SAM.gov to verify contractor it paid $100,989 using federal funds was 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 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, paid 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 looks forward to the annual audit and appreciates the relationship with the local audit team and the Washington State Auditor’s Office (SAO). We also appreciate the opportunity to respond to the observations drawn by the staff of the Washington State Auditor’s Office. The City understands the importance of having internal controls in place for verifying contractors are not suspended or debarred from participating in federal programs. As is stated in the Cause of Condition, the City did not anticipate the payments to the vendor would exceed $25,000 and did not check if the vendor was suspended or debarred once it was determined the contract would exceed the threshold amount. The City will take this issue into consideration when receiving and appropriating federal grant funding in the future. As difficult as it is to receive an audit finding, the City values the auditor’s comments and recommendations and appreciates the knowledge and professionalism of their staff. Auditor’s Remarks We appreciate the steps the City is taking to resolve this issue. We will review the condition 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.

Corrective Action Plan

To address the deficiency and prevent recurrence, the City will implement the following corrective actions: • Policy and Procedure Update: The City will update its written grant management policies to explicitly require verification of suspension and debarment status for all contractors and subrecipients expected to receive $25,000 or more in federal funds, regardless of the initial contract amount or funding estimates. And update the grant procedures to explain how to complete this process. • Grant Administrator Review: The City will require the Grant Administrator (or designated grants compliance staff) to review all contracts or agreements involving federal funds prior to execution to ensure: o The SAM.gov exclusion check has been completed and documented o The required suspension and debarment language or contractor certification is included in the agreement or o All applicable federal compliance requirements are met and properly documented. • Documentation Requirements: SAM.gov verification results will be printed or saved as a PDF and maintained in the contract file. The Grant Administrator will verify this documentation during the review process and before federal funds are disbursed. • Use of Contract Routing Process: The City will incorporate federal grant compliance with the contract routing slip, to be reviewed by the Grant Administrator. This routing slip is required for all contracts. • Staff Training: The City will conduct training for all staff involved in procurement, grant administration, and contract management. This training will cover: o Suspension and debarment requirements, o Proper use of SAM.gov for eligibility verification, o Required contract language and documentation standards, o Roles and responsibilities of the Grant Administrator in ensuring compliance. Anticipated date to complete the corrective action: 12/31/2026

Categories

Procurement, Suspension & Debarment Subrecipient Monitoring

Programs in Audit

ALN Program Name Expenditures
20.205 Highway Planning and Construction $286,448
14.218 Community Development Block Grants/entitlement Grants $99,055
97.042 Emergency Management Performance Grants $17,304
16.738 Edward Byrne Memorial Justice Assistance Grant Program $11,646
20.616 National Priority Safety Programs $3,712
21.027 Coronavirus State and Local Fiscal Recovery Funds $656