SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Cowlitz-Wahkiakum Council of Governments January 1, 2024 through December 31, 2024 2024-002 The Council did not have adequate internal controls and did not comply with federal suspension and debarment requirements. Assistance Listing Number and Title: 20.205, Highway Planning and Construction Federal Grantor Name: U.S. Department of Transportation, Federal Highway Administration Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Transportation Pass-through Award/Contract Number: GCB 3867, GCB 3715, PO-73000- 00020255, PO-73000- 00034563 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Description of Condition During fiscal year 2024, the Council spent $410,954 in Highway Planning and Construction program funds. The program’s objective is to provide funds for the planning, design, construction, and rehabilitation of highways and bridge transportation systems. 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 Council 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 Council 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 Council must verify this before entering into the contract, and must maintain documentation demonstrating compliance with this federal requirement. Although the Council has a process to verify the suspension and debarment status for contractors it pays more than $25,000, our audit found the Council’s process was not sufficiently performed to verify a contractor was not suspended or debarred before purchasing from them. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition Staff were aware of the federal suspension and debarment verification requirements and normally verify this during the procurement process. However, the Council did not have a review process to ensure the verification was performed accurately. Effect of Condition The Council did not obtain a written certification from the contractor, insert a clause into the contract or check for exclusion records at SAM.gov to verify the contractor it paid $221,320 using federal funds was not suspended or debarred before contracting. Without adequate internal controls, the Council increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the Council made to an ineligible party would be unallowable, and the awarding agency could potentially recover them. Recommendation We recommend the Council 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. Council’s Response The Council of Governments has a process to verify the suspension and debarment status of contractors paid above $25,000. The Council followed this process as usual, which includes not only checking with SAM.gov but also with state listings as well, and felt at that time that it had properly documented and ensured that the contractor hired was not debarred or suspended before commencing with a contractual agreement. These documents were provided to the auditing team upon request. During the audit process, however, the reviewing auditor discovered that though the permissible SAM.gov documentation included both the name and UBI number, the combination of a typo in the contractor’s business name and the choice of searching for “all” words (system default) versus changing to “any” words returned a false narrative. Thus, the determination that the Council did not properly verify the contractor’s status within the acceptable forms of documents. To ensure that the Council no longer relies on just one level of verification and shores up effective controls, the Council will immediately implement two (2) additional processes into its contractor procurement policy. Not only will staff continue to verify contractors’ status through SAM.gov and state listings, but the Council will 1) require all contractors to submit a written certification prior to contractual negotiations and 2) request the agency’s attorney to draft a debarment and suspension clause that will be added to all contract templates and future agreements. Auditor’s Remarks We thank the Council for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the Council’s corrective action 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.