Finding Text
The Town did not have adequate internal controls for ensuring compliance with federal procurement requirements. Assistance Listing Number and Title: 10.760 – Waste and water Disposal Systems for Rural Communities Federal Grantor Name: U.S. Department of Agriculture 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: No Description of Condition In fiscal year 2023, the Town spent $2,584,843 in loan and grant funds from the Water and Waste Disposal Systems for Rural Communities program. This program is intended to assist rural communities obtain safe drinking water and adequate waste disposal facilities. The Town used these funds primarily for a water line project. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Federal regulations for procurements standards in 2 CFR § 200.318 require award recipients to have written standards of conduct that cover conflicts of interest and expectations for their employees who are involved in selecting, awarding and administrating contracts and purchases. Our audit found the Town’s internal controls were ineffective for ensuring compliance with federal procurement requirements. Specifically, the Town did not establish written standards of conduct covering these required elements: • Officers, employees and agents may not participate in selecting, awarding or administrating a contract supported by a federal award if they have a real or apparent conflict of interest. • Officers, employees and agents may neither solicit nor accept gratuities, favors or anything of monetary value from contractors or parties to subcontracts. • Disciplinary actions for violating these standards We consider this deficiency in internal controls to be a significant deficiency. Cause of Condition The Town became aware of the requirement to have written standards of conduct covering selection and administration of contracts involving federal funds during the audits of fiscal years 2020 and 2021 which we conducted during calendar year 2023. Therefore, the Town was unable to adopt such policies to be compliant in year 2023. Effect of Condition Without written standards of conduct, the Town is at a greater risk of noncompliance with these requirements when using federal funds to procure contractors. Although the Town did not have policies in place, we verified that no one involved with selecting and administrating the contract had a real or apparent conflict of interest with the contract. Recommendation We recommend the Town develop written standards of conduct policies that conform to Uniform Guidance. Town’s Response Town of Twisp has since been working to draft updated federal award/purchasing/reporting policy, not only to address processes for procurement, but to establish federal purchasing policy in compliance with the recommendation of the recent audit findings including discipline for non-adherence to the policy. This Policy was adopted in October of 2024 and will alleviate any further issues with Federal procurement requirements. Auditor’s Remarks We appreciate the Town’s commitment to resolving the issues noted and we will follow up during the 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.