Port of Ilwaco January 1, 2025 through December 31, 2025 2025-001 The Port did not have adequate internal controls for ensuring compliance with federal procurement requirements, and did not comply with federal suspension and debarment and wage rate requirements. Assistance Listing Number and Title: 20.823 Port Infrastructure Development Program Federal Grantor Name: Department of Transportation Federal Award/Contract Number: 693JF72245016 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 During fiscal year 2025, the Port spent $2,444,138 in Port Infrastructure Development Program funds. The program’s objective is to assist in funding eligible projects for the purpose of improving the safety, efficiency or reliability of the movement of goods through ports and intermodal connections to ports. The Port used program funding for the Bulkhead Replacement Project. 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. Procurement Federal regulations require recipients to follow their own documented procurement procedures, which must conform to the Uniform Guidance procurement standards found in 2 CFR § 200.318-327. The procedures must reflect the most restrictive of federal, state or local procurement thresholds and methods. Suspension and debarment Federal requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the Port 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 the contractors are not suspended, debarred or otherwise excluded from participating in federal programs. The Port 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 Port must verify this before entering into the contract, and must maintain documentation demonstrating compliance with this federal requirement. Wage rate requirements Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the Port must include a provision that the contractors and subcontractors must comply with those requirements and the Department of Labor’s regulations. This includes a requirement that the contractors and their subcontractors must submit certified payroll reports to the Port weekly, for each week that laborers performed contract work. These reports must include a copy of the payroll and a signed statement of compliance. The Port may use a contracted project manager to collect certified payroll reports from contractors and subcontractors; but ultimately, it is the Port’s responsibility to comply with these requirements and maintain documentation demonstrating compliance. Description of Condition Procurement Our audit found the Port did not have internal controls for ensuring compliance with federal procurement requirements. Specifically, the Port did not have written procurement procedures as federal regulations require. We consider this deficiency in internal controls to be a significant deficiency. Suspension and debarment Although the Port has a process to verify the suspension and debarment status for contractors it pays more than $25,000, our audit found the Port did not follow this process and did not verify one of two contractors we tested were 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. Wage rate requirements During fiscal year 2025, the Port spent $2,421,020 in program funds to pay one contractor to rebuild a decades-old wooden bulkhead to support transportation operations. Our audit found the Port did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the Port did not collect, or ensure the project manager collected, weekly certified payroll reports from all subcontractors to confirm they paid laborers the proper prevailing wages. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition Procurement The Port does not regularly manage federal programs so staff were unaware of federal procurement requirements and did not know they needed written procurement procedures. Suspension and debarment The Port experienced turnover among key staff, and current staff could not locate documentation to demonstrate compliance with federal suspension and debarment requirements. Wage rate requirements Port staff relied on the contracted project manager to collect weekly certified payrolls and did not fully understand the requirements for monitoring the contracted project manager and collecting the documentation. Effect of Condition Procurement Without written policies and procedures that conform to federal procurement standards, the Port is at an increased risk of not complying with the most restrictive of federal, state or local procurement methods when using federal funds. Although the Port did not have written policies or procedures for procurement in place, it received guidance from the federal grantor and complied with procurement requirements for the competitive solicitation and selection of the public works contract we tested. Suspension and debarment The Port 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 a contractor it paid $33,026 was not suspended or debarred before contracting. Without adequate internal controls, the Port increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the Port made to an ineligible party would be unallowable, and the awarding agency could potentially recover them. The Port subsequently verified the contractor was not suspended or debarred. Therefore, we are not questioning costs. Wage rate requirements Without adequate internal controls to ensure it collects all weekly certified payroll reports, the Port cannot demonstrate it complied with federal wage rate requirements. The Port could also be liable for paying any additional wages if the subcontractor did not pay prevailing wage rates to laborers working on the contract. The Port did not collect 130 out of 168 weekly certified payroll reports we tested. Recommendation Procurement We recommend the Port establish internal controls to comply with federal procurement requirements, including establishing written procurement procedures that conform to federal procurement standards in Uniform Guidance (2 CFR § 200.318-327). Suspension and debarment We recommend the Port 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. Wage rate requirements We recommend the Port strengthen internal controls to ensure compliance with federal wage rate requirements. This should include implementing effective monitoring processes to collect and review all weekly certified payroll reports from subcontractors. Additionally, we recommend the Port provide training to ensure staff overseeing compliance with federal program s are aware of all applicable requirements. Port’s Response The Port will establish internal controls to comply with federal procurement requirements, including establishing written procurement procedures that conform to federal procurement standards in Uniform Guidance (2 CFR § 200.318-327). The Port will 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. The Port will strengthen internal controls to ensure compliance with federal wage rate requirements. This should include implementing effective monitoring processes to collect and review all weekly certified payroll reports from subcontractors. The Port will provide training to ensure staff overseeing compliance with federal program s are aware of all applicable requirements. Auditor’s Remarks We appreciate the Port’s commitment to resolve this finding and thank the Port for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular 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 200, Uniform Guidance, section 318, General procurement standards, establishes requirements for written procedures. 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. Title 29 CFR, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports.