2022-001 The Council lacked adequate internal controls for ensuring compliance with suspension and debarment requirements. Assistance Listing Number and Title: 20.205 ? Highway Planning and Construction Federal Grantor Name: Federal Highway Administration Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Transportation Pass-through Award/Contract Number: GCB 3508, LA 9578, LA 9693, LA 10127, LA 10130, LA 10063, LA 9801 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Description of Condition In 2022, the Council spent $1,734,428 in federal funds from the Federal Highway Administration through the Highway Planning and Construction Cluster program, which gives funding to help state and local government agencies in the planning and development of an integrated, interconnected transportation system. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding various grant requirements and monitoring the effectiveness of established program controls. Federal requirements prohibit grant 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 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. The Council may accomplish this verification by collecting 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 perform this verification before entering into the contract and it must maintain documentation demonstrating compliance with this federal requirement. Our audit found the Council?s controls were ineffective for ensuring that it verified all parties receiving $25,000 or more in federal funds were not suspended or debarred. During 2022, the Council paid three contractors $25,000 or more in federal funds. The Council did not verify that one contractor, paid a total of $64,181, was not suspended or debarred before entering into the contract. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. The issue was not reported as a finding in the prior audit. Cause of Condition The Council relied on the suspension and debarment certification on the master agreement for state agency contracts. The Council was not aware that they are required to verify the party is not suspended or debarred before purchasing from the contractor. Effect of Condition Without adequate internal controls, the Council cannot ensure contractors paid with federal funds are eligible to participate in federal programs. Any program funds the Council used to pay the contractor that have been suspended or debarred would be unallowable, and the grantor could potentially recover them. After we discovered the issue during the audit, the Council verified that the contractor was not suspended, debarred, or excluded from doing business with the federal government. We are not questioning these costs. Recommendation We recommend the Council strengthen internal controls to ensure that all contractors paid $25,000 or more, all or in part with federal funds, are not suspended or debarred before entering into the contract and it must maintain documentation demonstrating compliance with this federal requirement. Council?s Response The Council appreciates the opportunity to respond to the finding and acknowledges the conclusion of the Washington State Auditor?s Office. The Council?s historical reliance on government alliance master agreements, for suspension and debarment certifications, did not incorporate independent Council verification in its procurement procedures. The Council is committed to the continual improvement of its processes in order to safeguard public funds. As a result of this audit, the Council will be taking immediate corrective action which will address the control deficiencies identified by the Auditor. 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.