Finding Text
The District lacked adequate internal controls for ensuring compliance with suspension and debarment requirements. Assistance Listing Number and Title: 10.760 ? Water and Waste Disposal Systems for Rural Communities Federal Grantor Name: U.S. Department of Agriculture Federal Award/Contract Number: USDA RD BAN Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Description of Condition As of the end of 2022, the District had spent $6,090,099 in loan funds through the Water and Waste Disposal Systems for Rural Communities program. This program is designed to assist rural communities in obtaining safe drinking water and adequate waste facilities, which are prerequisites for economic growth. The District used this funding to build a wastewater treatment plant. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established program controls. Federal requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the District 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 contractors have not been suspended, debarred or otherwise excluded from participating in federal programs. The District may accomplish this verification 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 District must perform this verification before entering into the contract, and it must maintain documentation demonstrating compliance with this federal requirement. Our audit found the District?s controls were ineffective for ensuring that it verified all parties receiving $25,000 or more in federal funds were not suspended or debarred. The District did not maintain documentation demonstrating that it verified that one contractor, paid a total of $132,060 in 2022, 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. Cause of Condition District staff said they checked the contractor?s suspension and debarment status and printed out the information from SAM.gov before purchasing the equipment; however, they did not know that they needed to document the date to demonstrate when they performed this verification. Effect of Condition Without adequate internal controls, the District cannot demonstrate it complied with suspension and debarment requirements. Additionally, it cannot ensure contractors paid with federal funds are eligible to participate in federal programs. Any program funds the District used to pay a contractor that has been suspended or debarred would be unallowable, and the grantor could potentially recover them. We verified the contractor was not suspended, debarred, or excluded from doing business with the federal government. Therefore, we are not questioning these costs. Recommendation We recommend the District 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 maintain documentation demonstrating compliance with this federal requirement. District?s Response The District is now aware that the District is required to run a debarment check on a vendor and cannot rely on the fact that a vendor being listed on the WA DES is eligible to receive federal dollars. Auditor?s Remarks We thank the District for its cooperation and assistance during the audit, and acknowledge its commitment to improve the condition described. We will review the status of this issue 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.