Finding 370699 (2022-001)

The City did not have adequate controls for ensuring compliance with federal procurement requirements. Assistance Listing Number and Title: 20.205 Highway Planning and Construction Federal Grantor Name: Federal Highway Administration, U.S. Department of Transportation Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Transportation Pass-through Award/Contract Number: STPUS-5924(005) / SRTS 5906(001) / SRTS 9909(004) / NHPP-5908(010) / NHPP- 5908(011) / NHFP-5908(013) Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2021-001 Description of Condition During fiscal year 2022, the City spent $1,601,328 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 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 also require recipients to establish and 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 applicable federal, state or local procurement thresholds and methods when using federal funds to procure goods and services. Governments must apply the more restrictive requirements by obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity. Our audit found the City’s internal controls were ineffective for ensuring compliance with federal procurement requirements. Specifically, the City did not establish its own written procurement procedures, as federal regulations require. We consider this deficiency in internal controls to be a significant deficiency. This issue was reported as a finding in the prior audit. Cause of Condition During the 2021 audit, management and staff said they did not know the City was required to have and use its own written procurement procedures. Our prior year audit report was released on December 22, 2022, so the City was unable to implement changes before or during the current audit period. Effect of Condition Although the City did not establish its own written policy before procuring with program funds, it did comply with federal requirements for soliciting and awarding public works contracts. However, without written policies and procedures, the City is at greater risk of noncompliance with the most restrictive of federal, state, or local procurement methods and requirements when using federal funds to procure contractors. Recommendation We recommend the City establish written procurement procedures that conform to federal procurement requirements. City’s Response This is a repeat finding from our 2021 federal audit that was completed in December 2022. The City adopted a robust procurement policy in early 2023 as quickly as we possibly could after receiving the 2021 audit finding. It was impossible for the City to establish the procurement policy in 2022 as the audit finished so late in the year. While the City did not have an internal policy, the City strictly follows the procurement policies outlined by the federal and/or state funding agencies partnered on our projects. Outside of the specific funding agency guidelines, the City follows the Washington State Department of Transportation Local Agency Guidelines. The City is not recognized in WSDOTs Certification Acceptance program, meaning all FHWA funded project development and construction administration activities must have WSDOT Local Program oversight. This stewardship ensures all money spent follows FHWA standards. Auditor’s Remarks We appreciate the City’s commitment to resolving this issue. We will review the condition 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 200, Section 318, General procurement standards, establishes requirements for written procedures.