2022-001 The County did not have adequate internal controls for ensuring compliance with federal procurement requirements. Assistance Listing Number and Title: 21.027 ? COVID-19 ? Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Commerce Pass-through Award/Contract Number: 21-4619C-113 Known Questioned Cost Amount: $0 Prior Year Audit Finding: No Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds program is to respond to the COVID-19 pandemic?s negative effects on public health and the economy, provide premium pay to essential workers during the pandemic, provide government services to the extent COVID-19 caused a reduction in revenues collected, and make necessary investments in water, sewer, or broadband infrastructure. In 2022, the County spent $3,718,657 in program funds to provide health services and address the negative economic effects caused by the public health emergency. 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 controls. 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 applicable federal requirements, state laws and local policies. When using federal funds to procure goods and services, governments must apply the most restrictive requirements by obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity. In addition, federal regulations allow local governments to award contracts for public works projects through a noncompetitive process for emergency or exigent circumstances. When using such a process, the documented procurement procedures must include the requirements that allow for using this process. Federal regulations require recipients to obtain price or rate quotations for purchased services that have an estimated cost of less than $250,000. County policy is more restrictive than federal regulations, and it requires price or rate quotations for services that have an estimated cost of $25,000 or less. It also requires a competitive process for public works projects more than $25,000. Description of Condition The County?s internal controls were insufficient for ensuring it retained documentation showing it obtained price or rate quotations for security services that it charged to the program. Additionally, in 2020, the County adopted a resolution allowing departments to enter into contracts to combat the COVID-19 emergency without regard for the procurement procedures required in federal law. During the audit period, County employees relied on this resolution and waived competitive procedures for a public works contract paid with federal funds. However, the County?s internal controls were insufficient for ensuring it documented its evaluation and rationale for waiving competitive procedures for each individual procurement action. We consider these deficiencies in internal controls to be a material weakness that led to material noncompliance. Cause of Condition Staff responsible for procuring the security services did not know that price or rate quotations obtained needed to be documented and retained. In addition, County staff did not fully understand emergency procurement requirements. Staff said they did not know they must document a written justification for each emergency procurement action and could not simply rely on the blanket emergency resolution to waive procurement requirements. Effect of Condition While the County paid $271,065 for security services using federal program funds during the audit period, it had originally estimated the cost to be less than $25,000, necessitating only price or rate quotations. The County demonstrated its original estimate was reasonable and the cost increases were outside of its control, but it did not retain written documentation of the price or rate quotations obtained. Therefore, the County cannot demonstrate it received the best price for the services provided. In addition, the County paid $123,956 for a public works project using federal program funds without competitively procuring it or documenting its evaluation and rationale for using a noncompetitive process. Without effective internal controls, the County cannot ensure it allowed for full and open competition, received the best price, and complied with federal procurement requirements. Recommendation We recommend the County strengthen internal controls to ensure it procures goods and services in accordance with federal regulations, state law, and its own procurement policies and procedures. County?s Response We thank the State Auditor?s Office for their comments and recommendations. The director responsible for authorizing purchases for the Emergency Management Department during the review period is no longer with the County. The function of Emergency Management is being restructured to provide for direct County oversight and supervision. Rather than reporting to a board of officials across multiple government agencies, the Department will be solely a County function with services provided to other agencies through interlocal agreements. A new director will be required to follow the forthcoming structure, including compliance and monitoring with County internal controls. The declaration of emergency resolution for Covid response under which the previous director made purchases has been repealed, and any subsequent emergency declarations will be closely managed regarding procurement. Additionally, employee training will be enhanced during emergency responses going forward regarding County purchasing and internal controls. Auditor?s Remarks We thank the County for its cooperation and assistance throughout the audit and appreciate the steps it is taking to resolve this issue. 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 200, Uniform Guidance, section 318 General procurement standards, establishes requirements for documented procurement procedures which reflect applicable state, local and federal laws and regulations. Title 2 CFR 200, Uniform Guidance, section 319, Competition, establishes all procurement transactions are to be conducted in a manner providing full and open competition. Title 2 CFR 200, Uniform Guidance, section 320, Methods of procurement to be followed, describes each allowable procurement method.