Finding 480727 (2022-001)

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Stevens County January 1, 2022 through December 31, 2022 2022-001 The County’s internal controls were inadequate for ensuring compliance with federal procurement, suspension and debarment requirements. Assistance Listing Number and Title: 20.205 – Highway Planning and Construction; 21.027 – COVID-19 – Coronavirus State and Local Fiscal Recovery Funds Federal Grantor Name: U.S. Department of Transportation, Federal Highway Administration; U.S. Department of the Treasury Federal Award/Contract Number: BRS-F334 (002), STRP-E331 (005), BHS-Z933 (003), BHOS-10BA (001), HSIP-000S (577), STRP-G333 (004), STRP-C331 (002), BROS-33GC (001), BROS-2033 (027), HSIP0000S (646) Pass-through Entity Name: Washington State Department of Transportation (WSDOT) Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2021-001 Background Highway Planning and Construction Cluster The objectives of the Highway Planning and Construction Cluster are to: (1) assist states in the planning and development of an integrated, interconnected transportation system important to interstate commerce and travel by constructing and rehabilitating the National Highway System, including interstate highways and most other public roads; (2) provide aid for the repair of federal-aid highways following disasters; (3) foster safe highway design and replace or rehabilitate structurally deficient or functionally obsolete bridges; and (4) to provide for other special purposes. In 2022, the County spent $879,956 in federal funding for road improvement projects. Coronavirus State and Local Fiscal Recovery Funds (SLFRF) 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 the COVID-19 pandemic caused a reduction in revenues collected, and make necessary investments in water, sewer or broadband infrastructure. In 2022, the County spent $2,458,654 in program funds. 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. 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. These procedures must reflect the most restrictive of applicable federal, state or local laws. When using federal funds to procure goods and services, governments must apply the more restrictive requirements of federal, state or local laws by either obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity. Competitive bidding may be waived in certain circumstances, including via a “sole source exemption” when purchasing used vehicles. Governments must document the process and ensure they comply with applicable laws for waiving competitive bidding. Suspension and Debarment Federal requirements prohibit grant recipients from contracting with or purchasing from contractors who are suspended or debarred from doing business with the federal government. Whenever the County 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 County 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 County must perform this verification before entering into the contract, and it must maintain documentation demonstrating compliance with this federal requirement. Description of Condition Procurement Although the County had a written procurement policy at the time of procurement for both federal programs, the policy did not conform to the most restrictive methods and thresholds for procuring public works projects, competitive proposals and small purchases. Additionally, the County’s policy did not include procedures for procuring transactions, such as micro-purchases, piggybacking, requesting proposals for architecture and engineering services, contract cost and price analysis, bonding requirements and more. Additionally, our audit of the SLFRF program found the County did not have effective internal controls for ensuring it complied with federal and state procurement requirements for sole source exemptions and small purchase procedures. The County did not properly declare a used ambulance purchase as a sole source exemption, but instead used a blanket emergency declaration for COVID-19, which was approved over two years prior to the procurement taking place. Also, the County does not have documentation that they declared this specific purchase as part of the COVID-19 emergency. The County also could not provide documentation demonstrating it obtained and retained more than one quote for an equipment purchase subject to small purchase procedures. Suspension and Debarment Our audit of the SLFRF program found the County’s controls were ineffective for ensuring it verified all contractors receiving $25,000 or more in federal funds were not suspended or debarred. Specifically, the County did not obtain a written certification, include a clause in the contract or search for exclusion records on sam.gov to verify that two contractors subject to this requirement were not suspended or debarred before entering into the contract with or purchasing from them. The County paid these contractors $269,160 in fiscal year 2022. We consider the deficiencies in internal controls for procurement for the Highway Planning and Construction Cluster to be a significant deficiency. We consider the deficiencies in internal controls for procurement and suspension and debarment for the SLFRF program to be material weaknesses that led to material noncompliance. Cause of Condition Procurement County employees and officials misunderstood the federal procurement standards. They thought that the County’s current procurement policy met the standards required under Uniform Guidance, as the policy states that “all employees shall follow the most restrictive, local, state or federal procurement policy when using Federal Grant Funds to be in compliance with the Code of Federal Requirements (2 CFR part 200).” For the Highway Planning and Construction Cluster program, County employees thought that following the Washington State Department of Transportation’s Local Agency Guidelines Manual and guidance from the Municipal Research and Services Center were sufficient for complying with federal procurement standards. Additionally, County staff responsible for procurement procedures for the SLFRF program misunderstood exemption requirements and did not specifically declare the ambulance purchase as either sole source or an emergency purchase. Additionally, staff were unaware that they should obtain and retain more than one quote to comply with small purchase procedures. Suspension and Debarment County staff responsible for reviewing purchases under SLFRF were aware of suspension and debarment verification requirements. However, they did not recognize the need to document and retain evidence of the sam.gov checks before the purchases. Effect of Condition Procurement Although the County’s policy did not conform to Uniform Guidance, our testing of the Highway Planning and Construction program found the County complied with federal requirements for competitive solicitation of public works contractors and purchases of goods and services. However, without updated written procurement procedures, the County is at greater risk of noncompliance with the most restrictive procedures when using federal funds to procure contractors and goods and services. Additionally, our audit of the SLFRF program found the County did not have documentation to support compliance with exemption requirements for a used ambulance purchase of $241,820 and small purchase requirements for an equipment purchase of $27,340. 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. Suspension and Debarment Our audit of the SLFRF program found the County paid two contractors more than $25,000 and did not verify their suspension and debarment statuses using one of the three allowable methods. Without this verification, the County increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments made to an ineligible party would be unallowable and the granting federal agency could potentially recover them. We subsequently verified the contractors were not suspended or debarred, so we are not questioning costs. Recommendation We recommend the County: • Review and update its written procurement policy to conform to Uniform Guidance requirements (2 CFR § 200.318-327) for all procurement activities • Strengthen internal controls to ensure it procures goods and services in accordance with federal regulations, state law and the County’s own procurement policies and procedures • Establish internal controls to verify all contractors it expects to pay $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs and retain documentation demonstrating this compliance County’s Response The County will respond to each Audit Recommendation separately. SAO Recommendations: 1) Review and update its written procurement policy to conform to Uniform Guidance requirements (2 CFR 200.318-327) for all procurement activities. 2) Strengthen internal controls to ensure it procures goods and services in accordance with federal regulations, state law and the County's own procurement policies and procedures. 3) Establish internal controls to verify all contractors it expects to pay $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs and retain documentation demonstrating this compliance. Response to 1) - On April 22, 2019, the County adopted Resolution #39-2019 to include language requiring that all of 2 CFR 200 be followed when using federal funds for procurement in response to the State Auditor's recommendations. The County has a single source audit every year and no further recommendations from the State Auditor were given and the corrective action was noted. The Audits for 2019 and 2020 found no further action on this subject. The 2021 federal audit was performed, and the exit interview resulted in a finding the same as in number 1 above. The exit interview was given on September 23, 2022. This is the start of budget season and a high and busy time of activity. The County lacks the resources to have dedicated staff to draft specific policies and relies of current staffing levels to address these issues. In drafting this policy, considerable research was conducted, a draft for review by all affected staff was circulated for comment, legal review was conducted and a new policy emphasizing subparts 318-327 was adopted on July 17, 2023. Further, an update of the County's Capital Asset and Inventory Policy adopted November 21, 2022, to include federal procurement rules was adopted as policy 2-2023 on July 25, 2023. Therefore, the County has taken corrective action to address this issue but lacked the resources to do so between the end of September and the end of the calendar year to cover 2022. Response to 2) - The State Auditor states the County did not follow the most restrictive applicable federal, state, or local laws and the federal procurement standards found in 2 CFR 200.318-327. The State Auditor further states that "the County did not properly declare a used ambulance purchase as a sole source exemption, but instead used an emergency declaration for COVID-19." While it is true that the County did rely on the emergency declaration and not note in the purchase authorization that the ambulance purchase was a sole source purchase, the County maintains this is supported by all applicable laws. The COVID-19 emergency was still in effect and the purchase was made solely to respond to a communicable disease that was thought to further spread. Ambulances that lacked proper equipment for transporting communicable disease patients put healthcare workers and first responders at high risk of human health issues. Resolution 30 2020 Declaring an emergency and Governor Proclamation 20-05 declaring a COVID-19 emergency was still in effect, as was a Presidential emergency declaration at the time of the purchase. RCW 38.52.070(2) specifically allows waiving oftime consuming procedures for purchases directly related to the emergency. Also, federal procurement standards as quoted below 2 CFR 320(c)(3) allow for noncompetitive procurement. People were dying and time was of the essence in obtaining proper transport equipment. We will also note that all Coronavirus State and Local Fiscal Recovery Fund purchases were reviewed and approved by County legal counsel. The County notes that more than one standard was met in 2 CFR 200.320(c) as this purchase meets both subparts 2 and 3 below, the County feels that this purchase did not require more internal controls. That being said, the County has trained personnel to document all conditions that apply in the future and has updated its federal procurement procedures per the September 23, 2022, recommendations. § 200.320 Methods of procurement to be followed. (c) Noncompetitive procurement. There are specific circumstances in which noncompetitive procurement can be used. Noncompetitive procurement can only be awarded if one or more of the following circumstances apply: (1) The acquisition of property or services, the aggregate dollar amount of which does not exceed the micro-purchase threshold (see paragraph (a)(l) of this section); (2) The item is available only from a single source; (3) The public exigency or emergency for the requirement will not permit a delay resulting from publicizing a competitive solicitation; (4) The Federal awarding agency or pass-through entity expressly authorizes a noncompetitive procurement in response to a written request from the non-Federal entity; or (5) After solicitation of a number of sources, competition is determined inadequate. Response to 3) - The State Auditor noted that the County had failed to verify two contractors for suspension and disbarment using one of the three allowable methods. The County refutes this and an affidavit from the employee who verified this was submitted. However, despite having this legal document the State Auditor finds the county did not retain a screenshot of this process for its records. The County is unable to find anywhere in federal law having reviewed 2 CFR 200 including sections 318- 327 as well as 2 CFR 180, as quoted below, where documentation of this is required. Further, several staff members have been trained in federal procurement standards and this documentation requirement was not mentioned as a requirement. This being said, the County has trained all staff members dealing with federal dollars to take screen shots of the suspension and disbarment check on potential contractors. § 180.320 Must I verify that principals of my covered transactions are eligible to participate? Yes, you as a participant are responsible for determining whether any of your principals of your covered transactions is excluded or disqualified from participating in the transaction. You may decide the method and frequency by which you do so. You may, but you are not required to, check SAM Exclusions. In summary, the County has corrected all the State Auditor recommendations made in this audit findings as of this written response. Auditor’s Remarks As the County did not maintain documentation and declare a specific exemption for the ambulance purchase we could not verify that it complied with procurement requirements. In order to determine whether the County verified the contractors were not suspended or debarred, our office is required to review evidence that shows this verification was completed by the County prior to entering into a contract. An after-the-fact representation is not sufficient to meet this standard. We reaffirm our finding and will review the corrective action taken 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, Uniform Guidance, section 318, General procurement standards, establishes requirements for written procedures. 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. Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.