2023-001 The City’s internal controls were inadequate for ensuring compliance with federal requirements for procurement and suspension and debarment.
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:
Yakima County
Pass-through Award/Contract Number:
ARPA-1012
Known Questioned Cost Amount:
$0
Prior Year Audit Finding:
N/A
Background
The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) 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 2023, the City spent $1,029,238 in program funds for government services and investments in infrastructure from its direct award. The City also spent $61,560 from an award passed through from Yakima County to purchase a camera system.
Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls.
Procurement
Federal regulations require recipients to follow their own documented procedures, which must conform to the Uniform Guidance procurement standards found in 2 CFR § 200.318-327. When using federal funds to procure goods and services, governments must apply the most restrictive federal requirements, state law or local policies by obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity.
Suspension and Debarment
Federal requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the City 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 the contractors are not suspended, debarred or otherwise excluded. The City may verify this 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 City must verify this before entering into the contract or purchasing goods and services, and it must maintain documentation demonstrating compliance with this federal requirement.
Description of Condition
Procurement
Although the City has an established written procurement policy that includes procurement thresholds, it does not include all required methods and procedures to follow when procuring architectural and engineering services. Additionally, the City’s policy does not include other required procedures for procuring transactions, such as contracting with small and minority business owners, women’s business enterprise and labor surplus area firms, domestic preferences, recovered materials, contract cost or price analysis and more.
Our audit found the City did not have adequate controls to ensure it complied with procurement requirements. Specifically, the City did not follow the most restrictive requirements when using federal funds to procure an architect and engineer, public works project and equipment. The City:
Used its on-call engineer for two public works projects totaling $436,017, rather than advertising for each proposal
Received quotes from multiple subcontractors instead of formally procuring the police facility upgrade public works project, totaling $131,153, as one project
Did not formally procure the purchase of playground equipment totaling $101,122 and camera system upgrade totaling $61,560
Suspension and Debarment
Our audit found the City did not have adequate controls to verify that three of five contractors it paid more than $25,000 in federal funds were not suspended or debarred from participating in federal programs.
We consider these deficiencies in internal controls to be material weaknesses, which lead to material noncompliance.
Cause of Condition
Procurement
The City had turnover in the departments responsible for procuring goods and services and updating procurement policies, and the City does not regularly receive federal audits. Although the City established a procurement policy, staff were unaware of all elements from Uniform Guidance that they should include in the policy. Without clear and complete procedures, staff misunderstood the requirements when procuring architectural and engineering services, public works, and equipment and did not follow the most restrictive requirements.
Additionally, City staff were unaware that they needed to procure the camera system and believed the pass-through agency required them to use a certain contractor for the purchase.
Suspension and Debarment
City staff were unaware they needed to check for suspension and debarment for contractors used for the purchase of goods and services and believed they only had to check for those contractors performing public works projects.
Effect of Condition
Procurement
Without effective internal controls, the City cannot ensure it allowed for full and open competition, selected the most qualified contractors and received the best price for purchases. Additionally, the City cannot ensure it complied with federal procurement requirements.
Suspension and debarment
The City did not obtain written certifications from the contractors, insert a clause into the contracts or check for exclusion records at SAM.gov to verify that three contractors it paid $203,379 using federal funds were not suspended or debarred before contracting. Without adequate internal controls, the City cannot ensure the contractors it paid with federal funds were eligible to participate in federal programs. Any program funds the City used to pay contractors that were suspended or debarred would be unallowable, and the awarding agency could potentially recover them. Because we subsequently verified the contractors were not suspended or debarred, we are not questioning costs.
Recommendation
We recommend the City:
Update its procurement policies to conform with federal procurement requirements
Establish internal controls over its procurement of architectural and engineering services, public works contracts and purchases to ensure compliance with federal requirements
Strengthen internal controls to ensure all contractors it pays $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs before contracting with or purchasing from them
City’s Response
Procurement
The City of Grandview will update our procurement policies to comply with federal procurement requirements. The procurement policy update will include other required procedures for procuring transactions, such as contracting with small and minority business owners, women’s business enterprise and labor surplus area firms, domestic preferences, recovered materials, contract cost or price analysis and more. Going forward, the City will establish internal administrative controls to ensure that city staff receive the proper training and are aware of all procurement policies and guidelines.
Suspension and Debarment
The City of Grandview will establish internal controls on contract proposals exceeding $25,000, must be reviewed to ensure that contractors are not suspended or debarred. The City will verify this by adding a clause or condition into the contract that states the contractor is not suspended or debarred. The City will verify this before entering into a contract or purchasing goods and services, and it will maintain documentation demonstrating compliance with federal requirements.
Auditor’s Remarks
We thank the City for its cooperation and assistance during the audit and acknowledge its commitment to improving 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 200, Uniform Guidance, section 318, General procurement standards, establishes requirements for written procedures and requirements for maintaining records sufficient to detail the history of procurement.
Title 2 CFR Part 200, Uniform Guidance, section 320, Methods of procurement to be followed, establishes requirements for procuring with Federal funds by non-federal entities.
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.
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.