2023-002 The Port had inadequate internal controls for ensuring compliance with federal procurement and suspension and debarment 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: 23-7320CO-01
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Description of Condition
The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) is to support state, local and tribal governments’ response to and recovery from the COVID-19 public health emergency. In fiscal year 2023, the Port spent $2,121,762 in program funds. The Port used program funds to purchase property and a building and the immediate renovation of that building.
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.
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 Port 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 or debarred or otherwise excluded from participating in federal programs. The Port 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 Port must verify this before entering into the contract, and must maintain documentation demonstrating compliance with this federal requirement.
Our audit found the Port did not have adequate controls in place to verify all four contractors it paid more than $25,000 in federal funds were not suspended or debarred from participating in federal programs.
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. 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 of 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. For public works projects, federal regulations require recipients to obtain price or rate quotations for small purchases of $250,000 or less and to use formal procurement methods that are competitive and require public notice if the quotes exceed that amount. Port policy is less restrictive than federal regulations as it allows the use of the Port’s small works roster to obtain price or rate quotations for small purchases of $300,000 or less.
Although the Port has a written procurement policy, it does not conform to the most restrictive methods and thresholds for procuring public works projects nor does it reference Uniform Guidance procurement standards set out at 2 CFR 200.318-327 for procurement with federal funds.
We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance.
Cause of Condition
Suspension and Debarment
The Port does not typically receive significant federal awards and staff were unaware of the requirement to verify all contractors are not suspended or debarred.
Procurement
Port staff was unaware of the requirement to update the procurement policy to conform to the procurement standards in Uniform Guidance.
Effect of Condition
Suspension and Debarment
The Port did not obtain written certification from the contractors, insert a clause into the contracts or check for exclusion records at SAM.gov to verify the four contractors it paid $540,534 using federal funds were not suspended or debarred before contracting. Without adequate internal controls, the Port cannot ensure the contractors it paid with federal funds were eligible to participate in federal programs. Any program funds the Port used to pay contractors that were suspended or debarred would be unallowable, and the awarding agency could potentially recover them. Because the Port subsequently verified the contractors were not suspended or debarred, we are not questioning costs.
Procurement
Since the Port did not update its written policies, it is at greater risk of noncompliance with the most restrictive procedures when procuring public works projects that it will pay fully or partially with federal funds. The Port did not follow the most restrictive procedures when procuring one contract for $283,611.
Recommendation
We recommend the Port 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 them or purchasing from them
• Written policies and procedures conform to Uniform Guidance (2 CFR 200.318-327) for all procurement activities
• It procures goods and services in accordance with federal regulations, state law and its own procurement policies and procedures
Port’s Response
To address procurement processes and suspension/debarment compliance review, the Port of Willapa Harbor Commission approved the use of Municipal Research Service Center (MRSC) procurement processes and including an MRSC prior review process of contractors subject to suspension or debarment as required Under Title 2 CFR Part 180, 0MB Guidelines on Agencies on Government -wide Debarment and Suspension
Auditor’s Remarks
We appreciate the steps the Port is taking to resolve 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, Uniform Guidance, section 318, General procurement standards, establishes requirements for written procedures.
Title 2 CFR Part 200, Uniform Guidance, section 320, Methods of procurement to be followed, establishes requirements for procuring with Federal funds by nonfederal entities.
Title 2 CFR Part 180, OMB Guidelines on Agencies on Governmentwide Department and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689