2023-002 The County’s internal controls were inadequate 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 (WSDOT)
Pass-through Award/Contract Number: HSIP-5908(012)
STPUS-5903(001)
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
During fiscal year 2023, the County spent $2,443,615 in Highway Planning and Construction program funds. The County used this program funding for various road improvement projects.
Federal regulations require award 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. When using federal funds to pay for consulting services, governments must apply the more restrictive of federal requirements, state law or local policies. For consulting services, the County must perform a competitive negotiation process, which includes selecting the most qualified firm.
Description of Condition
When procuring transactions, the County must adhere to the Local Agency Guidelines (LAG) Manual, which WSDOT maintains. The LAG Manual contains requirements for procuring consulting services and specific requirements for limited competition situations. Although the County references the LAG Manual when procuring these types of services, it did not have controls effective to comply with the requirements specific to limited competition. When selecting two consultants, the County did not obtain the minimum three proposals required. For one project, the County only received two proposals, evaluated them and selected the most qualified firm. For the other project, the County only received one proposal, did not perform any further evaluation and awarded the contract to the only submitter.
For both projects, the County did not complete or submit a sole source public interest finding to WSDOT for review and approval as required. For the project with one proposal submitted, the County also did not follow requirements to evaluate the consultant's qualifications with a phone interview, at minimum, based on established criteria. Both these procurement activities did not comply with the requirements in the LAG Manual. The County paid a total of about $140,000 to these consultants during the period.
Cause of Condition
Although County staff responsible for procurement used the LAG Manual, they were unaware of the requirements regarding limited competition.
Effect of Condition
Without following the required procurement procedures, the County cannot be sure it selected the most qualified firms for consulting services or provided fair and open competition in the selection of public contracts.
Recommendation
We recommend the County improve its internal controls over procurement requirements to verify that it meets all requirements, including those in the LAG Manual, before awarding contracts.
County’s Response
The County coordinates all consultant contracts with WSDOT Local Programs on federally funded projects, and it was not mentioned that we needed additional controls. We recognize now the need for phone interviews and sole source public interest findings. The County appreciates the opportunity to learn and grow and will endeavor to provide a fair and open selection process for all future public contracts.
Auditor’s Remarks
We appreciate the County’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, Uniform Guidance, Section 318, General procurement standards, establishes requirements for written procedures and for maintaining records sufficient to detail the history of procurement.
Title 2 CFR Part 200, Uniform Guidance, Section 319 – Competition, establishes requirements that all procurement transactions are to be conducted in a manner providing full and open competition.
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.
The Local Agency Guidelines (LAG) manual, chapter 13.2 contains requirements for limited competition. Chapter 31.1 contains requirements for selecting consultants.