Finding 538272 (2023-001)

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Town of Eatonville January 1, 2023 through December 31, 2023 2023-001 The Town did not have adequate internal controls 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 Pass-through Award/Contract Number: LA-7563 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background During fiscal year 2023, the Town spent $1,874,183 in federal Highway Planning and Construction program funds awarded from the Federal Highway Administration and passed through the Washington State Department of Transportation. During 2023, the Town used program funding on one project. 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. 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 federal, state or local procurement thresholds and methods when using federal funds. Additionally, federal regulations require recipients to maintain written standards of conduct that cover conflicts of interest and govern the actions of employees involved in selecting, awarding or administrating contracts procured with federal funds. Description of Condition Our audit found the Town’s internal controls were ineffective for ensuring compliance with federal procurement requirements. Specifically, the Town did not have procurement policies or procedures to ensure compliance with federal requirements. Further, the Town did not have standards of conduct policies or procedures covering conflicts of interest as federal regulations require. We consider this deficiency in internal controls to be a significant deficiency. Cause of Condition This is the Town’s first federal program audit since 2013. Since the Town does not regularly manage federal funds, staff did not know about the requirement to have written standards of conduct and procurement policies or procedures. Effect of Condition Without written policies and procedures, the Town is at an increased risk of not complying with following the most restrictive of federal, state or local procurement methods and standards of conduct requirements when using federal funds to procure contractors. Although the Town does not have policies in place, it followed the procurement requirements in the Washington State Department of Transportation’s Local Agency Guidelines Manual and complied with federal requirements for soliciting and awarding the public works contract we tested. Recommendation We recommend the Town develop written procurement and standards of conduct policies and procedures that conform to federal procurement standards in Uniform Guidance (2 CFR 200.318-327). Town’s Response The Town agrees with the findings as presented and is committed to adopting the required polices. The Town does typically not rely on federal funds of this magnitude and was not aware of the compliance requirements. The Town commits to developing written procurement standards in Uniform Guidance (2 CFR 200.318-327) and implementing internal controls to ensure compliance with federal procurement requirements at the Town staff level rather than relying so heavily on consultants. Auditor’s Remarks We appreciate the Town’s commitment to resolve this finding. We will review the corrective action taken during our next regular audit. We thank the Town for its cooperation and assistance during the 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.