2024-001 The Potato Commission lacked adequate internal controls and did not comply with federal suspension and debarment requirements
Assistance Listing Number and Title: 10.170 – Specialty Crop Block Grant Program
Federal Grantor Name: United States Department of Agriculture
Federal Award/Contract Number: N/A
Pass-through Entity Name: Washington State Department of Agriculture
Pass-through Award/Contract Number: 21SCBPWA1112
Known Questioned Cost Amount: $0
Prior Year Audit Finding: Yes, Finding 2023-001
Background
During fiscal year 2024, the Commission spent $1,283,599 in federal funds from the Specialty Crop Block Grant Program (SCBGP). The SCBGP aims to enhance the competitiveness of specialty crops. Specialty crops are defined as fruits, vegetables, tree nuts, dried fruits, horticulture and nursery crops (including floriculture). The SCBGP issues noncompetitive, formula grants to state departments of agriculture to leverage efforts to market and promote specialty crops; assist producers with research and development relevant to specialty crops; expand availability and access to specialty crops; and address local, regional and national challenges confronting specialty crop producers.
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 requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the Commission 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 are not suspended, debarred or otherwise excluded from participating in federal programs. The Commission 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 Commission must verify this before entering into the contract, and must maintain documentation demonstrating compliance with this federal requirement.
Description of Condition
Our audit found the Commission did not have internal controls to verify the two contractors it paid more than $25,000 in federal funds during fiscal year 2024 were not suspended or debarred from participating in federal programs.
We consider this internal control deficiency to be a material weakness that led to material noncompliance.
Cause of Condition
Because Commission staff were informed of this requirement during the prior audit when they received a finding in this area, they did not have time to implement internal controls to verify the contractors’ status for the current year.
Effect of Condition
The Commission did not obtain a written certification from the contractors, insert a clause into the contracts or check SAM.gov to verify that two contractors it paid a total of $133,938 using federal funds were not suspended or debarred before contracting. Without adequate internal controls, the Commission increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the Commission made to an ineligible party would be unallowable, and the awarding agency could potentially recover them.
We subsequently verified the contractors were not suspended and debarred. Therefore, we are not questioning costs.
Recommendation
We recommend the Commission strengthen its internal controls to verify 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.
Commission’s Response
We appreciate the opportunity to review and respond to the audit finding regarding suspension and debarment compliance. The Washington State Potato Commission recognizes the importance of maintaining strong internal controls and ensuring compliance with federal requirements.
Following the previous audit finding, the Commission implemented controls to address this requirement, including:
• Training and Documentation: Ensuring staff are trained on federal grant regulations and maintaining records of compliance efforts for all state and federal grants. This applies to all Directors involved in grant funding.
• Pre-Award Verification: Conducting a mandatory search on SAM.gov to confirm that potential contractors are not listed as federally excluded parties.
However, we acknowledge that, in this instance, verification was not documented prior to entering into contracts with the two contractors. To further strengthen our internal controls and prevent recurrence, the Commission is implementing additional measures:
1. Enhanced Verification Procedures – All contracts exceeding $25,000 that involve federal funds will require documented proof of suspension and debarment verification prior to execution. This can be achieved through:
o Checking SAM.gov and retaining a screenshot of the verification,
o Obtaining a written certification from contractors, or
o Including a suspension and debarment clause in contracts.
2. Internal Compliance Checklist – A formalized checklist will be incorporated into our procurement process to ensure compliance verification steps are completed before contracts are signed and payments are processed.
3. Annual Staff Training and Monitoring – Additional training will be conducted to reinforce compliance procedures, and periodic internal reviews will be performed to ensure adherence to federal requirements.
We appreciate the auditor’s recommendations and are committed to continuously improving our processes. Please let us know if any further clarification is needed.
Auditor’s Remarks
We appreciate the steps the Commission is taking to resolve the issue going forward and will follow up in the 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 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement) establishes nonprocurement debarment and suspension regulations, implementing Executive Orders 12549 and 12689.