SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
City of Cheney
January 1, 2022 through December 31, 2022
2022-001 The City lacked adequate internal controls for ensuring compliance with federal 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: N/A
Pass-through Award/Contract Number: N/A
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Description of Condition
In 2022, the City spent $713,247 in federal funding from the Coronavirus State and Local Fiscal Recovery Funds (SLFRF). This program gives funding 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.
Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding various grant requirements and monitoring the effectiveness of established program controls.
Federal requirements prohibit grant 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 that the contractors have not been suspended, debarred, or otherwise excluded. The City may accomplish this verification 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 City must perform this verification before entering into the contract, and it must maintain documentation demonstrating compliance with this federal requirement.
Our audit found the City’s controls were ineffective for ensuring that it verified all parties receiving $25,000 or more in federal funds were not suspended or debarred. During 2022, the City paid nine contractors totaling $641,980 in SLFRF funds, and did not verify the contractors were not suspended or debarred before entering into contracts with them.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
City staff responsible for managing the SLFRF program attended several trainings to understand its requirements. However, the employee responsible for information technology purchases was not aware of the requirement, and another employee responsible for other purchases said they checked the contractors’ status but did not retain supporting documentation.
Effect of Condition
Without adequate internal controls, the City increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the City made to an ineligible party would be unallowable, and the federal agency could potentially recover them. We subsequently verified the contractors were not suspended or debarred. Therefore, we are not questioning costs.
Recommendation
We recommend the City strengthen internal controls to ensure that all contractors paid $25,000 or more, all or in part with federal funds, are not suspended or debarred before entering into contracts with them. The City should also maintain documentation demonstrating compliance with this federal requirement.
City’s Response
The City of Cheney places a high priority to comply with all federal funding requirements and contract with legal and reputable contractors. The intent of the ARPA program SLFRF funds was to receive and disburse the funds into the community for aid and infrastructure projects in response to the COVID pandemic. The City's received funds under the $10,000,000 threshold allowing the City to use the funds for a variety of purposes including water infrastructure and programs allowing citizens to conduct business with the City on a remote basis.
Historically, federal funds have been received for use in Public Work projects where the Suspension and Debarment check is completed by our contracted engineers. Although the required check was completed, there was no policy or process to retain documentation. The software purchases were made under an existing contract with the software provider that is currently in good standing to receive federal funds, although no separate contract with the required suspension and debarment clause was issued.
To comply with the required documentation, all 2022 contracts using SLFRF funds have now been verified as eligible to receive federal funds and all future contracts will now include the required federal suspension and disbarment clause.
Auditor’s Remarks
We thank the City for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the City’s corrective action 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 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.