Schedule of Federal Audit Findings and Questioned Costs
Cowlitz County
January 1, 2022 through December 31, 2022
2022-002 The County lacked adequate internal controls for ensuring compliance with federal suspension and debarment requirements.
Assistance Listing Number and Title: 20.205 – Highway Planning and Construction
Federal Grantor Name: Federal Highway Administration
Federal Award/Contract Number: N/A
Pass-through Entity Name: Washington State Department of Transportation
Pass-through Award/Contract Number: LA 8261, LA 9335, LA 9677, LA 9964, LA 9965, LA 9966, LA 9967, LA 9968
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Description of Condition
During fiscal year 2022, the County spent $1,885,510 in federal funds from the Federal Highway Administration through the Highway Planning and Construction program. This program gives funding to help state and local government agencies plan and develop an integrated, interconnected transportation system. The County used this funding for the Pacific Avenue North Half-Bridge project.
Federal regulations require recipients to establish and follow internal controls for ensuring compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls.
Federal requirements prohibit grant recipients from contracting with or purchasing from parties that have been suspended or debarred from doing business with the federal government. Whenever the County 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 County 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 County must perform this verification before entering into the contract, and it must maintain documentation demonstrating compliance with this federal requirement.
Our audit found the County’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 County paid one contractor $177,180 in federal funds, and did not verify the contractor was not suspended or debarred before entering into the contract.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
County staff were aware of the federal suspension and debarment verification requirements. However, staff did not know that these requirements applied to a specific contractor the County was required to use for work related to the Pacific Avenue North Half-Bridge project.
Effect of Condition
Without adequate internal controls, the County increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the County made to an ineligible party would be unallowable, and the federal agency could potentially recover them. The County subsequently verified the contractor was not suspended or debarred. Therefore, we are not questioning costs.
Recommendation
We recommend the County 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 the contract and maintain documentation demonstrating compliance with this federal requirement.
County’s Response
The County acknowledges and understands the importance of following 2 CFR 200, Uniform Guidance. In this specific situation, the County was required by Title 23 Code of Federal Regulations to enter into an agreement with Burlington Northern Santa Fe (BNSF) railway Company to complete this specific project. The County was also required to sign the BNSF agreement that is used for all highway grade separated overcrossings of railways (Interstate, State Route, County road or City Street), which included a required contract clause referencing CFR’s. The State Auditor’s Office has deemed the contract language was not specific enough for the contractor to clearly affirm they have not been suspended or disbarred from doing business with the federal government.
The County is aware of the acceptable methods to confirm suspension and disbarment and believed our contract language to be sufficient at the time; however, the County will work to create a federal award checklist that County departments can utilize when working with federal funding to ensure we are meeting one of the required, acceptable methods to confirm suspension and debarment.
Auditor’s Remarks
Federal requirements, as cited below, require the County to verify parties it contracts with, and intends to pay with federal funds, are not suspended or debarred. The contract used by the County did not include a clause that stated the contractor was not suspended or debarred and did not perform one of the other two acceptable verification methods.
We appreciate the County’s commitment to resolving this finding. We will review the corrective action taken during our next regular 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.