2022-001 The City?s internal controls were inadequate 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 Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds program is 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. In 2022, the City spent $ 1,321,101 in program funds. Federal regulations require recipients to establish and maintain internal controls that ensure 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 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 the contractors have not been suspended, debarred or otherwise excluded. The City may accomplish this verification 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 City must perform this verification before entering into the contract, and it must maintain documentation demonstrating compliance with this federal requirement. Description of Condition Our audit found the City?s internal controls were inadequate for ensuring staff verified the suspension and debarment status of contractors for purchases exceeding $25,000, paid all or in part with federal funds. Specifically, the City did not verify a contractor was not suspended or debarred from participating in federal programs before entering into a contract. The City paid this contractor $206,430 in fiscal year 2022. Cause of Condition City staff were aware of the federal suspension and debarment verification requirements. However, City staff were unable to provide documentation to support that they verified the contractor was not suspended or debarred. Effect of Condition The City did not obtain a signed certification, insert a clause into the contract, or check SAM.gov to verify the contractor was not suspended or debarred before entering into the contract. Without this verification, the City increases its risk of awarding federal funds to parties that are excluded from participating in federal programs. Any payments the City made to an ineligible party would be unallowable, and the federal grantor could potentially recover them. There was only one covered transaction during the audit period, and the City could not provide any evidence that the contractor was not suspended or debarred. Through a search of SAM.gov, we verified this contractor was not suspended or debarred. Therefore, we are not questioning costs. Recommendation We recommend the City strengthen internal controls to ensure all contractors it expects to pay $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs. City?s Response The City of Yelm holds its responsibility for enabling internal controls to ensure compliance with federal requirements in the highest regard. Management is committed to ensuring the City has internal controls and procedures in place designed to ensure that it complies with all requirements governing the administration of federal grant programs. To achieve this, the City will take the following action: ? Work with Legal and Departments to update contract templates to add a clause, or condition into the contract that states the contractor is not suspended or debarred, or have the contractor self-certify they are not suspended or debarred or ? Check System for Award Management for exclusion records and keep a record of that with the contract files. Auditor?s Remarks We appreciate the steps the City is taking to resolve this issue. We will review the corrective action taken 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.