2022-001 The City’s internal controls were inadequate for ensuring
compliance with federal requirements for suspension and
debarment.
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: Washington State Department of
Commerce
Pass-through Award/Contract
Number:
22-96515-009
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF)
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 $1,043,933 in program funds for the
provision of government services and investments in sewer infrastructure. The City
received $111,174 of these funds directly from U.S. Department of the Treasury.
Federal regulations require recipients to establish and follow internal controls that
ensure compliance with program requirements. These controls include
understanding grant 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 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.
This also applies to all subrecipients who have received federal subawards from the
City, regardless of the award amount. The City may accomplish this verification by
collecting a written certification from the contractor or subrecipient, adding a clause
or condition into the contract that states the contractor or subrecipient 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 or making the
subaward, 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
that one contractor was not suspended or debarred from participating in federal
programs before paying them $107,174 in 2022.
We consider this internal control deficiency to be a material weakness, which led
to material noncompliance.
Cause of Condition
The City typically uses a contracted engineering and architectural firm for project
management on large construction projects. Staff are aware of the suspension and
debarment requirement, and they confirm that the firm verifies each contractor’s
status. However, the City did not have a process to ensure that staff completed the
suspension and debarment verification for smaller construction projects that it
managed.
Effect of Condition
Without adequate internal controls over suspension and debarment requirements,
the City cannot guarantee it is paying federal funds only to eligible contractors.
Additionally, the awarding agency could potentially recover any payments the City
made to an ineligible contractor. We subsequently verified the contractor was not
suspended and debarred, so 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 will develop written procedures, including a checklist, to ensure that
contractors hired to perform work on federally funded projects are evaluated at the
Sam.gov website to ensure they are not suspended or debarred.
Auditor’s Remarks
We appreciate the City’s efforts to resolve this finding and thank the City for its
cooperation and assistance during the audit. We will review the corrective action
taken during the next single 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 Government wide
Debarment and Suspension (Nonprocurement), establishes nonprocurement
debarment and suspension regulations implementing Executive Orders 12549 and
12689.