KING COUNTY WATER DISTRICT NO. 123Local Government

King County Water District No. 123 January 1, 2021 through December 31, 2021 2021-001 The District did not have adequate internal controls for ensuring compliance with federal procurement requirements. CFDA Number and Title: 10.760 ? Water and Waste Disposal Systems for Rural Communities Federal Grantor Name: U.S. Department of Agriculture Federal Award/Contract Number: PR20-96103-014 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A N/A Questioned Cost Amount: $0 Background The Water and Waste Disposal Systems for Rural Communities program is designed to assist rural communities in obtaining safe drinking water and adequate waste disposal facilities, which are prerequisites for economic growth. At the end of fiscal year 2021, the District had drawn about $1,661,816 in loan funds using interim financing approved by the U.S. Department of Agriculture?s Rural Utilities Service. The District used interim financing to construct a new water reservoir and install transmission lines to it. 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 regulations require recipients to follow their own documented procurement procedures, which must conform to the Uniform Guidance procurement standards found in 2 CFR ? 200.318-327. The procedures must reflect the most restrictive of applicable federal requirements, state laws and local policies. When using federal funds to procure goods and services, governments must apply the more restrictive requirements by obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity. Additionally, federal regulations require recipients to maintain written standards of conduct covering conflicts of interest and governing the actions of employees engaged in selecting, awarding or administering contracts with federal funds. Description of Condition Our audit found the District did not establish written procurement policies and procedures to comply with federal requirements. Additionally, the District did not establish a conflict of interest policy that meets the following federal requirements: ? Officers, employees and agents who have a real or apparent conflict of interest may not participate in selecting, awarding or administering a contract supported by a federal award. ? Officers, employees and agents may neither solicit nor accept gratuities, favors, or anything of monetary value from contractors or parties to subcontracts. ? The policy must include disciplinary actions for violating these standards. We consider these deficiencies in internal controls to be a material weakness that led to material noncompliance. These issues were not reported as a finding in the prior audit. Cause of Condition The District has never received a federal grant compliance audit, and management and staff did not know about the requirements to update written procurement policies and procedures to maintain compliance with federal regulations. Management and staff also did not know the District was required to establish standards of conduct policies specific to federal awards. Effect of Condition and Questioned Costs Although the District did not update its written policies, it did comply with federal requirements when it solicited and awarded the public works contract to construct the new water reservoir and install transmission lines. However, without updated written procedures, the District is at greater risk of noncompliance with following the most restrictive procurement methods and standards of conduct requirements when procuring contractors paid all or in part with federal funds. Recommendation We recommend the District: ? Establish written procurement policies that conform to federal regulations for all procurement transactions ? Ensure standards of conduct policies conform to federal regulations for all procurement transactions District?s Response For the foreseeable future the District does not plan to borrow funds for any projects that would be financed from federal or local sources. At such time as borrowed funds would be needed, the District will have our attorney draft a written procurement policies and procedures and a conflict-of-interest policy that complies with federal requirements. The District?s secretary will include this statement in our annual review notes. Auditor?s Remarks We appreciate the District?s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. 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 200, Uniform Guidance, section 318 General procurement standards, establishes requirements for documented procurement procedures which reflect applicable state, local and federal laws and regulations.