Island County Public Transportation Benefit Area

Island Transit January 1, 2020 through December 31, 2020 2020-001 The Transit?s internal controls were inadequate for ensuring compliance with federal procurement requirements. CFDA Number and Title: 20.509 ? Formula Grants for Rural Areas and Tribal Transit Program 20.509 ? COVID-19 ? Formula Grants for Rural Areas and Tribal Transit Program Federal Grantor Name: Federal Transit Administration Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Transportation Pass-through Award/Contract Number: FTA 5311 Questioned Cost Amount: N/A Background The Transit received $7,496,062 in grant funds from the Formula Grants for Rural Areas and Tribal Transit Program during fiscal year 2020. The objective of this program is to initiate, improve, or continue public transportation service in rural areas by providing financial assistance for operating, planning, administrative expenses, and the acquisition, construction, and improvement of facilities and equipment. Additionally, the program provides support for rural intercity bus service and additional funding for training, technical assistance, research and related support services for rural transit service. Federal regulations require federal award 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. When using federal funds to purchase goods or services, governments must apply the more restrictive of federal requirements, state law or local policies by obtaining quotes or following a competitive bidding process, depending on the purchase amount. Transit policy and federal law are most restrictive and require a formal bid process for purchases of goods and services of $250,000 or more. Additionally, state and federal requirements allow local entities to bypass normal procurement laws through a process commonly referred to as ?piggybacking.? This process allows entities to purchase goods and services using contracts awarded by another government or group of governments via an agreement or cooperative. To comply with piggybacking law, the entity must enter into an agreement before it purchases services or goods from the other entity?s bid contract. If the Transit uses such an agreement, federal regulations require it to confirm the awarding entity followed all procurement laws and regulations applicable to the Transit when selecting the contractor. Description of Condition The Transit has controls in place over procurement, but they were ineffective for ensuring compliance with all applicable requirements. The Transit did not perform competitive procurement procedures or establish an interlocal agreement to piggyback on another entity?s contract before purchasing three hybrid buses for approximately $2.4 million. Therefore, the Transit did not comply with all of the applicable federal procurement requirements. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The Transit has historically received federal funding to purchase buses, and management has been intentional about having controls in place over procurement to ensure compliance with all applicable requirements. The state agency contract from which the Transit historically purchases buses did not procure a contract in 2020. As a result, the Transit purchased buses from another entity?s contract, and Transit employees were not aware they needed to establish an interlocal agreement with that entity before purchasing, as state law requires. Effect of Condition Without effective internal controls over procurement and piggybacking procedures, the Transit cannot demonstrate it complied with applicable federal procurement requirements and received the best price for the buses. However, since the purchases were allowable under the federal program, we are not questioning costs. Recommendation We recommend the Transit strengthen its internal controls to ensure it complies with applicable procurement requirements for purchases of goods and services. Transit Authority?s Response Thank you for this recommendation. Island Transit has updated its Procurement Policy to include completing an interlocal agreement when purchasing from a cooperative purchasing schedule in another state. Auditor?s Remarks We appreciate the Transit?s commitment to resolve this finding and thank the Transit for its cooperation and assistance during the audit. 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 200, Uniform Guidance, Section 318, General procurement standards, allows governments to foster great economy and efficiency by entering into state and local agreements for procurement or use of common or shared goods and services, provided governments maintain documentation demonstrating competition requirements are met. Title 2 CFR Part 200, Uniform Guidance, Section 319 ? Competition, establishes all procurement transactions are to be conducted in a manner providing full and open competition. Title 2 CFR Part 200, Uniform Guidance, Section 320 ? Methods of procurement to be followed, describes each allowable procurement method.

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