CITY OF EDMONDS

2023-001 The City did not have adequate internal controls for ensuring compliance with federal requirements for procurement and subrecipient monitoring and it did not comply with federal procurement 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: Washington Department of Commerce Pass-through Award/Contract Number: 22-96720-210 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) 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. During 2023, the City spent $3,622,519 in program funds to cover additional costs it had incurred during the pandemic, including expenditures supporting public health, household utility relief, and direct assistance payments to local businesses and nonprofit organizations financially affected by COVID-19. The program funds also included $886,240 passed through to two subrecipients to fulfill components of the program’s objectives. The portion of program funds the City passed through to the subrecipients provided emergency assistance to households and college students financially affected by COVID-19. 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. Procurement 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. These procedures must reflect the most restrictive of applicable federal, state or local laws. When using federal funds to procure goods and services, governments must apply the more restrictive requirements of federal, state or local laws by either obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity. Competitive bidding may be waived in certain circumstances, including via a sole source exemption when the purchase is only available from a single vendor. Governments must document the process and ensure they comply with applicable laws for waiving competitive bidding. Additionally, state and federal requirements allow it 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 interlocal agreement or cooperative. When piggybacking, the entity must enter into an agreement before it purchases services or goods from another entity’s contract. If the City uses such an agreement, federal regulations require it to confirm the awarding entity followed all procurement laws and regulations applicable to the entity when selecting the contractor. Subrecipient Monitoring Whenever the City passes on federal funding to subrecipients, federal regulations require it to monitor subrecipients to ensure they comply with the terms and conditions of the federal award. For these subawards, monitoring would include verifying the subrecipients only provided assistance to participants who met the program eligibility requirements. Subrecipient requirements also require the City to verify whether prior year awardees received an audit if they expended more than $750,000 in federal awards, and to follow up on any findings issued. Description of Condition Procurement The City’s internal controls were ineffective for ensuring it complied with federal procurement requirements. Although the City has written procurement policies, they do not address requirements for piggybacking and purchasing through a cooperative. Additionally, City’s policy establishes the micro purchase threshold as $20,000, which is less restrictive than the federal threshold of $10,000. Further, the City piggybacked onto another agency’s contract to purchase vehicles and did not retain supporting documentation showing it verified the awarding agency followed applicable procurement requirements before purchasing. It also determined the purchase of a software system to be sole source but did not have documentation showing its rationale and justification for this non-competitive procurement. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Subrecipient Monitoring Our audit found the City did not have internal controls in place to adequately monitor its subrecipients, as federal regulations require. The City awarded program funds to two subrecipients during the audit period and was required to monitor four subrecipients with awards from previous fiscal years in the current audit period. The City did not obtain any documentation from one subrecipient and did not obtain documentation for the final quarter of its agreement with another subrecipient to ensure program participants were eligible for assistance. Further, the City did not determine whether four subrecipients expended more than $750,000 in federal awards and received an audit when required. We consider this deficiency in internal controls to be a significant deficiency. Cause of Condition Procurement Procurement activity is decentralized and performed at the department level. The City experienced turnover in positions responsible for updating procurement policies and procuring transactions. City employees involved in these purchases were not provided adequate training to update policies and ensure they understood procurement requirements. As such, City employees were not aware of all federal requirements involved when piggybacking onto another agency’s contract or using exemptions to competitive procurement for sole source purchases. Subrecipient Monitoring The City received a recommendation in the prior audit related to this issue and began changing its procedures. However, due to timing and staff turnover, it was unable to perform and document all portions of subrecipient monitoring requirements for the period under audit. Effect of Condition Procurement Without updated written policies and procedures, the City is at an increased risk of not complying with the most restrictive of federal, state or local procurement methods when using federal funds to procure goods and services. The City did not provide supporting documentation showing the procurement methods used followed all applicable requirements for the purchase of vehicles and a software system totaling $719,217. Without effective internal controls, the City cannot demonstrate it complied with federal procurement requirements, allowed for full and open competition and received the best price. Subrecipient Monitoring The City did not monitor $290,647 expenditures for two subrecipients to ensure they complied with the terms and conditions of the subaward and appropriately used federal program funds. Therefore, the City was unable to confirm only eligible participants received assistance. Further, the City did not adequately monitor four of its subrecipients to verify they received single audits when required. Although the City sent letters to three of these subrecipients to inquire about single audits, it did not follow up with them and it also did not have evidence that it monitored for audits for the other subrecipient. Without verifying the subrecipients received single audits when required, the City would be unaware if any findings were issued relating to program requirements that would require follow-up action. Recommendation We recommend the City strengthen its internal controls to ensure compliance with federal requirements. Specifically, we recommend the City: • Provide training to employees responsible for updating policies and procurement transactions paid all or in part with federal funds • Update its written procurement policy to conform to Uniform Guidance requirements (2 CFR § 200.318-327) for all procurement activities • Ensure all goods and services charged to federal programs are procured in accordance with federal regulations and its own policy • Verify all subrecipients receive single audits when required and retain sufficient documentation of this verification • Perform and document sufficient monitoring procedures in accordance with subrecipients’ risk to verify they are complying with the terms of the award including providing funding to eligible participants, when applicable City’s Response The City acknowledges the audit findings and recognizes the importance of strengthening internal monitoring practices to ensure full alignment with federal requirements. While there may be additional context to consider regarding the specific circumstances, we appreciate the opportunity to clarify those details and outline the corrective actions that have been taken and are planned. Subrecipient No.1 – Edmonds College One of the subrecipients noted in the finding is a public higher education institution operating under the State Board for Community and Technical Colleges (SBCTC). The subrecipient administered the Student Emergency Assistance Grant (SEAG) in accordance with state guidelines that emphasize low-barrier, equity-focused access to emergency aid. These guidelines intentionally discourage requiring extensive documentation from students and instead rely on: • Written applications and student interviews • Internal verification using the college's ctclink student system • Program-level data tracking through financial aid systems • Quarterly reporting to the City, which was submitted Due to FERPA protections, the college was limited in the level of personal data it could share externally without student consent. While this model limited the City's ability to independently audit eligibility at the individual level, it is consistent with the state's recognized approach to supporting systemically disadvantaged students and aligns with SEAG Program principles. The City accepted this structure as appropriate during the agreement period. Subrecipient No.2 – Washington Kids in Transition For the second subrecipient, the City followed its standard internal audit process, which includes a quarterly review of 10% of submitted invoices to validate eligibility and ensure federal program compliance. After completing the firstquarter audit, the City identified concerns related to the supporting documentation for certain grant disbursements. In response: • The City escalated oversight and required the subrecipient to submit documentation for 100% of invoices from May through July, encompassing both Q2 and Q3. • Concurrently, the City became aware that the subrecipient had not initiated or completed a Single Audit for FY2023. Upon learning that the audit would not be submitted by the federal deadline (September 30), the City immediately ceased all grant funding and closed the program. • Though additional invoices were received in August and September, the City determined that the heightened audit activity from May through July had addressed the prior concerns. Q3 was considered to have been appropriately audited, and no further audit was conducted for the final period. The City has not resumed any partnership with this entity since September 2024. • The subrecipient ultimately declined to obtain the required Single Audit for FY2023 and FY2024. Review of Prior Year Subrecipient Audit Requirements As part of the City's monitoring efforts for subrecipients from previous fiscal years, the Deputy Director of Finance at the time requested Single Audit reports directly from the two college subrecipients and was ultimately able to obtain the reports through the Federal Audit Clearinghouse (FAC). While the City does not have documentation to confirm this process, it was discussed during internal meetings that the reports had been reviewed, and this task was considered complete at the time. Of the four subrecipients referenced in the audit, the third was a nonprofit organization for which the Deputy Director reviewed publicly available financial records. Based on that review, it was determined the organization did not meet the $750,000 federal expenditure threshold and was therefore not subject to a Single Audit. The fourth subrecipient, the entity that did not complete the required audit, was addressed in the corrective actions outlined above. Planned and Ongoing Corrective Actions To strengthen subrecipient oversight moving forward, the City is implementing the following corrective actions: • Updated Subrecipient Agreements: All future contracts will include specific and detailed language regarding audit thresholds, access to documentation, and monitoring expectations, including reference to Uniform Guidance requirements. • Audit Verification Procedures: The City will implement a documented protocol for tracking and verifying Single Audits for any subrecipient receiving $750,000 or more in federal funds. • Monitoring Documentation: The City will maintain written records of all monitoring activities, including eligibility reviews, audit follow-up, and subrecipient communication. • Staff Training and Process Improvements: Staff responsible for subrecipient oversight will receive updated training on monitoring standards, documentation expectations, and federal compliance protocols. These actions will be implemented prior to any future program launches involving subawards of federal funds and will also apply to the monitoring of any current active grants. Although no additional funding of this type was issued in 2024, the City will be subject to audit for this period and will ensure compliance with all applicable requirements, including collecting the FY2024 Single Audit reports as required. Corrective Action Plan – Procurement The City's Purchasing Policy addresses requirements for "piggybacking" and purchasing through a Cooperative in section 13.0 lnterlocal Agreements. However, the City should update the Purchasing Policy section 11.0 Procurement Using Federal Funds to include the same language that specifies the process of Interlocal and Cooperative agreements, or “piggybacking”. • As stated in the auditor's draft notification, state and federal requirements allow it 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 interlocal agreement or cooperative. When piggybacking, the entity must enter into an agreement before it purchases services or goods from another entity's contract. If the City uses such an agreement, federal regulations require it to confirm the awarding entity followed all procurement laws and regulations applicable to the entity when selecting the contractor. To ensure compliance, although the City did confirm that the vendor followed their own bid law requirements, the City will do a better job documenting that verification in any future equipment purchases using federal funding. Auditor’s Remarks We thank the City for its commitment to resolving this issue. We will follow up on the status of this finding 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 200, Uniform Guidance, section 318, General procurement standards, establishes requirements for written procedures and requirements for maintaining records sufficient to detail the history of procurement. Title 2 CFR Part 200, Uniform Guidance, section 320, Methods of procurement to be followed, establishes requirements for procuring with Federal funds by nonfederal entities. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for passthrough entities, establishes the requirements for subrecipient monitoring and management requirements for pass through entities.

The City?s internal controls were inadequate for ensuring compliance with federal requirements for allowable costs, suspension and debarment, and subrecipient monitoring. "See Schedule of Findings and Questioned Costs for chart/table." Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) 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. During 2021, the City spent $1,219,058 in program funds to cover additional costs it had incurred during the pandemic, including expenditures supporting public health, household utility relief, and direct assistance payments to local businesses and nonprofit organizations financially affected by COVID-19. The program funds also included $468,761 passed through to four subrecipients to fulfill components of the program?s objectives. The portion of program funds the City passed through to the subrecipients provided emergency assistance to households and job retraining for people financially affected by COVID-19. 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. Allowable Costs For the SLFRF program, the costs must have been necessary for responding to the COVID-19 pandemic and not incurred before March 3, 2021. All costs charged to the SLFRF program must comply with program requirements and be supported by proper documentation demonstrating funds are spent on allowable costs. Suspension and Debarment Federal regulations prohibit recipients from contracting with, purchasing from or making subawards to parties suspended or debarred from doing business with the federal government. Whenever the City contracts for goods or services expected to equal or exceed $25,000 and for all subawards, irrespective of award amount, paid all or in part with federal funds, it must verify a contractor?s or subrecipient?s status by checking for exclusion records in the System for Award Management (SAM.gov), obtaining a written certification from the contractor or subrecipient, or inserting a clause or condition into the contract stating the contractor or subrecipient is not suspended or debarred. The City must perform this verification before entering into the contract or making the subaward, and keep documentation demonstrating compliance with this federal requirement. Subrecipient Monitoring Whenever passing federal funding to subrecipients, federal regulations require the City to monitor them and ensure they comply with the terms and conditions of the federal award. To determine the appropriate level of monitoring, the City must evaluate each subrecipient?s risk of noncompliance with federal requirements. For these awards, monitoring would include verifying the subrecipients only provided assistance to participants who met eligibility requirements and claimed reimbursement for allowable costs. Description of Condition Allowable Costs The City established four eligibility criteria for local businesses and three eligibility criteria for utility assistance support, but it did not have a process in place for verifying beneficiaries met all the criteria before providing them assistance payments. For some of the criteria, the City relied on applicants? self-attestation without verifying the information was accurate to ensure beneficiaries were eligible to receive assistance payments. Suspension and Debarment During 2021, the City paid more than $25,000 to one contractor and established subaward agreements with four subrecipients without ensuring they were not suspended and debarred from participating in federal programs at the time it contracted for the purchases or made the subawards. Subrecipient Monitoring The City subawarded program funds to two local colleges for job retraining programs and two nonprofit agencies to provide housing support grants. The City did not perform risk assessments for the two colleges, and it did not monitor each subrecipient for compliance with program requirements, as federal regulations require. We consider these deficiencies in internal controls to be material weaknesses, which led to material noncompliance. These issues were not reported in the prior audit. Cause of Condition Many businesses and people experienced sudden financial hardship due to the COVID-19 pandemic. In an effort to help preserve the local economy, the City acted quickly by providing assistance payments to businesses and passing funds to nonprofit organizations it had worked with in the past for other programs. However, the SLFRF program was a new type of federal funding for the City, and before the pandemic, it had not previously used federal funds to provide direct assistance payments to businesses and people. The City also experienced employee turnover in positions responsible for administering these federal awards. As such, City employees lacked adequate experience and needed training to know they should have independently verified each beneficiary met all eligibility criteria before awarding assistance. Further, City employees were not aware of all federal requirements involved when passing funding through to subrecipients or for checking suspension and debarment status before contracting for purchases or making subawards with other parties. Effect of Condition and Questioned Costs Allowable Costs Without obtaining documentation from business grant applicants or residents seeking utility relief to verify they met all eligibility criteria, the City cannot ensure these expenditures were allowable. During the audit, we gave the City an opportunity to obtain documentation from businesses and recipients to support their eligibility. We reviewed the information provided by the City and found the following: ? Small business support: The City provided financial assistance to 21 businesses without first obtaining documentation to show each business met its established eligibility criteria. During the audit, the City followed up with these businesses, but did not receive adequate documentation from any of them. Therefore, we are questioning $174,161 in costs charged to the program. ? Utility bill support: The City did not obtain documentation to confirm residents did not earn more than 60 percent of the City?s median income before approving each grant. During the audit, the City obtained documentation from six of the 10 residents that received support to show they met eligibility criteria. We are questioning $2,208 in costs for amounts paid to the remaining four residents, as well as a portion of a payment paid to one of the other six residents because it exceeded the program maximum set by the City. Suspension and Debarment The City did not obtain written certifications, insert clauses into contracts, or check SAM.gov to verify the contractor or four subrecipients were not suspended or debarred before contracting or subawarding funds. The City paid the contractor $27,547 and the four subrecipients a total of $468,761. Without adequate internal controls, the City cannot ensure it pays federal funds only to parties that are eligible to participate in federal programs. Any payments made to an ineligible party would be unallowable, and the awarding agency could potentially recover them. During our audit, the City provided support showing the contractor and all four subrecipients were not currently suspended or debarred. Therefore, we are not questioning costs. Subrecipient Monitoring Because the City did not perform risk assessments and adequately monitor subrecipients, it cannot ensure it is performing the proper level of monitoring and that subrecipients complied with program requirements. During our audit, the City completed the remaining two risk assessments and performed monitoring for all four subrecipients to verify they complied with program requirements and only provided assistance to eligible participants. The City identified eligibility issues totaling $2,227 and invoicing errors totaling $1,260. The City took steps to correct these errors in subsequent reimbursements to the subrecipients. Recommendation We recommend the City: ? Provide adequate training to staff responsible for administering federal programs ? Dedicate the necessary time and resources to staying updated on program guidance and ensuring compliance with all program requirements ? Verify that beneficiaries of public funds meet all of the City?s eligibility criteria before awarding funds ? Verify contractors paid $25,000 or more and all subrecipients, paid all or in part with federal funds, are not suspended or debarred before contracting for purchases or making subawards ? Assess subrecipients? risk and monitor them accordingly to verify they are complying with the terms and conditions of the award and only providing funds to eligible participants City?s Response The City of Edmonds appreciates the efforts of the State Auditor?s Office. The City is committed to establishing and following effective internal controls for administering federal grants and for compliance with federal uniform guidance for grant administration, and to monitor any transactions with subrecipients to ensure compliance with federal requirements. During 2020 and 2021, the City endeavored to distribute pandemic relief funds as expeditiously as possible into the community where support was most needed due to the devastating impact on residents and businesses because of the COVID-19 pandemic. We worked very hard to distribute these funds quickly and efficiently, which we believe had a very significant, positive impact on our community. In our attempts to get the grant money into the community as quickly as possible, the City made certain errors in how the City distributed funds. The errors we made during 2020 resulted in the City receiving a Finding from the State Auditor?s Office for that year. We did not receive the additional guidance, training, or resources needed to effectively correct these errors until we were well into 2021, and so we were unable to begin correcting these errors until late in 2021. We have added consulting staff to provide better monitoring of the distribution of current and future grants funds. We have also provided staff with the time, resources, and training necessary to avoid these errors from occurring again. Auditor?s Remarks We thank the City for its commitment to resolving this issue. We will follow up on the status of this finding 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 200, Uniform Guidance, section 403, Factors affecting allowability of costs, establishes general criteria costs must meet in order to be allowable under Federal award. Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes non-procurement debarment and suspension regulations, implementing Executive Orders 12549 and 12689. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes subrecipient monitoring and management requirements for pass through entities.

2020-001 The City?s internal controls were inadequate for ensuring compliance with federal requirements for allowable activities and costs and subrecipient monitoring "See Schedule of Findings and Questioned Costs for chart/table" Background The purpose of the Coronavirus Relief Fund (CRF) program is to provide payments to state, territorial, tribal and certain eligible local governments to cover necessary expenditures incurred because of the COVID-19 pandemic. During fiscal year 2020, the City spent $2,123,907 in program funds to cover additional costs the City incurred during the pandemic, including teleworking equipment, personal protective equipment, and payroll. Additionally, the City spent $1,345,500 of these funds to establish a program that provided direct assistance payments to local businesses financially affected by COVID-19. The program funds also included $456,344 passed through to four subrecipients to fulfil components of the program?s objectives. The portion of program funds the City passed through to the subrecipients provided emergency assistance to households financially affected by COVID-19. 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. Activities Allowed/Allowable Costs For the CRF program, the costs that recipients submit for federal reimbursement must have been necessary for responding to the COVID-19 pandemic and not previously included in budgets prior to March 27, 2020. All costs recipients charge to the CRF program must comply with program requirements and be supported by proper documentation demonstrating costs are specifically related to COVID-19 activities. Subrecipient Monitoring Whenever the City passes on federal funding to subrecipients, federal regulations require the City to clearly identify the subaward contract as a federal award and include all applicable program requirements. Further, the City must monitor its subrecipients to ensure they comply with the terms and conditions of the federal award. To determine the appropriate level of monitoring, the City must evaluate each subrecipient?s risk of noncompliance with federal requirements. For this award, monitoring would include verifying the subrecipients only provided assistance to participants who met eligibility requirements and claimed reimbursement for allowable costs. Description of Condition Activities Allowed/Allowable Costs The City established four eligibility criteria for local businesses to receive assistance payments, but it did not have a process for verifying that businesses met all of these criteria. For one of the criteria, City employees relied on each business? application and self-attestation without verifying the information was accurate to ensure businesses were eligible to receive assistance payments. Subrecipient Monitoring The City contracted with four local nonprofit organizations to administer housing assistance programs and distribute food to food-insecure individuals and households in Edmonds. The City did not include all required elements in the subawards and did not perform risk assessments or monitor each subrecipient for compliance with program requirements, as federal regulations require. We consider these deficiencies in internal controls to be material weaknesses, which led to material noncompliance. These issues were not reported as a finding in the prior audit. Cause of Condition Many businesses and people experienced sudden financial hardship due to the COVID-19 pandemic. In an effort to help preserve its local economy, the City acted quickly by providing assistance payments to businesses and passing funds to nonprofit organizations it had worked with in the past for other programs. However, the CRF program was a new type of federal funding for the City, and it had not previously used federal funds to provide direct assistance payments to local businesses or passed funding through to subrecipients. As such, City employees lacked adequate experience and needed training to know they should have independently verified each business met all eligibility criteria before awarding assistance. Further, City employees were not aware of all federal requirements involved when passing funding through to subrecipients. Effect of Condition and Questioned Costs Activities Allowed/Allowable Costs Without obtaining documentation from business grant applicants to verify they met all eligibility criteria, the City cannot ensure business relief grant costs were allowable. During the audit, we gave the City the opportunity to obtain documentation from businesses to support their eligibility. In January 2022, the City hired a contractor to request and review supporting documentation from the 172 businesses that received CRF funds. We reviewed the information the contractor obtained and found the following: ? Eight businesses did not respond to the City?s request for financial information or, after some communication, did not provide financial information. These businesses received a total of $62,000. ? Twenty-nine businesses did not meet the City?s eligibility criteria, based on the information they provided. These businesses received a total of $235,500. An additional 74 businesses that received a total of $574,000 in direct business grants provided tax returns, quarterly reports, profit and loss statements or other financial information that showed a loss in revenues for the respective period. However, based on the information provided, we could not confirm a year over year business/revenue loss of at least 30 percent in April or May 2020, which the City?s eligibility criteria required. We also could not confirm the expenditures the City charged to the program were allowable for these businesses. As such, we are questioning these costs. Subrecipient Monitoring The City did not include all required information in the four subrecipient contracts, such as the subrecipient?s unique entity identifier, federal award date, name of federal awarding agency, pass-through entity, contact information for awarding official of the pass-through entity, and the program?s CFDA number and name. Without this information, the subrecipient is at an increased risk of not knowing the award comes from a federal program. This also increases the risk the subrecipient would not know it needs to comply with specific program requirements, which could potentially lead to spending funds for unallowable purposes. Further, without performing risk assessments and adequately monitoring subrecipients, the City cannot ensure it is performing the proper level of monitoring and that subrecipients are complying with program requirements. Because the City did not perform risk assessments and monitor the four subrecipients, we gave the City the opportunity to perform monitoring during the audit and verify if subrecipients complied with the terms and conditions of the subaward. In early 2022, the City hired a contractor to perform risk assessments and review three of the subrecipients to verify they only provided assistance to eligible participants and complied with program requirements. The City found the subrecipients did not have adequate support demonstrating participant eligibility. As a result, we are considering the costs the City passed through to subrecipients, totaling $456,344, to be unsupported payments. Recommendation We recommend the City: ? Provide adequate training to staff responsible for administering federal programs ? Dedicate the necessary time and resources to staying updated on program guidance and ensuring compliance with all program requirements ? Verify that beneficiaries of public funds meet all of the City?s eligibility criteria before awarding funds ? Include all required elements in subaward agreements, assess subrecipients? risk, and monitor them accordingly to verify they are complying with the terms and conditions of the award and only providing funds to eligible participants City?s Response The City of Edmonds appreciates the opportunity to respond to the Washington State Auditor?s Office?s (SAO) conclusions. The City is committed to establishing and following effective internal controls for administering federal grants and for compliance with federal uniform guidance for grant administration, and to monitor any transactions with subrecipients to ensure compliance with federal requirements. During 2020 the City endeavored to distribute Coronavirus Relief Funds as expeditiously as possible into the community where support was most needed due to the devastating impact on residents and businesses because of the COVID-19 pandemic. We worked very hard to distribute these funds quickly and efficiently, which we believe had a very significant, positive impact on our community. In our attempts to get the grant money into the community as quickly as possible, the City relied in part upon business?s self-certification of our eligibility requirements under penalty of perjury. After distributing the CARES funds we became aware that some of the businesses to whom grants had been awarded did not meet the eligibility requirements. When we learned this we performed our own internal audit to determine the number of businesses that were not eligible. After reviewing our audit results, the SAO determined that 29 businesses who did not meet our grant requirements nevertheless submitted applications and received grants totaling $235,500. Another 8 businesses have not responded to our requests for documentation; those businesses received grants totaling $62,000. The City is exploring various remedies that may be available and appropriate, including but not limited to civil suits and criminal prosecution, to recover this $297,500 in grant funds or otherwise hold wrongdoers accountable for their actions. The remaining questioned costs of $574,000 are from 74 businesses who were able to supply documentation of losses that they incurred on an annual basis, but were unable to supply information specific to April or May of 2020. Because these businesses were able to show proof of COVID-related income losses, we are not intending to pursue legal action in these cases at this time. The City acted in good faith to quickly deliver aid and assistance to our residents, following the guidance and direction available at the time from the Department of Treasury and the Department of Commerce. Overall, City staff administered this highly complex and time sensitive program in a professional manner while dealing with emergency circumstances. We acknowledge that this does not relieve the City of the necessity to ensure that assistance payments are distributed only to those who meet our eligibility requirements. The City will also provide training to ensure that subrecipients are evaluated and monitored sufficiently to ensure eligibility and to reduce any risk of noncompliance. We are planning to add additional staff to provide better monitoring of the distribution of future grants funds, and we will provide staff with the time, resources, and training necessary to avoid these errors from occurring again. Auditor?s Remarks We appreciate the City?s commitment to resolving this finding and thank the City for its cooperation and assistance during the audit. We will review the corrective action taken during the 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. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass through entities, establishes subrecipient monitoring and management requirements for pass through entities. 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 42 U.S. Code of Federal Regulations (CFR) Part 801, Coronavirus Relief Fund establishes allowable costs of the program. 2 CFR Part 200, Subpart E, cost principles do not apply to the Coronavirus Relief Fund. Therefore, auditors refer to guidance and FAQs from the U.S. Department of the Treasury and the pass-through agency, the Washington State Department of Commerce, as the criteria when testing the allowability of costs under the Fund. Guidance and FAQs from both the U.S. Department of the Treasury and the Washington State Department of Commerce can be found at: https://www.commerce.wa.gov/serving-communities/local-government/covid-resiliency-grants/. These documents speak to the grantors? expectation that local governments obtain documentation that supports how businesses met eligibility criteria.