City of PuyallupLocal Government

The City did not have adequate internal controls and did not comply 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 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 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 2023, the City spent $2,135,269 in program funds for these activities. 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 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 and services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify the contractors are not suspended, debarred or otherwise excluded from participating in federal programs. The City may verify this by obtaining 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 verify this before entering into the contract and must maintain documentation demonstrating compliance with this federal requirement. Description of Condition Our audit found the City did not have adequate controls in place to verify one of three contractors it paid more than $25,000 in federal funds was not suspended or debarred from participating in federal programs. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City staff thought the suspension and debarment clause included in a contract with another contractor applied to this contractor, which was included in the scope of work outlined in the other contractor’s contract. Effect of Condition The City did not obtain a written certification from the contractor, insert a clause into the contract or check for exclusion records at SAM.gov to verify the contractor was not suspended or debarred before contracting. Without adequate internal controls, the City increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the City made to an ineligible party would be unallowable, and the awarding agency could potentially recover them. We subsequently verified the contractor was not suspended or debarred. Therefore, we are not questioning costs. Recommendation We recommend the City strengthen internal controls to verify all contractors it pays $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs before contracting with or purchasing from them and maintain documentation demonstrating compliance with this requirement. City’s Response In this situation, the contractor was intended to be a subcontractor performing work included in the scope of work outlined in a contract with another primary contractor. The contract with the primary contractor included a suspension and debarment clause. However, staff processed payment to the subcontractor directly, which required separate suspension and debarment verification. The City has taken steps to clarify its contracting practices with staff and ensure verification of suspension and debarment for purchases using federal funds. In addition, the City will be providing mandatory procurement training this year for all staff responsible for purchasing and contracting, which will include suspension and debarment requirements. Auditor’s Remarks We thank the City for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the City’s corrective action 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 on Agencies on Governmentwide Department and Suspension (Nonprocurement) establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS City of Puyallup January 1, 2021 through December 31, 2021 2021-001 The City lacked adequate internal controls for ensuring compliance with federal suspension and debarment requirements. CFDA Numbers and Titles: 20.205 ? Highway Planning and Construction; 21.027 ? COVID-19 ? Coronavirus State and Local Fiscal Recovery Funds Federal Grantors Names: U.S. Department of Transportation, Federal Highway Administration; U.S. Department of the Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Transportation (WSDOT) Pass-through Award/Contract Number: LA-8110, LA-9164, LA-9664 Questioned Cost Amount: $0 Description of Condition Highway Planning and Construction Cluster The objectives of the Highway Planning and Construction Cluster are to: (1) assist states in the planning and development of an integrated, interconnected transportation system important to interstate commerce and travel by constructing and rehabilitating the National Highway System (NHS), including interstate highways and most other public roads; (2) provide aid for the repair of federal-aid highways following disasters; (3) foster safe highway design, and replace or rehabilitate structurally deficient or functionally obsolete bridges; and (4) to provide for other special purposes. During fiscal year 2021, the City spent $6,921,302 in federal funding for road improvement projects. Coronavirus State and Local Fiscal Recovery Funds 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 2021, the City spent $905,488 in program funds for these activities. Suspension and debarment procedures 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 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. 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 or paying the contractor more than $25,000, and it must keep documentation demonstrating compliance with this federal requirement. Our audit found the City did not have adequate controls and did not verify that five contractors?one under the Highway Planning and Construction Cluster and four under the SLFRF program?were not suspended or debarred before paying them more than $25,000 in federal funds. We consider these deficiencies in internal controls to be a material weakness that led to material noncompliance. The issue was not reported as a finding in the prior audit. Cause of Condition Highway Planning and Construction Cluster The City did not maintain evidence that staff verified the contractor was not suspended or debarred. Coronavirus State and Local Fiscal Recovery Funds The City has a decentralized process for procuring purchases. Employees in departments that do not regularly procure goods or services using federal funds were not aware of their responsibility to verify the suspension and debarment status for three contractors. For the fourth contractor, department staff were aware of the requirement, but did not maintain evidence that they verified the contractor was not suspended or debarred. Effect of Condition The City did not obtain written certifications, insert a clause into the contracts, or check SAM.gov to verify contractors were not suspended or debarred. Without this verification, the City increases its risk of providing federal funds to contractors 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. We verified the contractors were not suspended or debarred. Therefore, we are not questioning costs for these payments. Recommendation We recommend the City improve its internal controls and develop procedures to ensure staff understand suspension and debarment requirements and verify contractors paid $25,000 or more, all or in part with federal funds, are not suspended or debarred before contracting with them. City?s Response Because the City typically does not spend federal dollars in this magnitude outside of capital projects, other department staff were not aware of suspension and debarment regulations for purchases over $25,000. When this came to light, the City of Puyallup immediately established internal controls and a purchasing process that outlines detailed steps on where and how to ensure compliance with the federal suspension and debarment requirements. This information was provided to all departments and staff was directed to follow the process for every purchase using federal funds effective immediately. Auditor?s Remarks We thank the City for its response and consideration in this matter and the steps it is taking to address this issue. We will review the status of the City?s corrective action 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 on Agencies on Governmentwide Department and Suspension (Nonprocurement) establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.