City of Tacoma

The City did not have adequate internal controls for ensuring compliance with federal subrecipient monitoring, procurement, suspension and debarment requirements, and it did not comply with federal subrecipient monitoring, suspension and debarment requirements. Background. The Justice Assistance Grant (JAG) program provides states, tribes and local governments with critical funding necessary to support personnel, equipment, supplies, contractual support, training, technical assistance and information systems for criminal justice or civil proceedings for a variety of programs. In 2024, the City spent $650,928 for its JAG program. Federal regulations require recipients to establish, document and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Subrecipient Monitoring. When the City passes on federal funds to subrecipients, federal regulations require it to ensure every subaward agreement clearly identifies that it is a federal award and includes the applicable federal requirements. Further, the City is required to evaluate every subrecipient’s risk of noncompliance with federal requirements to determine the appropriate level of subrecipient monitoring. Subrecipient monitoring requirements include ensuring compliance with program requirements, ensuring the subrecipient receives a federal single audit when required, following up and ensuring the subrecipient takes timely and appropriate action on all audit findings, and issuing a management decision as required. 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. The procedures must reflect the most restrictive of federal, state or local procurement thresholds and methods. When using federal funds to purchase goods or services, governments must follow their own documented procurement procedures that reflect the most restrictive of federal, state or local requirements, and apply them by obtaining quotes or following a competitive procurement process, depending on the estimated cost of the procurement activity. A local government may use noncompetitive procurement procedures when certain circumstances apply, such as if an item is only available from a single source, a public emergency or when the awarding agency expressly authorizes a noncompetitive procurement in response to a written request. In those circumstances, the local government must evaluate each procurement action individually and document its rationale for waiving competition. Suspension and Debarment. 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. Subrecipient Monitoring. The City did not have effective internal controls for ensuring compliance with subrecipient monitoring requirements. Specifically, the City provided funds to one subrecipient to administer crime prevention and control, community-based violence interventions and advancing racial equity to underserved communities and did not include all required elements in the subaward agreement. Further, it did not perform a risk assessment and did not sufficiently monitor the subrecipient as federal regulations require. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Procurement. The City’s procurement policy did not conform to federal regulations in that they did not include procedures to competitively procure services when using federal funds as required by federal regulations. Our audit found the City did not competitively procure one service contract. We consider this deficiency in internal controls to be a significant deficiency. Suspension and Debarment. Although the City has a process to verify the suspension and debarment status for contractors it pays more than $25,000, our audit found the City did not follow this process and did not verify one of three contractors we tested was not suspended or debarred before purchasing from them. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition. Subrecipient Monitoring. Although the City has a process to include all requirements in a subrecipient contract and perform risk assessments and subrecipient monitoring, City employees said they were not aware that the entity was a subrecipient because they operated under a memorandum of understanding each year instead of a subrecipient agreement. Because staff did not consider the entity a subrecipient, they did not follow their normal processes for subrecipient monitoring. Procurement. City staff were not aware they should perform a competitive process when awarding service contracts. The City has a procurement policy, however, it did not include all the necessary requirements to comply with federal regulations. As a result, staff relied on the City’s policy that allowed them to perform a noncompetitive process for services, which does not comply with federal regulations. Suspension and Debarment. City staff were aware of the federal suspension and debarment verification requirements and normally verify this during the procurement process using a contract template that includes a suspension and debarment clause that the contractor signs. However, when the City entered into the contract, it used the contractor’s contract that did not include the clause, and staff did not verify the contractor’s status through another method. Effect of Condition and Questioned Costs. Subrecipient Monitoring. By not clearly identifying the required information in subawards, the City cannot ensure that subrecipients are adequately informed of program requirements for each federal award. By not conducting risk assessments, the City risks inadequately monitoring its subrecipient to ensure it complies with program requirements and uses federal funds appropriately. Procurement. Because the City's policy does not conform to Uniform Guidance, it is at a higher risk of not complying with the most restrictive of federal, state or local procurement requirements when using federal funds for purchases. The City paid one contractor $40,350 in federal program funds without competitively procuring. 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. Suspension and Debarment. 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 it paid $43,776 using federal funds 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. The City subsequently verified the contractor was not suspended or debarred. Therefore, we are not questioning costs. Recommendation. Subrecipient Monitoring. We recommend the City correctly identify its subrecipients and include all required elements in federally funded subaward agreements, perform risk assessments for its subrecipients and monitor them accordingly to verify they are in compliance with the terms and conditions of the award. Procurement. We recommend the City update its procurement policy to conform with federal procurement requirements and strengthen internal controls to ensure it procures goods and services in accordance with federal procurement requirements and its own procurement policies and procedures. Suspension and Debarment. We recommend the City strengthen its 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 and maintain documentation demonstrating compliance with this requirement.

Subrecipient Monitoring and Suspension & Debarment. Neighborhood & Community Services (NCS) has existing processes to ensure subrecipient monitoring requirements and suspension and debarment requirements. While not all JAG subrecipients had previously been included, beginning in 2025, all subrecipients of JAG funding are being included in NCS processes. Specifically, one position (Contract/Program Auditor) is assigned to each contract and is responsible for verifying and documenting suspension and debarment at award and at the annual renewal and also for ensuring monitoring is completed. Prior to the audit, NCS had begun scheduling with the subrecipient that had not been monitored, consistent with NCS processes. NCS is currently also developing a grant handbook to ensure that all staff are aware of general and specific grant requirements and processes for managing grants. Procurement. The City’s procurement policies and procedures outline the process for the competitive procurement of services using federal funds, in alignment with federal regulations. However, the City acknowledges that certain aspects of the current policies maybe unclear or inconsistence with existing procedures. Additionally, the City recognizes that its internal controls are not fully effective in ensuring that all departments consistently comply with these policies and procedures. To strengthen internal control, the City will revise its procedure and develop and implement training around federal grants for staff responsible for managing or overseeing these contracts.

2021-001 The City?s internal controls were inadequate for ensuring compliance with federal subrecipient monitoring requirements. CFDA Number and Title: 21.023 ? COVID-19 ? Emergency Rental Assistance Program Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: ERA-2101070571 ERA2-8681 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Background During fiscal year 2021, the City spent $7,269,274 in federal funding from the Emergency Rental Assistance (ERA 1) Program, which included $5,301,094 passed through to one subrecipient. The objective of the program is to respond to the COVID-19 pandemic?s negative effects on housing, rental debt, and evictions by providing assistance to households unable to pay past-due rent and utility bills. 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. Whenever the City passes on federal funding to subrecipients, federal regulations require it to clearly identify the award as a subaward by providing the information described in the regulation and including all applicable program requirements in the agreement. 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 awards dependent on participant eligibility, monitoring would include verifying the subrecipients only provided assistance to participants who met program eligibility requirements. The amount of verification would depend on each subrecipient?s risk of noncompliance. Description of Condition During the audit period, the City contracted with a local nonprofit organization to administer a housing assistance program. The nonprofit determined which households were eligible to receive funds and used program funds to provide emergency rental assistance to households affected by COVID-19. The nonprofit is considered a subrecipient because determining household eligibility is carrying out part of the program?s objectives on the City?s behalf. However, the City incorrectly determined the nonprofit was a contractor and, as a result, did not follow subrecipient monitoring requirements. The City did not identify it was a subaward and did not include all required elements in the subaward agreement. Additionally, the City did not perform a risk assessment and monitor the subrecipient for program compliance. We consider this deficiency 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 The City does not regularly make subawards with federal funds. As a result, it does not have a formal process for determining the difference between subrecipients and contractors. Management and staff thought this subaward was a contractor relationship rather than a subrecipient, and thus did not include the required information in the agreement. Additionally, the City did not perform a risk assessment or monitoring because staff and management did not identify the relationship as a subrecipient. Effect of Condition The City did not include required elements in its subrecipient agreement, such as the subrecipient?s unique entity identifier, the federal award identification number (FAIN), federal award date, the Assistance Listing Number (ALN), and the indirect cost rate. Without this information, the subrecipient is at an increased risk of not knowing that the award comes from a federal program. This also increases the risk that the subrecipient would not know that they need to comply with specific program requirements, which could potentially lead to spending funds for unallowable purposes. The City also did not complete a risk assessment for this subaward. Without conducting a risk assessment, the City risks not performing adequate monitoring to ensure its subrecipient complied with program requirements and used federal funds appropriately. Since the City did not monitor its subrecipient, there was no way for it to confirm the assistance was paid to eligible households. Recommendation We recommend the City: ? Review available guidance and consult with its awarding agency and/or legal counsel to ensure it correctly classifies entities it contracts with as subrecipients or contractors ? Ensure all federally required elements for subrecipients are clearly identified on the contract, as per 2 CFR ? 200.332 ? Perform risk assessments of subrecipients and monitor them accordingly City?s Response City of Tacoma holds their responsibility for enabling internal controls to ensure compliance with federal requirements at the highest regard. Management is committed to ensuring the City has internal controls and procedures in place designed to ensure that it complies with all requirements governing the administration of federal grant programs. To achieve this, the City will take the following actions in each of the areas listed below: 1. The City will work with Legal and Procurement to update contract templates to include required subrecipient federal elements. 2. The City will inform vendors/providers that they will be subject to Title 2 CFR Part 200, Uniform Guidance section 332, requirements for pass-through entities. 3. The City will perform risk assessments of subrecipients and develop a monitoring checklist based on criteria. 4. The City will develop a checklist on subrecipient versus contractor criteria. 5. The City will train departmental staff on these tools. Auditor?s Remarks We appreciate the City?s commitment to improving its processes and resolving this issue. We thank the City for its cooperation and assistance during the audit. We will review the status of the City?s corrective action during the 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 331, Subrecipient and contractor determinations. The non-Federal entity may concurrently receive Federal awards as a recipient, a subrecipient, and a contractor, depending on the substance of its agreements with Federal awarding agencies and pass-through entities. Therefore, a pass-through entity must make case-by-case determinations whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor. 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 City of Tacoma takes its responsibility of financial stewardship seriously and Finance will work on the following to ensure that adequate internal controls are in place to identify subrecipients and contractors: 1. Will review the subrecipient and contractor criteria outlined in 2 CFR 200.331. 2. The City will inform vendors/providers that they will be subject to Title 2 CFR Part 200, Uniform Guidance section 332, requirements for pass-through entities. 3. Develop a checklist based on criteria 4. Educate & train department staff

2021-002 The City?s internal controls were inadequate for ensuring compliance with federal requirements for suspension and debarment and subrecipient monitoring. CFDA 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: N/A Pass-through Award/Contract Number: N/A Questioned Cost Amount: $0 Background The objectives 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. During fiscal year 2021, the City spent $6,209,032 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. Suspension and Debarment 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, in this specific case, prior to charging the costs to a federal award, and it must keep documentation demonstrating compliance with this federal requirement. Subrecipient Monitoring Whenever the City passes on federal funding to subrecipients, federal regulations require it to clearly identify the award as a subaward by providing the information described in the regulation and including all applicable program requirements in the agreement. 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 awards dependent on participant eligibility, monitoring would include verifying the subrecipients only provided assistance to participants who met program eligibility requirements. The amount of verification would depend on each subrecipient?s risk of noncompliance. Description of Condition Suspension and Debarment 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 four contractors were not suspended or debarred from participating in federal programs before entering into a contract or paying them. Subrecipient Monitoring During the audit period, the City contracted with six nonprofit organizations to carry out the SLFRF program?s objectives. These organizations identified eligible beneficiaries in the community and used program funds to deliver services to them. However, the City incorrectly determined these nonprofits were contractors and, as a result, did not follow subrecipient monitoring requirements. The City did not identify these six contracts were subawards and did not include all required elements in the subaward agreements. Additionally, the City did not perform risk assessments or monitor the subrecipients for program compliance. We consider these deficiencies in internal controls to be material weaknesses, which led to material noncompliance. These issues were not reported as findings in the prior audit. Cause of Condition Suspension and Debarment The City typically includes a suspension and debarment clause in contracts that it intends to pay with federal funds. The City did not intend to pay these contractors with federal funding when procuring the contracts, and did not verify the contractors? status after it decided to charge the costs to the federal program. Subrecipient Monitoring The City does not regularly make subawards with federal funds. As a result, it does not have a formal process for determining the difference between subrecipients and contractors. Management and staff thought these subawards were contractor relationships rather than subrecipients, and thus did not include the required information in the agreements. Additionally, the City did not perform risk assessments or monitoring because staff and management did not identify the relationships as subrecipients. Effect of Condition Suspension and Debarment The City did not obtain a written certification, insert a clause into the contract, or check SAM.gov to verify one contractor was not suspended or debarred. For the three other contractors, the City obtained a written certification but not before making the first payment to them with federal funds. 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 subsequently verified the one contractor was not suspended or debarred. Therefore, we are not questioning the related costs. Subrecipient Monitoring The City did not include required elements in its subrecipient agreements, such as the subrecipient?s unique entity identifier, the federal award identification number (FAIN), federal award date, the Assistance Listing Number (ALN), and the indirect cost rate. Without this information, subrecipients are at an increased risk of not knowing that the award comes from a federal program. This also increases the risk that the subrecipients would not know that they need to comply with specific program requirements, which could potentially lead to spending funds for unallowable purposes. The City also did not complete risk assessments for these subawards. Without conducting risk assessments, the City risks not performing adequate monitoring to ensure its subrecipient complied with program requirements and used federal funds appropriately. Since the City did not monitor its subrecipients, there was no way for it to confirm the assistance was paid to eligible recipients. Recommendation Suspension and Debarment We recommend the City strengthen its 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. Subrecipient Monitoring We recommend the City: ? Review available guidance and consult with its awarding agency and/or legal counsel to ensure it correctly classifies entities it contracts with as subrecipients or contractors ? Ensure all federally required elements for subrecipients are clearly identified on the contract, as per 2 CFR ? 200.332 ? Clearly identify all funds passed through to subrecipients on its Schedule of Expenditures of Federal Awards (SEFA) ? Perform risk assessments of subrecipients and monitor them accordingly City?s Response Suspension and Debarment City of Tacoma holds their responsibility for enabling internal controls to ensure compliance with federal requirements at the highest regard. Management is committed to ensuring the City has internal controls and procedures in place designed to ensure that it complies with all requirements governing the administration of federal grant programs. To achieve this, the City will take the following action in each of the areas listed below: ? Work with Legal and Procurement to update contract templates to add a clause, or condition into the contract that states the contractor is not suspended or debarred, or have contractor self-certify they not suspended or debarred or ? Check System for Award Management for exclusion records and keep a record of that with the contract files. Subrecipient Monitoring City of Tacoma holds their responsibility for enabling internal controls to ensure compliance with federal requirements at the highest regard. Management is committed to ensuring the City has internal controls and procedures in place designed to ensure that it complies with all requirements governing the administration of federal grant programs. To achieve this, the City will take the following actions in each of the areas listed below: 1. The City will work with Legal and Procurement to update contract templates to include required subrecipient federal elements. 2. The City will inform vendors/providers that they will be subject to Title 2 CFR Part 200, Uniform Guidance section 332, requirements for pass-through entities. 3. The City will perform risk assessments of subrecipients and develop a monitoring checklist based on criteria. 4. The City will develop a checklist on subrecipient versus contractor criteria. 5. The City will train departmental staff on these tools. Auditor?s Remarks We appreciate the City?s commitment to improving its processes and resolving this issue. We thank the City for its cooperation and assistance during the audit. We will review the status of the City?s corrective action during the 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 331, Subrecipient and contractor determinations. The non-Federal entity may concurrently receive Federal awards as a recipient, a subrecipient, and a contractor, depending on the substance of its agreements with Federal awarding agencies and pass-through entities. Therefore, a pass-through entity must make case-by-case determinations whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor. Title 2 CFR Part 200, Uniform Guidance, section 332, Requirements for pass-through entities, establishes subrecipient monitoring and management requirements for pass-through entities. Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.

The City of Tacoma takes its responsibility of financial stewardship seriously and Finance will work on the following to ensure that adequate internal controls are in place to identify subrecipients and contractors: 1. Will review the subrecipient and contractor criteria outlined in 2 CFR 200.331. 2. The City will inform vendors/providers that they will be subject to Title 2 CFR Part 200, Uniform Guidance section 332, requirements for pass-through entities. 3. Develop a checklist based on criteria 4. Educate & train department staff

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