City of Westport

City of Westport January 1, 2021 through December 31, 2021 2021-001 The City?s internal controls were inadequate for ensuring compliance with federal procurement and suspension and debarment requirements. CFDA Number and Title: 10.760 ? Water and Waste Disposal Systems for Rural Communities Federal Grantor Name: U.S. Department of Agriculture, Rural Utilities Service Federal Award/Contract Number: 91.12 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Questioned Cost Amount: $0 Description of Condition The Water and Waste Disposal Systems for Rural Communities program awards direct loans, loan guarantees, and project grants for new and improved water and waste disposal systems serving rural areas where financing is not available from commercial sources at reasonable rates and terms. The program is authorized to provide loan and grant assistance to eligible applicants for water and waste disposal facilities in rural and incorporated areas up to 10,000 people. Eligible applicants include (1) a public body, such as a municipality, district, county, authority, or other political subdivision of a state, territory or commonwealth; (2) an organization operated on a not-for-profit basis, such as a cooperative, association or private corporation; or (3) Indian tribes on state and federal reservations and other federally recognized tribes (7 CFR ? 1780.7(a)(3)). In 2021, the City spent $1,296,036 in federal funding to drill two new wells. 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 Policy 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 or 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. Although the City has a written procurement policy, it does not conform to the most restrictive methods and thresholds for procuring architectural and engineering services. Additionally, the City?s policy does not include other required procedures for procuring transactions, such as piggybacking, contract cost and price analysis, bonding requirements, and more. Procurement of Professional Services In 2017, the City procured and established an on-call contract with an engineering firm. During the audit period, the City received approval from the federal grantor to amend the current on-call contract to include a new scope of work related to the well project. However, the original procurement of the on-call contract did not comply with federal procurement requirements related to professional services. Specifically, the procurement of the engineering firm did not include a publication of evaluation factors and their relative importance. Suspension and Debarment Federal regulations prohibit recipients from contracting with 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, paid all or in part with federal funds, it must verify the contractor is not suspended, debarred or otherwise excluded. The City can verify a contractor?s status by reviewing the U.S. General Services Administration?s Excluded Parties List System (EPLS), obtaining a written certification from the contractor, or inserting a clause or condition into the contract stating the contractor is not suspended or debarred. The City must perform this verification before entering into the contract, and keep documentation demonstrating compliance with this federal requirement. The City has a process in place to verify contractors are not suspended or debarred; however, it was ineffective for ensuring compliance when the City amended an existing contract. Office of the Washington State Auditor sao.wa.gov We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance. These issues were not reported as a finding in the prior audit. Cause of Condition Procurement Policy The City Council approved the current procurement policy in 2015. Management and staff said they did not know about the requirement to update the City?s procurement policy to conform to the procurement standards in Uniform Guidance, which into effect in July 2018. Procurement of Professional Services Management and staff did not fully understand the federal requirements for procuring professional services, and they assumed the procedures performed in 2017 were sufficient. Suspension and Debarment The City?s normal process is to check the EPLS and include suspension and debarment language in contracts. The City performed these procedures when it entered into the original contract in 2015. However, when the City amended the contract in 2021 to include the new scope of work related to the well project, staff did not verify the contractor?s suspension and debarment status again. Effect of Condition Procurement Policy Without updated procurement policies, the City is at greater risk of noncompliance with the most restrictive requirements when procuring contractors paid all or in part with federal funds. Procurement of Professional Services During testing, we identified one contract that the City did not properly procure in accordance with federal requirements. Specifically, the publication did not include the evaluation factors and their relative importance. Suspension and Debarment The City did not verify the suspension and debarment status for one contractor that was paid $122,958 during the audit period. Without this verification, 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 federal grantor could potentially recover them. We subsequently verified the contractor was not suspended or debarred. Therefore, we are not questioning the related costs. Recommendation Procurement Policy We recommend the City update its written procurement policy to conform to Uniform Guidance standards for all procurement activities. Procurement of Professional Services We recommend the City strengthen its internal controls to ensure it procures all professional service contracts in accordance with federal requirements. Suspension and Debarment We recommend the City improve its internal controls to ensure all contractors paid $25,000 or more, all or in part with federal funds, are not suspended or debarred before entering into contracts with them. City?s Response The City had not done a federal project to this magnitude in numerous years and was not aware of the new compliance regulations. The City of Westport will establish federal award standards that provide reasonable assurance that Federal awards are being managed in compliance with all Federal regulations and with the terms and conditions of the award. 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 to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689. Title 2 CFR Part 200, Uniform Guidance, section 318, General procurement standards, establishes requirements for written procedures