Cowlitz County

Schedule of Federal Audit Findings and Questioned Costs Cowlitz County January 1, 2022 through December 31, 2022 2022-002 The County lacked adequate internal controls for ensuring compliance with federal suspension and debarment requirements. Assistance Listing Number and Title: 20.205 – Highway Planning and Construction Federal Grantor Name: Federal Highway Administration Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Transportation Pass-through Award/Contract Number: LA 8261, LA 9335, LA 9677, LA 9964, LA 9965, LA 9966, LA 9967, LA 9968 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Description of Condition During fiscal year 2022, the County spent $1,885,510 in federal funds from the Federal Highway Administration through the Highway Planning and Construction program. This program gives funding to help state and local government agencies plan and develop an integrated, interconnected transportation system. The County used this funding for the Pacific Avenue North Half-Bridge project. Federal regulations require recipients to establish and follow internal controls for ensuring compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Federal requirements prohibit grant recipients from contracting with or purchasing from parties that have been suspended or debarred from doing business with the federal government. Whenever the County 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 that the contractors have not been suspended, debarred, or otherwise excluded. The County may accomplish this verification 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 County must perform this verification before entering into the contract, and it must maintain documentation demonstrating compliance with this federal requirement. Our audit found the County’s controls were ineffective for ensuring that it verified all parties receiving $25,000 or more in federal funds were not suspended or debarred. During 2022, the County paid one contractor $177,180 in federal funds, and did not verify the contractor was not suspended or debarred before entering into the contract. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition County staff were aware of the federal suspension and debarment verification requirements. However, staff did not know that these requirements applied to a specific contractor the County was required to use for work related to the Pacific Avenue North Half-Bridge project. Effect of Condition Without adequate internal controls, the County increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the County made to an ineligible party would be unallowable, and the federal agency could potentially recover them. The County subsequently verified the contractor was not suspended or debarred. Therefore, we are not questioning costs. Recommendation We recommend the County strengthen internal controls to ensure that all contractors paid $25,000 or more, all or in part with federal funds, are not suspended or debarred before entering into the contract and maintain documentation demonstrating compliance with this federal requirement. County’s Response The County acknowledges and understands the importance of following 2 CFR 200, Uniform Guidance. In this specific situation, the County was required by Title 23 Code of Federal Regulations to enter into an agreement with Burlington Northern Santa Fe (BNSF) railway Company to complete this specific project. The County was also required to sign the BNSF agreement that is used for all highway grade separated overcrossings of railways (Interstate, State Route, County road or City Street), which included a required contract clause referencing CFR’s. The State Auditor’s Office has deemed the contract language was not specific enough for the contractor to clearly affirm they have not been suspended or disbarred from doing business with the federal government. The County is aware of the acceptable methods to confirm suspension and disbarment and believed our contract language to be sufficient at the time; however, the County will work to create a federal award checklist that County departments can utilize when working with federal funding to ensure we are meeting one of the required, acceptable methods to confirm suspension and debarment. Auditor’s Remarks Federal requirements, as cited below, require the County to verify parties it contracts with, and intends to pay with federal funds, are not suspended or debarred. The contract used by the County did not include a clause that stated the contractor was not suspended or debarred and did not perform one of the other two acceptable verification methods. We appreciate the County’s commitment to resolving this finding. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.

2021-001 The County lacked adequate internal controls for ensuring compliance with federal subrecipient monitoring requirements. CFDA Number and Title: 21.019 ? COVID-19 ? Coronavirus Relief Fund Federal Grantor Name: U.S. Department of the Treasury Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Commerce Pass-through Award/Contract Number: 21-4614C-107 Questioned Cost Amount: $0 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 2021, the County spent $1,184,185 in CRF program funds. The County passed through $657,679 of its award from the Washington State Department of Commerce to a subrecipient to administer COVID-19 assistance programs to the County?s small businesses and residents. 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 County passes on federal funding to subrecipients, federal regulations require the County to clearly identify the subawards as federal awards and include all applicable program requirements. Further, the County 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 County 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 The County provided funds to one subrecipient to administer COVID-19 assistance programs to County residents. Our audit found the County did not perform a risk assessment for the subaward 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. This issue was not reported as a finding in the prior audit. Cause of Condition With the effects of COVID-19, it was urgent for the County to disburse funds to the subrecipient quickly in order to assist with public health needs and provide rental assistance and other services. During the audit period, the County lacked staff capacity to manage the CRF program, which was a different source of funding than what the County routinely manages. County staff responsible for managing the federal program were not aware of the requirements to perform a risk assessment specific to the subaward and the requirements for subrecipient monitoring for awards dependent on participant eligibility. Effect of Condition The County did not complete a risk assessment for the subaward. Without conducting a risk assessment, the County risks not adequately monitoring its subrecipient to ensure it complies with program requirements and uses federal funds appropriately. Since the County did not monitor its subrecipient, there was no way for it to confirm the assistance was paid to eligible recipients. Recommendation We recommend the County perform sufficient risk assessments over its subrecipients and monitor them accordingly to verify they are complying with the terms and conditions of the award and only providing funds to eligible participants. County?s Response Cowlitz County greatly appreciates the time the State Auditor?s Office has spent with the County through this process and the helpful explanations of the expectations from your office. Administering these funds was challenging, the funds came quickly with pressure from the federal and state level to get them out quickly. There were also continual changes to the program guidelines, reporting requirements, etc. that were difficult to keep up with. This was a new program type for our County to administer and had a much shorter contract period than usual, so we met with the subrecipient weekly to review any program changes, eligibility questions, program documents, source documents, program reports, process questions, etc. to maintain consistent review and communication. Completing a formal Risk Assessment is a new process for us. We did informally complete components of a risk assessment, such as reviewing the agencies latest single audit and reviewing previous subrecipient monitoring results that included federal funds. We now understand the need to develop a formal risk assessment tool that will determine the level of subrecipient monitoring needed in future subrecipient contracts. Development of a risk assessment tool has begun and we look forward to finalizing and implementing into our practice in the near future. Auditor?s Remarks We appreciate the County?s response and commitment to resolving this finding. We thank it for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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.

2021-002 The County?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: N/A Pass-through Entity Name: Washington State Department of Commerce Pass-through Award/Contract Number: 21-4616C-107 Questioned Cost Amount: $0 Background The purpose of the Emergency Rental Assistance (ERA) program is to prevent evictions by providing financial assistance to eligible households that are unable to pay rent or utilities. During 2021, the County spent $5,346,346 in ERA program funds under a pass-through award from Washington State Department of Commerce. The County passed through $5,326,880 of these funds to a subrecipient to provide rental and utility assistance. 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 County passes on federal funding to subrecipients, federal regulations require the County to clearly identify the subawards as federal awards and include all applicable program requirements. Further, the County 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 County 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 The County provided funds to one subrecipient to administer COVID-19 assistance programs to provide rental and utility assistance. The County did not perform a risk assessment for this subaward 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. This issue was not reported as a finding in the prior audit. Cause of Condition With the effects of COVID-19, it was urgent for the County to disburse funds to the subrecipient quickly in order to assist with the rental housing and utility needs. During this period, the County lacked staff capacity to manage the grant. Additionally, the federal program was a different source of funding than what the County routinely manages. County staff responsible for managing the ERA program said they were not aware of the requirements to perform a risk assessment specific to the subaward and the requirements for subrecipient monitoring for awards dependent on participant eligibility. Effect of Condition The County did not complete a risk assessment for this subaward. Without conducting a risk assessment, the County risks not performing adequate monitoring to ensure its subrecipient complied with program requirements and used federal funds appropriately. Since the County did not monitor its subrecipient, there was no way for it to confirm the assistance was paid only to eligible households. Recommendation We recommend the County perform a sufficient risk assessment over subrecipients and monitor them accordingly to verify they are complying with the terms and conditions of the award and only providing funds to eligible participants. County?s Response Cowlitz County greatly appreciates the time the State Auditor?s Office has spent with the County through this process and the helpful explanations of the expectations from your office. Administering these funds was challenging, the funds came quickly with pressure from the federal and state level to get them out quickly. There were also continual changes to the program guidelines, reporting requirements, etc. that were difficult to keep up with. This was a new program type for our County to administer and had a much shorter contract period than usual, so we met with the subrecipient weekly to review any program changes, eligibility questions, program documents, source documents, program reports, process questions, etc. to maintain consistent review and communication. Completing a formal Risk Assessment is a new process for us. We did informally complete components of a risk assessment, such as reviewing the agencies latest single audit and reviewing previous subrecipient monitoring results that included federal funds. We now understand the need to develop a formal risk assessment tool that will determine the level of subrecipient monitoring needed in future subrecipient contracts. Development of a risk assessment tool has begun and we look forward to finalizing and implementing into our practice in the near future. Auditor?s Remarks We appreciate the County?s response and commitment to resolving this finding. We thank it for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. 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.