City of BothellLocal Government

2024-001 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: WA0110 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0.00 Prior Year Audit Finding: Yes, Finding 2023-002 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 2024, the City spent $8,286,347 in program funds for these activities. Federal regulations require recipients to establish, document and maintain effective 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 internal controls to verify all 11 contractors it paid more than $25,000 in federal funds were 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 The City experienced key staff turnover in the finance department, which is ultimately responsible for ensuring compliance with procurement and suspension and debarment requirements. Current staff were unable to produce documentation to demonstrate compliance with suspension and debarment requirements. Effect of Condition and Questioned Costs The City did not obtain a written certification from the contractors, insert a clause into the contracts, or check for exclusion records at SAM.gov to verify contractors it paid $2,164,338 using federal funds were 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 contractors were not suspended or debarred. Therefore, we are not questioning costs. Recommendation 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. City’s Response The City thanks the State Auditor’s Office for the opportunity to respond to the audit finding regarding the non-compliance with federal suspension and debarment requirements of Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. Since the beginning of the COVID-19 pandemic, the City has focused on providing assistance to our residents as quickly as possible to mitigate the associated health, social, and economic impacts. Emergency declarations by the U.S. Secretary of Health and Human Services and the governor of Washington in 2020 only served to reinforce the urgent need to quickly provide assistance to the residents of Bothell. The City’s decentralized model for procurement and grant management has created challenges to meet federal compliance requirements. The City is committed to safeguarding public funds while meeting the needs of residents. A full-time analyst has already been hired to oversee SLFRF funds and assist staff with meeting compliance requirements. A full-time Contracts and Procurement Officer has also been hired to train staff and update the City’s procurement policies and procedures. Improving federal compliance will be a primary function of this role. Additional training is being created to educate City staff on federal compliance requirements. The City is currently working with our legal team on options to include suspension and debarment language in contracts, reducing administrative burden on City staff while ensuring compliance. The City appreciates the efforts of the State Auditor’s Office in providing a thorough and detailed explanation of the appropriate compliance requirements. The City acknowledges it did not retain sufficient documentation to show suspension and debarment compliance requirements were met. The City takes its responsibility to safeguard public funds seriously, and is committed to improving internal controls over grant management that affect the City’s ability to comply with federal regulations. Auditor’s Remarks We thank the City for its cooperation and assistance during the audit and acknowledge its commitment to resolve this finding. We will review the City’s corrective action taken 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.

2023-002 The City lacked adequate internal controls for ensuring compliance with federal requirements for procurement and suspension and debarment. 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: WA0110 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: 2022-002 Background 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 2023, the City spent $2,561,053 in program funds to respond to negative economic impacts caused by the pandemic, including providing public health services and replacing lost revenue for government services. 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 procurement standards require governments to conduct procurement transactions for services required under a federal award in a manner that ensures full and open competition. Non-competitive procurement is allowed only in limited circumstances when a competitive process is not feasible, and the government must adequately document the rational for limiting competition to support the decision. When using federal funds to purchase services, governments must apply the most restrictive of federal requirements, state laws or local policies by obtaining quotes or following a competitive procurement process, depending on the estimated purchase cost. 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 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 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 it must maintain documentation demonstrating compliance with this federal requirement. Description of Condition Procurement The City entered into two separate contracts with one vendor to provide behavioral health services. In 2023, it paid this vendor a total of $587,438 for these services. The City’s internal controls were ineffective for ensuring it complied with federal procurement requirements. Specifically, the City did not follow its policy for procuring and awarding service contracts more than $200,000 with an advertised request for competitive bids.   Suspension and Debarment Our audit found the City did not have adequate controls in place to verify 10 contractors it paid more than $25,000 in federal funds were not suspended or debarred from participating in federal programs. We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance. Cause of Condition The City experienced employee turnover in positions responsible for administering these federal awards. City employees therefore lacked adequate experience and training necessary to demonstrate compliance with federal procurement and suspension and debarment requirements. Effect of Condition Procurement Without advertising a request for competitive bids as required, the City cannot ensure it allowed for full and open competition, received the best price for the behavioral health services and complied with applicable federal regulations or its own policy. Suspension and Debarment The City did not obtain written certifications, insert clauses into contracts or check SAM.gov to verify the 10 contractors were not suspended or debarred before entering into the contracts. 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 through SAM.gov that these contractors were not suspended or debarred. Therefore, we are not questioning costs. Recommendation We recommend the City strengthen its internal controls to ensure compliance with federal requirements. Specifically, we recommend the City: • Provide adequate training to staff responsible for administering federal programs • Ensure it procures goods and services charged to federal programs in accordance with federal regulations and City policy • Ensure contractors paid $25,000 or more, all or in part with federal funds, are not suspended or debarred before entering into contracts with them or charging their costs to the program City’s Response The City thanks the State Auditor’s Office for the opportunity to respond to the audit finding regarding the non-compliance with federal requirements for procurement and suspension and debarment requirements of Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. Since the beginning of the COVID-19 pandemic, the City has focused on providing assistance to our residents as quickly as possible to mitigate the associated health, social, and economic impacts. Emergency declarations by the U.S. Secretary of Health and Human Services and the governor of Washington in 2020 only served to reinforce the urgent need to quickly provide assistance to the residents of Bothell. The City’s decentralized model for procurement and grant management has created challenges to meeting federal compliance requirements. The City is fully committed to safeguarding public funds while meeting the needs of residents. A fulltime analyst has already been hired to oversee SLFRF funds and assist staff with meeting compliance requirements. Additional training is being created to educate City staff on federal compliance requirements. The City is also reviewing options to add staff to assist the City with procurement needs. The City appreciates the efforts of the State Auditor’s Office in providing a thorough and detailed explanation of the appropriate compliance requirements. The City acknowledges it did not follow procurement policy in awarding two contracts for behavioral health services and did not retain sufficient documentation to show suspension and debarment compliance requirements were met. The City takes its responsibility to safeguard public funds seriously, and is committed to improving internal controls over grant management that affect the City’s ability to comply with federal regulations. Auditor’s Remarks We thank the City for its cooperation and assistance throughout the audit and acknowledge its commitment to resolve this finding. 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 non-procurement debarment and suspension regulations, implementing Executive Orders 12549 and 12689. City of Bothell, Procurement Policy, section 4.0, Competition requirements, describes the procurement actions to be taken for purchases of supplies, equipment, non-professional services, and computer or telecommunications software, equipment, and services.

2022-002 The City?s internal controls were inadequate for ensuring compliance with federal requirements for allowable costs and suspension and debarment. 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 made necessary investments in water, sewer or broadband infrastructure. During 2022, the City spent $1,877,353 in program funds to cover additional costs it had incurred during the pandemic, including expenditures supporting public health, household utility relief, and direct assistance to local businesses 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 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, 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 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 perform this verification before entering into the contract, and it must maintain documentation demonstrating compliance with this federal requirement. Description of Condition Allowable Costs The City established 14 eligibility criteria for local business assistance and one eligibility criterion for utility assistance, but it did not have a process in place to verify 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 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 three contractors were not suspended and debarred from participating in federal programs before entering into contracts. 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 residents. As the SLFRF program was a new type of federal funding for the City, 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. Effect of Condition 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. Our audit found the following: ? Small business support: The City provided financial assistance to 38 businesses without obtaining documentation to show each business met its established eligibility criteria. Therefore, we are questioning $494,346 in costs charged to the program. ? Utility bill support: The City did not obtain documentation to confirm residents met the low-income criterion before approving the assistance. We noted the City provided assistance to 27 of its residents without confirming they were eligible to receive such assistance. Therefore, we are questioning $24,468 in costs charged to the program. Suspension and Debarment The City did not obtain written certifications, insert clauses into contracts, or check SAM.gov to verify the three contractors were not suspended or debarred before entering into the contracts. 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 ineligible parties would be unallowable, and the awarding agency could potentially recover them. Through a search of SAM.gov, we verified these contractors were not suspended or debarred. Therefore, we are not questioning costs. 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 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 City?s Response The City thanks the State Auditor?s Office for the opportunity to respond to the audit finding regarding the non-compliance with allowable cost and vendors suspension and debarment requirements of Coronavirus State and Local Fiscal Recovery Fund (SLFRF) expenditures. Since the beginning of the COVID-19 pandemic, the City has focused on providing assistance to our residents as quickly as possible to mitigate the associated health, social, and economic impacts. Emergency declarations by the U.S. Secretary of Health and Human Services and the governor of Washington in 2020 only served to reinforce the urgent need to quickly provide assistance to the residents of Bothell. In the process of providing small business grants and utility assistance to Bothell residents, the City attempted to document the review of eligibility requirements to show costs were allowable. The City asserts that review of eligibility requirements was completed, and documentation showing negative confirmation is available. However, the level of documentation required by the Auditor?s Office is not available. While the federal government provided a considerable amount of guidance associated with the funding, it also included ever-changing regulatory and compliance framework that created challenges when determining the correct compliance requirements. This was particularly difficult considering the unprecedented distribution of this funding with limited resources and support to administer these funds. In addition, the City?s Finance department experienced extraordinary attrition during 2022, which impacted the resources available to provide a higher level of oversight. The City appreciates the efforts of the State Auditor?s Office in providing a thorough and detailed explanation of the appropriate compliance requirements. The City acknowledges it did not retain sufficient documentation to show allowable cost and vendors suspension and debarment compliance requirements were met. The City is working to create new grant management policies and procedures to strengthen internal controls. The City takes its responsibility to safeguard public funds seriously, and is committed to improving internal controls over grant management that affect the City?s ability to comply with federal regulations. Auditor?s Remarks We appreciate the City?s commitment to resolve this finding and thank the City 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. 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.