City of Issaquah

2019-001 The City did not have adequate internal controls and did not comply with federal suspension and debarment requirements. "See Schedule of Findings and Questioned Costs for chart/table" Description of Condition During fiscal year 2019, the City spent $1,131,155 in federal grant funds awarded by the Federal Highway Administration and passed through by the Washington State Department of Transportation. The City used program funding on three projects during fiscal year 2019. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Federal regulations prohibit grant recipients from contracting with parties suspended or debarred from doing business with the federal government. Whenever the City contracts for goods or services that are expected to equal or exceed $25,000, paid all or in part with federal funds, it must verify that the parties have not been suspended or debarred or otherwise excluded. This verification may be accomplished by obtaining a written certification from the contractor or inserting a clause into the contract where the contractor states it is not suspended or debarred. Alternatively, the City may review the federal Excluded Parties List System (EPLS) issued by the U.S. General Services Administration. This requirement must be met before entering into the contract. The City?s controls were not effective to ensure it complied with federal suspension and debarment requirements for all contracts of $25,000 or more. The City entered into one new contract during 2019 totaling $69,490. The City did not obtain a written certification, insert a clause in the contract, or demonstrate it reviewed EPLS for the professional service contractor for the street improvement project. We consider this control deficiency to be a material weakness. The issue was reported as a finding in the prior audit as finding 2018-002. Cause of Condition Because of staff turnover, the City could not locate records to show it verified the contractor?s suspension and debarment status. Effect of Condition Without adequate internal controls over suspension and debarment requirements, the City cannot ensure it pays federal funds to contractors that are eligible to participate in federal programs. Any payment of program funds to a contractor or subcontractor that has been suspended or debarred would be unallowable and subject to recovery by the funding agency. We verified that the contractor was not suspended or debarred on the U.S. General Services Administration?s award management website, www.sam.gov. Therefore, we are not questioning costs for these payments. Recommendation We recommend the City strengthen internal controls to ensure vendors paid with federal funds are not suspended or debarred and retain documentation to demonstrate compliance. City?s Response The City of Issaquah appreciates the opportunity to respond to the observations and conclusions drawn by the staff of the Washington State Auditor?s Office (SAO). We would like to thank the audit staff for the continued open dialogue and communications throughout the audit. The City agreed that its policies and procedures needed improvement to ensure compliance with federal suspension and debarment requirements. The City became aware of this deficiency in December 2019 as the State Auditor?s Office was completing the 2018 Single Audit. The City reacted quickly by implementing the corrective action in January 2020. However, due to fact that the corrective action was implemented after 2019 concluded, the City was aware that it was likely that the finding would be reissued as part of the 2019 audit as the same grant that triggered the finding in 2018 continued into 2019. That is what occurred; the contract cited by the auditors was entered into during 2019 before the corrective action took effect. On January 22, 2020, the City updated its contract checklist to specifically identify the need for grant management staff to secure supporting documentation related to the contractor?s federal suspension and debarment status. This checklist is used by the project manager and/or department operations specialist through the procurement process to ensure that all proper documentation is saved. This checklist and the supporting documents are reviewed by the department operations specialist or an administrative specialist when the contract is entered into the City?s enterprise resource planning system (ERP) for approval. The City is taking additional steps to also update contract language to ensure that contractors are not suspended or debarred before entering into an agreement with the City. Additionally, as noted by the auditors, the City did comply with the federal requirement to use contractors that are not suspended or debarred. However, the City could not substantiate that it actually followed the federal procedures without the supporting documentation. The City is confident that the corrective action will mitigate the circumstances that led to this finding in the future. Auditor?s Remarks We appreciate the City?s commitment to resolve the finding and thank the City for its cooperation and assistance during the audit. We recognize the City has made updates to its policies and procedures since our last audit. We will review the corrective action taken during the 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. 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 303, Internal controls, establishes internal control requirements for management of Federal awards to non-Federal entities. Title 2 CFR Part 180, OMB Guidelines to Agencies on Government wide Debarment and Suspension (Nonprocurement), establishes non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.

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