CITY OF NORTH BENDLocal Government

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: N/A Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A 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 government services to the extent COVID-19 caused a reduction in revenues collected, make necessary investments in water, sewer or broadband infrastructure, provide emergency relief from natural disasters or their negative economic impacts, fund projects eligible under certain programs administered by the U.S. Department of Transportation through three pathways and fund projects eligible under the programs established in Title I of the Housing and Community Development Act of 1974. In 2024, the City spent $504,309 in program funds for these activities. 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. 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 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 Although the City has a process to verify the suspension and debarment status for contractors it pays $25,000 or more using federal funds, our audit found the City could not demonstrate it verified the one contractor we tested was not suspended or debarred before entering into the contract with them. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City staff were aware of the federal suspension and debarment verification requirements and normally verify that the requirements are met during the procurement process. Current City staff were able to locate documentation indicating that they verified the contractor's suspension and debarment status. However, the documentation was not dated, and therefore the City could not determine whether staff performed the verification before the City entered into the contract with the contractor. Effect of Condition 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 $27,116 using federal funds was not suspended or debarred before contracting with or purchasing from them. 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 contractor was not suspended or debarred. Therefore, we are not questioning costs. Recommendation We recommend the City strengthen its internal controls to ensure 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 of North Bend acknowledges an invoice utilizing SLFRF funds, and paid to a national vendor, did not include an attached and time-stamped verification from SAM.gov, required to determine suspensions and debarments. This was an oversight of the invoice review process as required by the procurement regulations in 2 CFR 200. Presently, the Public Works staff, Contract Specialist, and Capital Staff Accountant ensure adherence to all applicable local, State, and federal procurement laws and regulations as provided in the Uniform Guidance at 2 CFR 200.214, 2 CFR Part 180, and Treasury’s implementing regulations at 31 CFR Part 19, prohibiting recipients from entering contracts with or making payments to suspended or debarred parties. The city understands the significance of the finding and has taken steps to identify weaknesses in processes. The city engaged an independent CPA firm to conduct a thorough review of procedures to include checkpoint templates for significant requirements such as the review for suspension and debarment. Auditor’s Remarks We thank the City for its cooperation throughout the audit and the steps taken to address the concern. We will review the status of the City’s corrective action 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.

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: N/A Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A 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 government services to the extent COVID-19 caused a reduction in revenues collected, make necessary investments in water, sewer or broadband infrastructure, provide emergency relief from natural disasters or their negative economic impacts, fund projects eligible under certain programs administered by the U.S. Department of Transportation through three pathways and fund projects eligible under the programs established in Title I of the Housing and Community Development Act of 1974. In 2023, the City spent $388,125 in program funds for these activities. 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. 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 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 Although the City has a process to verify the suspension and debarment status for contractors it pays $25,000 or more using federal funds, our audit found the City did not follow this process and did not verify the one contractor we tested was not suspended or debarred before entering into the contract with them. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition City staff were aware of the federal suspension and debarment verification requirements and normally verify that the requirements are met during the procurement process. However, the City experienced turnover in the position responsible for documenting the verification. Current City staff were unable to find documentation showing evidence that they verified the contractor’s suspension and debarment status. Effect of Condition 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 $56,217 using federal funds was not suspended or debarred before contracting with or purchasing from them. 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 contractor was 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 of North Bend acknowledges that a contract utilizing SLFRF funds, and awarded to a software vendor, did not include within the contract a required self-attestation concerning Suspensions and Debarments. The self-attestation was used in lieu of a documented review of the SAM.gov portal for suspensions and debarments. This was an oversight of contract review process. Other contracts issued during the same period included self-attestation language from 2 CFR 200.317 through 2 CFR 200.327. In 2024 and 2025, the Public Works Deputy Director, Contract Specialist, and Capital Staff Accountant ensure adherence to all applicable local, state, and federal procurement laws and regulations as provided in the Uniform Guidance at 2 CFR 200.214, 2 CFR Part 180, and Treasury’s implementing regulations at 31 CFR part 19, prohibiting recipients from entering into contracts with suspended or debarred parties. The City of North Bend understands the significance of the finding and immediately took steps to review all subsequent contracts for compliance. Auditor’s Remarks We thank the City for its cooperation throughout the audit and the steps it has taken to address the concern. We will review the status of the City’s corrective action 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.

The City did not have adequate controls to ensure compliance with federal procurement requirements. "See Schedule of Findings and Questioned Costs for chart/table" Description of Condition During fiscal year 2019, the City spent $1.25 million in Highway Planning and Construction grant funds. The objective of the program is to (1) assist states, tribal governments, and federal land management agencies in the planning and development of an integrated, interconnected transportation system important to interstate commerce and travel by constructing, rehabilitating, and preserving the national highway system (NHS), including interstate highways, and other federal aid highways; (2) provide aid for the repair of federal-aid highways following disasters; (3) foster safe highway design and improve bridge conditions; (4) support community-level transportation infrastructure; and (5) provide for other special purposes. 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 require recipients to follow their own written procurement procedures, which must reflect the most restrictive of applicable federal, state, and local laws. The procedures must conform to federal procurement requirements to ensure recipients follow the most restrictive procurement thresholds and methods when using federal funds. The City had a written purchasing policy that allowed it to enter into public works contract change orders for materials, equipment, supplies and services. However, this policy did not conform to or include federal procurement requirements and did not include procedures for methods of procurement, such as public works contracts, before it procured the Park Street Roundabout project, as required. We consider this internal control deficiency to be a material weakness. The issue was not reported as a finding in the prior audit. Cause of Condition The City did not update its written procurement procedures and policies until December 2019, which is after it formally procured the contract for the Park Street Roundabout project in April 2019. Therefore, the City did not update procedures and policies to conform to federal regulations before procuring the contract. Effect of Condition Without updated policies, the City is at greater risk of not complying with the most restrictive of federal, state, or local procurement methods and requirements when procuring contractors paid with federal funds. Although the City did not update its policies in a timely manner, it complied with federal requirements to competitively procure the public works contract for the Highway Planning and Construction program. Recommendations We recommend the City comply with federal requirements and communicate its updated federal procurement policies to City staff. We further recommend the City ensures employees comply with the updated policies. City?s Response The City of North Bend appreciates the opportunity to respond to this finding. We would also like to thank the audit staff for their open dialogue and communications throughout the audit. The City has already addressed the issue noted under Cause of Condition, but the updated written procurement policies and procedures were not adopted until December 2019 which was after the contract was formally bid. Although the written policies and procedures were not formally adopted prior to the contract being bid, the City has always followed applicable federal procurement regulations and had already implemented these updated procedures in 2018, prior to formal adoption, to ensure that all federal thresholds and requirements were being adhered to. It is important to emphasis, as noted under Effect of Condition, that the City was in compliance with applicable federal requirements despite the delay in formal adoption of the policy updates. 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, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. Title 2 CFR Part 200, Section 318, General procurement standards, establishes requirements for written procedures.