PORT OF EVERETTLocal Government

2019-001 The Port did not have adequate internal controls to ensure compliance with federal suspension and debarment requirements. CFDA Number and Title: 20.205 Highway Planning and Construction 20.933 National Infrastructure Investments Federal Grantor Name: Department of Transportation Federal Award/Contract Number: DTMA91G1600009 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Questioned Cost Amount: $0 Description of Condition The Port received grant funds for the ?Port of Everett South Terminal Modernization Project? to strengthen more than 500 feet of dock, create a modern berth capable of handling roll-on/roll-off and inter-modal cargo, and upgrade high voltage power systems. The project also will construct rail sidings to increase on-site rail car storage. The Port spent $1,195,769 in Highway Planning and Construction program funds and $6,597,014 in National Infrastructure Investments program funds in 2019. Federal regulations require grant recipients to establish and follow internal controls that ensure 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 parties suspended or debarred from doing business with the federal government. Whenever the Port contracts for goods and services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that the contractor is not suspended or debarred or otherwise excluded. The Port can obtain a written certification from the contractor or insert a clause into the contract where the contractor states it is not suspended or debarred. Alternatively, the Port may review the federal Excluded Parties List System (EPLS) issued by the U.S. General Services Administration. This verification must be performed before entering into a contract or purchase.The Port did not have effective controls to verify one contractor, which it paid $28,684 in part from each program, was not suspended or debarred before making the purchase from the contractor. This was the only covered transaction for these grants during the audit period. We consider this internal control deficiency to be a material weakness, which led to material noncompliance. The issue was reported as a finding in the prior audit as finding 2018-001. Cause of Condition The Port was aware of the requirement and had established processes to ensure compliance. However, the controls were not effective for one unusual circumstance. In this instance, the Port did not procure the services itself. Therefore, the Port did not use the checklist it would typically use when procuring transactions paid with federal funds, which would prompt the Port to verify the contractor?s status. During the fiscal year 2018 audit of the National Infrastructure Investments program, we reported a finding over suspension and debarment related to purchases with this vendor. Although the Port has since updated its control process to correct the weaknesses reported in the prior year, the payments made to this vendor occurred before our 2018 audit. Therefore, the Port was not aware of the weaknesses at the time of payment in 2019. The Port did not enter into any covered transactions after we reported the prior year finding, and therefore did not have the opportunity to use its updated controls for these grants. Effect of Condition Without adequate internal controls over suspension and debarment requirements, the Port cannot guarantee it pays federal funds only to eligible contractors. Any payments made to an ineligible party would be subject to recovery by the funding agency. We verified the vendor was not suspended or debarred. Therefore, we are not questioning the related costs. Recommendation We recommend the Port ensure its internal controls are adequate to verify that all contractors it pays $25,000 or more, paid all or in part with federal funds, are not suspended or debarred from participating in federal programs before awarding contracts or making purchases from the contractor.Port?s Response The Port of Everett acknowledges the issue described. At the time of the reported transaction (prior July, 2019) the port endeavored to assure that suspension and debarment requirements were met by reviewing the excluded parties list system(EPLS) for all contractors and subcontractors working on any projects anticipated to be partially funded by federal programs. In this instance, the Port paid for a service arranged by the general contractor and therefore did not utilize its usual checklist to assure the vendor?s eligibility. As of July 15, 2019 all Port agreements were modified by inserting a written statement that certifies that the contractor and its subcontractors are not included in the EPLS; and requiring them to provide immediate notice to the Port should they learn that the certification has become erroneous. The Port believes that this modification will allow us to meet the suspension and debarment requirements on all agreements following that date. Auditor?s Remarks We appreciate the steps the Port of Everett is taking to resolve this issue. We will review the status of this finding during our next regularly scheduled 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, Uniform Guidance, section 213 ? Suspension and Debarment, establishes suspension and debarment requirements 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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