KING COUNTY WATER DISTRICT NO. 90

2019-001 The District did not have adequate controls to ensure compliance with federal procurement requirements. "See Schedule of Findings and Questioned Costs for chart/table". Background The Drinking Water State Revolving Fund (DWSRF) program is a federal-state partnership to help ensure safe drinking water. Created by the 1996 Amendments to the Safe Drinking Water Act (Act), the program provides financial support to water systems and to state safe water programs. In 2019, the District spent $1,480,215 in Drinking Water State Revolving funds. The objective of the program is to provide states with capitalization grant awards to create and maintain Drinking Water State Revolving Funds programs. States can use the grant funds to establish a revolving loan fund to assist public water systems, finance the costs of infrastructure needed to achieve or maintain compliance with the Act?s requirements, and protect the Act?s public health objectives. Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding of grant requirements and monitoring the effectiveness of established controls. Federal regulations also 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. In addition, federal grant regulations require recipients to maintain written standards of conduct covering conflicts of interest and governing the actions of employees engaged in the selection, award, or administration of contracts procured with federal funds. Description of Condition The District followed the Washington State Department of Health?s Customer Handbook and its own 2009 Ethics/Conflict of Interest Policy during the audit period. However, the District did not have its own written procurement procedures, and its ethics/conflict of interest policy did not conform to federal regulations before the District procured the West Lake Kathleen Water Main Replacement Project, as required. Specifically, the ethics/conflict of interest policy did not include two of the three required elements relating to officers, employees, and agents involved in the selection, award and administration of federal contracts. We consider these internal control deficiencies to be a material weakness. The issue was not reported as a finding in the prior audit. Cause of Condition The District did not know of this particular federal requirement and did not implement a written procurement policy or update its 2009 Ethics/Conflict of Interest Policy until April 2020. As a result, the policies were established and updated after the District formally procured the contract for the West Lake Kathleen Water Main Replacement Project in August 2018. Therefore, the District did not implement and update procedures and policies to conform to federal regulations before procuring the contract. Effect of Condition Without these policies, the District is at greater risk of not complying with the most restrictive of federal, state, or local procurement methods and standards of conduct requirements when procuring contractors paid with federal funds. Although the District did not have a written procurement policy and did not update its 2009 Ethics/Conflict of Interest Policy in a timely manner, it complied with federal requirements to competitively procure the public works contract for the Drinking Water State Revolving Funds program. Recommendations We recommend the District comply with federal requirements and communicate its updated federal procurement and standards of conduct policies to District staff. We further recommend the District ensure employees comply with the updated policies. District?s Response The District completed the necessary corrective action prior to the beginning of the 2019 Audit. On June 17, 2020 the District accepted by Resolution #1075, a KCWD90 Procurement Policy. This updated policy has been reviewed during the 2019 Audit and found to be in compliance. Specifically, the ethics/conflict of interest policy does now include all three required elements relating to officers, employees, and agents involved in the selection, award and administration of federal contracts. Auditor?s Remarks We appreciate the District?s commitment to resolve the finding and thank the District for its cooperation and assistance during the 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.

"See Corrective Action Plan for chart/table"