Avoid the most common federal single audit finding with these 10 tips

Originally published May 26, 2022

Updated September 6, 2023

As you enter into new federally funded contracts this year, you should take care to comply with federal procurement requirements. We first ran this article in May 2022, and due to its importance, we are republishing it as a reminder. And, if you think you might receive federal awards for future construction projects, now is the time to prepare your policies and procedures and send staff to training! We offer federal single audit compliance training twice per year. See details about these trainings at the end of the article.

Local governments often find federal procurement requirements challenging. We know this because it's the most common single audit finding that we report—accounting for about 26 percent of them.

The Infrastructure Investment and Jobs Act and the Inflation Reduction Act will be funding many state and local government projects over the coming years. When using federal funds, local governments must follow very specific procurement requirements. Here are some particularly risky areas to pay attention to when you procure goods and services with federal funds:

1. Train staff involved with federal procurements. It is important to adequately train new staff and provide refresher trainings to existing staff to make sure they are up to date on all federal requirements. Centralizing the procurement function for federal programs can reduce the amount of staff training needed.
2. Use your own documented procurement procedures. The Uniform Guidance requires you to have documented procurement procedures that reflect your applicable local, state and federal requirements. These procedures must also include all the federal procurement requirements (2 CFR §200.318). We advise you to incorporate these written procedures into your policy, but make sure the policy is in effect before you undertake any federal procurements.
3. Maintain written standards of conduct. As a grant recipient, you must have written standards of conduct that cover conflicts of interest and expectations for your employees who are involved in selecting, awarding or administrating contracts procured with federal funds (2 CFR §200.318). It is best to incorporate these standards into your policy and procedures.
4. Follow the most restrictive of your local, state or federal laws. Federal regulations provide bid thresholds and bidding requirements, but they also specify that you must follow the most restrictive of any local, state or federal bidding requirements. It can be confusing for your staff to determine the most restrictive of these various sources of requirements on their own. When addressing No. 2 up above, establishing a well-written policy can help clear up the confusion for staff. In some cases, federal requirements are stricter than state law. For example, if you procure using federal funds, you must adhere to the $250,000 federal limitation even though Washington's small works threshold is $350,000. You'll also find stricter federal requirements when procuring services like architectural and engineering services. But federal law is not always the most restrictive. For example, your local policy may contain competitive bidding thresholds that are lower than federal or state requirements. The bottom line is that you need to consider all three and follow the most restrictive.
5. Verify suspension and debarment before you contract. You must verify whether contractors are banned from doing business with the federal government—also known as being suspended or debarred. Read more about this topic in our July 2023 article.
6. Justify use of sole source contracts (noncompetitive procurement). Be extremely careful if you spend federal funding using a sole source contract. If you can truly only purchase from one single source of supply, then you must document your rationale for not following your regular procurement procedures (e.g., public bidding, small purchase procedures, or competitive proposals). Keep any and all support that documents your research. Additionally, you must formally waive those competitive procurement requirements, such as by obtaining board approval.
7. Perform a price or cost analysis. Before you go out to bid, you might be required to prepare your own independent estimate of the prices or costs you expect to pay (although, the method and degree of analysis may vary depending upon the nature of the procurement). You are required to prepare such an estimate if the procurement exceeds your public bidding threshold, which for federal procurements is $250,000 (or a lesser amount if your local or state bid threshold is more restrictive).
8. Perform due diligence when relying on a project manager or consultant. Some local governments hire a third party to handle procurements and manage federally funded projects for them. That's fine, but you are still responsible for complying with federal requirements. You'll want to make sure a project manager or consultant has the appropriate knowledge and experience, and you must monitor them to ensure they're doing the job you expect. Also, make sure you have the documentation you need for federal single audit purposes.
9. Follow all applicable requirements for prevailing wages (public works projects). State and federal prevailing wage requirements differ significantly, and you must comply with both for a federally funded project done in Washington. Sometimes staff mistakenly assume that state prevailing wage requirements are the same as federal, and this leads to audit issues.
10. Document your procurement steps. Maintain records that adequately detail the history of the procurement. If you obtain quotes or bids, keep all that you receive—not just that of the successful bidder. Some governments use checklists to ensure they have completed all the steps. Retain any checklists or other tools you use. Keep your documentation in a central location so that you have access even when there are staff changes.

SAO’s trainings on federal award requirements

Looking for more guidance on federal award requirements? SAO’s single audit specialists lead a six-hour training at the annual Washington Finance Officers Association (WFOA) conference. If you’re not attending the conference, the training is offered again in the spring. Keep tabs on the WFOA non-conference education page for details.

Contact us

While your grantor is the best source for information about a federal program, you can also submit technical questions about federal awards to our HelpDesk in the client portal.

If you have other questions, comments or suggestions, feel free to email us at Center@sao.wa.gov.