Audit 314834

Internal Control over Compliance and Compliance with Reporting (Preparation of the Schedule of Expenditures of Federal Awards (SEFA)) ALN: 10.170, Specialty Crop Block Grant ALN: 15.228, National Fire Plan ALN 10.767: Intermediary Relending Program (IRP) ALN 66.818: Brownfields RLF ALN 11.307: Economic Development Assistance RLF Criteria: The Code of Federal Regulations (CFR) Section §200.510(b) states in part: "The auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with CFR Section §200.502 Basis for determining Federal awards expended." The schedule must provide total Federal awards expended for each individual Federal program. CFR 200.302(b)(1) requires that the nonfederal entity must identify in its accounts and on the schedule of expenditures of federal awards all federal awards received and expended, as well as the federal programs under which they were received. Federal program and award identification must include, as applicable, the Assistance Listing program title and number, the federal award identification number and year, the name of the federal agency, and the name of the pass-through entity, if any. Condition: The Specialty Crop Block Grant was left off of the prepared SEFA. Amounts reported for the National Fire Plan grant, IRP, and Brownfields RLF did not agree to the accounting records. The amount reported for the Economic Development Assistance RLF was not calculated in accordance with the compliance supplement calculation formula. Context: There SEFA was understated or overstated by ALN as follows: • Understated by $14,123 for the omission of the Specialty Crop Block Grant; • Overstated by $1,942 for National Fire Plan grant; • Understated by $10,748 for IRP; • Understated by $25,902 for Brownfields RLF; and • Overstated by $101,804 for Economic Development Assistance RLF. The net effect was an overstatement of $52,973. Effect: The SEFA provided was not complete and fully accurate. Questioned Costs: None. Cause: The internal controls for the preparation of the SEFA and review of the SEFA were not present to ensure the SEFA was complete and accurate. Auditor Recommendation: We recommend the Organization prepare procedures on how to put together the SEFA and strengthen internal controls to ensure all federal awards are included on the SEFA. We also recommend that staff who administer federal funds review the SEFA for completeness and accuracy before providing it to the auditor. Organization Response: The organization disagrees with the reported deficiency related to the SEFA preparation on the basis that the task was an agreed nonattest service contracted to Douglas Wilson & Company, P.C. The noted modifications are outcomes of these services and are not indicative of control deficiencies. With respect to the nonattest services, the Organization has fulfilled the responsibilities stated in the engagement letter to assume all management responsibilities for the services; to have those services overseen by an individual with appropriate skills, knowledge, and experience; evaluate the adequacy of the services; and to accept responsibility for them. Since its inception, the organization’s auditors have prepared the SEFA under the same engagement letters executed with the auditor. The organization’s outsourced accounting firm, JCCS, also provides these nonattest services for their auditees and were operating under the same understanding of this service arrangement. Management reports that this finding is a result of a misunderstanding between Management, JCCS, and Douglas Wilson & Company, P.C. regarding which party would complete the SEFA. Based on the signed engagement letter, Management understood that completing the SEFA was part of the auditors’ nonattest services. Their outsourced accounting firm, JCCS, provided a draft SEFA to the auditors with communication that it was a draft and would need to be finalized. JCCS worked directly with the auditor in making the necessary changes and finalizing the SEFA. Management nor JCCS were aware that the auditor would be identifying this collaboration as a material weakness. Management strongly disagrees that this finding has anything to do with a deficiency in internal controls as they understood they had engaged the auditor to provide this nonattest service. Management reports a discussion with the auditor that such a misunderstanding presented as an internal control deficiency carries significant consequences for the organization's future Federal awards. It is important that the organization's Federal grantors understand the full context of this finding.

Federal Funding Accountability and Transparency Act (FFATA) Criteria: The pass-through entity [Snowy Mountain Development Corporation] must ensure that the terms of all loan agreements and subgrants that borrowers and subgrantees comply with 2 CFR Part 170, Reporting Subaward and Executive Compensation under FFATA set forth in the General Conditions of the pass-through entity’s agreement with EPA entitled “Reporting Subawards and Executive Compensation.” Condition: The Organization was not aware of this reporting requirement and did not submit any reports for FFATA during the audit period. Context: No reports under FFATA were submitted. Effect: The Organization is not following the terms of the grant award for reporting requirements. Questioned Costs: None. Cause: The Organization was unaware of this requirement. Auditor Recommendation: We recommend the Organization continue to work with EPA to determine what information is required to be reported by Snowy Mountain Development Corporation, and submit reports as required in the award agreement. Organization Response: Management works closely with our Region VIII EPA Officer to implement the terms and conditions of its Cooperative Agreement. EPA has been working with its subgrantees to provide guidance on the new FFATA subaward system. To date, three (3) EPA grantees nationwide have accessed that system. With EPA's ongoing guidance, Management will continue its implementation of FFATA requirements. Management solicited the feedback of Montana's Certified Regional Development Corporations who are recipients of the same Federal program funds with the same terms and conditions set forth in their contracts. No auditor of these 10 other nonprofit economic development organizations has ever documented an FFATA finding in any of their audits, dating back to 2006. In fact, several executive directors responded that they report their executive compensations on their 990s. Management states that it is the Federal grantors' responsibility to identify grantee failures to meet the terms and conditions of the contracts they hold with the grantees. Management states that all reports submitted to US EPA have been accepted by US EPA as fully compliant with the terms and conditions of the Cooperative Agreement. As such, Management disagrees with this finding. It is important that the organization's Federal grantors understand the full context of this finding.

Internal Control over Compliance and Compliance with Reporting (Preparation of the Schedule of Expenditures of Federal Awards (SEFA)) ALN: 10.170, Specialty Crop Block Grant ALN: 15.228, National Fire Plan ALN 10.767: Intermediary Relending Program (IRP) ALN 66.818: Brownfields RLF ALN 11.307: Economic Development Assistance RLF Criteria: The Code of Federal Regulations (CFR) Section §200.510(b) states in part: "The auditee must also prepare a schedule of expenditures of Federal awards for the period covered by the auditee's financial statements which must include the total Federal awards expended as determined in accordance with CFR Section §200.502 Basis for determining Federal awards expended." The schedule must provide total Federal awards expended for each individual Federal program. CFR 200.302(b)(1) requires that the nonfederal entity must identify in its accounts and on the schedule of expenditures of federal awards all federal awards received and expended, as well as the federal programs under which they were received. Federal program and award identification must include, as applicable, the Assistance Listing program title and number, the federal award identification number and year, the name of the federal agency, and the name of the pass-through entity, if any. Condition: The Specialty Crop Block Grant was left off of the prepared SEFA. Amounts reported for the National Fire Plan grant, IRP, and Brownfields RLF did not agree to the accounting records. The amount reported for the Economic Development Assistance RLF was not calculated in accordance with the compliance supplement calculation formula. Context: There SEFA was understated or overstated by ALN as follows: • Understated by $14,123 for the omission of the Specialty Crop Block Grant; • Overstated by $1,942 for National Fire Plan grant; • Understated by $10,748 for IRP; • Understated by $25,902 for Brownfields RLF; and • Overstated by $101,804 for Economic Development Assistance RLF. The net effect was an overstatement of $52,973. Effect: The SEFA provided was not complete and fully accurate. Questioned Costs: None. Cause: The internal controls for the preparation of the SEFA and review of the SEFA were not present to ensure the SEFA was complete and accurate. Auditor Recommendation: We recommend the Organization prepare procedures on how to put together the SEFA and strengthen internal controls to ensure all federal awards are included on the SEFA. We also recommend that staff who administer federal funds review the SEFA for completeness and accuracy before providing it to the auditor. Organization Response: The organization disagrees with the reported deficiency related to the SEFA preparation on the basis that the task was an agreed nonattest service contracted to Douglas Wilson & Company, P.C. The noted modifications are outcomes of these services and are not indicative of control deficiencies. With respect to the nonattest services, the Organization has fulfilled the responsibilities stated in the engagement letter to assume all management responsibilities for the services; to have those services overseen by an individual with appropriate skills, knowledge, and experience; evaluate the adequacy of the services; and to accept responsibility for them. Since its inception, the organization’s auditors have prepared the SEFA under the same engagement letters executed with the auditor. The organization’s outsourced accounting firm, JCCS, also provides these nonattest services for their auditees and were operating under the same understanding of this service arrangement. Management reports that this finding is a result of a misunderstanding between Management, JCCS, and Douglas Wilson & Company, P.C. regarding which party would complete the SEFA. Based on the signed engagement letter, Management understood that completing the SEFA was part of the auditors’ nonattest services. Their outsourced accounting firm, JCCS, provided a draft SEFA to the auditors with communication that it was a draft and would need to be finalized. JCCS worked directly with the auditor in making the necessary changes and finalizing the SEFA. Management nor JCCS were aware that the auditor would be identifying this collaboration as a material weakness. Management strongly disagrees that this finding has anything to do with a deficiency in internal controls as they understood they had engaged the auditor to provide this nonattest service. Management reports a discussion with the auditor that such a misunderstanding presented as an internal control deficiency carries significant consequences for the organization's future Federal awards. It is important that the organization's Federal grantors understand the full context of this finding.

Federal Funding Accountability and Transparency Act (FFATA) Criteria: The pass-through entity [Snowy Mountain Development Corporation] must ensure that the terms of all loan agreements and subgrants that borrowers and subgrantees comply with 2 CFR Part 170, Reporting Subaward and Executive Compensation under FFATA set forth in the General Conditions of the pass-through entity’s agreement with EPA entitled “Reporting Subawards and Executive Compensation.” Condition: The Organization was not aware of this reporting requirement and did not submit any reports for FFATA during the audit period. Context: No reports under FFATA were submitted. Effect: The Organization is not following the terms of the grant award for reporting requirements. Questioned Costs: None. Cause: The Organization was unaware of this requirement. Auditor Recommendation: We recommend the Organization continue to work with EPA to determine what information is required to be reported by Snowy Mountain Development Corporation, and submit reports as required in the award agreement. Organization Response: Management works closely with our Region VIII EPA Officer to implement the terms and conditions of its Cooperative Agreement. EPA has been working with its subgrantees to provide guidance on the new FFATA subaward system. To date, three (3) EPA grantees nationwide have accessed that system. With EPA's ongoing guidance, Management will continue its implementation of FFATA requirements. Management solicited the feedback of Montana's Certified Regional Development Corporations who are recipients of the same Federal program funds with the same terms and conditions set forth in their contracts. No auditor of these 10 other nonprofit economic development organizations has ever documented an FFATA finding in any of their audits, dating back to 2006. In fact, several executive directors responded that they report their executive compensations on their 990s. Management states that it is the Federal grantors' responsibility to identify grantee failures to meet the terms and conditions of the contracts they hold with the grantees. Management states that all reports submitted to US EPA have been accepted by US EPA as fully compliant with the terms and conditions of the Cooperative Agreement. As such, Management disagrees with this finding. It is important that the organization's Federal grantors understand the full context of this finding.