SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Beacon Hill Water and Sewer District January 1, 2024 through December 31, 2024 Consistent with identifying COVID-19 expenditures on the SEFA, auditors should put the COVID-19 designation in front of the program title for audit findings that are applicable to COVID-19 new or existing programs, and separately identify questioned costs associated with COVID-19. 2024-001 The District 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: Cowlitz County Pass-through Award/Contract Number: 02072023 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) 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 District spent $855,000 in program funds for an infrastructure project . Federal regulations require recipients to establish, document and maintain effective 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 District 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 District 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 District must verify this before entering into the contract, and must maintain documentation demonstrating compliance with this federal requirement. Description of Condition Although the District has a process to verify the suspension and debarment status for contractors it pays more than $25,000, our audit found the District did not follow this process and did not verify the one contractor was not suspended or debarred before purchasing from them. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition Although District staff said they were aware of the requirements, they could not locate documentation to show that they verified the contractor’s suspension and debarment status before entering into the contract or purchasing from them. Effect of Condition The District 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 $855,000 using federal funds was not suspended or debarred before contracting. Without adequate internal controls, the District increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the District 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 District 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. District’s Response During the audit, the District presented documentation that the contractor was not suspended or debarred. However, we could not clearly demonstrate when that documentation was produced. While the District agrees we could improve on documenting the time stamp of the federal suspension and debarment records, we intended to meet the requirement. It is unfortunate that a finding was issued instead of a lower reporting level when a search was conducted by the District, and the contractor was in fact not suspended or debarred. Nevertheless, in the District’s continuing efforts to improve and do better, we are dedicated to updating our procurement procedures to ensure compliance with all requirements related to the use of federal funds. Specifically, we will prepare an internal checklist or other form to provide a central point of checks and time stamps to make sure all requirements are met. This will be sure to include a step to verify and document the suspension and debarment status for contractors before purchasing from them by using one of the following methods: obtaining a written certification, inserting a clause into the contract or searching for exclusion records at SAM.gov. The District is committed to maintaining adequate internal controls and has taken pride in producing clean audits for over 12 years. The District is confident that implementing the additional procurement procedure will ensure compliance with the suspension and debarment certification requirements. Auditor’s Remarks We thank the District for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the District’s corrective action during our next 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.