Audit 392890

U.S. Department of Environmental Protection Agency Passed through State Department of Natural Resources and Conservation FFAL# 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Activities Allowed/Unallowed and Allowable Costs/Cost Principles Material Non-compliance Material Weakness in Internal Control Criteria: Per 2 CFR §200.303, non-federal entities must establish and maintain effective internal control over federal awards to provide reasonable assurance that the entity is managing the award in compliance with federal statutes, regulations, and the terms and conditions of the award. Per 2 CFR §200.403, costs must be adequately documented to be allowable under federal awards Condition: During our testing of allowable costs under Uniform Guidance, we noted that the client did not provide evidence of internal controls over the review and approval of costs charged to the federal program. Additionally, for 3 out of 4 sampled transactions, the client was unable to provide supporting documentation (invoices) for the expenditures tested. Cause: The client has not implemented sufficient procedures to ensure documentation is retained and controls are evidenced for allowable costs. Effect: Without evidence of internal controls and supporting documentation, there is an increased risk of noncompliance with Uniform Guidance requirements and potential questioned costs. Questioned Costs: $1,124,156 Context/Sampling: A nonstatistical sample of four invoices were selected for testing. Repeat Finding from Prior Years: No. Recommendation: We recommend the client implement and document internal control procedures over allowable costs, including maintaining invoice support for all expenditures charged to federal programs. Controls should include documented review and approval processes to ensure compliance with Uniform Guidance. Views of Responsible Officials: Agree.

U.S. Department of Environmental Protection Agency Passed through State Department of Natural Resources and Conservation FFAL# 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Procurement, Suspension and Debarment Material Non-compliance Material Weakness in Internal Control Criteria: • 2 CFR §200.303 requires non-federal entities to establish and maintain effective internal control over federal awards. • 2 CFR §200.318 requires non-federal entities to have and follow written procurement procedures that conform to applicable federal laws and standards. • 2 CFR §200.320 outlines requirements for procurement to be followed depending on the purchase threshold. • 2 CFR §200.213 requires non-federal entities to ensure that entities with which they contract are not suspended or debarred from federal programs. Condition: The District does not have documented internal controls over procurement activities. Additionally, the District did not follow procurement methods including obtaining quotes or bids as necessary or perform any of the required suspension and debarment procedures for vendors, such as verifying that vendors were not excluded from federal programs. Further, the District does not have a written procurement policy as required by Uniform Guidance. Cause: The District has not implemented documented internal controls or written procurement policies and did not perform suspension and debarment checks. Effect: Failure to implement these requirements increases the risk of noncompliance with Uniform Guidance and may result in unallowable costs or questioned costs. Questioned Costs: $1,124,156 Context/Sampling: A nonstatistical sample of three vendors were selected for testing. Repeat Finding from Prior Years: No. Recommendation: We recommend the District: • Develop and adopt a written procurement policy that complies with Uniform Guidance requirements. • Implement documented internal controls over procurement activities, including procedures for suspension and debarment checks. • Train staff responsible for procurement to ensure compliance with federal requirements. Views of Responsible Officials: Agree.

U.S. Department of Environmental Protection Agency Passed through State Department of Natural Resources and Conservation FFAL# 21.027 COVID-19 Coronavirus State and Local Fiscal Recovery Funds Reporting Material Non-compliance Material Weakness in Internal Control Criteria: • 2 CFR §200.303 requires non-federal entities to establish and maintain effective internal control over federal awards. • 2 CFR §200.328 requires recipients to submit accurate financial reports and maintain records that support the data reported. Condition: The District does not have documented internal controls over the preparation and review of federal financial reports. During our testing, we noted: • For one quarterly report, the District used an incorrect reporting period. • For both sampled reports, the District did not maintain the required supporting documentation in the reporting package to substantiate the amounts reported to the cognizant agency. Cause: The District has not implemented documented internal controls over the reporting process and did not ensure that supporting documentation was retained for amounts reported. Effect: Failure to maintain accurate reporting and supporting documentation increases the risk of noncompliance with Uniform Guidance and may result in questioned costs or misreporting to the cognizant agency. Questioned Costs: None to report. Context/Sampling: A nonstatistical sample of two reports were selected for testing. Repeat Finding from Prior Years: No. Recommendation: We recommend the District: • Develop and implement documented internal controls over the reporting process, including review procedures to ensure accuracy of reporting periods. • Maintain complete supporting documentation in the reporting package for all amounts reported to the cognizant agency. • Provide training to staff responsible for preparing and reviewing reports to ensure compliance with Uniform Guidance requirements. Views of Responsible Officials: Agree.