Audit 413292

Finding 2025-001 Identification of the federal program: 90.100 – Denali Commission Program Noncompliance and material weakness in internal controls over procurement, and suspension and debarment Criteria: Non-Federal entities are required to maintain and follow documented procurement procedures that are consistent with applicable federal procurement requirements. Procurement transactions must be conducted using the appropriate procurement method and provide for full and open competition unless the circumstances supporting a noncompetitive procurement are met and appropriately documented at the time of entering the procurement. Additionally, for applicable covered transactions, non-Federal entities are required to verify that contractors are not suspended, debarred, or otherwise excluded from participation in federal programs prior to entering into the transaction. Finally, the award stipulates that projects subject to the Build America, Buy America Act (BABA Act) have applicable award requirements included as part of any entered procurement contracts. Condition: During our testing of four procurement transactions charged to the federal program, we identified the following exceptions: When testing compliance with Suspension and Debarment, we noted for all four transactions tested, the Association did not perform or document verification that the applicable vendors were not suspended, debarred, or otherwise excluded from participation in federal programs prior to entering into the transactions. When testing compliance with the Build America, Buy America Act, we noted two of the four transactions tested did not have applicable procurement and contract documentation including the required BABA Act provisions. When testing compliance with Procurement, we noted one of the four transactions tested exceeded $250,000 and was not competitively procured. The Association did not retain documentation for sole source justification from the time the contract was procured. Cause: Naknek Electric Association, Inc's procurement process did not ensure that suspension and debarment verification was performed and retained, applicable BABA Act requirements were incorporated into procurement and contract documentation, and procurements requiring competition were appropriately completed or supported by documented justification for noncompetitive procurement at the time of procurement. Effect: The lack of effective processes over federally funded procurements increases the risk that Naknek Electric Association, Inc, could enter into transactions with suspended or debarred parties, procure goods or services without the required competition, or fail to comply with applicable BABA Act requirements. Questioned Costs: $321,345 Recommendations: We recommend that the Association strengthen its internal controls over federally funded procurements by implementing a formal review process to ensure applicable federal requirements are identified and complied with when contracts or purchase commitments are executed. The review should include, as applicable, verification and documentation of vendor suspension and debarment status prior to entering into the contract, identification of procurements subject to BABA Act and incorporation of applicable BABA Act requirements into procurement and contract documents, determination of the appropriate procurement method and required level of competition and documentation of the circumstances and justification supporting any allowable noncompetitive procurement. We further recommend that the Association retain documentation supporting these procedures as part of its procurement records. Views of responsible officials: Management generally concurs with this audit finding and will strengthen internal controls over federally funded procurement by developing and implementing a procurement policy that outlines applicable federal requirements and how they will be incorporated into the procurement process. As noted in the finding, federal procurement requirements were not followed for significant portions of project's major procurement. The construction project was initially undertaken without federal funding, and the federal award was incorporated midway through the project to provide adequate funding through the completion of the project. Consequently, the majority of the major procurement activities occurred before federal funding was introduced and the applicable federal procurement requirements would have applied. Management recognizes, however, that the subsequent incorporation of federal funds does not eliminate its responsibility to comply with applicable federal requirements and will implement procedures to ensure procurement activities comply with federal standards when the possibility of the use of federal funds may arise.

Finding 2025-002 Identification of the federal program: 90.100 – Denali Commission Program Noncompliance over policies Criteria: 2 CFR Part 200.302(b)(7) requires the financial management system to include written procedures for determining the allowability of costs. Condition: The Association has not developed written procedures for determining the allowability of costs. Cause: Management did not have written procedures for determining the allowability of costs. Effect: Unallowable costs could be charged to the program. Questioned Costs: None Recommendations: Management should develop written procedures as required by 2 CFR Part 200.302(b)(7). Views of responsible officials: Management concurs with this audit finding and will take corrective action by developing a written policy for the determination and segregation of unallowable costs from allowable costs. Informal unwritten procedures have been taken in the invoice review process prior to payment to ensure unallowable costs are separated from allowable costs, but a written policy has not been previously developed.