SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Palouse Conservation District January 1, 2024 through December 31, 2024 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: 10.912 - Environmental Quality Incentives Program Federal Grantor Name: U.S. Department of Agriculture – Natural Resources Conservation Service Federal Award/Contract Number: NR223A750013G012 Pass-through Entity Name: National Association of Conservation Districts Pass-through Award/Contract Number: NR223A750022C002 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background During fiscal year 2024, the District spent $525,139 in Environmental Quality Incentives Program (EQIP) funds. The program’s objective is to promote agricultural production, forest management and environmental quality. These compatible national goals are used to optimize environmental benefits on eligible land with farmers, ranchers and nonindustrial private forest landowners. It is a voluntary program using partnerships with local, state, tribal and federal agencies, producer associations, and nonprofit organizations to provide flexible technical and financial assistance to implement and maintain structural, vegetative and land management conservation practices, including practices related to organic production. Federal regulations require recipients to establish, document and maintain internal controls that ensure compliance with program requirements. These controls include Office of the Washington State Auditor sao.wa.gov 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 and services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that 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 one contractor we tested 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 they verified the contractor’s suspension and debarment status. 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 $46,207 using federal funds under direct award number NR223A750013G012 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 The Palouse Conservation District appreciates the opportunity to respond to the finding and acknowledges the conclusion of the Washington State Auditor’s Office. While the District is aware of the federal suspension and debarment requirements, there was misunderstanding in retaining the proper documentation of the exclusion records from the U.S. General Services Administration’s System for Award Management. The deficiency in internal controls was identified prior to the end of FY24 and the District has implemented proper document retention to comply with the federal requirement. To further strengthen our internal controls and prevent recurrence, the District is implementing additional measures: 1. Internal Verification Log – A formalized verification log will be incorporated into our procurement process to ensure verification and documentation are completed before contracts are signed and payments are processed. 2. Staff Training and Monitoring – Additional training will be conducted to reinforce compliance procedures, and periodic internal reviews will be performed to ensure adherence to federal requirements. The Palouse Conservation District recognizes the importance of maintaining strong internal controls and ensuring compliance with federal requirements. We appreciate the auditor’s recommendations and are committed to the continual improvement of our processes. Auditor’s Remarks We appreciate the District’s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review corrective action taken during the next audit.We appreciate the District’s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. 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.