SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Spokane Conservation District January 1, 2025 through December 31, 2025 2025-001 The District did not have adequate internal controls for ensuring compliance with federal subrecipient monitoring and suspension and debarment requirements, and it did not comply with federal suspension and debarment requirements. Assistance Listing Number and Title: 10.727 Inflation Reduction Act Urban & Community Forestry Program Federal Grantor Name: U.S. Department of Agriculture Federal Award/Contract Number: 24-DG-11062765-154 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2024-001 Background During fiscal year 2025, the District spent $774,900 in federal funds from the Inflation Reduction Act Urban & Community Forestry Program. The objective of this program is to plan for, establish, manage and protect trees, forests, green spaces and related natural resources in and near cities and towns. Of this amount, the District passed through $260,472 to two subrecipients. 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. Subrecipient Monitoring When the District passes on federal funds to subrecipients, federal regulations require it to monitor subrecipient activities. This includes ensuring the subrecipient receives a federal single audit when required, following up and ensuring the subrecipient takes timely and appropriate action on all audit findings, and issuing a management decision as required. The District must maintain documentation showing it performed this verification. Suspension and Debarment 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 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 Subrecipient Monitoring The District did not have effective internal controls to document and demonstrate it verified the two subrecipients tested received a single audit and that it followed up with the results of that audit, when necessary, as federal regulations require. We consider this internal control deficiency to be a significant deficiency. Suspension and Debarment Our audit found the District did not have adequate internal controls to verify the one contractor we tested that it paid more than $25,000 in federal funds was not suspended or debarred from participating in federal programs before purchasing from them. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition Subrecipient Monitoring Although District staff said they were aware of the requirement and reviewed the Federal Audit Clearinghouse site, they could not locate documentation showing they verified whether the subrecipients received a single audit when required. Suspension and Debarment 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. Additionally, although the District subsequently verified the contractor’s status when it received the prior audit finding for the 2024 audit, it was after purchasing from the contractor. Effect of Condition Subrecipient Monitoring The District did not retain documentation showing it verified whether the subrecipients received a single audit when required. Without documentation, the District cannot demonstrate it is properly monitoring its subrecipients and that the subrecipients complied with federal program requirements and received a single audit when required. Suspension and Debarment 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 $185,998 with 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. The District subsequently verified the contractor was not suspended or debarred. Therefore, we are not questioning costs. Recommendation Subrecipient Monitoring We recommend the District establish internal controls to retain documentation showing it verified that subrecipients received a single audit when required. Suspension and Debarment 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 District concurs with Finding 2025-001. The District acknowledges that although staff performed searches of the Federal Audit Clearinghouse for both subrecipients and were aware of the suspension and debarment requirements; however, the District did not retain documentation demonstrating these verifications, as required by 2 CFR 200.303, 2 CFR 200.332, and 2 CFR 200.214. Subrecipient Monitoring District staff were aware of the single audit requirements and reviewed the Federal Audit Clearinghouse for both subrecipients during the audit period; however, documentation of those verifications was not retained. The District has since followed up in writing with both subrecipients and obtained written confirmation that neither subrecipient exceeded $1,000,000 in federal expenditures during fiscal year 2025 and that neither expects to exceed the single audit threshold in fiscal year 2026. Accordingly, single audits were not required for either subrecipient. The written correspondence is retained in the subaward files. Going forward, all subrecipient monitoring activities — including Federal Audit Clearinghouse searches, single audit determinations, follow-up on audit findings, and management decisions — will be documented and retained in each subaward file at the time the verification is performed. Suspension and Debarment The District concurs that documentation was not retained for the suspension and debarment verification of the contractor paid $185,998 in federal funds. The contractor was subsequently verified as not suspended or debarred, and no further contracting activity occurred under the affected award. The District has implemented controls requiring verification of suspension and debarment status — through a SAM.gov exclusion check, a written certification from the contractor, or a contract clause — before entering into any contract or purchase expected to equal or exceed $25,000, paid in whole or in part with federal funds, consistent with 2 CFR 200.214 and 2 CFR Part 180. Documentation of each verification will be retained in the procurement file at the time of award. Corrective Action To provide sustained assurance and to address both components of this finding, the District is implementing a project management system with automated reminders and checklists covering the full life cycle of federal awards, subawards, and procurements. In addition, the district has updated its suspension and debarment policy and will formalize subrecipient monitoring documentation requirements. These updates will be incorporated into the District's annual contract and procurement training for all relevant staff. Completion is anticipated by December 31, 2026. 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. 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 200, Uniform Guidance, section 332, Requirements for passthrough entities, establishes subrecipient monitoring and management requirements for pass-through entities. 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.