2025-002 Habitat Conservation – Assistance Lising #11.463 - Material Weakness in Internal Control over Compliance – Financial Management Recommendation: We recommend the Organization modify its financial management system to separately identify and track Federal award expenditures within the accounting records. Management should discontinue reliance on external workbooks as the primary record of Federal expenditures and ensure the accounting system provides complete, accurate, and auditable records sufficient to support Federal financial reporting and compliance with Uniform Guidance requirements. Explanation of disagreement with audit findings: there is no disagreement with the audit findings. Action taken in response to finding: In September 2025, Johnson Creek Watershed Council implemented a new financial management process that separately identifies and tracks Federal award expenditures within its accounting records. JCWC transitioned its bookkeeping and accounting functions to Jitasa, an external accounting firm, with QuickBooks Online serving as the official accounting ledger. Under the new process, Federal grant expenditures are coded to the appropriate grant, project, and funding source within the accounting system. Grant expenditures are reconciled to the QuickBooks general ledger and supporting documentation as part of the grant reimbursement and financial reporting process. External grant tracking worksheets may still be used as supplemental management tools for monitoring project budgets and preparing reimbursement requests; however, they are no longer relied upon as the primary record of Federal expenditures. The new Fiscal Policy Manual formalizes these practices. Section 4.4.4, Cost Allocation, requires direct costs to be charged to the specific grant, contract, or project and shared costs to be allocated using documented methodologies. Section 10.1, Financial Records, establishes QuickBooks as the official accounting ledger, with Jitasa maintaining and reconciling the organization's financial records. Action Plan: JCWC will continue the financial management process implemented in September 2025 and incorporate the process into its formal fiscal policies and procedures. The Finance & Grants Manager will work with Jitasa to ensure Federal award expenditures continue to be appropriately coded and identifiable within QuickBooks. Federal expenditures will be reviewed and reconciled to the general ledger and supporting documentation as part of ongoing grant management and reporting. The Finance & Grants Manager and Executive Director will monitor the process to ensure that external tracking worksheets remain supplemental management tools and that the official accounting records in QuickBooks remain the primary source for Federal expenditure reporting. Name(s) of the contact people responsible for correction action: Jennifer Hamilton, Executive Director Sean Connolly, Finance & Grants Manager Jitasa Mallette Faherty, Board Treasurer Plan completion date for corrective action plan: September 5, 2025 for implementation of the new process; ongoing monitoring thereafter.