Sallal Water Association, Inc.Non-Profit

2022-001 Procurement, Suspension and Debarment ALN Number Name of Federal Program 10.760 Water and Waste Disposal Systems Identification as a Repeat Finding: Repeat of Finding 2021-001 Finding: The Association did not have a written procurement policy that complies with the procurement standards established in 2 CFR sections 200.318 through 200.326 in place for the full compliance year. Criteria: Non-Federal entities other than States must follow the procurement standards set out at 2 CFR sections 200.318 through 200.326. They must use their own documented procurement procedures, which reflect applicable State and local laws and regulations, provided that the procurements conform to applicable Federal statutes and the procurement requirements identified in 2 CFR 200. Condition and context: Sallal Water Association adopted a procurement policy for goods and service providers that complies with federal procurement standards in December 2022. As such, it was non-compliant with the federal standards for 11 months of the compliance year. Sample size and population: Sampling was not applicable to this finding. Effect: The result of the finding is that Sallal Water Association is not in compliance with federal procurement standards for 11 months of the compliance year. Recommendation: None as the Association adopted a written procurement policy in December 2022. Question Costs: None Management Response and Corrective Action Plan: See Corrective Action Plan Contact Person: Kristina Parker, Director of Finance and Operations

2022-002 Fidelity Bond ALN Number Name of Federal Program 10.760 Water and Waste Disposal Systems Identification as a Repeat Finding: Repeat Finding of 2021-002. Finding: The Association has not maintained fidelity bond coverage to comply with loan covenant requirements. Criteria: Per Section 5(g) of the Loan Resolution Security Agreement, the Association shall maintain insurance and Fidelity bond coverage as may be required by the Government. Condition and context: The Association did not carry fidelity bond coverage in 2022. Sample size and population: Sampling was not applicable to this finding. Effect: The Association did not comply with the fidelity bond requirements. Recommendation: We recommend the Association obtain fidelity bonds sufficient to meet the requirements of outstanding loan agreements in 2023. Question Costs: None Management Response and Corrective Action Plan: See Corrective Action Plan Contact Person: Kristina Parker, Director of Finance and Operations

2022-003 Reporting – Late submission of the Single Audit Reporting Package and Data Collection Form to the Federal Audit Clearinghouse (FAC) ALN Number Name of Federal Program 10.760 Water and Waste Disposal Systems Identification as a Repeat Finding: Repeat Finding of 2021-003. Finding: The Association did not file its annual 2022 Single Audit and Data Collection form timely. Criteria: The Single Audit Reporting Package and Data Collection Form shall be submitted to the Federal Audit Clearinghouse 30 days after receipt of the auditor’s report, or 9 months after the end of the fiscal year, whichever comes first. Condition and context: Submission of the Single Audit Reporting Package and Data Collection Form to the FAC was not completed within the timeframe required by the Uniform Guidance. During the audit we noted that the Single Audit Reporting Package and Data Collection Form is expected to be submitted to the FAC during November 2023 for the fiscal year ended December 31, 2022. Cause: A member petition was received by the Board Secretary on June 5, 2023 calling for a vote on the removal of four specified board trustees. The receipt of the petition required that a special election be held July 11, 2023. The time and effort required by the Association’s small staff to respond to and facilitate a special election drew management’s time away from preparing for scheduled audit fieldwork. The delay in submitting the Single Audit Reporting Package is correlated to a one-month delay in the start of audit fieldwork. Sample size and population: Sampling was not applicable to this finding. Effect: Noncompliance with the Uniform Guidance could reduce access to future funding from Federal sources. Recommendation: Due to the unprecedented nature of the cause, it would be unusual for a similar matter to reoccur; however, it considered a best practice to maintain a schedule of regulatory and compliance deadlines to ensure related tasks are completed in advance of deadlines. Question Costs: None Management Response and Corrective Action Plan: See Corrective Action Plan Contact Person: Kristina Parker, Director of Finance and Operations

2021-001 Procurement, Suspension and Debarment CFDA Number Name of Federal Program 10.760 Water and Waste Disposal Systems Identification as a Repeat Finding: Repeat of Finding 2020-004 Finding: The Organization does not have a written procurement policy that complies with the procurement standards established in 2 CFR sections 200.318 through 200.326. Criteria: Non-Federal entities other than States must follow the procurement standards set out at 2 CFR sections 200.318 through 200.326. They must use their own documented procurement procedures, which reflect applicable State and local laws and regulations, provided that the procurements conform to applicable Federal statutes and the procurement requirements identified in 2 CFR 200. Condition and context: Sallal Water Association has not adopted a procurement policy for goods and service providers that complies with federal procurement standards. Sample size and population: Sampling was not applicable to this finding. Effect: The result of the finding is that Sallal Water Association is not in compliance with federal procurement standards. Recommendation: Formalize written procurement procedures in compliance with required standards. Question Costs: None Management Response and Corrective Action Plan: See Corrective Action Plan Contact Person: Kristina Parker, Director of Finance and Operations

2021-002 Fidelity Bond CFDA Number Name of Federal Program 10.760 Water and Waste Disposal Systems Identification as a Repeat Finding: Repeat Finding of 2020-005. Finding: The Organization has not maintained fidelity bond coverage to comply with loan covenant requirements. Criteria: Per Section 5(g) of the Loan Resolution Security Agreement, the Association shall maintain insurance and Fidelity bond coverage as may be required by the Government. Condition and context: The Association did not carry fidelity bond coverage in 2021. Sample size and population: Sampling was not applicable to this finding. Effect: The Organization did not comply with the fidelity bond requirements. Recommendation: We recommend the Organization obtain fidelity bonds sufficient to meet the requirements of outstanding loan agreements. Question Costs: None Management Response and Corrective Action Plan: See Corrective Action Plan Contact Person: Kristina Parker, Director of Finance and Operations

2021-003 Reporting ? Late submission of the Single Audit Reporting Package and Data Collection Form to the Federal Audit Clearinghouse (FAC) CFDA Number Name of Federal Program 10.760 Water and Waste Disposal Systems Identification as a Repeat Finding: Not a repeat finding Finding: The Organization did not file its annual 2021 Single Audit and Data Collection form timely. Criteria: The Single Audit Reporting Package and Data Collection Form shall be submitted to the Federal Audit Clearinghouse 30 days after receipt of the auditor?s report, or 9 months after the end of the fiscal year, whichever comes first. Condition and context: Submission of the Single Audit Reporting Package and Data Collection Form to the FAC was not completed within the timeframe required by the Uniform Guidance. During the audit we noted that the Single Audit Reporting Package and Data Collection Form is expected to be submitted to the FAC during November 2022 for the fiscal year ended December 31, 2021. Cause: On August 16, 2022, the City of North Bend?s Mayor made a comment at a public meeting that announced an offer by the City to purchase the Association. The Association?s response to the comment has required a significant amount of time and effort on the part of the Association?s management and staff, which limited management and staff time and availability to respond to auditor requests and inquiries prior to the September 30, 2022 deadline. Sample size and population: Sampling was not applicable to this finding. Effect: Noncompliance with the Uniform Guidance could reduce access to future funding from Federal sources. Recommendation: Due to the unprecedented nature of the cause, it would be unusual for a similar matter to reoccur; however, it considered a best practice to maintain a schedule of regulatory and compliance deadlines to ensure related tasks are completed in advance of deadlines. Question Costs: None Management Response and Corrective Action Plan: See Corrective Action Plan Contact Person: Kristina Parker, Director of Finance and Operations

2020 ? 001 Accounting System, Processes and Reporting Identification as a Repeat Finding: Not a repeat finding. Finding: Internal control processes over financial accounting did not ensure that all transactions were properly recorded in accordance with U.S. GAAP on a timely basis. Criteria: Sallal Water Association is responsible for day-to-day transactional accounting as well as annual financial statement reporting. As such, the Organization is responsible for implementing adequate procedures to ensure that such information and reports are accurate and complete. Uniform Guidance section 2 CFR200.303(a), Internal Controls, requires that non-federal entities must establish and maintain effective internal controls over the federal award that provides reasonable assurance that the non-federal entity is managing the award in compliance with federal statutes, regulations and the terms and conditions of the Federal award. Condition and context: Due to a high volume of turnover in the accounting role and lack of documented procedures, the Organization?s financial records were not maintained in a manner consistent with U.S. GAAP. The Organization?s internal controls were not sufficient to identify that a contract bookkeeper was maintaining accounting records on a cash basis rather than U.S. GAAP basis until the error was identified during the 2019 financial statement audit. The Organization subsequently hired a CPA to review 2020 financial transactions for compliance with U.S. GAAP prior to the 2020 audit. Sample size and population: Sampling was not applicable to this finding. Effect: Interim financial statements utilized by the Board of Trustees for decision making in 2020 did not accurately reflect the financial condition of the Organization on a U.S. GAAP basis. Recommendation: ? Enhance procedures to ensure that all financial transactions are properly and timely recorded and supported by appropriate documents, records and reconciliations. ? Review its accounting and control procedures to ensure that all transactions are properly reviewed and approved by management. ? Establish systems of control to prohibit and prevent modification of transactions in the accounting system. ? Implement procedures to ensure that reports provided to its Board, internal management, and third-parties are accurate and complete. Questioned Costs: None Management Response and Corrective Action Plan: See Corrective Action Plan. Contact Person: Kristina Parker, Director of Finance and Operations

2020 ? 002 Failure To Identify Federal Program and Related Compliance CFDA Number Name of Federal Program 10.760 Water and Waste Disposal Systems Identification as a Repeat Finding: Not a repeat finding. Finding: The Organization did not properly identify a federal insured loan related to a United States Department of Agriculture (USDA) loan and related compliance requirements. The Organization did not properly prepare a Schedule of Expenditures of Federal Awards. Criteria: In 2008, the Organization received a loan of $2.5 million from the USDA. Under the terms of the loan, the Organization is required to obtain a Single Audit in compliance with the Uniform Guidance every year that the loan balance at the beginning of the year exceeds $750,000. Condition and context: The Organization did not prepare a schedule of expenditures of federal awards in order to identify if the Single Audit and related Uniform Guidance requirements are applicable during the period under audit. As such, compliance requirements were not identified and adhered to during the period under audit. Sample size and population: Sampling was not applicable to this finding. Effect: The Organization did not demonstrate the skills, knowledge, or experience to identify federal programs and related compliance requirements. Recommendation: We recommend the Organization familiarize itself with compliance requirements related to USDA loans and the Uniform Guidance. Question Costs: None Management Response and Corrective Action Plan: See Corrective Action Plan Contact Person: Kristina Parker, Director of Finance and Operations

2020 ? 003 Non-submission of the Single Audit Reporting Package and Data Collection Form to the Federal Audit Clearinghouse (FAC) CFDA Number Name of Federal Program 10.760 Water and Waste Disposal Systems Identification as a Repeat Finding: Not a repeat finding. Finding: Sallal Water Association did not file its annual Single Audit and Data Collection Form for 2019 or any prior years. Criteria: The Single Audit Reporting Package and Data Collection Form shall be submitted to the Federal Audit Clearinghouse 30 days after receipt of the auditor?s report, or 9 months after the end of the fiscal year, whichever comes first. Condition and context: During the course of performance of our audit procedures, we noted the Organization was not prepared or filed an audit in accordance with Uniform Guidance since 2008. Submission of the Single Audit Reporting Package and Data Collection Form to the FAC was not done within the timeframe as required by the Uniform Guidance. Sample size and population: Sampling was not applicable to this finding. Effect: Noncompliance with the Uniform Guidance could reduce access to future funding from Federal sources. Recommendation: We recommend that management strengthen its procedures over filing of the Single Audit Reporting Package and Data Collection Form with the FAC to ensure timely filing. Question Costs: None Management Response and Corrective Action Plan: See Corrective Action Plan Contact Person: Kristina Parker, Director of Finance and Operations

2020 ? 004 Procurement, Suspension and Debarment CFDA Number Name of Federal Program 10.760 Water and Waste Disposal Systems Identification as a Repeat Finding: Not a repeat finding. Finding: The Organization does not have a written procurement policy that complies with the procurement standards established in 2 CFR sections 200.318 through 200.326. Criteria: Non-Federal entities other than States must follow the procurement standards set out at 2 CFR sections 200.318 through 200.326. They must use their own documented procurement procedures, which reflect applicable State and local laws and regulations, provided that the procurements conform to applicable Federal statutes and the procurement requirements identified in 2 CFR 200. Condition and context: Sallal Water Association has not adopted a procurement policy for goods and service providers that complies with federal procurement standards. Sample size and population: Sampling was not applicable to this finding. Effect: The result of the finding is that Sallal Water Association is not in compliance with federal procurement standards. Recommendation: Formalize written procurement procedures in compliance with required standards. Question Costs: None Management Response and Corrective Action Plan: See Corrective Action Plan Contact Person: Kristina Parker, Director of Finance and Operations

2020 ? 005 Fidelity Bond CFDA Number Name of Federal Program 10.760 Water and Waste Disposal Systems Identification as a Repeat Finding: Not a repeat finding. Finding: The Organization has not maintained fidelity bond coverage to comply with loan covenant requirements. Criteria: Per Section 5(g) of the Loan Resolution Security Agreement, the Association shall maintain insurance and Fidelity bond coverage as may be required by the Government. Condition and context: The Association did not carry fidelity bond coverage in 2020. Sample size and population: Sampling was not applicable to this finding. Effect: The Organization did not comply with the fidelity bond requirements. Recommendation: We recommend the Organization obtain fidelity bonds sufficient to meet the requirements of outstanding loan agreements. Question Costs: None Management Response and Corrective Action Plan: See Corrective Action Plan Contact Person: Kristina Parker, Director of Finance and Operations