WESTERN SHASTA RESOURCE CONSERVATION DISTRICTLocal Government

Hazard Mitigation Grant Program ? CFDA No. 97.039 FINDING 2020-004 Federal Emergency Management Agency; Pass-through Agency: California State Water Resources Control Board; Pass-through Award No. FEMA-5189-DR-CA ? Year ended June 30, 2019 Material Weakness and Noncompliance: Condition: The District does maintain GAAP-compliant project accounts and an appropriate financial management system, however, relating the major federal award program, the District failed to support the requests for grant funds with the accounting records, failed to adequately review disbursement requests for errors in requesting eligible project costs before the requests were made and funded, failed to correctly record certain project costs that resulted in delayed disbursement requests for these costs, requested disbursements of funds for ineligible project costs related to District personnel contract rates and failed to timely request funding for eligible costs. There are many errors made in the recording of transactions that impact grant invoicing and many errors being made in generating the reimbursements from the grant. Criteria: Pursuant to the grant agreement, Section C-1, and 2 CFR 200.302, the District must maintain a financial management system (i.e. GAAP-compliant Project accounts) to account for and track funds. Additionally, pursuant to section B-5 of the grant agreement, the District cannot use grant funds for indirect cost reimbursement. Cause: The District, under the leadership of the former District Manager, failed to follow existing policies when accepting a contract with the State Water Resources Control Board that contained conflicting language and assumed contract rates were applicable under the contract. The District is not supervising the work of the grant specialist until well after the fact and the grant specialist does not have a direct supervisor in charge of setting a monthly task schedule, including reviewing reimbursement requests, to ensure that internal controls were in place to maintain the accounting records correctly and they were being effectively and efficiently implemented. Effect: Material weaknesses in internal controls over grant, contracts and major programs and material noncompliance with the provisions of Federal and State statutes, regulations, or the terms and conditions of State grants and Federal awards, resulting in a significant risk of questioned costs being incurred. There are no questioned costs related to this finding. Context: This finding is a repeat major award program finding (Finding 2019-008). The material weakness in internal controls over the financial management system is pervasive throughout all projects. The material noncompliance related to invoicing contract rates rather than direct costs is isolated to one major Federal and State award program. However, as mentioned in subsequent event #3 in Footnote #13, The District and the State Water Board reached an agreement in September 2021 to replace funding contract rates for personnel with funding indirect costs on all direct wages and fringe benefits. Recommendation: The District should follow the adopted grant management policies and procedures. The District should implement an internal review of all accounting activity performed by the grant specialist by the Chief Fiscal Officer (CFO) and install the CFO as the grant specialist?s direct supervisor. In addition, the District should ensure that all disbursement requests are fully and adequately supported by the accounting records for all projects and reviewed before the invoice is sent for reimbursement. Views of responsible officials: The District agrees with the auditor?s finding. As stated above, the District negotiated with the State Water Board for indirect costs and has requested reimbursement under the grant.

Hazard Mitigation Grant Program ? CFDA No. 97.039 FINDING 2020-005 Federal Emergency Management Agency; Pass-through Agency: California State Water Resources Control Board; Pass-through Award No. FEMA-5189-DR-CA ? Year ended June 30, 2019 Significant Deficiency: Condition: District management was required to complete and/or correct, to the best of their knowledge, numerous employee time sheets that were incomplete or in error. The District is also not performing a crucial payroll reconciliation of the hourly input by project into the outside payroll service company (ADP) to the similar input of the payroll results into the financial management system. This non-performance could potentially affect the personnel costs charged to any Federal award programs, causing unallowed costs to be reimbursed from the award(s). Criteria: Best practice internal control activity controls would require this reconciliation in order to prevent or detect material misstatements in the financial statements. Additionally, to prevent changes and manipulation of timesheet hours charged to various projects, the timesheet should be signed by the employee and supervisor, printed and locked to all significant subsequent changes. Cause: These controls were not designed or implemented by the District before June 30, 2020. Effect & Context: Material misstatements could go undetected and material noncompliance with grants or contracts could happen if personnel costs were recorded to the wrong project and reimbursements were requested from the wrong project. This is a repeat finding due to the timing of the prior year audit finding, and is pervasive across all major awards. There are no questioned costs related to this finding. Recommendation: I recommend the District design an internal reconciliation and review of the input of personnel hours into the financial management system, and that employees? and supervisors? sign the timesheets and they are kept for future review, to ensure that the personnel hours are charged to the correct project. Views of responsible officials: The District agrees with the auditor?s findings.

Criteria: Pursuant to the procurement procedures found in 2 CFR 200.318-323 and the pass-through agreement with the State Water Board, the procurement should be 1) supported by a contract file, when required, that documented the history of the procurement, including the rationale for the method of procurement, selection of contract type, basis for contractor selection, and the basis for the contract; 2) supported by a cost or price analysis (for all procurement actions exceeding the simplified acquisition threshold); and 3) determine that, before entering into a covered transaction, the entity followed its procedures for verifying that an entity is not debarred, suspended, or otherwise excluded. Condition: On the procurement for $936,955 in hydroseeding from a contractor and $55,000 for a consultant on the Carr Fire Project, the District failed to adequately document and summarize an organized procurement process, the rationale for the method of procurement, the selection of the contract type, and the basis for the contract. In addition, the procurements were not supported by a cost or price analysis, there were no procedures followed verifying that the entities were not debarred, suspended, or otherwise excluded, and contract provisions, such as the scope of work, costs and timetable. The District, in the procurement of a hydro seeder, backdated the contract, accepted bids to use products that did not meet the required specifications and failed to consider the differences in methodology and timetables proposed by bidders. The District developed the scope of the work, costs and timetable after the consultant was selected. There was also the appearance of a conflict of interest in the hiring of the consultant who was formerly a consultant for the company chosen by the District to provide the hydroseeding material for the project and received a small fee from the company after the company was chosen to provide the product. The Board approved a contract that did not agree to the actual contract and paid the consultant for service hours while the procurement process was being performed. The consultant drafted the sole source justification presented to the Board. Cause: The former District Manager and Board failed to follow District policies and procedures for procurement. The former District Manager overrode the District?s own policies and procedures for procurement and failed to address staff concerns during the procurement process. Additionally, the District has poorly designed and incomplete procurement procedures required to implement the policies and the staff in charge of the procurement process is not adequately trained in these procedures in order to adhere to the Federal and State procurement standards. Finally, the District does not adequately organize and document the procurement process according to the standards. Effect: The override of internal controls over procurement results in significant deficiencies in internal controls over major programs but is less than a material noncompliance with the provisions of federal statutes, regulations, or the terms and conditions of federal awards related to a major program. There were no questioned costs related to this finding. Context: In terms of procurements for this major program, the audit tested 75% of the construction contractors (2), consultants (3) and material providers (3), representing a combined dollar value of $1,874,908, and found that the internal control deficiencies existed in only 2 of those procurement processes. This is not a repeat finding. Recommendations: See Finding 2019-003. In addition, the District should require and oversee the procurement documentation to ensure it meets the standards of documentation required for Federal awards. Views of responsible officials: The District agrees with the auditor?s findings.

Material Weakness and Noncompliance: As discussed at Finding 2019-004, the District must maintain a financial management system (i.e. GAAP-compliant Project accounts) to account for and track funds. This resulted in a material weakness in internal control over compliance and noncompliance with reporting. Views of responsible officials: The District agrees with the auditor?s findings. Hazard Mitigation Grant Program ? CFDA No. 97.039 FINDING 2019-004 Financial Management System, Grant Invoicing Condition: The District does maintain GAAP-compliant project accounts and an appropriate financial management system, however, the District failed to support the requests for grant funds with the accounting records, failed to adequately review disbursement requests for errors in requesting eligible project costs before the requests were made and funded, failed to correctly record certain project costs that resulted in delayed disbursement requests for these costs, and requested a disbursement of funds for ineligible project costs related to District personnel. Specifically, the District failed to record $93,000 of vendor invoices in the correct accounting period, failed to record $188,000 of vendor invoices on a timely basis and invoiced a grantor twice for certain expenses. In addition, the District requested $356,000 reimbursement of personnel costs in excess of actual cost and failed to seek a $75,800 reimbursement from a grantor for an eligible cost. The District also agreed to not be reimbursed for $93,000 of indirect costs permitted under federal regulations. Lastly, employee errors and omissions in the District?s timekeeping system required management to make changes to employee time sheets without employee approval. Criteria: Pursuant to the grant agreement, section C-1, and 2 CFR 200.302, the District must maintain a financial management system (i.e. GAAP-compliant Project accounts) to account for and track funds. Additionally, pursuant to section B-5 of the grant agreement, the District cannot use grant funds for indirect cost reimbursement. Cause: The District has specific grant management policies and procedures in place. The District, under the leadership of the former District Manager, failed to follow these policies when accepting a contract with the State Water Resources Control Board that contained conflicting language, failed to identify procedures for reimbursement and failed to follow federal guidance and regulations. The former District Manager failed to address trained and experienced staff concerns over the deficiencies in the contract prior to signing. The inadequacies in the contract resulted in invoicing delays, invoicing errors, and questions on grantor documentation standards. In addition, the District did not review the grant specialist?s reimbursement requests during the fiscal year under audit to ensure that internal controls were in place to maintain the accounting records correctly. Lastly, the District invoiced a grant for personnel costs using a ?contract? rate that included a mark-up for indirect costs. Effect: Material weaknesses in internal controls over grant, contracts and major programs and a material noncompliance with the provisions of Federal and State statutes, regulations, or the terms and conditions of State grants and Federal awards related to a major program, resulting in questioned costs of $356,406. The lack of timely reimbursements from the grantor resulted in the District incurring $53,000 in un-reimbursable interest. Context: This finding is not a repeat finding. The material weakness in internal controls over the financial management system is pervasive throughout all projects. The material noncompliance related to invoicing contract rates rather than direct costs is isolated to one major Federal and State award program that was funded only by State funds. Recommendation: The District should follow the adopted grant management policies and procedures. The District should implement an internal review of all disbursement requests and activity performed by the grant specialist by the Fiscal Officer. In addition, the District should ensure that all disbursement requests are fully and adequately supported by the accounting records for all projects and reviewed on a quarterly basis, at a minimum. Views of responsible officials: The District agrees with the auditor?s findings.

Significant Deficiency: As discussed at Finding 2019-005, the District is not performing a crucial payroll reconciliation of the hourly input by project into the outside payroll service company (ADP) to the similar input of the payroll results into the financial management system. This nonperformance could potentially affect the personnel costs charged to any Federal award programs, causing unallowed costs to be reimbursed from the award(s). Views of responsible officials: The District agrees with the auditor?s findings. Condition: District management was required to complete and or correct, to the best of their knowledge, numerous employee time sheets that were incomplete or in error. The District is also not performing a crucial payroll reconciliation of the hourly input by project into the outside payroll service company (ADP) to the similar input of the payroll results into the financial management system. Additionally, the employee timesheets are not signed by the employee and supervisor and kept for future review and verification of allocated project hours in the financial management system. Criteria: Best practice internal control activity controls would require this reconciliation in order to prevent or detect material misstatements in the financial statements. Additionally, to prevent changes and manipulation of timesheet hours charged to various projects, the timesheet should be signed by the employee and supervisor, printed and locked to all significant subsequent changes. Cause: These controls were not designed or implemented by the District. Effect & Context: Material misstatements could go undetected and material noncompliance with grants or contracts could happen if personnel costs were recorded to the wrong project and reimbursements were requested from the wrong project. This is not a repeat finding and is pervasive across all projects. Recommendation: I recommend the District design an internal reconciliation and review of the input of personnel hours into the financial management system, and that employees? and supervisors? sign the timesheets and they are kept for future review, to ensure that the personnel hours are charged to the correct project. Views of responsible officials: The District agrees with the auditor?s findings.

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