FRIANT WATER AUTHORITY

Finding 2021-001 ? Significant Deficiency Program: San Joaquin River Restoration Settlement CFDA No.: 15.555 Federal Agency: U.S. Department of the Interior Award Number: R19AC00013 Award Year: 2020/21 Compliance Requirement: Reporting Questioned Costs: N/A Criteria: Per the grant assistance agreement, the Authority is required to submit financial and performance reports within 30 days of each quarter end. Condition: Through testing performed over the Authority?s reporting compliance, we noted that for two of the quarters tested, both the financial and performance reports were completed after the 30-day deadline. Cause: Per discussion with management, these reports were overlooked, as there were no other issues with the submission of the quarterly reports. Effect: Continued late submission of the quarterly reports could result in noncompliance with the grant requirements. Noncompliance could result in withholding of payments, disallowance of costs, suspension or termination of the federal award, initiation of suspension or debarment proceedings, withholding of further federal awards, or other remedies that may be legally available. Recommendation: We recommend that the Friant Water Authority improve internal controls to ensure timely filing of the financial and performance reports as required by the grant assistance agreement. Management?s Response: FWA instituted internal procedures to ensure that required financial and performance reports are submitted timely. The Board of Directors approved these procedures as part of a comprehensive update of FWA's purchasing policy (Exhibit C, Section H) at the June 23, 2022 Board of Directors meeting. In addition, FWA created a Project Accountant/Financial Analyst position to assist with ensuring compliance, including reporting compliance, under financial assistance agreements with Federal agencies.

Finding 2020-001 ? Significant Deficiency Program: San Joaquin River Restoration Settlement CFDA No.: 15.555 Federal Agency: U.S. Department of the Interior Pass Through: N/A Award Number: R19AC00013 Award Year: 2019/20 Compliance Requirement: Reporting Questioned Costs: N/A Criteria: Per Uniform Guidance Subpart F section 200.512 the audit must be completed, and data collection form and reporting package must be submitted within the earlier of 30 calendar days after receipt of the auditor?s reports, or nine months after the end of the audit period. Condition: Management was not able to provide the necessary information needed to complete the audit by the required date. Cause: Management and accounting staff turnover leading to delays in the start and completion of the audit. Effect: Noncompliance may result in withholding of payments, denying both the use of funds and matching credit for all or part of the cost of the activity or action not in compliance, whole or partial suspension or termination of the Assistance Agreements, recovery of funds paid under the Assistance Agreements, withholding of future awards, or other legal remedies in accordance with 2 CFR ?200.338. Recommendation: We recommend that the Friant Water Authority improve internal controls to ensure timely filing of the audit reports. Management?s Response: The delays in completing the audit were due to unanticipated staff turnover in the accounting department which resulted in delays in soliciting and securing the services of a new independent audit firm. In June 2021, FWA contracted with Hudson, Henderson, & Co. to provide independent auditor services for Fiscal Years 2019 and forward. Based upon the delay in securing the services of a new independent auditor, completion FY 2019 and FY 2020 audit will extend beyond the 9-month timeframe set forth in 2 CFR 200. However, for FY 2021, FWA is confident that the audit will be completed and submitted to the Federal Audit Clearinghouse within 9 months of fiscal year end.

Finding 2020-002 ? Significant Deficiency Program: San Joaquin River Restoration Settlement CFDA No.: 15.555 Federal Agency: U.S. Department of the Interior Pass Through: N/A Award Number: R19AC00013 Award Year: 2019/20 Compliance Requirement: Procurement, Suspension & Debarment Questioned Costs: N/A Criteria: Procurement standards found in 2 CFR?200.317 through ?200.326 of the Uniform Guidance, establishes standards and guidelines for the procurement of supplies, equipment, and services for federal assistance programs. The Uniform Guidance requires nonfederal entities to have written policies and maintain written code of standard selection procedures for procurement transactions. Additionally, Uniform Guidance and Assistance Agreements require that all procurement transactions be conducted in a manner providing full and open competition while containing provisions covering the applicable federal guidelines presented in Appendix II to part 200 ? Contract Provisions for Non-Federal Entity Contracts Under Federal Awards. They also require grantees to maintain records sufficient to detail the significant history of a procurement. These records will include, but not necessarily limited to the following: rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price. Condition: We identified that the Authority did not have adequate written policies and did not maintain a written code of standard selection procedures for procurement transactions that included all the requirements of the Uniform Guidance or the procurement requirements stated in the Assistance Agreements. Cause: There was a lack of understanding of federal laws and regulations relating to this requirement subsequent to fiscal year-end 2020. Effect: The deficiency in internal control and non-compliance with the Uniform Guidance and Assistance Agreements may result in inadequate support for procurement transactions charged to federal award programs and may cause those costs to be disallowed. Noncompliance may result in withholding of payments, denying both the use of funds and matching credit for all or part of the cost of the activity or action not in compliance, whole or partial suspension or termination of the Assistance Agreements, recovery of funds paid under the Assistance Agreements, withholding of future awards, or other legal remedies in accordance with 2 CFR ?200.338. Recommendation: We recommend that the Friant Water Authority establish written procurement policies and procedures as required by the Uniform Guidance and as stated in the Assistance Agreements and implement them to monitor for compliance and performance with the updated policies and procedures. Management?s Response: The Authority will amend current procurement policies to be consistent with the procurement standards found in 2 CFR?200.317 through ?200.326 of the Uniform Guidance. The updated policies were distributed to all Authority staff responsible for the procurement of materials and services under grant contracts. Periodic monitoring by the Authority?s Accounting Operations Administrator for compliance with the procurement policy and 2 CFR?200.317 through ?200.326 will take place.

Finding 2020-003 ? Significant Deficiency Program: San Joaquin River Restoration Settlement CFDA No.: 15.555 Federal Agency: U.S. Department of the Interior Pass Through: N/A Award Number: R19AC00013 Award Year: 2019/20 Compliance Requirement: Reporting Questioned Costs: N/A Criteria: Per the grant assistance agreement, the Authority is required to submit financial and performance reports within 30 days of each quarter end. Condition: Through testing performed over the Authority?s reporting compliance, we noted that for two of the quarters tested, both the financial and performance reports were completed after the 30-day deadline. Cause: Per discussion with management, these reports were overlooked, as there were no other issues with the submission of the quarterly reports. Effect: Continued late submission of the quarterly reports could result in noncompliance with the grant requirements. Noncompliance could result in withholding of payments, disallowance of costs, suspension or termination of the federal award, initiation of suspension or debarment proceedings, withholding of further federal awards, or other remedies that may be legally available. Recommendation: We recommend that the Friant Water Authority improve internal controls to ensure timely filing of the financial and performance reports as required by the grant assistance agreement. Management?s Response: FWA will institute internal procedures to ensure that required financial and performance reports are submitted timely.

Finding 2019-001 ? Significant Deficiency Program: San Joaquin River Restoration CFDA No.: 15.555 Federal Agency: U.S. Department of the Interior Pass Through: N/A Award Number: R19AC00013 Award Year: 2018/19 Compliance Requirement: Reporting Questioned Costs: N/A Criteria: Per Uniform Guidance Subpart F section 200.512 the audit must be completed, and data collection form and reporting package must be submitted within the earlier of 30 calendar days after receipt of the auditor?s reports, or nine months after the end of the audit period. Condition: Management was not able to provide the necessary information needed to complete the audit by the required date. Cause: Management and accounting staff turnover leading to delays in the start and completion of the audit. Effect: Noncompliance may result in withholding of payments, denying both the use of funds and matching credit for all or part of the cost of the activity or action not in compliance, whole or partial suspension or termination of the Assistance Agreements, recovery of funds paid under the Assistance Agreements, withholding of future awards, or other legal remedies in accordance with 2 CFR ?200.338. Recommendation: We recommend that the Friant Water Authority improve internal controls to ensure timely filing of the audit reports. Management?s Response: The delays in completing the audit were due to unanticipated staff turnover in the accounting department which resulted in delays in soliciting and securing the services of a new independent audit firm. In June 2021, FWA contracted with Hudson, Henderson, & Co. to provide independent auditor services for Fiscal Years 2019 and forward. Based upon the delay in securing the services of a new independent auditor, completion FY 2019 and FY 2020 audit will extend beyond the 9-month timeframe set forth in 2 CFR 200. However, for FY 2021, FWA is confident that the audit will be completed and submitted to the Federal Audit Clearinghouse within 9 months of fiscal year end.

Finding 2019-002 ? Significant Deficiency Program: San Joaquin River Restoration CFDA No.: 15.555 Federal Agency: U.S. Department of the Interior Pass Through: N/A Award Number: R19AC00013 Award Year: 2018/19 Compliance Requirement: Procurement, Suspension & Debarment Questioned Costs: N/A Criteria: Procurement standards found in 2 CFR?200.317 through ?200.326 of the Uniform Guidance, establishes standards and guidelines for the procurement of supplies, equipment, and services for federal assistance programs. The Uniform Guidance requires nonfederal entities to have written policies and maintain written code of standard selection procedures for procurement transactions. Additionally, Uniform Guidance and Assistance Agreements require that all procurement transactions be conducted in a manner providing full and open competition while containing provisions covering the applicable federal guidelines presented in Appendix II to part 200 ? Contract Provisions for Non-Federal Entity Contracts Under Federal Awards. They also require grantees to maintain records sufficient to detail the significant history of a procurement. These records will include, but not necessarily limited to the following: rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price. Condition: We identified that the Authority did not have adequate written policies and did not maintain a written code of standard selection procedures for procurement transactions that included all the requirements of the Uniform Guidance or the procurement requirements stated in the Assistance Agreements. Cause: There was a lack of understanding of federal laws and regulations relating to this requirement prior to the issuance of the 2018 single audit report subsequent to year fiscal year 2019 end. Effect: The deficiency in internal control and non-compliance with the Uniform Guidance and Assistance Agreements may result in inadequate support for procurement transactions charged to federal award programs and may cause those costs to be disallowed. Noncompliance may result in withholding of payments, denying both the use of funds and matching credit for all or part of the cost of the activity or action not in compliance, whole or partial suspension or termination of the Assistance Agreements, recovery of funds paid under the Assistance Agreements, withholding of future awards, or other legal remedies in accordance with 2 CFR ?200.338. Recommendation: We recommend that the Friant Water Authority improve internal controls to ensure timely filing of the audit reports. Management?s Response: The Authority will amend current procurement policies to be consistent with the procurement standards found in 2 CFR?200.317 through ?200.32 of the Uniform Guidance. The updated policies were distributed to all Authority staff responsible for the procurement of materials and services under grant contracts. Periodic monitoring by the Authority?s Accounting Operations Administrator for compliance with the procurement policy and 2 CFR?200.317 through ?200.326 will take place.

Finding 2019-003 ? Significant Deficiency Program: San Joaquin River Restoration CFDA No.: 15.555 Federal Agency: U.S. Department of the Interior Pass Through: N/A Award Number: R19AC00013 Award Year: 2018/19 Compliance Requirement: Reporting Questioned Costs: N/A Criteria: Per the grant assistance agreement, the Authority is required to submit financial and performance reports within 30 days of each quarter end. Condition: Through testing performed over the Authority?s reporting compliance, we noted that for one of the quarters tested, both the financial and performance reports were completed after the 30-day deadline. Cause: Per discussion with management, these reports were overlooked, as there were no other issues with the submission of the quarterly reports. Effect: Continued late submission of the quarterly reports could result in noncompliance with the grant requirements. Noncompliance could result in withholding of payments, disallowance of costs, suspend or terminate the federal award, initiate suspension or debarment proceedings, withhold further federal awards, or other remedies that may be legally available. Recommendation: We recommend that the Friant Water Authority improve internal controls to ensure timely filing of the financial and performance reports as required by the grant assistance agreement. Management?s Response: FWA will institute internal procedures to ensure that required financial and performance reports are submitted timely.

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