Stillwater County

2025-006 FEMA Grants (Repeat Finding 2023-018, 2024-004) CFDA Title: Disaster Grants – Public Assistance (Presidentially Declared Disasters) CFDA Number: 97.036 Federal Award Number: FEMA-4655-DR-MT Federal Agency: Department of Homeland Security Pass-through Entity: Montana Department of Emergency Services Condition: Program expenditures for disaster projects under the Disaster Grants – Public Assistance (Presidentially Declared Disasters) program were not separately identified in the County’s accounting records by Project Worksheet (PW). The County’s general ledger does not distinguish expenditures related to these PWs from other federal and non-federal expenditures recorded in the Disaster Fund. Context: Through inquiry and testing, we identified that the County does not have a process or system in place to record project-level expenditures or to reconcile reimbursement requests to the accounting system. As a result, expenditures are accumulated at a fund level rather than by individual project. Criteria: Federal grant compliance requirements under the Disaster Grants – Public Assistance program require subrecipients to establish an accounting system capable of tracking expenditures by individual project (PW) to ensure that only allowable and properly supported costs are submitted for reimbursement and reported accurately. Questioned Costs: None Effect: The County is not in compliance with the direct and material compliance requirements of the Disaster Grants – Public Assistance program. The accounting system does not distinguish eligible costs by specific project or segregate federal expenditures from locally funded expenditures, increasing the risk of submitting unsupported or ineligible costs. Cause: The County has not implemented internal control policies and procedures to (1) ensure that federal program expenditures are separately identified and tracked by project in the general ledger, and (2) require reconciliation of reimbursement requests to the underlying accounting records to verify completeness and accuracy. Recommendation: 1. The County should establish policies and procedures to ensure that compliance requirements, including special tests and provisions, are identified upon receipt of a new grant and that an appropriate internal control structure is implemented to ensure compliance. 2. The County should establish and implement internal control policies and procedures to ensure that all federal program expenditures are separately identified in the general ledger from non-federal expenditures, and that costs related to this grant are tracked by project (e.g., by PW or project code). This may include revising the chart of accounts or implementing grant/project coding within the financial system. 3. The County should implement procedures to periodically reconcile project-level general ledger activity to reimbursement requests and supporting documentation, and to review such reconciliations for completeness, accuracy, and allowability prior to submission.

2024-004 FEMA grants (repeated 2023-018) CFDA Title: Disaster Grants - Public Assistance (Presidentially Declared Disasters) CFDA Number: 97.036 Federal Award Number:FEMA-4655-DR-MT Federal Agency: Montana Department of Emergency Services Pass-through Entity: Department of Homeland Security Condition: Program expenditures were not separately identified in the general ledger for each Project Worksheet (PW). Questioned Costs: None Context: The cost principles in 2 CFR part 200, subpart E (cost principles), prescribe the cost accounting requirements associated with the administration of federal awards. Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Effect: Non-compliance with federal cost principles. Cause: The County does not have internal control policies and procedures in place that allows it to comply with cost principles outlined in the Uniform Guidance. Recommendation: Program expenditures should be separately identified in the general ledger.

Criteria: Per section 13 of Treasury’s Final Rule FAQs and 2 CFR 200.214, counties must comply with the procurement standards set forth in 2 CFR 200.318, through 2 CFR 200.327, when using their SLFRF award funds to procure goods and services to carry out the objectives of their SLFRF award. In addition, 2 CFR 200.214, prohibits recipients from using SLFRF funds to enter into subawards and contracts with parties that are debarred, suspended, or otherwise excluded from or ineligible for participation in Federal assistance programs. Condition: The county did not verify that program recipients/participants were not suspended, debarred, or otherwise excluded from participation in the program. Cause: The county does not have procurement policies and procedures in place that allows it to comply with procurement standards outlined in the Uniform Guidance. Effect: Non-compliance with program terms and conditions. Questioned Costs: None Recommendation: Management should develop procedures that will provide reasonable assurance that procurement of goods and services are made in compliance with applicable federal regulations and other procurement requirements specific to a federal award or subaward, and that no subaward, contract, or agreement for purchase of goods or services is made with any suspended or debarred party.

Criteria: The cost principles in 2 CFR part 200, subpart E (Cost Principles), prescribe the cost accounting requirements associated with the administration of federal awards. Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a federal award, or other internally or externally funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Condition: Program expenditures were not separately identified in the general ledger for each Project Worksheet (PW). Questioned Costs: None Cause: The county does not have internal control policies and procedures in place that allows it to comply with cost principles outlined in the Uniform Guidance Effect: Non-compliance with Federal costs principles. Recommendation: Program expenditures should be separately identified in the general ledger.

AUDITOR PREPARED FINANCIAL STATEMENTS Criteria: As part of its internal control structure, it is the government?s responsibility to prepare its financial statements and schedule of expenditures of federal awards (SEFA) in accordance with generally accepted accounting principles (GAAP). Condition: The government does not have the expertise to prepare or evaluate the selection and application of accounting principles and resulting disclosures and presentations within the auditor prepared financial statements and SEFA. Cause: The government is a small organization with limited resources. Effect: It is common for a small organization to rely on the audit firm to prepare the financial statements and SEFA; however, an audit firm cannot be considered part of the government?s internal control by professional standards currently in effect. Since some presentations and disclosures may be material to the financial statements and SEFSA, this weakness in internal control would be classified as material. Recommendation: While it may not be cost effective to do so, we recommend the government consider hiring a qualified person to evaluate the auditor prepared financial statements and SEFA. Views of responsible officials and planned corrective actions: The government agrees with this finding and will adhere to the attached corrective action plan.

NONCOMPLIANCE WITH RURAL DEVELOPMENT PROGRAM TERMS AND CONDITIONS Criteria: The Replacement Letter of Conditions establishes conditions which must be understood and agreed to by the county to secure funding under the Rural Development grant program. Condition: The county did not adhere to the following provisions of the Replacement Letter of Conditions: 1. Establish a Short-Lived Asset Reserve. 2. Prepare and file the Quarterly Income and Expense Statement - Form RD 442-2. Cause: The county does not have a system in place that will allow full compliance with all program terms and conditions. Effect: Non-compliance with program terns and conditions. Questioned Costs: None Recommendation: The commissioners should designate a county official to become familiar with and be responsible for all program requirements. Views of responsible officials and planned corrective actions: The government agrees with this finding and will adhere to the attached corrective action plan.

AUDITOR PREPARED FINANCIAL STATEMENTS Criteria: As part of its internal control structure, it is the government?s responsibility to prepare its financial statements and schedule of expenditures of federal awards (SEFA) in accordance with generally accepted accounting principles (GAAP). Condition: The government does not have the expertise to prepare or evaluate the selection and application of accounting principles and resulting disclosures and presentations within the auditor prepared financial statements and SEFA. Cause: The government is a small organization with limited resources. Effect: It is common for a small organization to rely on the audit firm to prepare the financial statements and SEFA; however, an audit firm cannot be considered part of the government?s internal control by professional standards currently in effect. Since some presentations and disclosures may be material to the financial statements and SEFSA, this weakness in internal control would be classified as material. Recommendation: While it may not be cost effective to do so, we recommend the government consider hiring a qualified person to evaluate the auditor prepared financial statements and SEFA. Views of responsible officials and planned corrective actions: The government agrees with this finding and will adhere to the attached corrective action plan.

SEGREGATION OF DUTIES: Criteria: Duties should be segregated to provide reasonable assurance that transactions are handled appropriately. Condition: There is a lack of segregation of duties among personnel. Effect: Transactions could be mishandled. Cause: There are a limited number of personnel for certain functions. Recommendation: The duties should be separated as much as possible, and alternative controls should be used to compensate for lack of separation. The governing board should provide some of these controls. Views of responsible officials and planned corrective actions: The government agrees with this finding and will adhere to the attached corrective action plan.

AUDITOR PREPARED FINANCIAL STATEMENTS Criteria: As part of its internal control structure, it is the government's responsibility to prepare its financial statements and schedule of expenditures of federal awards (SEFA) in accordance with generally accepted accounting principles (GAAP). Condition: The government does not have the expertise to prepare or evaluate the selection and application of accounting principles and resulting disclosures and presentations within the auditor prepared financial statements and SEFA. Cause: The government is a small organization with limited resources. Effect: It is common for a small organization to rely on the audit firm to prepare the financial statements and SEFA; however, an audit firm cannot be considered part of the government's internal control by professional standards currently in effect. Since some presentations and disclosures may be material to the financial statements and SEFSA, this weakness in internal control would be classified as material. Recommendation: While it may not be cost effective to do so, we recommend the government consider hiring a qualified person to evaluate the auditor prepared financial statements and SEFA. Views of responsible officials and planned corrective actions: The government agrees with this finding and will adhere to the attached corrective action plan.

Criteria: Duties should be segregated to provide reasonable assurance that transactions are handled appropriately. Condition: There is a lack of segregation of duties among personnel. Effect: Transactions could be mishandled. Cause: There are a limited number of personnel for certain functions. Recommendation: The duties should be separated as much as possible, and alternative controls should be used to compensate for lack of separation. The governing board should provide some of these controls.

Criteria: As part of its internal control structure, it is the government's responsibility to prepare its financial statements and schedule of expenditures of federal awards (SEFA) in accordance with generally accepted accounting principles(GAAP). Condition: The government does not have the expertise to prepare or evaluate the selection and application of accounting principles and resulting disclosures and presentations within the auditor prepared financial statements and SEFA. Cause: The government is a small organization with limited resources. Effect: It is common for a small organization to rely on the audit firm to prepare the financial statements and SEFA; however, an audit firm cannot be considered part of the government's internal control by professional standards currently in effect. Since some presentations and disclosures may be material to the financial statements and SEFSA, this weakness in internal control would be classified as material. Recommendation: While it may not be cost effective to do so, we recommend the government consider hiring a qualified person to evaluate the auditor prepared financial statements and SEFA.

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