TUCSON AUDUBON SOCIETY

Compliance Requirement: A/B Condition: I noted that an indirect rate of 17.5% percent was charged to federal awards instead of the 10% rate approved in the grant awards during part of the year. Criteria: 2 CFR 200.414, Indirect Costs, require non-Federal entities to apply the negotiated indirect cost rate, or the de minimis rate of 10% of modified total direct costs (MTDC) if elected and applicable, consistently to all eligible federal awards. Cause and effect: The application of the incorrect indirect cost rate has resulted in unallowable charges to the federal award. This issue was corrected mid-year, but not retrospectively. Recommendation: I recommend management ensure that the proper indirect cost rate is properly applied in accordance with the Uniform Guidance and ensures that appropriate costs are charged to the awards consistent with their federally approved budgets. Views of Responsible Officials: Upon receiving results of the FY21 audit (completed in FY24), TAS’ Director of Finance was informed that the inclusion of the Biological Expertise line item on federal billing records (approximately 7.5% additional uplift) was not allowable as it was being calculated. TAS is allowed a 10% de minimis rate on noted FY22 Federal awards, some of which also included a Biological Expertise line item that is budgeted as an hourly rate. TAS had been calculating uplift amounts owed by simply adding the Biological Expertise (7.5%) to the de minimis rate (10%) for a total uplift of 17.5%. This was done at the direction and approval of our federal partners. However, due to Biological Expertise being entered in the federal and approved budgets as an hourly line item and not a percentage TAS was considered out of compliance by using this method of calculation. After the presentation of this finding in mid-2024, TAS adjusted federal billing for administrative expenses to the de minimis rate (10%) as a percentage, unless otherwise noted in the agreement. Moving forward TAS will be billing the de minimus rate (10%) as a percentage, unless otherwise noted in the agreement.

Compliance Requirement: L Condition: Annual Federal Financial Reports (FFR) and Program Performance Reports (PPR) were not completed and submitted to the federal agency on time as required by the terms and conditions of the award. 8 of 12 reports reviewed were submitted late. Criteria: Federal grant agreements and 2 CFR Part §200.328, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, require recipients to submit FFR and PPR within specified deadlines (typically within 90 days of the award period). Cause and effect: Staffing resource constraints led to noncompliance with terms and conditions of the federal awards and the Uniform Guidance. Recommendation: I recommend that management review its current processes and procedures to ensure reports are submitted timely, reviewed, and ensure evidence is retained to support the compilation, review, and submission of the reports and ensure compliance with Uniform Guidance. Views of Responsible Officials: All FFR and PPR reporting requirements for all federal grants and agreements are tracked in a master spreadsheet, with reminders to all program and project managers at least 2 weeks in advance of reporting due dates.

Compliance Requirement: A/B Condition: I noted that an indirect rate of 17.5% percent was charged to federal awards instead of the 10% rate approved in the grant awards. Criteria: 2 CFR 200.414, Indirect Costs, require non-Federal entities to apply the negotiated indirect cost rate, or the de minimis rate of 10% of modified total direct costs (MTDC) if elected and applicable, consistently to all eligible federal awards. Cause and effect: The application of the incorrect indirect cost rate has resulted in unallowable charges to the federal award. Recommendation: I recommend management ensure that the proper indirect cost rate is properly applied in accordance with the Uniform Guidance and ensures that appropriate costs are charged to the awards consistent with their federally approved budgets. Views of Responsible Officials: Upon conducting the FY21 audit, TAS’ Director of Finance was informed that the inclusion of the Biological Expertise line item on federal budgets (approximately 7.5% additional uplift) was not allowable as it was currently being calculated. TAS is allowed a 10% de minimus rate on noted FY22 Federal awards some of which also included a Biological Expertise line item that is budgeted as an hourly rate. TAS had been calculating uplift amounts owed by simply adding the Biological Expertise (7.5%) to the de minimus rate (10%) for a total uplift of 17.5%. This was done at the direction and approval of our federal partners. However, due to Biological Expertise being entered in the federal and approved budgets as an hourly line item and not a percentage TAS was considered out of compliance by using this method of calculation. Moving forward TAS will be billing the de minimus rate (10%) as a percentage, unless otherwise noted in the agreement.

Federal Agency: U.S. Department of Interior Federal Program Name: National Park Service Conservation, Protection, Outreach, and Education Assistance Listing Number: 15.954 Award Period: June 2020 through August 2024 Statistically Valid Sample: No, and not intended to be a Statistically Valid Sample. Type of Finding: Material Weakness in Internal Control over Compliance and Noncompliance Criteria or Specific Requirement: Management should have controls over federal reporting and special test and provisions requirements to ensure reports are submitted to the federal agency as required in the terms and conditions of the awards. Condition/Context: Annual reports were not completed and submitted to the federal agency as required by the terms and conditions of the award and there is no effective internal control to ensure these reports are completed and submitted timely. Therefore, we were unable to obtain evidence from these reports if key personnel were involved in the program. Questioned Costs: None. Cause: Due to staffing resource constraints. Effect: Noncompliance with terms and conditions of the federal awards and UG. Repeat Finding: No Recommendation: We recommend management review its current processes and procedures to ensure reports are submitted timely, reviewed, and ensure evidence is retained to support the compilation, review, and submission of the reports and ensure compliance with UG. Views of Responsible Officials: There is no disagreement with the audit finding. See corrective action plan.

Federal Agency: U.S. Department of Interior Federal Program Name: National Park Service Conservation, Protection, Outreach, and Education (POE) Research and Development Cluster (RDC) Assistance Listing Number: 15.954 (POE) 15.608 and 15.945 (RDC) Award Period: June 2020 through August 2024 (POE) September 2019 through January 2024 (RDC) Statistically Valid Sample: No, and not intended to be a Statistically Valid Sample. Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or Specific Requirement: In accordance with 2 CFR 200.414 Indirect Costs, any nonfederal entity that does not have current negotiated rate and elects the 10% de minimis rate must be applied to modified total direct costs (MTDC) indefinitely and in accordance with 2 CFR 200 UG, costs of compensation are allowable to the extent that they satisfy the specific requirements of the UG, and that the total compensation for individual employees: (1) Is reasonable for the services rendered and conforms to the established written policy of the nonfederal entity consistently applied to both federal and nonfederal activities; (2) Follows an appointment made in accordance with a nonfederal entity's laws and/or rules or written policies and meets the requirements of federal statute, where applicable; and (3) Is determined and supported as provided in accordance with the UG, Standards for Documentation of Personnel Expenses, when applicable. Charges to federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must: (i) Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated; (ii) Be incorporated into the official records of the non-Federal entity; (iii) Reasonably reflect the total activity for which the employee is compensated by the nonfederal entity, (iv) Encompass both federally assisted and all other activities compensated by the nonfederal entity on an integrated basis, but may include the use of subsidiary records as defined in the nonfederal entity's written policy; (v) Comply with the established accounting policies and practices of the nonfederal entity; and (vii) Support the distribution of the employee's salary or wages among specific activities or cost objectives if the employee works on more than one Federal award; a federal award and nonfederal award; an indirect cost activity and a direct cost activity; two or more indirect activities which are allocated using different allocation bases; or an unallowable activity and a direct or indirect cost activity. Condition/Context: We noted instances where an indirect rate of 17.5 percent was charged to federal awards instead of the 10 percent de minimis rate approved in the budgets. Additionally, we were unable to obtain evidence of federal approval of a 1.8 percent administration fee charged to gross wages as follows: • POE & RDC - For 4 of the 4 months tested, 17.5 percent of indirect rate was charged to various awards instead of the 10 percent de minimis rate. • POE - For 12 of the 36 items tested, we noted a 1.8 percent administration fee charged to gross wages. • RDC - For 22 of the 22 items tested, we noted a 1.8 percent administration fee charged to gross wages. Questioned Costs: None greater than $25,000 per major program. Cause: Not aware of the requirements. Effect: Failure to comply with 2 CFR 200 can lead to improper payments charged to programs. Repeat Finding: No Recommendation: We recommend management incorporate review control procedures to ensure the 10 percent de minimis rate is properly applied in accordance with UG and ensure appropriate costs are charged to the awards consistent with their federally approved budgets. Views of Responsible Officials: There is no disagreement with the audit finding. See corrective action plan.

Federal Agency: U.S. Department of Interior Federal Program Name: National Park Service Conservation, Protection, Outreach, and Education (POE) Research and Development Cluster (RDC) Assistance Listing Number: 15.954 (POE) 15.608 and 15.945 (RDC) Award Period: June 2020 through August 2024 (POE) September 2019 through January 2024 (RDC) Statistically Valid Sample: No, and not intended to be a Statistically Valid Sample. Type of Finding: Significant Deficiency in Internal Control over Compliance and Noncompliance Criteria or Specific Requirement: 2 CFR 2022.1 Definitions – Period of Performance means the total estimated time interval between the start of an initial federal award and the planned end date, which may include one or more funded portions, or budget periods. Identification of the period of performance in the federal award per § 200.211(b)(5) does not commit the awarding agency to fund the award beyond the currently approved budget period. 2 CFR 200.458 Pre-Awards Costs. Pre-award costs are those incurred prior to the effective date of the Federal award or subaward directly pursuant to the negotiation and in anticipation of the federal award where such costs are necessary for efficient and timely performance of the scope of work. Such costs are allowable only to the extent that they would have been allowable if incurred after the date of the federal award and only with the written approval of the federal awarding agency. If charged to the award, these costs must be charged to the initial budget period of the award, unless otherwise specified by the federal awarding agency or pass-through entity. Condition/Context: We noted instances where costs were charged to federal awards outside the period of performance with no evidence of approval by the federal agency as follows: • POE - For 5 of the 7 items tested, we noted costs were charged outside the period of performance. • RDC - For 3 of the 12 items tested, we noted costs were charged outside the period of performance. Questioned Costs: None greater than $25,000 per major program. Cause: Not aware of the requirements. Effect: Noncompliance with federal awards terms and conditions including 2 CFR Part 200 Uniform Guidance. Repeat Finding: No Recommendation: We recommend management incorporate review control procedures to ensure all costs are approved, within the period of performance, and charged in accordance with UG. Views of Responsible Officials: There is no disagreement with the audit finding. See corrective action plan.

Criteria: Recording a significant number or material adjustments during the audit is a strong indicator of a control deficiency if an organization has ineffective controls over the preparation of the underlying general ledger which is used to prepare the financial statements, including the notes. It is critical for an organization to have appropriate processes in place to properly adjust the general ledger in a timely manner throughout the year and especially at year end, prior to audit fieldwork, as part of the year-end closing process, as well as to provide the adjustments required to report the consolidated financial statements at year end. Condition: For the year audited, numerous and individually material audit adjustments were required for the financial statements to be correct at year-end. Cause and effect: The general ledger provided for the audit was not materially correct. Recommendation: We recommend that TAS review and revise its system of internal controls over financial reporting to ensure that adequate processes are in place to properly adjust the general ledger throughout the year for each entity and especially at year end, prior to audit fieldwork, as part of the year-end closing process. This will result in a correctly stated pre-audit trial balance and appropriate internal financial statements for use by management, the Finance Committee and Board of Directors throughout the year. Management response: During 2020, Tucson Audubon experienced a loss of capacity in the Finance Department leaving the Finance & Operations Director (FOD) as the only staff member in that department. Several issues arose due to the lack of capacity and this was one area we recognize a structural deficiency and have begun to increase capacity and implement process improvements governing this area, including the addition of a bookkeeper and an HR professional. As of the Spring/Summer of 2022 TAS has implemented a previously missing process in the month-end and year-end procedures. The FOD will now complete any adjusting entries required in the following month of the period closing. All period closing journal entries shall be reviewed and approved by the Executive Director (ED). In addition, the FOD and the ED shall review the monthly financial statements together to better identify any issues with the general ledger.

Criteria: A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. Segregation of duties is a critical component of an organization?s internal control system because it ensures that there is oversight and review to prevent or detect errors or fraud. Conditions and recommendations: During the audit, we noted several transaction cycles for which there was a lack of segregation of duties as follows: Cash receipts/sales a. The bookkeeper retrieves and the mail and drop box receipts alone from the Historic Y and the membership coordinator retrieves the mail alone from the P O Box. The bookkeeper then gives any receipts or mail that looks like it contains checks to the membership coordinator who logs all checks/cash received in a check log. We recommend that two people retrieve and open the mail and dropbox receipts together, creating and both signing a log to be compared to the bank deposits by an independent person. b. Some staff/volunteers are given access to the NEONPay donor database to record transactions during certain special events. We recommend that access be revoked after the event has occurred and that someone else should review and reconcile the event cash receipts. c. The Bookkeper is reconciling the NEONPay database to Quickbooks donations on a monthly basis. We recommend that someone independent of the deposit and Quickbooks entry perform this reconciliation. d. The Finance and Operations Director (FOD) reconciles the cash receipt log to the bank statements, but is also the person who takes the cash deposits to the bank. We recommend that a person independent of the cash receipts process perform this reconciliation. Journal entries e. There is no independent review of the journal entries recorded by the FOD. We recommend that the Executive Director (ED) or Treasurer review the FOD?s journal entries and sign off as evidence of the review and approval. Payroll f. No one is reviewing the final payroll register after it is prepared in QuickBooks. We also noted several instances in which the pay rate approval or offer letter was signed by the FOD rather than the ED, or where there was no signature or any pay rate documentation in the employees? files. We recommend that the ED review and sign the final pay register for each pay period. We also recommend that the ED sign all employee pay rate authorizations and all initial offer letters to be maintained in the personnel files. Bank statements g. Bank statements are currently downloaded online by the FOD who then prepares the bank reconciliations. We recommend that the bank statements be downloaded by the ED who should reviews and sign the statements, and then give them to the FOD to perform the reconciliations. Once the reconciliations are complete, they should be given to the ED to review and sign them. Credit card statements h. The FOD is currently reviewing the ED?s credit card statements and activity. We recommend that a Board member who is not a subordinate employee perform this review and sign before giving them to the FOD. Cash disbursements i. During our testing of cash disbursements, we noted several instances where the payment was processed and approved by the FOD rather than the ED, or also where no documentation of approval was noted. We recommend that all disbursements be documented as approved by the ED. j. While the FOD was not a signer during our audit, it came to our attention that she has now been made a signer on the bank accounts. We recommend that she be removed as a signer since she is involved in all transaction cycles and has full access to QuickBooks. Cause and effect: The effect of the lack of segregation of duties and monitoring activities was an increased risk of misstatement of the financial statements and loss of assets, whether due to error or fraud. Management response: During 2020, Tucson Audubon experienced a loss of capacity in the Finance Department leaving the Finance & Operations Director (FOD) as the only staff member in that department. Several issues arose due to the lack of capacity and this was one area we recognize deficiency and have begun to increase capacity and implement process improvements governing this area. As of the Spring/Summer of 2022, TAS has added more capacity (including a bookkeeper and an HR professional) to the Finance/Operations department allowing for a more clear and concise segregation of duties. TAS management agrees with the findings in items a - j above. As of the summer of 2022, TAS management has already begun policy revisions and process revisions/improvements and will have the new and updated policies and process revisions completed by the fourth quarter of 2022. TAS management also agrees with the recommendations provided by HBL for items a ? j and is taking these into consideration in developing and finalizing the revised/updated Accounting policies and procedures.

Criteria: Under Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance) 2 CFR 200.318(a) and 2 CFR 200.318(c), a non-federal entity must use its own documented procurement procedures conforming to applicable State and local laws and regulations and the Uniform Guidance, and must maintain written standards of conduct covering conflicts of interest and governing the actions of its employees engaged in the selection, award and administration of contracts. The effective date of complying with this standard for non-federal entities was for fiscal years beginning on or after December 26, 2017 (2 CFR 200.110). Condition: TAS does not have a written procurement policy that complies with Uniform Guidance. Cause and effect: TAS failed to create a written procurement policy to be in compliance with the procurement standards of the Uniform Guidance. Failure to implement such a policy could have the effect of TAS not being eligible for future federal grant awards, or incurring unallowable costs under a federal award, resulting in unplanned losses when costs that were expected to be funded by a federal grant instead must be charged to undesignated net assets without donor restrictions. Recommendation: We recommend that TAS prepare and implement a written procurement policy to comply with the procurement standards of the Uniform Guidance. Management response: TAS will henceforth adopt a Procurement Policy that satisfies the Uniform Guidance requirement. This Policy will be reviewed by the TAS Finance Committee in early August 2022, with the finalized policy anticipated to be approved and adopted as standard practice thereafter.