DOUGLAS COUNTY

2023-002 Program: COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Financial Assistance Listing: 21.027 Federal Agency: U.S. Department of the Treasury Passed-through: N/A Award Year: 2022-2023 Compliance Requirement: Reporting Grant Award Number: Applies to all awards with findings and no specific grant award. Type of Finding: Material Instance of Noncompliance, Material Weakness in Internal Controls over Compliance. Criteria: Per 2 CFR 200.303, the non-Federal entity must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. This includes internal controls over maintaining records of the preparer and approver of required reports. 2 CFR 200.329(b) requires that reports submitted to the federal awarding agency include all activity of the reporting period, are supported by applicable accounting or performance records, and are fairly presented in accordance with program requirements. The County must submit an annual Project and Expenditure Report that contains costs incurred during the covered period. Critical information pertaining to the annual Project and Expenditure Report specifically includes: • Subawards • Detailed information on any loans issued; contracts and grants awarded; transfers made to other government entities; and direct payments made by the recipient that are greater than $50,000. For amounts less than $50,000, the recipient must report in the aggregate for these same categories of loans issued; contracts and grants awarded; transfers made by the recipient. Condition found: As a result of audit procedures, we identified that the annual Project and Expenditure Report had 3 instances where the project expenditure category and subcategory was not correctly classified. The project category of, (6-Revenue Replacement) and the subcategory of, (6.1- Provision of Government Services) were reported for projects that were either related to capital projects or other COVID-19 related projects that would result in this being classified incorrectly within the annual report. A different classification should have been used to report these project expenditures in the annual report. Context: The County filed the annual Project and Expenditure Report under project expenditure category, (6-Revenue Replacement) and subcategory, (6.1-Provision of Government Services). We identified expenditures for subrecipient awards in the amount of $629,387 and $7,939, respectively, and COVID-19 economic assistance expenditures in the amount of $60,000. All 3 instances should have been reported under a different category and subcategory in the report and not (6.1-Provision of Government Services). While the expenditures were deemed to be allowable under the terms and conditions of the award, the expenditures were not for general government services; therefore, they were not classified correctly. Cause: The County’s procedures did not ensure that the classification of expenditures was reported correctly in the annual Project and Expenditure Report. Effect: The County did not comply with the requirements of 2 CFR 200.303 and inaccurate information was reported to the federal awarding agency. Repeat Finding from Prior Year(s): This is not a repeat finding. Recommendation: We recommend the County enhance internal controls to ensure that the annual Project and Expenditure Reports are prepared in accordance with program requirements. Views of Responsible Officials and Corrective Action: Management agrees. See the County's separately issued Corrective Action Plan.

Program: Coronavirus Relief Fund CFDA No.: 21.019 Federal Agency: Department of Treasury Passed-through: State of Nevada Award Year: March 1, 2020 through June 30, 2020; July 1, 2020 through December 31, 2020. Compliance Requirement: Allowable Costs/Cost Principles Grant Award Number: N/A Criteria: Per the 2021 OMB Compliance Supplement and criteria contained in 2 CFR part 200, costs must not consist of improper payments including payments that should not have been made or that were made in incorrect amounts (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements. For small business grants, the County requires a current business license in place before and after March 2020 prior to grant award. Condition: Significant Deficiency, Instances of Noncompliance ? As a result of our audit procedures, we noted 2 of 78 transactions in which improper payments were made by the County to two small businesses that were awarded an economic assistance grant. Questioned Costs: We noted known questioned costs of $10,081. Context/Sampling: A non statistical sample of 78 transactions out of 662 total transactions were selected for testing, which accounted for $2,405,150 of $8,925,080 federal program expenditures. As a result of our testing of program expenditures, we identified an instance in which a small business was awarded $10,081 of grant funding but $10,162 was disbursed by the County. We also identified an instance in which $10,000 of grant funding was awarded and disbursed to a small business that had an expired business license at the time of the grant award and disbursement. Repeat Finding from Prior Year(s): No. Cause: The County?s policies and procedures did not detect or correct an incorrect payment amount made to a grant recipient. In addition, the County?s policies and procedures did not detect the fact that one small business grant recipient did not have a current business license prior to awarding and disbursing grant funding. Effect: Expenditures charged against the Coronavirus Relief Fund grant by the County may not be accurate or properly supported, thus increasing the risk of noncompliance with the requirements of the program. Recommendation: We recommend that the County implement stronger policies and procedures to ensure economic assistance grant payments made to small business are properly supported and calculated correctly. Views of Responsible Officials and Planned Corrective Actions: Management?s or Department?s Response: We concur. See County's Separate Corrective Action Plan. Management concurs with the finding. Management has changed the review process for all accounts payable vouchers to distribute the review among three management staff rather than relying on only a review of high dollar invoices. A Grants Administrator position has also been created and was filled in June 2021 to add an extra layer of review for grant expenditures, and to ensure that submitted documentation is adequate and in line with program guidelines and requirements. Name of Responsible Person: Terri Willoughby, Chief Financial Officer Name of Department Contact: Terri Willoughby, Chief Financial Officer Projected Implementation Date: June 30, 2022

Program: Formula Grants for Rural Areas and Tribal Transit Program CFDA No.: 20.509 Federal Agency: Department of Transportation Passed-through: State of Nevada Department of Transportation Award Year: October 1, 2018-September 32, 2019; October 1, 2019-September 30, 2020 Compliance Requirement: Allowable Costs/Cost Principles Grant Award Number: PR401-18-802, PR504-19-802 Criteria: 2 CFR Section 200.412 Classification of costs states that there is no universal rule for classifying certain costs as either direct or indirect (F&A) under every accounting system. A cost may be direct with respect to some specific service or function, but indirect with respect to the Federal award or other final cost objective. Therefore, it is essential that each item of cost incurred for the same purpose be treated consistently in like circumstances either as a direct or an indirect (F&A) cost in order to avoid possible double-charging of Federal awards. Condition: Significant Deficiency, Instances of Noncompliance ? As a result of our audit procedures, we noted 3 of 12 monthly claims in which the indirect costs charged to the program were not properly supported. Questioned Costs: We noted known questioned costs of $26,204. Context: As a result of our understanding of the program?s indirect cost rate calculation, we noted that the County?s indirect costs rate was calculated based on an indirect costs pool consisting of administrative salaries and benefits. However, based on a nonstatistical sample of 3 of 12 total claims tested, we noted that administrative salaries and benefits were charged to the program as direct costs. In addition, the County also charged indirect costs to the program derived from the program?s total salaries and benefits, which consisted of administrative salaries and benefits, multiplied by the indirect cost rate. Repeat Finding from Prior Year(s): No Cause: The County did not have formal policies and procedures in place to ensure the indirect costs were properly charged to the program. Effect: Claims submitted by the County may not be accurate or fully supported, thus increasing the risk of noncompliance with the requirements of the program. Recommendation: We recommend that the County implement policies and procedures to ensure indirect costs being charged to the program are appropriate. Views of Responsible Officials and Planned Corrective Actions: Management?s or Department?s Response: We concur. See County's Separate Corrective Action Plan. This item has been corrected for FY21. The indirect rate of 10% is now being applied only to the direct labor expenses associated with the grant. Administrative Salaries are no longer being booked as expenses towards the grant, but instead are included as part of the 10% indirect costs. The procedures that will be in place to ensure that indirect costs charged to the grant are appropriate will be as follows: Direct Labor hours for drivers will be entered on their timesheets and reviewed and approved by the Transportation Supervisor. Direct Labor hours for other staff (Budget Analyst, Recreation Supervisor, and Secretary) will be documented on timesheets. These timesheets will be reviewed and approved by the Community Services Manager or the Community Services Director. The Budget Analyst will calculate the indirect costs as 10% of the total direct labor charges. These charges will be included, along with all other expenses, on the monthly Request for reimbursement that is submitted to Nevada Department of Transportation (NDOT). NDOT also reviews the indirect charges for reasonableness, along with their review of all other grant related expenses. The County?s Finance Department will perform a final review when the entries to record the grant reimbursements are submitted.

Finding 2019?022 Program: Airport Improvement Program CFDA No.: 20.106 Federal Agency: Department of Transportation Passed-through: N/A Award Year: 2019 Compliance Requirement: Special Tests and Provisions ? Revenue Diversion Criteria: The 2019 Compliance Supplement establishes that the basic requirement for use of airport revenues is that all revenues generated by a public airport must be expended for the capital or operating costs of the airport, the local airport system, or other local facilities which are owned or operated by the owner or operator of the airport and are directly and substantially related to the actual air transportation of passengers or property. Therefore, internal controls should be established by the Airport to ascertain the completeness of all airport-generated revenue. Condition Found: Significant Deficiency, Instance of Noncompliance ? As part of the audit procedures, we obtained an understanding of the airport?s revenue generating activities and revenue collection process and noted that the Airport did not have proper segregation of duties over the revenue collection process which could result in material misstatements of the airport?s revenues as revenues could be prone to error or fraud. As a result, we were unable to ascertain the completeness of all airport-generated revenue. Questioned Costs: No questioned costs were identified as a result of our procedures. Context: During our observation of the internal controls over the Airport?s cash receipt process, we identified that the Airport management group (Office Manager, Operations Manager and Airport Manager) has super-user access that allows anyone within the management group to change rates (i.e. land and hanger fees, tie-down fees, camping fees, etc.), void or alter payment transactions within QuickBooks. We also noted that the Office Manager has access to cash, enters cash receipt entries and performs the weekly revenue reconciliation. Cause: The Airport did not have policies and procedures in place to ensure the changes made to the system are regularly reviewed and properly authorized as anyone within the management group could process rate changes or void transactions without being detected. Also, key functions of the cash receipt process were not properly segregated. Effect: Revenues collected by the Airport may not be accurate or fully accounted for thus increasing the risk of noncompliance with the requirements of the program. Recommendation: We recommend that the Airport implement policies and procedures to ensure to ensure changes made to the system are regularly reviewed and properly authorized as anyone within the management group could process rate changes or void transactions without being detected. Also, we recommend that the receiving, recording and reconciling functions of the revenue collection process be properly segregated.

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