Aleutians East BoroughLocal Government

Finding 2024-001 Deadline for Federal Single Audit – Noncompliance and Internal Control Over Compliance – Significant Deficiency Agency Department of Commerce Pass-through Entity National Oceanic and Atmospheric Association Assistance Listing 11.472 Program Research and Development Cluster Award Year 2022-2024 Criteria The Borough is required to submit the single audit report and Form SF-SAC within nine months of the fiscal year end. Condition The Form SF-SAC for the fiscal year ended June 30, 2024 was not filed on time. Cause The audit was not completed in time to file the form, due to a delay in closing the books and records. Effect or potential effect The Schedule of Expenditures of Federal Awards were not available in a timely manner in order to allow for timely submission of Form SF-SAC. Questioned costs None noted. Context The Form SF-SAC is due nine months after the fiscal year end. The form for the fiscal year ended June 30, 2024 was filed late. Identification as a repeat finding No Recommendation We recommend the Form SF-SAC is filed timely in the future. Views of responsible officials Borough management acknowledges that the SF-SAC was filed late for Fiscal Year 2024 due to unforeseen financial reporting issues. As those reporting issues have been resolved, we do not anticipate any such issues for Fiscal Year 2025.

Finding 2022-004 Noncompliance and Significant Deficiency in Internal Control ? Subrecipient Monitoring Agency Department of the Treasury Pass-through Entity State of Alaska Department of Commerce, Community and Economic Development Assistance Listing 21.019 Program Coronavirus Relief Fund ? COVID-19 Award Year FY 2022 Criteria Management is responsible to ensure that subrecipients comply with the terms and conditions of 2 CFR Part 200, Subpart F. This includes ensuring that every subaward is clearly identified to the subrecipient as a subaward and include the necessary information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. This also includes verifying that every subrecipient is audited as required by Subpart F of this part when it is expected that the subrecipient's Federal awards expended during the respective fiscal year equaled or exceeded the threshold. Condition We noted that management did not fully identify and comply with all subrecipient monitoring requirements applicable to the program. Cause Internal controls were not in place throughout the entire fiscal year to ensure that all required subrecipient monitoring responsibilities took place. Effect or potential effect Subrecipients may be unaware and not in compliance with the requirements of 2 CFR Part 200. Questioned costs None Context Subrecipient monitoring testing identified 1 out of 1 subawards that did not have the support to verify notification and monitoring of subrecipient compliance in accordance with 2 CFR Part 200, Subpart F. Identification as a repeat finding Yes, see prior year finding number 2021-005 Recommendation Management should establish policies to address the monitoring of subrecipient compliance with 2 CFR Part 200, Subpart F. Views of responsible officials Management concurs with the finding and will establish policies to ensure that timely monitoring activity takes place and subrecipients are aware of compliance requirements applicable to subawards from issued by the Borough.

Finding 2022-005 Deadline for Federal Single Audit - Noncompliance and Internal Control over Compliance ? Significant Deficiency Agency Department of the Treasury Pass-through Entity State of Alaska Department of Commerce, Community and Economic Development Assistance Listing 21.019 Program Coronavirus Relief Fund ? COVID-19 Award Year FY 2022 Criteria The Borough is required to submit the single audit report and Form SF-SAC within nine months of the fiscal year end. Condition The Form SF-SAC for the fiscal year ended June 30, 2022 was not filed on time. Cause The audit was not completed in time to file the form, due to a delay in closing the books and records. Effect or potential effect The Schedule of Expenditures of Federal Awards were not available in a timely manner in order to allow for timely submission of Form SF-SAC. Questioned costs None Context The Form SF-SAC is due nine months after the fiscal year end. The form for the fiscal year ended June 30, 2022 was filed late. Identification as a repeat finding No Recommendation We recommend the Form SF-SAC is filed timely in the future. Views of responsible officials Management concurs with the finding and will submit the Form SF-SAC on time in the future

Finding 2021-004 Activities Allowed and Unallowed, Allowable Costs ? Internal Control over Compliance ? Significant Deficiency Agency Department of the Treasury Pass-through Entity State of Alaska Department of Commerce, Community and Economic Development Assistance Listing 21.019 Program Coronavirus Relief Fund ? COVID-19 Award Year FY 2021 Criteria Management is responsible to provide reasonable assurance that the costs paid for by federal funds are allowable and in accordance with the types of activities allowed per the compliance supplement. Condition We noted that while management began taking steps in 2021 to improve segregation of duties between initiation and review/approval of cash disbursements prior to posting, there were still instances in which cash disbursements were processed and recorded to the general ledger without proper segregation of duties between initiation and review/approval prior to posting. Cash disbursements testing identified 2 instances out of 17 tested in which cash disbursements were not reviewed and approved prior to posting. Cause Internal controls were not in place throughout the entire fiscal year to ensure that all transactions were reviewed and approved by an individual who did not initiate the transaction. Effect or potential effect Federal funds could be expended for unallowed activities and unallowed costs. Questioned costs None Context We noted nonpayroll expenditures recorded in the general ledger that were not supported by documentation indicating review and approval. However, all costs tested were found to be allowable in accordance with program requirements. Identification as a repeat finding Yes, see prior year finding number 2020-006. Recommendation Management should establish policies requiring all cash disbursements to be reviewed and approved by a second individual who is knowledgeable of the transaction prior to disbursement, and that documentation of this review be retained. Views of responsible officials Management concurs with the finding and will adhere to the corrective action plan included in this report.

Finding 2021-005 Noncompliance and Significant Deficiency in Internal Control ? Subrecipient Monitoring Agency Department of the Treasury Pass-through Entity State of Alaska Department of Commerce, Community and Economic Development Assistance Listing 21.019 Program Coronavirus Relief Fund ? COVID-19 Award Year FY 2021 Criteria Management is responsible to ensure that subrecipients comply with the terms and conditions of 2 CFR Part 200, Subpart F. This includes ensuring that every subaward is clearly identified to the subrecipient as a subaward and include the necessary information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. This also includes verifying that every subrecipient is audited as required by Subpart F of this part when it is expected that the subrecipient's Federal awards expended during the respective fiscal year equaled or exceeded the threshold. Condition We noted that management did not fully identify and comply with all subrecipient monitoring requirements applicable to the program. Cause Internal controls were not in place throughout the entire fiscal year to ensure that all required subrecipient monitoring responsibilities took place. Effect or potential effect Subrecipients may be unaware and not in compliance with the requirements of 2 CFR Part 200. Questioned costs None Context Subrecipient monitoring testing identified 2 out of 2 subawards that did not have the support to verify notification and monitoring of subrecipient compliance in accordance with 2 CFR Part 200, Subpart F. Identification as a repeat finding No Recommendation Management should establish policies to address the monitoring of subrecipient compliance with 2 CFR Part 200, Subpart F. Views of responsible officials Management concurs with the finding and will adhere to the corrective action plan included in this report.

Finding 2020-005 Activities Allowed and Unallowed, Allowable Costs ? Internal Control over Compliance ? Significant Deficiency Agency Department of the Interior CFDA 15.226 Program Payments in Lieu of Taxes Award Year FY 2020 Criteria Management is responsible to provide reasonable assurance that the costs paid for by federal funds are allowable and in accordance with the types of activities allowed per the compliance supplement. Condition While the Borough has in place policies requiring employees have signed and approved pay rates on file, the results of our payroll testing identified 4 payroll disbursements out of a sample of 40 that were not supported by signed and approved pay rates on file. Additionally, the results of our payroll testing identified 1 instance out of 40 where an employee?s timesheet was not reviewed and approved, as required by Borough policy. Cause Internal controls were not in place throughout the entire fiscal year to ensure that all employees have approved pay rates included in their personnel file and that all timesheets are reviewed and approved prior to payment. Effect or potential effect Federal funds could be expended for unallowed activities and unallowed costs. Questioned costs None. Context We noted payroll expenditures recorded in the general ledger that were not supported by signed and approved payrates on file as well as reviewed and approved timesheets. However, all costs tested were found to be allowable in accordance with program requirements. Identification as a repeat finding Yes, see prior year finding number 2019-007. Recommendation Management should review all personnel files and verify all employees have a current signed and approved pay rate included in their file. We also recommend management adopt a policy requiring all payroll disbursements be reviewed by 2 individuals prior to approval for pay to ensure a signed and approved timesheet is on file supporting the disbursement. Views of responsible officials Management concurs with the finding and will adhere to the corrective action plan included in this report.

Finding 2020-006 Activities Allowed and Unallowed, Allowable Costs ? Internal Control over Compliance ? Significant Deficiency Agency Department of the Interior CFDA 15.226 Program Payments in Lieu of Taxes Award Year FY 2020 Criteria Management is responsible to provide reasonable assurance that the costs paid for by federal funds are allowable and in accordance with the types of activities allowed per the compliance supplement. Condition We noted that while management began taking steps in 2020 to improve segregation of duties between initiation and review/approval of cash disbursements prior to posting, there were still instances in which cash disbursements were processed and recorded to the general ledger without proper segregation of duties between initiation and review/approval prior to posting. Cash disbursements testing identified 39 instances out of 60 tested in which cash disbursements were not reviewed and approved prior to posting. Cause Internal controls were not in place throughout the entire fiscal year to ensure that all transactions were reviewed and approved by an individual who did not initiate the transaction. Effect or potential effect Federal funds could be expended for unallowed activities and unallowed costs. Questioned costs None. Context We noted nonpayroll expenditures recorded in the general ledger that were not supported by documentation indicating review and approval. However, all costs tested were found to be allowable in accordance with program requirements. Identification as a repeat finding Yes, see prior year finding number 2019-006. Recommendation Management should establish policies requiring all cash disbursements to be reviewed and approved by a second individual who is knowledgeable of the transaction prior to disbursement, and that documentation of this review be retained. Views of responsible officials Management concurs with the finding and will adhere to the corrective action plan included in this report.

Finding 2019-004 Activities Allowed and Unallowed, Allowable Costs ? Internal Control over Compliance ? Significant Deficiency Agency Department of the Interior CFDA 15.226 Program Payments in Lieu of Taxes Award Year FY 2019 Criteria Management is responsible to provide reasonable assurance that the costs paid for by federal funds are allowable and in accordance with the types of activities allowed per the compliance supplement. Condition We noted at the start of the fiscal year that the Borough did not require employees to have signed and approved pay rates on file. As such, payroll expenditures were recorded to the general ledger for which the underlying transaction were not supported by documented approved pay rates. The Borough adopted a policy requiring all employees to have signed and approved payrates on file towards the end of fiscal year 2019. Cause Internal controls were not in place throughout the entire fiscal year to ensure that all employees have approved pay rates included in the personnel files. Effect or potential effect Federal funds could be expended for unallowed activities and unallowed costs. Questioned costs None. Context We noted the Borough did not require all employees to have signed and approved pay rates on file throughout the entire year. However, all costs tested were found to be allowable in accordance with program requirements. Recommendation We recommend management keep enforcing the updated policy requiring signed and approved pay rates be kept on file for all employees. We recommend management closely review the activity in the general ledger. Information should be reviewed for completeness and accuracy. Year-end balances should be reviewed prior to closing of the books. Views of responsible officials Management concurs with the finding and will adhere to the corrective action plan included in this report.

Finding 2019-005 Activities Allowed and Unallowed, Allowable Costs ? Internal Control over Compliance ? Significant Deficiency. Agency Department of the Interior. CFDA 15.226. Program Payments in Lieu of Taxes. Award Year FY 2019. Criteria Management is responsible to provide reasonable assurance that the costs paid for by federal funds are allowable and in accordance with the types of activities allowed per the compliance supplement. Condition We noted that while management began taking steps in 2019 to improve segregation of duties between initiation and review/approval of cash disbursements prior to posting, there were still instances in which cash disbursements were processed and recorded to the general ledger without proper segregation of duties between initiation and review/approval prior to posting. Cause Internal controls were not in place throughout the entire fiscal year to ensure that all transactions were reviewed and approved by an individual who did not initiate the transaction. Effect or Potential effect Federal funds could be expended for unallowed activities and unallowed costs. Questioned costs None. Context It was identified during the walkthrough of cash disbursement internal controls that there is not a process in place that requires all cash disbursements to be reviewed and approved by an individual other than the preparer. However, all costs tested were found to be allowable in accordance with program requirements. Recommendation We understand that management is in the process of updating the employee handbook and implementing controls to ensure that all cash disbursements are properly reviewed and approved. We recommend management complete these steps as soon as possible. Views of responsible officials Management concurs with the finding and will adhere to the corrective action plan included in this report.