NUSHAGAK ELECTRIC & TELEPHONE COOPERATIVE INCNon-Profit

Criteria: 7 CFR Part 1770 requires the maintenance of adequate and effective accounting procedures. Additionally, auditing standards generally accepted in the United States of America (GAAS) and Government Auditing Standards (GAS) require the evaluation of the adequacy of internal controls. Condition: During the course of the audit, there were several account balances that required audit adjustments to reconcile activity to the general ledger. Specifically, adjustments were required for cash, accounts payable, property, plant, and equipment, inventory, other assets, and accounts receivable. The adjustments identified are material to the financial statements in part and in total. In addition, our expertise was required to draft the financial statements and supporting notes in conformity with generally accepted auditing principles (GAAP). Management is responsible for the controls over the selection and application of accounting principles in conformity with GAAP and is also responsible for the controls over the period-end financial reporting process. The period-end financial reporting process includes the controls over procedures used to initiate, authorize, record, and process transactions and journal entries into the general ledger; record recurring and nonrecurring adjustments to the financial statements; and prepare the financial statements and related notes. Having sufficient expertise in selecting and applying accounting principles is an aspect of such controls. While the accounting staff of the Cooperative has the ability to perform the daily accounting functions and prepare monthly financial reports for management purposes, they have chosen to rely on the financial statement auditor to prepare the financial statements and supporting notes. Under current audit standards, the financial statement auditor cannot be considered part of the Cooperative’s internal control over financial reporting. Even though management has requested the auditor’s assistance in preparing the financial statements and notes, management is still responsible for the financial information presented. In addition, management is responsible for: Making management decisions and performing all management functions. Designating an individual with suitable skill, knowledge, or experience to oversee the services provided by the auditors. Evaluating the adequacy and results of the services performed by the auditors. Accepting responsibility for the results of the services performed by the auditors. Cause: There was significant turnover in the accounting department during the year. Additionally, as a rural cooperative in remote Alaska, the Cooperative has limited resources available. Effect or Potential Effect: Due to the transition of the accounting team, it may require additional time to complete all monthly, regularly recurring, and year-end accounting processes accurately. Recommendations: We recommend the Cooperative continue to evaluate the cost of employing internal resources against the benefits. Additionally, we recommend management consider training opportunities available from the Cooperative’s general ledger software company to support the transition of the accounting staff members in developing their understanding of the accounting software system and internal reporting processes and functions. Further, we recommend that general ledger account reconciliations are performed in a timely manner and are reviewed for accuracy to ensure activity is complete and accurate. Management’s Response: The Cooperative has evaluated the situation and has determined that it is cost prohibitive at this time to internally staff this level of expertise for GAAP financial statements and believes the monthly financial reports to management are appropriate. The Cooperative will continue to outsource the drafting of the annual financial statements and supporting notes to external experts. Management has reviewed the draft financial statements and disclosures and has represented that they have taken responsibility for the statements including disclosures. Management will evaluate the recommendations for accounting software training and monthly reconciliations and determine the best course of action for the Cooperative. Corrective Action Planned: Management continues to evaluate costs of internally employing resources in comparison with the related benefits.

Identification of the federal program: 11.029 – Tribal Broadband Grant Program Criteria: Processes and procedures should be in place to ensure costs charged to the grant are only for activities that are allowed. Condition: The Cooperative identified costs that had been submitted and reimbursed under the program that were for electrical infrastructure development which is not an allowable activity. Cause: Costs charged on the vendor invoice were not separated between allowable activity, broadband infrastructure development, and unallowable activity, electrical infrastructure development. Effect: The Cooperative received $1,779,669 of reimbursement for unallowable activities. The granting agency, the National Telecommunications and Information Administration, has been notified and a credit for the amount has been applied against the Cooperative’s May 2025 drawdown to correct the error. Known Questioned Costs: $1,779,669 Recommendations: When projects include both allowable and unallowable activities, the Cooperative should instruct the vendor to segregate accounting related to the different activities in their billings. Cooperative personnel and consultants involved in project management, especially those involved in approving expenditures, should receive training on Uniform Guidance requirements. Views of Responsible Officials: The Cooperative agrees with the finding above and has already taken corrective action. All project expenditures for the term of the grant have been reviewed for any additional unallowable charges. Training meetings have been held with contractors and subcontractors to ensure clear distinction and segregated accounting between grant and non-grant projects in project billings. The Cooperative will ensure that all personnel involved in grant administration, including project managers and finance staff, are required to attend training on federal grant compliance.

Identification of the federal program: 11.029 Tribal Broadband Grant Program Criteria: The grant agreement requires the grantee to follow competitive purchasing procedures that follow 2 CFR Part 200.317-326 for micro-purchase, small purchases, and formal procurements. Condition: The Cooperative was unable to provide documentation of the source selection methods used for all contracts, equipment, and material transactions greater than $10,000, and the Cooperative was unable to provide documentation of the procurement process used for all contracts, equipment, and material transactions greater than $250,000. Cause: The Cooperative did not maintain documentation of source selection methods or of the justification for noncompetitive procurements or contracts and did not have internal controls in place to ensure all required purchasing methods were followed. Effect: The Cooperative may be out of compliance with the procurement requirements of the grant. Competitive purchasing not being followed might result in higher costs incurred under the grant. Questioned Costs: None Recommendations: The Cooperative should implement processes and procedures to ensure competitive purchasing procedures are followed and all necessary documentation is maintained. Views of Responsible Officials: The Cooperative agrees with the finding above and will develop processes and procedures to ensure that, going forward, all pertinent documents and agreements are retained.

Identification of the federal program: 11.029 Tribal Broadband Grant Program Criteria: Processes and procedures should be in place to ensure when the Cooperative enters into a transaction with another entity for the purchase of goods or services, that the Cooperative is checking the suspended and debarred list and maintaining documentation that this verification occurred. Condition: The Cooperative did not maintain documentation supporting the assertion the suspended and debarred list was checked prior to awarding a contract for services. Cause: Internal control processes and procedures were not in place to ensure the suspended and debarred list was checked prior to awarding a contract. Effect: The Cooperative could contract with an entity for goods and services which is barred from performing work with state or federal funds. Questioned Costs: None Recommendations: The Cooperative should implement processes, procedures, and controls to ensure the suspended and debarred list is checked prior to awarding a contract and should maintain documentation this check occurred. Views of Responsible Officials: The Cooperative agrees with the finding above and will develop processes and procedures to ensure the suspended and debarred list is checked prior to awarding a contract and ensure documentation is maintained.

Identification of the federal program: 11.029 Tribal Broadband Grant Program Criteria: Processes and procedures should be in place to ensure annual reports are filed and are filed timely. Condition: The Cooperative did not file the annual report with the National Telecommunications and Information Administration and the Assistant Secretary of Commerce for Communications and Information as outlined in the grant agreement. Cause: Internal control processes and procedures were not in place to ensure required reports were filed. Effect: The Cooperative's progress on the project could be behind schedule or in conflict with the completion schedule outlined in the grant agreement. Questioned Costs: None Recommendations: The Cooperative should implement processes and procedures to ensure all required grant reports are filed and are filed timely. Views of Responsible Officials: The Cooperative agrees with the finding above and will develop processes and procedures to ensure all necessary reports are filed timely.