Audit 362249

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Lyle School District No. 406 September 1, 2023 through August 31, 2024 2024-001 The District did not have adequate controls for ensuring compliance with federal requirements for allowable costs and cost principles and federal wage rate requirements. Assistance Listing Number and Title: 84.425, COVID-19 Education Stabilization Fund Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: COVID-19, 84.425U-0137036 COVID-19, 84.425U-0138018 COVID-19, 84.425U-0142149 COVID-19, 84.425D Known Questioned Cost Amount: $78,446 Prior Year Audit Finding: Yes, Finding 2023-001, wage rate requirements Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In the fiscal year 2024, the District spent a total of $1,179,964 of its ESF awards. This included $4,016 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $1,175,948 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). The District spent $596,109 in program funds for various improvements and repairs to its buildings and other facilities. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of program controls. Activities Allowed/Allowable Costs Federal regulations establish principles and standards for determining allowable direct and indirect costs for federal awards. All costs that recipients charge to the program must comply with program requirements and recipients must support this compliance with proper documentation that demonstrates costs are allowable. The Office of Superintendent of Public Instruction (OSPI) establishes the indirect cost rate for each award, and districts cannot exceed this approved rate when claiming reimbursement. If there are changes to the rate during a multi-year award, districts must adjust the amount claimed, if needed, to ensure they do not exceed the approved rate. Wage Rate Requirements Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the District must include a provision that the contractors and subcontractors comply with those requirements and the Department of Labor’s regulations. This includes a requirement for the contractors and its subcontractors to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition Activities Allowed/Allowable Costs The District’s internal controls were inadequate in ensuring it charged only allowable costs to the program. Specifically, we found the District did not ensure all costs charged to the program were supported with actual expenditures and were for the correct amount. In addition, the District did not have a process to ensure it used the correct indirect cost rate for its ESSER III awards. We consider this internal control deficiency to be a significant deficiency. Wage Rate Requirements During the 2024 school year, the District spent $526,866 for payments to contractors to update the heating, ventilation and air condition system in its school building to prevent the spread of COVID-19. Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements. Specifically, the District did not have an adequate process in place to ensure it collected all weekly certified payroll reports from the contractor and each subcontractor working on the project. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Cause of Condition Activities Allowed/Allowable Costs The District’s review was not effective to ensure only allowable and supported costs were charged to the program. Additionally, District employees were unaware of the need to manually adjust the District’s indirect cost rate for ESSER awards that covered more than one fiscal year. Wage Rate Requirements After District employees became aware of federal wage rate requirements in the prior audit, the District attempted but was unable to collect certified payrolls for work previously performed. Effect of Condition and Questioned Costs Activities Allowed/Allowable Costs The District was not able to identify specific transactions for $44,109 that was charged to the program, and its associated indirect costs of $7,216. We are therefore questioning $51,325 in award number 0138018. Using a statistical sample, we found the District overcharged one of the 28 transactions we tested to the program by $940 because it included the tax on the invoice twice. We are therefore questioning this amount. Based on the projection of our sample, we identified an additional $14,467 in estimated overpayments. We reviewed all indirect costs charged to the program. We found the District charged $26,181 more than was allowable in indirect costs because it did not use the correct rate as instructed by OSPI. We are questioning $19,089 in award number 0138018 and $7,092 in award number 0137036. Federal regulations require the State Auditor’s Office to report known questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the District has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures. Wage Rate Requirements Without adequate internal controls to ensure it collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District did not collect 231 out of 352 weekly certified payrolls. The District could also be liable for paying any additional wages if the contractor and subcontractor did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the District establish and follow internal controls to ensure all costs it charges to federal programs are allowable and comply with cost principles. We also recommend the District ensure it uses the correct OSPI-issued unrestricted indirect cost rate for the fiscal period when it charges costs to federal awards. Additionally, we recommend the District implement monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District’s Response The District has identified and now leverages specific Washington L&I web addresses that offer up-to-date and accurate payroll information. PWSE Search The District was unaware of this resource last year. Should the District secure additional federal construction grants in the future, we would seek the expertise of ESD112 for guidance and oversight in the monitoring of grant-related activities. A new methodology for calculating indirect cost rates has been implemented, including working directly with EGMS staff at the beginning of the fiscal year to document the correct indirect rate per grant ( for the 2024-25 fiscal year this was completed in March). The District was previously not aware that OSPI was not modifying the hard coded rate. The District has significantly strengthened its internal controls over expenditures. We've implemented a checklist system for accounts payable, designed to catch errors such as duplicate taxation. Additionally, the District developed a master spreadsheet to reconcile all grant claims monthly, ensuring each claim is reconciled both before and after submission, and upon revenue receipt. Auditor’s Remarks We appreciate the District’s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 29 CFR, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports.

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Lyle School District No. 406 September 1, 2023 through August 31, 2024 2024-001 The District did not have adequate controls for ensuring compliance with federal requirements for allowable costs and cost principles and federal wage rate requirements. Assistance Listing Number and Title: 84.425, COVID-19 Education Stabilization Fund Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: COVID-19, 84.425U-0137036 COVID-19, 84.425U-0138018 COVID-19, 84.425U-0142149 COVID-19, 84.425D Known Questioned Cost Amount: $78,446 Prior Year Audit Finding: Yes, Finding 2023-001, wage rate requirements Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In the fiscal year 2024, the District spent a total of $1,179,964 of its ESF awards. This included $4,016 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $1,175,948 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). The District spent $596,109 in program funds for various improvements and repairs to its buildings and other facilities. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of program controls. Activities Allowed/Allowable Costs Federal regulations establish principles and standards for determining allowable direct and indirect costs for federal awards. All costs that recipients charge to the program must comply with program requirements and recipients must support this compliance with proper documentation that demonstrates costs are allowable. The Office of Superintendent of Public Instruction (OSPI) establishes the indirect cost rate for each award, and districts cannot exceed this approved rate when claiming reimbursement. If there are changes to the rate during a multi-year award, districts must adjust the amount claimed, if needed, to ensure they do not exceed the approved rate. Wage Rate Requirements Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the District must include a provision that the contractors and subcontractors comply with those requirements and the Department of Labor’s regulations. This includes a requirement for the contractors and its subcontractors to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition Activities Allowed/Allowable Costs The District’s internal controls were inadequate in ensuring it charged only allowable costs to the program. Specifically, we found the District did not ensure all costs charged to the program were supported with actual expenditures and were for the correct amount. In addition, the District did not have a process to ensure it used the correct indirect cost rate for its ESSER III awards. We consider this internal control deficiency to be a significant deficiency. Wage Rate Requirements During the 2024 school year, the District spent $526,866 for payments to contractors to update the heating, ventilation and air condition system in its school building to prevent the spread of COVID-19. Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements. Specifically, the District did not have an adequate process in place to ensure it collected all weekly certified payroll reports from the contractor and each subcontractor working on the project. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Cause of Condition Activities Allowed/Allowable Costs The District’s review was not effective to ensure only allowable and supported costs were charged to the program. Additionally, District employees were unaware of the need to manually adjust the District’s indirect cost rate for ESSER awards that covered more than one fiscal year. Wage Rate Requirements After District employees became aware of federal wage rate requirements in the prior audit, the District attempted but was unable to collect certified payrolls for work previously performed. Effect of Condition and Questioned Costs Activities Allowed/Allowable Costs The District was not able to identify specific transactions for $44,109 that was charged to the program, and its associated indirect costs of $7,216. We are therefore questioning $51,325 in award number 0138018. Using a statistical sample, we found the District overcharged one of the 28 transactions we tested to the program by $940 because it included the tax on the invoice twice. We are therefore questioning this amount. Based on the projection of our sample, we identified an additional $14,467 in estimated overpayments. We reviewed all indirect costs charged to the program. We found the District charged $26,181 more than was allowable in indirect costs because it did not use the correct rate as instructed by OSPI. We are questioning $19,089 in award number 0138018 and $7,092 in award number 0137036. Federal regulations require the State Auditor’s Office to report known questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the District has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures. Wage Rate Requirements Without adequate internal controls to ensure it collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District did not collect 231 out of 352 weekly certified payrolls. The District could also be liable for paying any additional wages if the contractor and subcontractor did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the District establish and follow internal controls to ensure all costs it charges to federal programs are allowable and comply with cost principles. We also recommend the District ensure it uses the correct OSPI-issued unrestricted indirect cost rate for the fiscal period when it charges costs to federal awards. Additionally, we recommend the District implement monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District’s Response The District has identified and now leverages specific Washington L&I web addresses that offer up-to-date and accurate payroll information. PWSE Search The District was unaware of this resource last year. Should the District secure additional federal construction grants in the future, we would seek the expertise of ESD112 for guidance and oversight in the monitoring of grant-related activities. A new methodology for calculating indirect cost rates has been implemented, including working directly with EGMS staff at the beginning of the fiscal year to document the correct indirect rate per grant ( for the 2024-25 fiscal year this was completed in March). The District was previously not aware that OSPI was not modifying the hard coded rate. The District has significantly strengthened its internal controls over expenditures. We've implemented a checklist system for accounts payable, designed to catch errors such as duplicate taxation. Additionally, the District developed a master spreadsheet to reconcile all grant claims monthly, ensuring each claim is reconciled both before and after submission, and upon revenue receipt. Auditor’s Remarks We appreciate the District’s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 29 CFR, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports.

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Lyle School District No. 406 September 1, 2023 through August 31, 2024 2024-001 The District did not have adequate controls for ensuring compliance with federal requirements for allowable costs and cost principles and federal wage rate requirements. Assistance Listing Number and Title: 84.425, COVID-19 Education Stabilization Fund Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: COVID-19, 84.425U-0137036 COVID-19, 84.425U-0138018 COVID-19, 84.425U-0142149 COVID-19, 84.425D Known Questioned Cost Amount: $78,446 Prior Year Audit Finding: Yes, Finding 2023-001, wage rate requirements Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In the fiscal year 2024, the District spent a total of $1,179,964 of its ESF awards. This included $4,016 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $1,175,948 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). The District spent $596,109 in program funds for various improvements and repairs to its buildings and other facilities. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of program controls. Activities Allowed/Allowable Costs Federal regulations establish principles and standards for determining allowable direct and indirect costs for federal awards. All costs that recipients charge to the program must comply with program requirements and recipients must support this compliance with proper documentation that demonstrates costs are allowable. The Office of Superintendent of Public Instruction (OSPI) establishes the indirect cost rate for each award, and districts cannot exceed this approved rate when claiming reimbursement. If there are changes to the rate during a multi-year award, districts must adjust the amount claimed, if needed, to ensure they do not exceed the approved rate. Wage Rate Requirements Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the District must include a provision that the contractors and subcontractors comply with those requirements and the Department of Labor’s regulations. This includes a requirement for the contractors and its subcontractors to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition Activities Allowed/Allowable Costs The District’s internal controls were inadequate in ensuring it charged only allowable costs to the program. Specifically, we found the District did not ensure all costs charged to the program were supported with actual expenditures and were for the correct amount. In addition, the District did not have a process to ensure it used the correct indirect cost rate for its ESSER III awards. We consider this internal control deficiency to be a significant deficiency. Wage Rate Requirements During the 2024 school year, the District spent $526,866 for payments to contractors to update the heating, ventilation and air condition system in its school building to prevent the spread of COVID-19. Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements. Specifically, the District did not have an adequate process in place to ensure it collected all weekly certified payroll reports from the contractor and each subcontractor working on the project. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Cause of Condition Activities Allowed/Allowable Costs The District’s review was not effective to ensure only allowable and supported costs were charged to the program. Additionally, District employees were unaware of the need to manually adjust the District’s indirect cost rate for ESSER awards that covered more than one fiscal year. Wage Rate Requirements After District employees became aware of federal wage rate requirements in the prior audit, the District attempted but was unable to collect certified payrolls for work previously performed. Effect of Condition and Questioned Costs Activities Allowed/Allowable Costs The District was not able to identify specific transactions for $44,109 that was charged to the program, and its associated indirect costs of $7,216. We are therefore questioning $51,325 in award number 0138018. Using a statistical sample, we found the District overcharged one of the 28 transactions we tested to the program by $940 because it included the tax on the invoice twice. We are therefore questioning this amount. Based on the projection of our sample, we identified an additional $14,467 in estimated overpayments. We reviewed all indirect costs charged to the program. We found the District charged $26,181 more than was allowable in indirect costs because it did not use the correct rate as instructed by OSPI. We are questioning $19,089 in award number 0138018 and $7,092 in award number 0137036. Federal regulations require the State Auditor’s Office to report known questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the District has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures. Wage Rate Requirements Without adequate internal controls to ensure it collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District did not collect 231 out of 352 weekly certified payrolls. The District could also be liable for paying any additional wages if the contractor and subcontractor did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the District establish and follow internal controls to ensure all costs it charges to federal programs are allowable and comply with cost principles. We also recommend the District ensure it uses the correct OSPI-issued unrestricted indirect cost rate for the fiscal period when it charges costs to federal awards. Additionally, we recommend the District implement monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District’s Response The District has identified and now leverages specific Washington L&I web addresses that offer up-to-date and accurate payroll information. PWSE Search The District was unaware of this resource last year. Should the District secure additional federal construction grants in the future, we would seek the expertise of ESD112 for guidance and oversight in the monitoring of grant-related activities. A new methodology for calculating indirect cost rates has been implemented, including working directly with EGMS staff at the beginning of the fiscal year to document the correct indirect rate per grant ( for the 2024-25 fiscal year this was completed in March). The District was previously not aware that OSPI was not modifying the hard coded rate. The District has significantly strengthened its internal controls over expenditures. We've implemented a checklist system for accounts payable, designed to catch errors such as duplicate taxation. Additionally, the District developed a master spreadsheet to reconcile all grant claims monthly, ensuring each claim is reconciled both before and after submission, and upon revenue receipt. Auditor’s Remarks We appreciate the District’s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 29 CFR, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports.

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Lyle School District No. 406 September 1, 2023 through August 31, 2024 2024-001 The District did not have adequate controls for ensuring compliance with federal requirements for allowable costs and cost principles and federal wage rate requirements. Assistance Listing Number and Title: 84.425, COVID-19 Education Stabilization Fund Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: COVID-19, 84.425U-0137036 COVID-19, 84.425U-0138018 COVID-19, 84.425U-0142149 COVID-19, 84.425D Known Questioned Cost Amount: $78,446 Prior Year Audit Finding: Yes, Finding 2023-001, wage rate requirements Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In the fiscal year 2024, the District spent a total of $1,179,964 of its ESF awards. This included $4,016 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $1,175,948 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). The District spent $596,109 in program funds for various improvements and repairs to its buildings and other facilities. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of program controls. Activities Allowed/Allowable Costs Federal regulations establish principles and standards for determining allowable direct and indirect costs for federal awards. All costs that recipients charge to the program must comply with program requirements and recipients must support this compliance with proper documentation that demonstrates costs are allowable. The Office of Superintendent of Public Instruction (OSPI) establishes the indirect cost rate for each award, and districts cannot exceed this approved rate when claiming reimbursement. If there are changes to the rate during a multi-year award, districts must adjust the amount claimed, if needed, to ensure they do not exceed the approved rate. Wage Rate Requirements Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the District must include a provision that the contractors and subcontractors comply with those requirements and the Department of Labor’s regulations. This includes a requirement for the contractors and its subcontractors to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition Activities Allowed/Allowable Costs The District’s internal controls were inadequate in ensuring it charged only allowable costs to the program. Specifically, we found the District did not ensure all costs charged to the program were supported with actual expenditures and were for the correct amount. In addition, the District did not have a process to ensure it used the correct indirect cost rate for its ESSER III awards. We consider this internal control deficiency to be a significant deficiency. Wage Rate Requirements During the 2024 school year, the District spent $526,866 for payments to contractors to update the heating, ventilation and air condition system in its school building to prevent the spread of COVID-19. Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements. Specifically, the District did not have an adequate process in place to ensure it collected all weekly certified payroll reports from the contractor and each subcontractor working on the project. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Cause of Condition Activities Allowed/Allowable Costs The District’s review was not effective to ensure only allowable and supported costs were charged to the program. Additionally, District employees were unaware of the need to manually adjust the District’s indirect cost rate for ESSER awards that covered more than one fiscal year. Wage Rate Requirements After District employees became aware of federal wage rate requirements in the prior audit, the District attempted but was unable to collect certified payrolls for work previously performed. Effect of Condition and Questioned Costs Activities Allowed/Allowable Costs The District was not able to identify specific transactions for $44,109 that was charged to the program, and its associated indirect costs of $7,216. We are therefore questioning $51,325 in award number 0138018. Using a statistical sample, we found the District overcharged one of the 28 transactions we tested to the program by $940 because it included the tax on the invoice twice. We are therefore questioning this amount. Based on the projection of our sample, we identified an additional $14,467 in estimated overpayments. We reviewed all indirect costs charged to the program. We found the District charged $26,181 more than was allowable in indirect costs because it did not use the correct rate as instructed by OSPI. We are questioning $19,089 in award number 0138018 and $7,092 in award number 0137036. Federal regulations require the State Auditor’s Office to report known questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the District has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures. Wage Rate Requirements Without adequate internal controls to ensure it collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District did not collect 231 out of 352 weekly certified payrolls. The District could also be liable for paying any additional wages if the contractor and subcontractor did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the District establish and follow internal controls to ensure all costs it charges to federal programs are allowable and comply with cost principles. We also recommend the District ensure it uses the correct OSPI-issued unrestricted indirect cost rate for the fiscal period when it charges costs to federal awards. Additionally, we recommend the District implement monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District’s Response The District has identified and now leverages specific Washington L&I web addresses that offer up-to-date and accurate payroll information. PWSE Search The District was unaware of this resource last year. Should the District secure additional federal construction grants in the future, we would seek the expertise of ESD112 for guidance and oversight in the monitoring of grant-related activities. A new methodology for calculating indirect cost rates has been implemented, including working directly with EGMS staff at the beginning of the fiscal year to document the correct indirect rate per grant ( for the 2024-25 fiscal year this was completed in March). The District was previously not aware that OSPI was not modifying the hard coded rate. The District has significantly strengthened its internal controls over expenditures. We've implemented a checklist system for accounts payable, designed to catch errors such as duplicate taxation. Additionally, the District developed a master spreadsheet to reconcile all grant claims monthly, ensuring each claim is reconciled both before and after submission, and upon revenue receipt. Auditor’s Remarks We appreciate the District’s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 29 CFR, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports.

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Lyle School District No. 406 September 1, 2023 through August 31, 2024 2024-001 The District did not have adequate controls for ensuring compliance with federal requirements for allowable costs and cost principles and federal wage rate requirements. Assistance Listing Number and Title: 84.425, COVID-19 Education Stabilization Fund Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: COVID-19, 84.425U-0137036 COVID-19, 84.425U-0138018 COVID-19, 84.425U-0142149 COVID-19, 84.425D Known Questioned Cost Amount: $78,446 Prior Year Audit Finding: Yes, Finding 2023-001, wage rate requirements Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In the fiscal year 2024, the District spent a total of $1,179,964 of its ESF awards. This included $4,016 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $1,175,948 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). The District spent $596,109 in program funds for various improvements and repairs to its buildings and other facilities. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of program controls. Activities Allowed/Allowable Costs Federal regulations establish principles and standards for determining allowable direct and indirect costs for federal awards. All costs that recipients charge to the program must comply with program requirements and recipients must support this compliance with proper documentation that demonstrates costs are allowable. The Office of Superintendent of Public Instruction (OSPI) establishes the indirect cost rate for each award, and districts cannot exceed this approved rate when claiming reimbursement. If there are changes to the rate during a multi-year award, districts must adjust the amount claimed, if needed, to ensure they do not exceed the approved rate. Wage Rate Requirements Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the District must include a provision that the contractors and subcontractors comply with those requirements and the Department of Labor’s regulations. This includes a requirement for the contractors and its subcontractors to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition Activities Allowed/Allowable Costs The District’s internal controls were inadequate in ensuring it charged only allowable costs to the program. Specifically, we found the District did not ensure all costs charged to the program were supported with actual expenditures and were for the correct amount. In addition, the District did not have a process to ensure it used the correct indirect cost rate for its ESSER III awards. We consider this internal control deficiency to be a significant deficiency. Wage Rate Requirements During the 2024 school year, the District spent $526,866 for payments to contractors to update the heating, ventilation and air condition system in its school building to prevent the spread of COVID-19. Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements. Specifically, the District did not have an adequate process in place to ensure it collected all weekly certified payroll reports from the contractor and each subcontractor working on the project. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Cause of Condition Activities Allowed/Allowable Costs The District’s review was not effective to ensure only allowable and supported costs were charged to the program. Additionally, District employees were unaware of the need to manually adjust the District’s indirect cost rate for ESSER awards that covered more than one fiscal year. Wage Rate Requirements After District employees became aware of federal wage rate requirements in the prior audit, the District attempted but was unable to collect certified payrolls for work previously performed. Effect of Condition and Questioned Costs Activities Allowed/Allowable Costs The District was not able to identify specific transactions for $44,109 that was charged to the program, and its associated indirect costs of $7,216. We are therefore questioning $51,325 in award number 0138018. Using a statistical sample, we found the District overcharged one of the 28 transactions we tested to the program by $940 because it included the tax on the invoice twice. We are therefore questioning this amount. Based on the projection of our sample, we identified an additional $14,467 in estimated overpayments. We reviewed all indirect costs charged to the program. We found the District charged $26,181 more than was allowable in indirect costs because it did not use the correct rate as instructed by OSPI. We are questioning $19,089 in award number 0138018 and $7,092 in award number 0137036. Federal regulations require the State Auditor’s Office to report known questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the District has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures. Wage Rate Requirements Without adequate internal controls to ensure it collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District did not collect 231 out of 352 weekly certified payrolls. The District could also be liable for paying any additional wages if the contractor and subcontractor did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the District establish and follow internal controls to ensure all costs it charges to federal programs are allowable and comply with cost principles. We also recommend the District ensure it uses the correct OSPI-issued unrestricted indirect cost rate for the fiscal period when it charges costs to federal awards. Additionally, we recommend the District implement monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District’s Response The District has identified and now leverages specific Washington L&I web addresses that offer up-to-date and accurate payroll information. PWSE Search The District was unaware of this resource last year. Should the District secure additional federal construction grants in the future, we would seek the expertise of ESD112 for guidance and oversight in the monitoring of grant-related activities. A new methodology for calculating indirect cost rates has been implemented, including working directly with EGMS staff at the beginning of the fiscal year to document the correct indirect rate per grant ( for the 2024-25 fiscal year this was completed in March). The District was previously not aware that OSPI was not modifying the hard coded rate. The District has significantly strengthened its internal controls over expenditures. We've implemented a checklist system for accounts payable, designed to catch errors such as duplicate taxation. Additionally, the District developed a master spreadsheet to reconcile all grant claims monthly, ensuring each claim is reconciled both before and after submission, and upon revenue receipt. Auditor’s Remarks We appreciate the District’s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 29 CFR, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports.

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Lyle School District No. 406 September 1, 2023 through August 31, 2024 2024-001 The District did not have adequate controls for ensuring compliance with federal requirements for allowable costs and cost principles and federal wage rate requirements. Assistance Listing Number and Title: 84.425, COVID-19 Education Stabilization Fund Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: COVID-19, 84.425U-0137036 COVID-19, 84.425U-0138018 COVID-19, 84.425U-0142149 COVID-19, 84.425D Known Questioned Cost Amount: $78,446 Prior Year Audit Finding: Yes, Finding 2023-001, wage rate requirements Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In the fiscal year 2024, the District spent a total of $1,179,964 of its ESF awards. This included $4,016 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $1,175,948 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). The District spent $596,109 in program funds for various improvements and repairs to its buildings and other facilities. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of program controls. Activities Allowed/Allowable Costs Federal regulations establish principles and standards for determining allowable direct and indirect costs for federal awards. All costs that recipients charge to the program must comply with program requirements and recipients must support this compliance with proper documentation that demonstrates costs are allowable. The Office of Superintendent of Public Instruction (OSPI) establishes the indirect cost rate for each award, and districts cannot exceed this approved rate when claiming reimbursement. If there are changes to the rate during a multi-year award, districts must adjust the amount claimed, if needed, to ensure they do not exceed the approved rate. Wage Rate Requirements Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the District must include a provision that the contractors and subcontractors comply with those requirements and the Department of Labor’s regulations. This includes a requirement for the contractors and its subcontractors to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition Activities Allowed/Allowable Costs The District’s internal controls were inadequate in ensuring it charged only allowable costs to the program. Specifically, we found the District did not ensure all costs charged to the program were supported with actual expenditures and were for the correct amount. In addition, the District did not have a process to ensure it used the correct indirect cost rate for its ESSER III awards. We consider this internal control deficiency to be a significant deficiency. Wage Rate Requirements During the 2024 school year, the District spent $526,866 for payments to contractors to update the heating, ventilation and air condition system in its school building to prevent the spread of COVID-19. Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements. Specifically, the District did not have an adequate process in place to ensure it collected all weekly certified payroll reports from the contractor and each subcontractor working on the project. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Cause of Condition Activities Allowed/Allowable Costs The District’s review was not effective to ensure only allowable and supported costs were charged to the program. Additionally, District employees were unaware of the need to manually adjust the District’s indirect cost rate for ESSER awards that covered more than one fiscal year. Wage Rate Requirements After District employees became aware of federal wage rate requirements in the prior audit, the District attempted but was unable to collect certified payrolls for work previously performed. Effect of Condition and Questioned Costs Activities Allowed/Allowable Costs The District was not able to identify specific transactions for $44,109 that was charged to the program, and its associated indirect costs of $7,216. We are therefore questioning $51,325 in award number 0138018. Using a statistical sample, we found the District overcharged one of the 28 transactions we tested to the program by $940 because it included the tax on the invoice twice. We are therefore questioning this amount. Based on the projection of our sample, we identified an additional $14,467 in estimated overpayments. We reviewed all indirect costs charged to the program. We found the District charged $26,181 more than was allowable in indirect costs because it did not use the correct rate as instructed by OSPI. We are questioning $19,089 in award number 0138018 and $7,092 in award number 0137036. Federal regulations require the State Auditor’s Office to report known questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the District has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures. Wage Rate Requirements Without adequate internal controls to ensure it collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District did not collect 231 out of 352 weekly certified payrolls. The District could also be liable for paying any additional wages if the contractor and subcontractor did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the District establish and follow internal controls to ensure all costs it charges to federal programs are allowable and comply with cost principles. We also recommend the District ensure it uses the correct OSPI-issued unrestricted indirect cost rate for the fiscal period when it charges costs to federal awards. Additionally, we recommend the District implement monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District’s Response The District has identified and now leverages specific Washington L&I web addresses that offer up-to-date and accurate payroll information. PWSE Search The District was unaware of this resource last year. Should the District secure additional federal construction grants in the future, we would seek the expertise of ESD112 for guidance and oversight in the monitoring of grant-related activities. A new methodology for calculating indirect cost rates has been implemented, including working directly with EGMS staff at the beginning of the fiscal year to document the correct indirect rate per grant ( for the 2024-25 fiscal year this was completed in March). The District was previously not aware that OSPI was not modifying the hard coded rate. The District has significantly strengthened its internal controls over expenditures. We've implemented a checklist system for accounts payable, designed to catch errors such as duplicate taxation. Additionally, the District developed a master spreadsheet to reconcile all grant claims monthly, ensuring each claim is reconciled both before and after submission, and upon revenue receipt. Auditor’s Remarks We appreciate the District’s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 29 CFR, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports.

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Lyle School District No. 406 September 1, 2023 through August 31, 2024 2024-001 The District did not have adequate controls for ensuring compliance with federal requirements for allowable costs and cost principles and federal wage rate requirements. Assistance Listing Number and Title: 84.425, COVID-19 Education Stabilization Fund Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: COVID-19, 84.425U-0137036 COVID-19, 84.425U-0138018 COVID-19, 84.425U-0142149 COVID-19, 84.425D Known Questioned Cost Amount: $78,446 Prior Year Audit Finding: Yes, Finding 2023-001, wage rate requirements Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In the fiscal year 2024, the District spent a total of $1,179,964 of its ESF awards. This included $4,016 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $1,175,948 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). The District spent $596,109 in program funds for various improvements and repairs to its buildings and other facilities. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of program controls. Activities Allowed/Allowable Costs Federal regulations establish principles and standards for determining allowable direct and indirect costs for federal awards. All costs that recipients charge to the program must comply with program requirements and recipients must support this compliance with proper documentation that demonstrates costs are allowable. The Office of Superintendent of Public Instruction (OSPI) establishes the indirect cost rate for each award, and districts cannot exceed this approved rate when claiming reimbursement. If there are changes to the rate during a multi-year award, districts must adjust the amount claimed, if needed, to ensure they do not exceed the approved rate. Wage Rate Requirements Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the District must include a provision that the contractors and subcontractors comply with those requirements and the Department of Labor’s regulations. This includes a requirement for the contractors and its subcontractors to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition Activities Allowed/Allowable Costs The District’s internal controls were inadequate in ensuring it charged only allowable costs to the program. Specifically, we found the District did not ensure all costs charged to the program were supported with actual expenditures and were for the correct amount. In addition, the District did not have a process to ensure it used the correct indirect cost rate for its ESSER III awards. We consider this internal control deficiency to be a significant deficiency. Wage Rate Requirements During the 2024 school year, the District spent $526,866 for payments to contractors to update the heating, ventilation and air condition system in its school building to prevent the spread of COVID-19. Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements. Specifically, the District did not have an adequate process in place to ensure it collected all weekly certified payroll reports from the contractor and each subcontractor working on the project. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Cause of Condition Activities Allowed/Allowable Costs The District’s review was not effective to ensure only allowable and supported costs were charged to the program. Additionally, District employees were unaware of the need to manually adjust the District’s indirect cost rate for ESSER awards that covered more than one fiscal year. Wage Rate Requirements After District employees became aware of federal wage rate requirements in the prior audit, the District attempted but was unable to collect certified payrolls for work previously performed. Effect of Condition and Questioned Costs Activities Allowed/Allowable Costs The District was not able to identify specific transactions for $44,109 that was charged to the program, and its associated indirect costs of $7,216. We are therefore questioning $51,325 in award number 0138018. Using a statistical sample, we found the District overcharged one of the 28 transactions we tested to the program by $940 because it included the tax on the invoice twice. We are therefore questioning this amount. Based on the projection of our sample, we identified an additional $14,467 in estimated overpayments. We reviewed all indirect costs charged to the program. We found the District charged $26,181 more than was allowable in indirect costs because it did not use the correct rate as instructed by OSPI. We are questioning $19,089 in award number 0138018 and $7,092 in award number 0137036. Federal regulations require the State Auditor’s Office to report known questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the District has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures. Wage Rate Requirements Without adequate internal controls to ensure it collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District did not collect 231 out of 352 weekly certified payrolls. The District could also be liable for paying any additional wages if the contractor and subcontractor did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the District establish and follow internal controls to ensure all costs it charges to federal programs are allowable and comply with cost principles. We also recommend the District ensure it uses the correct OSPI-issued unrestricted indirect cost rate for the fiscal period when it charges costs to federal awards. Additionally, we recommend the District implement monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District’s Response The District has identified and now leverages specific Washington L&I web addresses that offer up-to-date and accurate payroll information. PWSE Search The District was unaware of this resource last year. Should the District secure additional federal construction grants in the future, we would seek the expertise of ESD112 for guidance and oversight in the monitoring of grant-related activities. A new methodology for calculating indirect cost rates has been implemented, including working directly with EGMS staff at the beginning of the fiscal year to document the correct indirect rate per grant ( for the 2024-25 fiscal year this was completed in March). The District was previously not aware that OSPI was not modifying the hard coded rate. The District has significantly strengthened its internal controls over expenditures. We've implemented a checklist system for accounts payable, designed to catch errors such as duplicate taxation. Additionally, the District developed a master spreadsheet to reconcile all grant claims monthly, ensuring each claim is reconciled both before and after submission, and upon revenue receipt. Auditor’s Remarks We appreciate the District’s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 29 CFR, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports.

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Lyle School District No. 406 September 1, 2023 through August 31, 2024 2024-001 The District did not have adequate controls for ensuring compliance with federal requirements for allowable costs and cost principles and federal wage rate requirements. Assistance Listing Number and Title: 84.425, COVID-19 Education Stabilization Fund Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: COVID-19, 84.425U-0137036 COVID-19, 84.425U-0138018 COVID-19, 84.425U-0142149 COVID-19, 84.425D Known Questioned Cost Amount: $78,446 Prior Year Audit Finding: Yes, Finding 2023-001, wage rate requirements Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In the fiscal year 2024, the District spent a total of $1,179,964 of its ESF awards. This included $4,016 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $1,175,948 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). The District spent $596,109 in program funds for various improvements and repairs to its buildings and other facilities. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of program controls. Activities Allowed/Allowable Costs Federal regulations establish principles and standards for determining allowable direct and indirect costs for federal awards. All costs that recipients charge to the program must comply with program requirements and recipients must support this compliance with proper documentation that demonstrates costs are allowable. The Office of Superintendent of Public Instruction (OSPI) establishes the indirect cost rate for each award, and districts cannot exceed this approved rate when claiming reimbursement. If there are changes to the rate during a multi-year award, districts must adjust the amount claimed, if needed, to ensure they do not exceed the approved rate. Wage Rate Requirements Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the District must include a provision that the contractors and subcontractors comply with those requirements and the Department of Labor’s regulations. This includes a requirement for the contractors and its subcontractors to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition Activities Allowed/Allowable Costs The District’s internal controls were inadequate in ensuring it charged only allowable costs to the program. Specifically, we found the District did not ensure all costs charged to the program were supported with actual expenditures and were for the correct amount. In addition, the District did not have a process to ensure it used the correct indirect cost rate for its ESSER III awards. We consider this internal control deficiency to be a significant deficiency. Wage Rate Requirements During the 2024 school year, the District spent $526,866 for payments to contractors to update the heating, ventilation and air condition system in its school building to prevent the spread of COVID-19. Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements. Specifically, the District did not have an adequate process in place to ensure it collected all weekly certified payroll reports from the contractor and each subcontractor working on the project. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Cause of Condition Activities Allowed/Allowable Costs The District’s review was not effective to ensure only allowable and supported costs were charged to the program. Additionally, District employees were unaware of the need to manually adjust the District’s indirect cost rate for ESSER awards that covered more than one fiscal year. Wage Rate Requirements After District employees became aware of federal wage rate requirements in the prior audit, the District attempted but was unable to collect certified payrolls for work previously performed. Effect of Condition and Questioned Costs Activities Allowed/Allowable Costs The District was not able to identify specific transactions for $44,109 that was charged to the program, and its associated indirect costs of $7,216. We are therefore questioning $51,325 in award number 0138018. Using a statistical sample, we found the District overcharged one of the 28 transactions we tested to the program by $940 because it included the tax on the invoice twice. We are therefore questioning this amount. Based on the projection of our sample, we identified an additional $14,467 in estimated overpayments. We reviewed all indirect costs charged to the program. We found the District charged $26,181 more than was allowable in indirect costs because it did not use the correct rate as instructed by OSPI. We are questioning $19,089 in award number 0138018 and $7,092 in award number 0137036. Federal regulations require the State Auditor’s Office to report known questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the District has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures. Wage Rate Requirements Without adequate internal controls to ensure it collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District did not collect 231 out of 352 weekly certified payrolls. The District could also be liable for paying any additional wages if the contractor and subcontractor did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the District establish and follow internal controls to ensure all costs it charges to federal programs are allowable and comply with cost principles. We also recommend the District ensure it uses the correct OSPI-issued unrestricted indirect cost rate for the fiscal period when it charges costs to federal awards. Additionally, we recommend the District implement monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District’s Response The District has identified and now leverages specific Washington L&I web addresses that offer up-to-date and accurate payroll information. PWSE Search The District was unaware of this resource last year. Should the District secure additional federal construction grants in the future, we would seek the expertise of ESD112 for guidance and oversight in the monitoring of grant-related activities. A new methodology for calculating indirect cost rates has been implemented, including working directly with EGMS staff at the beginning of the fiscal year to document the correct indirect rate per grant ( for the 2024-25 fiscal year this was completed in March). The District was previously not aware that OSPI was not modifying the hard coded rate. The District has significantly strengthened its internal controls over expenditures. We've implemented a checklist system for accounts payable, designed to catch errors such as duplicate taxation. Additionally, the District developed a master spreadsheet to reconcile all grant claims monthly, ensuring each claim is reconciled both before and after submission, and upon revenue receipt. Auditor’s Remarks We appreciate the District’s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 29 CFR, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports.