SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Hockinson School District No. 98 September 1, 2024 through August 31, 2025 2025-001 The District did not have adequate internal controls and did not comply with time-and-effort and period of performance requirements. Assistance Listing Number and Title: 84.027 Special Education Grants to States Federal Grantor Name: Department of Education, Office of Special Education and Rehabilitation Services Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction (OSPI) Pass-through Award/Contract Number: AD-10079 Known Questioned Cost Amount: $163,067 Prior Year Audit Finding: N/A Background During fiscal year 2025, the District spent $553,425 in federal funds from the Special Education program cluster. This program ensures students with disabilities receive free and appropriate public education with specially designed instruction that addresses their unique needs. Federal regulations require recipients to establish, document and maintain effective internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Time-and-effort documentation The District is responsible for ensuring it supports all payroll costs it charges to the program with adequate time-and-effort documentation, as required by federal regulations and the awarding agency. Depending on the number and types of activities employees perform, time-and-effort documentation can be a semiannual certification or a monthly personnel activity report, such as a detailed timesheet. Time-and-effort documentation must also be signed and dated after the work is completed. Period of performance Federal regulations require recipients to only charge federal awards for expenditures that were incurred within the designated period of performance. OSPI specified that the period of performance for the District’s Special Education award was January 18, 2025, through August 31, 2025. Any costs charged outside of the period of performance would be unallowable. Description of Condition The District’s internal controls were ineffective for ensuring it supported all salaries and benefits it charged to the program with appropriate time-and-effort payroll documentation, as federal regulations and OSPI require, and only charged costs incurred within the period of performance. We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance. Cause of Condition Time-and-effort documentation The District did not dedicate the necessary time and resources to reconciling time charged to the program and ensuring it was supported with time-and-effort documentation. District staff responsible for collecting time-and-effort documentation relied on staff assignments established at the beginning of the year to identify employees requiring time-and-effort documentation. Period of performance The Special Education program is awarded annually. The District applied for the federal award later in the year than it has previously applied for the award. As a result, the award’s period of performance started on January 18, 2025, instead of September 1, 2024. District staff’s review of the costs charged to the program was not sufficiently detailed to detect costs that were incurred before the awarded period of performance. Effect of Condition and Questioned Costs Time-and-effort documentation The District did not obtain time-and-effort documentation for four employees it charged to the program whose payroll and benefits costs totaled $85,782. Without adequate time-and-effort documentation, the District cannot demonstrate compliance with the awarding agency’s documentation requirements to support costs it charged to federal programs. Further, the District cannot assure federal grantors that payroll costs it charged to the program were accurate and valid. During the audit, the District supported these payroll costs by providing alternative documentation to show the employees worked on the program; therefore, we are not questioning these costs. Period of performance The District charged $163,067 in unallowable costs to the Special Education program cluster for payroll costs that were incurred prior to the beginning of the period of performance. As a result, we are questioning these costs. Recommendation We recommend the District implement and follow internal controls to ensure it complies with federal and OSPI requirements for obtaining signed time-and-effort documentation timely. We also recommend the District strengthen internal controls to ensure it only charges expenditures incurred within the period of performance to federal programs. District’s Response The Hockinson School District takes this matter seriously and appreciates the feedback provided. We acknowledge the concern identified in the audit related to Time and Effort and Period of Performance requirements. Upon review, we have determined that part of the finding resulted from insufficient internal controls with respects to Time and Effort. However, with respect to the SPED IDEA federal grant, the District has historically been awarded the funds in March and has not been limited by the period of performance and was always given a start date of July 1st. For example, in the SPED IDEA grant for the fiscal year 2023 – 2024 which also had an award date of March 6th, but the period of performance was July 1, 2023 through August 31st of 2024. That year the district was allowed to claim from September 1st to August 31st. This same grant for our current 2025 – 2026 fiscal year has an award date of November, 13, 2025 and the period of performance is July, 3 2025 to August 31, 2026. This change in date range was an unexpected change to past award period of performance and effective immediately we have updated the districts tracking methods. The district is committed to full compliance with all federal grant requirements and to maintaining strong internal controls. We will continue to establish corrective actions and continue to monitor their effectiveness and make further improvements as necessary. We appreciate your guidance and partnership in strengthening our processes. Auditor’s Remarks We thank the District for its cooperation and assistance during the audit and acknowledge its commitment to resolve this finding. We will review the corrective action taken during our next 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 2 CFR Part 200, Uniform Guidance, Subpart E, Cost Principles, establishes requirements for determining allowable costs and supporting costs allocated to federal programs. Office of Superintendent of Public Instruction Bulletin No. 039-24, Time and Effort (T&E) Reporting, establishes requirements for documenting time-and-effort Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting allowability of costs describes the requirements for charging costs to federal programs.