Audit 406254

The District did not have adequate internal controls and did not comply with time-and-effort requirements. Assistance Listing Number and Title: 84.010 – Title I Grants to Local Educational Agencies Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of the Superintendent of Public Instruction (OSPI) Pass-through Award/Contract Number: GT-03165, GT-03767, GT-03499 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The objective of the Title I program is to improve the teaching and learning of children who are at risk of not meeting academic standards and reside in areas with high concentrations of children from low-income families. During fiscal year 2025, the District spent $1,103,151 in federal funds from Title I. 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. 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. Time-and-effort documentation must also be signed and dated after employees complete the work. 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 documentation, as federal regulations and OSPI require. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition Although District staff tracked allowable payroll costs, they misunderstood the requirement to obtain time-and-effort documentation supporting actual time worked in the program. District staff responsible for time-and-effort documentation incorrectly believed staff assignments and budget allocations established at the beginning of the year were sufficient to meet requirements. Effect of Condition The District did not obtain time-and-effort documentation for 16 employees whose payroll costs totaling $$796,079 it charged to the program. Without adequate time-and-effort documentation, the District cannot demonstrate compliance with the awarding agency’s documentation requirements to support costs 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 obtained and provided the signed time-and-effort records to support the payroll costs it charged to the program; therefore, we are not questioning these costs. Recommendation We recommend the District design and follow internal controls to ensure it complies with federal and OSPI requirements for obtaining signed time-and-effort-documentation timely, such as documenting time-and-effort procedures in a policy as required by the Uniform Guidance and OSPI. District’s Response North Kitsap School District acknowledges that personnel responsible for the Title I program misunderstood the requirements outlined in OSPI Bulletin 039-24 regarding Time and Effort documentation under the Fixed Schedule system. Although North Kitsap School District had been approved by OSPI to use the Fixed Schedule Time and Effort substitute system, we misinterpreted the guidance and did not obtain the required Time and Effort Certifications. Despite this misunderstanding, North Kitsap School District has consistently tracked all allowable payroll costs and maintained documentation supporting the distribution of employee salaries through established work schedules at the beginning of each school year. Any revisions to these schedules have been properly documented in accordance with district procedures. In response to this finding, North Kitsap School District has already taken corrective action and reinstated the use of Time and Effort Certifications to ensure full compliance moving forward. 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 to Bulletin 039-24, Time and Effort (T&E) Reporting, establishes requirements for documenting time-and-effort, including fixed schedule systems.