The District did not have adequate internal controls and did not comply with federal suspension and debarment requirements.
Assistance Listing Number and Title: 84.027, Special Education Grants to States
84.173, Special Education Preschool Grants
Federal Grantor Name: U.S. Department of Education
Federal Award/Contract Number: N/A
Pass-through Entity Name: Washington Office of the Superintendent of Public Instruction
Pass-through Award/Contract Number: AD-5592
AD-SNHNI-22
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
During the 2023-2024 school year, the District spent $4,560,575 in federal funds through its Special Education Cluster. The objective of the Special Education program is to ensure eligible students with disabilities receive free and appropriate public education with specifically designed instruction that addresses their unique needs.
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 established controls.
Federal requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the District enters into contracts or purchases goods and services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify the contractors are not suspended, debarred or otherwise excluded from participating in federal programs. The District may verify this by obtaining a written certification from the contractor, adding a clause or condition into the contract that states the contractor is not suspended or debarred, or checking for exclusion records in the U.S. General Services Administration’s System for Award Management at SAM.gov. The District must verify this before entering into the contract and must maintain documentation demonstrating compliance with this federal requirement.
Description of Condition
Our audit found the District did not have internal controls to verify one of five contractors it paid more than $25,000 in federal funds was not suspended or debarred from participating in federal programs.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
District staff were aware of the federal suspension and debarment verification requirements and normally verify this during the procurement process. However, when the District entered into the interlocal agreement, it did not intend to pay for it with federal funds, so staff did not verify the contractor’s status.
Effect of Condition
The District did not obtain a written certification from the contractor, insert a clause into the contract or check for exclusion records at SAM.gov to verify the contractor it paid using federal funds was not suspended or debarred before contracting. Without adequate internal controls, the District increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the District made to an ineligible party would be unallowable, and the awarding agency could potentially recover them.
We subsequently verified the contractor was not suspended or debarred. Therefore, we are not questioning costs.
Recommendation
We recommend the District strengthen its internal controls to verify all contractors it pays $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs, and maintain documentation of this verification.
District’s Response
During the 2023–2024 school year, Bethel entered into a special education interlocal agreement with a neighboring school district. At the time the agreement was executed, the use of federal funds was not anticipated. However, later in the year, eligible expenditures were reallocated to the federal program as funding
became available.
To mitigate the risk of noncompliance with federal procurement and grant requirements, Bethel has revised its interlocal agreements to include a suspension and debarment clause. Furthermore, for all other contractual agreements, vendor eligibility will be verified through SAM.gov, or written certification will be obtained.
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 180, OMB Guidelines on Agencies on Governmentwide Department and Suspension (Nonprocurement) establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.