The District did not have adequate internal controls for ensuring compliance with federal activities allowed, allowable costs and eligibility requirements and it did not comply with eligibility requirements. Assistance Listing Number and Title: 10.553 – School Breakfast Program 10.555 – National School Lunch Program Federal Grantor Name: U.S. Department of Agriculture (USDA) Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $4,724 Prior Year Audit Finding: N/A Background The District participates in the Child Nutrition Cluster, which includes the School Breakfast Program and National School Lunch Program. These programs provide free and reduced-price meals to students from low-income families. In the 2023- 2024 school year, the District received $838,456 in federal funding, including $205,718 in Supply Chain Assistance (SCA) awards, to administer these programs. 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. Activities Allowed and 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 be supported by proper documentation that demonstrates costs are allowable. Specifically, for the Supply Chain Assistance funds, the District must use the award exclusively to purchase domestic, unprocessed or minimally processed food products for the school meal programs. Eligibility Direct certification is the process districts use to certify categorically eligible children for free meals without further application. Washington state has an electronic system that matches data from the Department of Social and Health Services with Comprehensive Education Data and Research System data to produce a “direct certification list.” Districts must download the direct certification list at least monthly to ensure they serve free meals to eligible students. Description of Condition Activities Allowed and Allowable Costs The District did not have adequate internal controls to ensure it properly tracked SCA expenditures to demonstrate that the District purchased allowable food products. We consider this deficiency in internal controls to be a significant deficiency. Eligibility The District did not have adequate internal controls to perform direct certification downloads monthly and had no monitoring to ensure the required process is completed. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition Activities Allowed and Allowable Costs District staff were aware of the SCA requirements and used the spreadsheet to track SCA expenditures. However, due to staff turnover, the spreadsheet was not adequately completed and did not provide enough detailed information to demonstrate that the District purchased allowable food products. Eligibility District staff were aware of the requirements to determine students’ eligibility each month, but they did not complete the direct certification downloads monthly as required. The Food Services Administrative Assistant is responsible for completing the verification; however, they did not perform seven of the monthly downloads. Effect of Condition and Questioned Costs Activities Allowed and Allowable Costs Because the District did not properly track SCA expenditures, it could not initially support costs totaling $30,379 that it charged to the program. During the audit, the District recreated its cost tracking spreadsheet and provided evidence demonstrating that allowable expenditures exceeded the SCA funding received. Therefore, we are not questioning these costs. Eligibility The District did not have documentation to support that it performed the direct certification downloads for seven of the 11 months tested. Without documentation showing it performed the direct certification downloads, the District cannot demonstrate compliance with the awarding agency’s eligibility requirements. Furthermore, the District risks not providing free meals to eligible students and providing free meals to ineligible students. Using a statistical sample, we found the District did not have documentation supporting the eligibility status for six out of 28 direct certified students tested. The District received $4,724 for meals provided to these students. Based on projection of our sample, we identified an additional $97,000 in estimated overpayments for free and reduced meal costs. Federal regulations require the State Auditor’s Office to report known and likely questioned costs that are greater than $25,000 for each type of compliance requirement. We question costs when we find the District does not have adequate documentation to support expenditures. Recommendation Activities Allowed and Allowable Costs We recommend the District ensure it retains sufficient documentation to demonstrate that costs charged to the federal program are allowable and comply with program requirements. Eligibility We recommend the District establish internal controls to ensure staff perform direct certification downloads monthly, retain documentation of downloads performed and provide adequate oversight of the process to comply with direct certification requirements. District’s Response The District’s Food Services Department is staffed by two administrative employees. The internal control deficiencies identified by the auditor resulted from an unanticipated long-term absence of one employee and the retirement of the other. The District is committed to strengthening internal controls within the department and will implement enhanced training for administrative staff on critical procedures and protocols. These measures are intended to ensure appropriate oversight and continuity of operations during periods of staff absence. 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 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting allowability of costs, describes the cost principles for how direct and indirect costs should be charged to federal programs. Title 7 CFR 210.9(b)(17), Agreement with State Agency, which include maintaining documentation demonstrating appropriate use of SCA funds Office of Superintendent of Public Instruction (OSPI) Bulletin 029-22, Child Nutrition Services, documents requirements for allowable use of Supply Chain Assistance funds.