Seattle School District No. 1 September 1, 2024 through August 31, 2025 2025-001 The District did not have adequate internal controls for ensuring compliance with federal procurement requirements. Assistance Listing Number and Title: 93.243, Substance Abuse and Mental Health Services Projects of Regional and National Significance Federal Grantor Name: Substance Abuse and Mental Health Services Administration, U.S. Department of Health and Human Services Federal Award/Contract Number: 1H79SM087482-01 5H79SM087482-02 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background During the 2024-25 school year, the District spent $2,446,864 in Substance Abuse and Mental Health Services Projects of Regional and National Significance program funds. Program funds may be for: • Knowledge and development and application projects for prevention, treatment and rehabilitation and the conduct or support of evaluations of such projects; • Training, education, and technical assistance; • Targeted capacity response programs • Systems change grants including statewide family network grants and client-oriented and consumer run self-help activities; • Programs to foster health and development of children; and • Coordination and integration of primary care services into publicly-funded community mental health centers and other community-based behavioral health settings The District used this program funding for school-based mental health programs and services. 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. When using federal funds to purchase goods or services, governments must apply the more restrictive requirements of federal, state, or local laws by obtaining quotes or following a competitive procurement process, depending on the estimated purchase cost of the procurement activity. The District must maintain documentation showing the procurement process it performed. The District’s procurement policy conforms to the most restrictive laws and requires the District to obtain price or rate quotations for purchases of goods between $10,000 and $250,000. Governments may use noncompetitive procurement procedures when certain circumstances apply, such as if an item or service is only available from a single source, a public emergency, when the awarding agency expressly authorizes a noncompetitive procurement in response to a written request, or, if after performing solicitation, they determine competition is inadequate. In those circumstances, the government must evaluate each procurement action individually and document their rationale for waiving competition. Description of Condition Our audit found the District did not have adequate controls to ensure it complied with procurement requirements. Specifically, the District did not follow its policy when procuring curriculum software. It did not obtain price or rate quotations for one purchase and determined two other purchases to be sole source but did not have documentation showing its rationale and justification for the noncompetitive procurement. The District paid the vendors a total of $244,425 in federal program funds. We consider this deficiency in internal controls to be a significant deficiency. Cause of Condition District staff responsible for procuring curriculum software did not fully understand federal procurement requirements and the District’s procurement policy. District staff did not know they were required to research and document how they determined a vendor to be sole source at the time of procurement. District staff said they received previous guidance that documentation identifying a vendor as sole source could be used for up to five years but did not have written documentation of this guidance. Lastly, District staff also said for one of the three purchases, they were unaware that the purchase was made with federal funds. Effect of Condition We found the District did not comply with procurement requirements for three of 10 contracts we tested that were subject to procurement. The District paid these vendors a total of $244,425 in federal program funds. Without effective internal controls, the District cannot demonstrate it complied with federal procurement standards and its own policy, allowed for full and open competition, or received the best price. Recommendation We recommend the District strengthen its internal controls to ensure it complies with its policy and federal regulations for procuring goods and that it maintains documentation to demonstrate it complied with federal procurement requirements. District’s Response The District concurs with the audit finding. The District acknowledges that internal controls over procurement, specifically related to curriculum software purchases funded with federal program funds, were not sufficient to ensure full compliance with federal procurement requirements and District policy. The District has begun implementing corrective actions to strengthen procurement controls and ensure compliance with federal regulations and District policy. These actions include: 1. Policy Clarification and Documentation Requirements The District will reinforce procurement policy requirements, including documentation standards for all procurement methods. Staff will be required to maintain written justification and rationale for all sole source determinations at the time of procurement, including evidence supporting the noncompetitive procurement. 2. Procurement Review and Oversight The District will seek to implement additional review procedures to ensure procurement documentation is complete and compliant prior to contract approval and payment. The District will target practices that will include verification of funding sources and confirmation that appropriate procurement methods were used. 3. Sole Source Determination Controls The District has updated its Competitive Exemption (to include sole source) procedures. Each sole source request will be evaluated annually. 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, section 318, General procurement standards, establishes requirements for written procedures. Title 2 CFR Part 200, Uniform Guidance, section 320, Methods of procurement to be followed, establishes requirements for procuring goods and services, including noncompetitive procurement.