2025-003 The District did not have adequate internal controls and did not comply with time-and-effort 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: Office of Superintendent of Public Instruction (OSPI) Pass-through Award/Contract Number: GT-02572, GT-HNI25-0062, and GT-03180 Known Questioned Cost Amount: $1,582 Prior Year Audit Finding: N/A Background During fiscal year 2025, the District spent $2,676,178 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. 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 (PAR), such as a detailed time sheet. Time-and-effort documentation must 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 the Office of the Superintendent of Public Instruction (OSPI) require. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition District staff did not dedicate the necessary time and resources to ensure time charged to the program was supported with time-and-effort documentation. District staff misunderstood OSPI’s time-and-effort requirements and prepared and had employees sign PARs semiannually rather than monthly, as required. Additionally, District staff incorrectly assumed substitute time worked on the program did not require time-and-effort documentation. The District relied on one staff member to identify employees requiring time-and-effort certifications without a secondary review to ensure their determinations were complete and complied with grant requirements. Effect of Condition and Questioned Costs Using a nonstatistical sample, we found noncompliance with five out of 11 employees and substitutes (45.5%) tested. Specifically: • Two substitutes whose salaries and benefits totaled $12,083 were not supported by time-and-effort documentation • The PARs for two employees, with payroll costs charged to the program totaling $68,355, were prepared and signed at the end of the semesters (March and June 2025) rather than monthly after the work was performed as required • One employee did not work on Special Education activities but their payroll costs of $1,582 were miscoded and charged to the program. We are questioning these costs. Based on the projection of our sample, we estimate $6,904 in overpayments Separately, outside of our sample, we identified two substitutes whose salaries and benefits totaled $7,522 that were not supported by time-and-effort documentation as required. Without adequate and timely time-and-effort documentation, the District cannot demonstrate compliance with OSPI’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 supported these payroll costs by providing alternative documentation to show the four substitutes worked on the program. In addition, although the PARs for two employees were not prepared and signed monthly as required, the District obtained signed certifications at the end of each semester during the school year. Therefore, we are not questioning these costs. Federal regulations require the State Auditor’s Office to report known and likely questioned costs that are more 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 We recommend the District design, implement and follow internal controls to ensure it complies with federal and OSPI requirements for obtaining time-and-effort documentation timely. District’s Response The District agrees with the finding and recognizes the need to strengthen internal controls and update procedures related to time-and-effort documentation to align with current federal and OSPI guidance, including OSPI Bulletin 039-24 and related federal grant requirements. To address this finding, the District will conduct a comprehensive review of all federal grant-funded positions and applicable time-and-effort requirements. This review will include evaluating available documentation methods authorized by OSPI, including semi-annual certifications, monthly personnel activity reports (PARs), and fixed schedule systems where appropriate. The District will also revise written procedures, establish clearer internal review protocols, and implement additional oversight to ensure required certifications and documentation are completed timely and maintained appropriately. Auditor’s Remarks We thank the District for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the District’s corrective action 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 the Superintendent of Public Instruction Bulletin 039-24, Time and Effort (T&E) Reporting establishes requirements for documenting time-and-effort, including fixed schedule systems.