2022-001 The District did not have adequate internal controls for ensuring compliance with allowable activities and costs, procurement, and restricted purpose requirements. Assistance Listing Number and Title: 32.009, COVID 19 ? Emergency Connectivity Fund Program Federal Grantor Name: Federal Communications Commission Federal Award/Contract Number: ECF202108779 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $963,146 Background The Emergency Connectivity Fund (ECF) Program provides funding to meet the needs of students and school staff who would otherwise lack access to connected devices and broadband connections sufficient to engage in remote learning. This is referred to as ?unmet need.? In fiscal year 2022, the District spent $1,003,563 in ECF Program funds to purchase 2,300 laptops, 800 tablets, and pay for mobile hotspots services for students and staff. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Allowable activities and costs ECF Program recipients must only seek reimbursement for the eligible devices provided to students and staff with unmet need. Recipients are prohibited from seeking and receiving reimbursement for eligible equipment purchased for use solely at the school or held for future use (i.e., warehousing). Procurement When using ECF Program funds to purchase eligible equipment, the Federal Communications Commission (FCC) requires recipients to comply with all applicable state or local procurement laws by obtaining quotes or following a competitive bidding process, depending on the estimated cost of the purchase. State law and District policy allow for the purchase of goods and services from contracts awarded by another government or group of governments (i.e., a public agency) via an interlocal agreement (RCW 39.34.030). Restricted purpose ? unmet need When submitting applications to the FCC, schools only had to provide an estimate of their students? and staff?s unmet need. However, at the time of reimbursement, they could only request program funds for eligible equipment provided to students and school staff with actual unmet need. Restricted purpose ? per-user limitations The FCC imposed per-location and per-user limitations to maximize the use of limited funds. Under the program, eligible schools could only be reimbursed for one connected device per student or school employee with unmet need. Description of Condition Allowable activities and costs/restricted purpose ? unmet need The District estimated unmet need for eligible equipment when it applied for ECF Program funds. However, our audit found the District?s internal controls were ineffective for ensuring it requested reimbursement only for eligible equipment provided to students and school staff with a documented unmet need. Specifically, the District purchased 3,100 laptops and tablets based on its estimate of unmet need, and it requested reimbursement for these expenses totaling $963,146. However, the District did not maintain documentation showing it provided each device paid with program funds to a student or employee with unmet need. Procurement Our audit found the District?s internal controls were ineffective for ensuring it followed state law and its own policy when procuring equipment that it charged to the ECF Program. The District paid one contractor $387,200 for laptops and tablets using a purchasing cooperative. However, the District could not demonstrate compliance with state law. Restricted purpose ? per-user limitations Our audit found the District?s internal controls were ineffective for demonstrating it complied with the FCC?s per-location and per-user limitations. Specifically, the District did not ensure it only provided one device per user. We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition Allowable activities and costs/restricted purpose ? unmet need The District was approved for 3,100 devices, and requested reimbursement for all of them because it determined during the application process that there were more than 3,100 students and staff with an unmet need. District staff thought the determination of unmet need provided during the application process was sufficient to comply with this requirement. The District did not perform additional procedures during the reimbursement process to ensure it only requested reimbursement for devices provided to specific students and staff with a documented unmet need. Procurement The District?s use of the awarding entity?s contract aligned with its interpretation of an allowable vendor for the goods. However, staff did not realize the District?s use of the purchasing cooperative?s contract did not meet all the requirements of state law. Restricted purpose ? per-user limitations Management and staff did not fully understand the District could not provide more than one device and/or connection per student and employee. Effect of Condition and Questioned Costs Allowable activities and costs/restricted purpose ? unmet need Because the District did not have documentation supporting whether it provided eligible equipment to students and school staff with actual unmet need, it cannot demonstrate compliance with the program?s requirements. Given the nature of the program and circumstances, it is likely that at least some of the equipment the District charged to the award addressed unmet needs. However, the lack of a documented assessment of students? and staff?s actual unmet need means that most costs are unsupported. Since we do not have a reasonable basis for estimating how much of the District?s expenditures are allowable, we are questioning all unsupported costs. Federal regulations require the State Auditor?s Office to report known 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. Procurement The District cannot demonstrate it complied with the procurement requirements. Additionally, it cannot be sure all interested contractors had the opportunity to bid and that it obtained the lowest price for the laptops and tablets purchases. Restricted purpose ? per-location and per-user limitations Because the District provided some students and staff members with more than one device and received reimbursement for them, it did not comply with the FCC?s requirement. As noted in the allowable activities and costs section above, we are questioning the costs for these devices. Recommendation We recommend the District work with the granting agency to determine audit resolution. We further recommend the District establish and follow internal controls to ensure staff fully understand the requirements for ECF awards. Specifically, the District should: ? Request reimbursement only for eligible equipment provided to students or staff with unmet need, and maintain documentation demonstrating compliance ? Comply with state law and its own policy when procuring goods and services paid with ECF Program funds, and keep documentation showing it complied with procurement requirements ? Monitor to confirm it provides no more than one device per student and staff in compliance with the ECF Program?s requirements District?s Response The District does not agree with the audit finding or the $963,146 of questioned costs. The District does agree that internal controls and processes could be improved. However, all costs were allowable and devices were only provided to those with unmet need. Allowable activities and costs/restricted purpose ? unmet need Wenatchee School District (?WSD?) was awarded federal grant funding, administered through Universal Services Administrative Company (?USAC?) on behalf of the Federal Communications Commission (?FCC?) to procure laptop computers and other electronic devices to meet student instructional needs during the COVID 19 pandemic. Given the urgency of addressing the evolving student needs through the pandemic, USAC mobilized an application and funding system as quickly as possible. The district followed all FCC guidelines for the application process including using a consultant to ensure proper procedures were followed. The USAC website for the application is the same one used in our yearly eRate process ensuring we had verified vendors and the typical checks and balances for other federal funding. It is unreasonable to think that any district close to the size of WSD would be able to specifically establish and verify levels of need throughout its student population. For context, laptop orders had to be placed late in Spring 2021 to ensure the devices would be ready to serve student needs by Fall 2021. This meant that FCC standards would have required WSD to anticipate the instructional needs in all grades and content areas in an evolving pandemic and compare those standards individually to every one of the students that may or may not have registered to start the school year at WSD in September. The unreasonableness of this federal expectation is confirmed when looking at the number of school districts that were issued the exact same audit finding after attempting to utilize this federal funding to meet their students? and community?s needs for equitably available, flexible instructional tools. The auditor?s report states that our internal controls were ineffective for ensuring we requested reimbursement only for students and staff with a documented unmet need and that our internal controls were ineffective for demonstrating per location and per user limitations. We spent all funds for allowable costs and those costs were reasonable and necessary and used for students and staff with unmet needs. The district was able to determine whether students and staff had unmet needs, which meant addressing instances where 1) students may have shared a home device with others siblings, 2) the student or staff devices were too old or slow to function properly when running multiple required applications or the necessary software for remote learning, and 3) student-owned devices did not have the appropriate security in place to protect students during remote learning from unauthorized websites. These factors were the basis for unmet need. Based on these experiences, unmet need was defined broadly, but within allowed parameters and inventory records were kept, albeit not perfectly. Procurement SAO states in its finding that ?it cannot be sure all interested contractors had the opportunity to bid and that it obtained the lowest price for the laptops and tablets purchases.? WSD does not concur with this statement. The district utilized an established vendor to purchase Apple laptops and tablets. The district used this vendor because it was the only vendor that allowed us to purchase Apple products. WSD will evaluate its procurement process to ensure contracts follow state law. Per-location and per-user limitations The finding states ?the district provided some students and staff members with more than one device and received reimbursement for them.? WSD does not concur with this statement. The district provided one device only to eligible students and staff. If a laptop or other electronic device was damaged or defective, students and staff returned the defective device and received a new one. Auditor?s Remarks The State Auditor?s Office is sympathetic to the significant challenges the District faced during the COVID-19 pandemic, and deeply respects its commitment to student learning despite these challenges. SAO knows that in many cases, governments across Washington received significant pandemic-era federal funds without also receiving clear guidance on how to use them. Then, and now, SAO continues to advocate for clear, timely guidance from federal agencies to make sure Washington governments are not put in a difficult position at audit time. However, when auditing federal programs of any kind, governments must provide documentation to substantiate that they met the award requirements. As is our practice and audit standards require, we will review the status of this finding during our next audit. We value our partnership with the District in striving for transparency in public service. 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 47 CFR Part 54, Universal Service, Subpart Q, Emergency Connectivity Fund, describes the ECF Program requirements.