2022-002 The District lacked adequate internal controls for ensuring compliance with suspension and debarment requirements. Assistance Listing Number and Title: 84.027 ? Special Education Grant to States 84.027 ? COVID-19 ? Special Education Grants to States 84.173 ? Special Education Preschool Grants 84.173 ? COVID-19 ? 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 Pass-through Award/Contract Number: 0307412, 0338536, 0312085, 0366789, 0388011, 0388066, 0371076 Known Questioned Cost Amount: $0 Description of Condition In 2022, the District spent $1,846,605 in federal funds from the U.S. Department of Education through the Special Education Cluster program, which gives funding to states to help school districts provide special education and related services to all children with disabilities. Federal regulations require recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding various grant requirements and monitoring the effectiveness of established program controls. Federal requirements prohibit grant 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 or services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that the contractors have not been suspended, debarred or otherwise excluded. The District may accomplish this verification by collecting 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 perform this verification before entering into the contract or before charging costs to a federal award, and it must maintain documentation demonstrating compliance with this federal requirement. Our audit found the District?s controls were ineffective for ensuring that it verified all parties receiving $25,000 or more in federal funds were not suspended or debarred. The District did not obtain a written certification, include a clause in the contract, or search for exclusion records in SAM.gov to verify that one contractor subject to this requirement was not suspended or debarred before entering into the contract or before charging costs to the federal award. The District paid this contractor $40,085 in fiscal year 2022. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. The issue was not reported as a finding in the prior audit. Cause of Condition Initially, the District did not intend to pay the contractor with federal funds. As a result, District staff did not complete the proper contract request form, which requires verification of the contractor?s suspension and debarment status. Effect of Condition Without adequate internal controls, the District cannot ensure the contractors paid with federal funds are eligible to participate in federal programs. Any program funds the District used to pay contractors that have been suspended or debarred would be unallowable, and the grantor could potentially recover them. After entering into the contract and making the first payment, the District verified that the contractor was not suspended, debarred or excluded from doing business with the federal government, so we are not questioning these costs. Recommendation We recommend the District strengthen internal controls to ensure that all contractors paid $25,000 or more, all or in part with federal funds, are not suspended or debarred before entering into contracts with them or charging their costs to federal programs. District?s Response Wenatchee School District agrees with the Office of Washington State Auditor?s Recommendation. During the audit, the district immediately implemented a corrective action plan to ensure compliance with federal suspension and debarment requirements. The district previously had two processes for contracts, one for state/local funds and one for federal. The district?s process has been updated, and now regardless of funding, suspension and debarment requirements have been added. The district now reviews all contracts for suspension and debarment compliance. 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 180, OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.