Bremerton School District No. 100-C September 1, 2021 through August 31, 2022 2022-002 The District lacked adequate internal controls for ensuring compliance with federal suspension and debarment requirements.? Assistance Listing Number and Title: 84.027, Special Education ? Grants to States 84.027, COVID-19 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 Pass-through Award/Contract Number: 037553, 366921 Known Questioned Cost Amount: $0 Background During fiscal year 2022, the District spent $1,013,089 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 and follow internal controls that ensure compliance with program requirements. Those controls include understanding grant requirements and monitoring the effectiveness of established controls. Federal requirements prohibit grant recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever a government 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 the costs to a federal award. Description of Condition 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 of its two contractors subject to this requirement was not suspended or debarred. 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 The District approved a contract, which was originally not to exceed $15,000, for providing specialized services to a student. Staff did not include a suspension and debarment clause in this contract because they anticipated it would remain under the $25,000 threshold. However, staff did not adequately monitor payments to this contractor, so they did not identify the need for a suspension and debarment check when total expenditures exceeded $25,000. 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 a contractor that has been suspended or debarred would be unallowable, and the federal grantor could potentially recover them. During fiscal year 2022, the District used $25,449 of program funds to pay this contractor for therapy and consulting services. We verified the contractor was not suspended or debarred, so we are not questioning these costs. Recommendation We recommend the District strengthen its 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 the program. District?s Response We have controls in place however this one finding was received for one purchase that exceeded the purchase order amount. We had some staff turnover in the SPED department, and we finally have permanent staffing. The business office has reiterated the requirement of suspension and debarment and determined that it will be included on any purchase made with federal dollars that is close to the $20K amount. This will ensure that any potential overage is covered and allow the new staff to get more familiar with the requirement. 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.