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: ECF222118679 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $28,031 Prior Year Audit Finding: N/A 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 $277,190 in ECF Program funds to purchase bus Wi-Fi hotspots for students and school 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 eligible devices and services provided to students and staff with unmet need. Recipients are prohibited from seeking reimbursement for eligible equipment used solely at the school or held for future use (i.e., warehousing). Procurement When using ECF Program funds to purchase eligible services and equipment, the Federal Communications Commission requires recipients to comply with all applicable state and local 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 via an interlocal agreement or contract, often referred to as ?piggybacking?. To comply with this law, the District must enter into an interlocal agreement before it purchases good or services from the other government?s or group of governments? competitively procured contract. Restricted purpose ? unmet need When submitting applications to the FCC, schools provided an estimate of their students? and staff?s unmet need. However, when requesting reimbursement, the District could only request program funds for eligible equipment and services provided to students and school staff with actual unmet need. Description of Condition Allowable activities and costs/restricted purpose ? unmet need The District estimated unmet need for eligible devices when it applied for ECF Program funds. However, our audit found the District?s internal controls were ineffective for ensuring it only requested reimbursement for eligible devices provided for students to engage in remote learning. Specifically, the District purchased 89 WiFi hotspots totaling $277,190 to be installed on its school buses based on its estimate of unmet need. However, the District only had 80 buses in its inventory at the time of reimbursement for the hotspots, and the program specifically prohibited warehousing devices for future use. 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. Specifically, the District purchased WiFi hotspots totaling $277,190, and did not enter into an interlocal agreement with the cooperative that procured the contract. 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 District officials did not know about the prohibition of using ECF Program funds for future needs (i.e. warehousing). Staff were not aware they could not order devices for the nine buses that were not currently in its inventory. Procurement District staff responsible for procuring the WiFi hotspots were not knowledgeable of piggybacking requirements. Staff thought they could rely on another public agency?s interlocal agreement with the cooperative that procured the contract and did not know the District must enter into its own agreement with the cooperative. Effect of Condition and Questioned Costs Allowable activities and costs/restricted purpose ? unmet need The District?s reimbursement included nine additional WiFi hotspots that it purchased for buses that were on order, or planned to be ordered, but were not installed at the time of audit. Therefore, we are questioning costs for the nine devices totaling $28,031. 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 Without an effective internal control to ensure it follows procurement and piggybacking procedures, the District cannot demonstrate it complied with applicable state and local procurement requirements and received the best price for the bus Wi-Fi hotpots. 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 devices provided for students to engage in remote learning ? 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 District?s Response The District acknowledges the recommendations from the State Auditor?s Office. In good faith, the District followed guidance from the FCC and its e-rate consultant in administering the ECF grant. This grant was unique in that the FCC paid the vendor directly for the hotspots, and it did not run through the Business Office as part of the typical procurement process. The District has an interlocal agreement with the North Central ESD and understood that the RCW permitted it to piggyback on a state contract for the procurement of the hotspot devices. This contract allowed for competitive pricing on the hotspots. At the time of purchase, the District had 80 buses in its inventory plus 9 more on order or scheduled to be ordered. Eighty-nine hotspots were purchased to maintain consistent technology across the bus fleet. Supply chain issues slowed the acquisition of the 9 additional buses, and subsequently the installation of the hotspot devices. The District would like to reiterate that all devices are accounted for and will be used for the benefit of students in accordance with the intent of the grant. The District is committed to improving processes to ensure full compliance with grant requirements in the future. We appreciate the auditor?s work and diligence. 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. District Policy 6220 ? Bid or Request for Proposal Requirements, F. Interlocal Cooperation, allows the District to enter into interlocal cooperative agreements with other governmental agencies and requires the District to confirm that the other governmental agency has followed its purchasing procedures.