Finding 44592 (2022-001)

2022-001 The District did not have adequate internal controls for ensuring compliance with federal requirements for allowable activities and costs. See Schedule of Findings and Questioned Costs for chart/table Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for, and respond to the COVID-19 pandemic. In fiscal year 2022, the District expended $385,772 of its ESF awards. This included $161,651 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), as well as $224,121 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER III) subprogram (84.425U). 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. Federal regulations also establish principles and standards for determining allowable direct and indirect costs for federal awards. The Office of Superintendent of Public Instruction (OSPI) establishes the indirect cost rate for each award, and districts cannot exceed this approved rate when claiming reimbursement. If there are changes to the rate during a multi-year award, districts must adjust the amount claimed, if needed, to ensure they do not exceed the approved rate. Description of Condition The District?s internal controls were inadequate for ensuring it charged the correct indirect cost rate for its ESSER II award (84.425D). We consider this deficiency in internal controls to be a significant deficiency. This issue was not reported as a finding in the prior audit. Cause of Condition Management did not know the District needed to manually adjust the unrestricted indirect cost rate for ESSER awards that covered two fiscal years. Instead, the District relied on the rate established in the iGrants claim reimbursement system, which was the prior year?s rate. Effect of Condition and Questioned Costs We reviewed all indirect costs charged to the program. We found that the District charged $32,206 more in indirect costs than allowable because it did not use the correct rate for its ESSER II award. We are questioning these 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 has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures. Recommendation We recommend the District ensure it uses the correct OSPI-issued unrestricted indirect cost rate for the fiscal period when charging costs to federal awards. District?s Response The District concurs with the finding and will not rely on the iGrants claim reimbursement system to provide the correct indirect cost rate when charging costs to federal awards. 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, section 403, Factors affecting allowability of costs, describes the cost principles for how direct and indirect costs should be charged to federal programs.