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: ECF222119477 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $381,000 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 $381,000 in ECF Program funds to purchase laptops for students. 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 may 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 and services 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 (FCC) requires recipients to comply with all applicable state or local laws by obtaining quotes or following a competitive bidding process, depending on the estimated cost of the purchase. 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, 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 equipment when it applied for ECF Program funds. However, our audit found the District?s internal controls were ineffective for ensuring it documented the determination of actual unmet need and only requested reimbursement for equipment provided to students. Specifically, the District purchased laptops, based on its estimate of unmet need, and allowed the service provider to request reimbursement from the awarding agency for these purchases totaling $381,000. However, the District stored all laptops for future use, and did not provide any to students or staff with unmet need during the audit period. 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 paid one service provider $381,000 for laptops, but did not perform a competitive, formal sealed bidding process, as state law and its policy required. We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance. The issue was not reported as a finding in the prior audit. Cause of Condition Allowable activities and costs/restricted purpose ? unmet need District management and staff did not know about the requirement to request reimbursement only for actual unmet need. The service provider requested reimbursement directly from the funding agency, and the District did not ensure it was only for actual unmet need. Procurement Staff misunderstood the requirement that procurement for eligible equipment had to comply with local policies or state law, and thought that obtaining quotes from the funding agency?s procurement site was allowable for this grant. Effect of Condition and Questioned Costs Allowable activities and costs/restricted purpose ? unmet need Since the District did not provide any equipment purchased with program funds to students or staff with unmet need during the audit period, it cannot demonstrate compliance with the program?s requirements. Therefore, we are questioning all costs charged to the program. 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. Procurement Because the District did not follow the competitive, formal sealed bidding process, as required by state law and its own policy, it cannot be sure all interested service providers had the opportunity to bid and that it obtained the lowest price for the laptop purchases. 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 and services provided to students 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 supporting the procurement methods it used District?s Response Shelton School District does not concur with the audit finding being issued by the State Auditor?s Office. The district does agree that internal controls and processes could be improved. It is the district?s understanding the almost every district in Washington State that received this grant has an audit finding. The district believes there was not clear guidance on processes and requirements. The school district did not receive any of the federal funds directly. The vendors that we purchased the laptops, hotspots, and bus wi-fi were responsible for applying for the funds from the federal government directly. The district is being held accountable for the actions of the vendor which we did not have control over. The district does not agree that these should be questionable costs since the district did not apply for or receive any funds directly. The ECF laptops were procured using the USAC site and procedures. The district filed a form 370 indicating the devices we wanted and we received quotes from two vendors. One vendor?s quote was related to a cooperative purchasing agreement contract. The district chose to purchase from that vendor as they included a white glove service to place asset tags on the devices, enroll them in our admin console and they also came with an extended warranty that includes accidental damage protection. The district?s IT Operations Manager was working with school principals to come up with the best method to determine high need students in a fair and equitable manner. The laptops will be distributed early in the 2023-24 school year once the plan is in place and all parties agree with the process. 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.