SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Cheney School District No. 360 September 1, 2021 through August 31, 2022 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: ECF202100295 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $881,703 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 $881,703 in ECF Program funds to purchase laptops and Wi-Fi hotspots 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. State law and District policy allow the District to waive competitive bidding requirements for purchases that are clearly and legitimately limited to a single source of supply. The District must prepare and keep documentation supporting the applicable circumstance and rationale for noncompetitive procurement. 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. Restricted purpose ? per-location and per-user limitations The FCC imposed per-location and per-user limitations to maximize the use of limited funds. Under the program, eligible schools could only be reimbursed for one connected device and Wi-Fi hotspot per student or school employee with unmet need, and no more than one fixed broadband connection per location, such as a student?s or employee?s residence. Description of Condition Allowable activities and costs/restricted purpose ? unmet need The District estimated unmet need for eligible equipment and services 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 and services provided to students. Specifically, the District purchased laptops and Wi-Fi hotspots, based on its estimate of unmet need, and it requested reimbursement for these purchases totaling $881,703. However, the District did not maintain documentation showing it provided each laptop and Wi-Fi hotspot paid with program funds to a student or employee with unmet need. 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 $838,544 for laptops and another service provider $90,952 for Wi-Fi hotspots, but did not maintain documentation showing the procurement method used and rationale for selecting the providers. Restricted purpose ? per-location and per-user limitations Our audit found the District?s internal controls were ineffective for demonstrating it complied with the FCC?s per-location and per-user limitations. Specifically, the District did not maintain documentation showing it monitored or had a tracking process in place to ensure it only provided one device or connection per user and location. 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 Although employees in the District?s Finance Department knew that another department received an ECF Program award, they said they did not know the program was federally funded and, therefore, were unaware of all its regulations. Further, they did not know about the requirement to request reimbursement only for actual unmet need, and thought the estimate of unmet need provided during the application process was sufficient to comply with this requirement. Additionally, the District experienced turnover in the position responsible for managing this program, and current staff could not locate records supporting actual unmet need. Procurement The District experienced turnover in the position responsible for managing this program and procuring the laptops and Wi-Fi hotspots, and current staff could not locate the procurement records. Additionally, current staff thought they needed to spend the funds as quickly as possible, and thought that allowed them to bypass procurement requirements in state law and District policy. For the Wi-Fi hotspots, staff said the service provider selected was the only option for the area, but the District did not have documentation supporting this rationale. Restricted purpose ? per-location and per-user limitations Staff said they did not know about the requirement to maintain documentation showing the District only provided one device and/or connection per student and employee. Effect of Condition and Questioned Costs Allowable activities and costs/restricted purpose ? unmet need Because the District did not have documentation supporting whether it provided eligible equipment and services to students with actual unmet need, it cannot demonstrate compliance with the program?s requirements. Given the nature of the program and circumstances, it is likely that at least some of the equipment and services the District charged to the award addressed unmet needs. However, the lack of a documented assessment of students? actual unmet need means that all costs are unsupported. Since we do not have a reasonable basis for estimating how much of the District?s expenditures are allowable, we are questioning all unsupported 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 does not have adequate documentation to support expenditures. Procurement Without maintaining documentation showing the procurement method used, the District cannot demonstrate it complied with procurement requirements. Additionally, it cannot be sure all interested service providers had the opportunity to bid and that it obtained the lowest price for the laptop and Wi-Fi hotspot purchases. Restricted purpose ? per-location and per-user limitations Because the District did not maintain documentation, it cannot demonstrate compliance with the FCC?s restrictions. Additionally, we cannot determine whether the District only provided one device per user and location. 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 ? Monitor to confirm it provides no more than one device per student and location in compliance with the ECF Program?s requirements District?s Response The District does not concur with the audit finding or the questioned costs. The District does agree that internal controls and processes could be improved, however, this was during the pandemic and we believe the appropriate level of reporting would be a management letter because all costs were allowable and devices were provided to those with unmet need. While the District does agree that internal controls and processes could have been more carefully followed and there is always room for improvement, these funds were received as an emergency response to prevent learning loss for our students during the crisis caused by the COVID-19 Pandemic when students were not able to attend school in-person. During the District?s urgent need to put computers in students? hands, we pulled together all existing Chromebooks and laptops from across the district and distributed them to families for remote learning. There were not enough devices available across our district, so the District borrowed devices from other districts, purchased additional devices using local funds, and used Emergency Connectivity Funds (ECF) to purchase additional Chromebooks to serve students? immediate needs. In addition, hotspots were purchased with both local and ECF dollars to provide options for many of our families to be able to access educational materials online. The new ECF grant was administered under the Federal Communications Commission (FCC) using the Universal Service Administrative Company (USAC). The District contracted with a consultant to assist with getting our ECF application completed and submitted for reimbursements. We relied heavily on the consultant?s expertise to keep us apprised of all compliance. Unmet Need Based on the guidance below, we have spent all funds for allowable costs, and we believe that those costs were reasonable and necessary for students with unmet needs. The following guidance from the Federal Communications Commission, titled ?Emergency Connectivity Fund Common Misconceptions?, ?Misconception #2: If schools have returned to in-class instruction for the upcoming school year, they are not eligible to participate. Answer: This is false. Equipment and services provided to students or school staff who would otherwise lack sufficient access to connected devices, and/or broadband internet access connection while off campus are eligible for Emergency Connectivity Fund Support.? Devices for remote learning could also be used at school. During the pandemic in Washington State, we experienced times when classrooms, schools, and or districts were closed by the health department and state regulations because of outbreaks. Districts had to be prepared to support remote learning each day with constantly changing guidance on who was allowed to be in person. From the Federal Communications Commission Order FCC-CIRC21-93-043021, question 77: ?We think schools are in the best position to determine whether their students and staff have devices and broadband services sufficient to meet their remote learning needs, and we recognize that they are making such decisions in the midst of a pandemic. We, therefore, will not impose any specific metrics or process requirements on those determinations.? And from question 53: ??we are sensitive to the need to provide some flexibility during this uncertain time. If those connected devices were purchased for the purpose of providing students?with devices for off-campus use consistent with the rules we adopt today, we will not prohibit such on-campus use.? SAO did not apply any reasonable measure to reduce questioned costs but did state they know some of the costs are reasonable, while still choosing to question all costs. That is clearly out of alignment with the FCC guidance. Districts were able to determine whether students had unmet needs, and we initially set out to determine unmet need by surveying families; however, many of our families did not respond to our repeated attempts to communicate with them. We ultimately concluded that all our students had an unmet need for one or more reasons. From the surveys we conducted, and then upon receiving feedback from teachers and staff, we concluded that issuing a district device to every student was a necessity. This would address instances where students were sharing a home device with others, their personal device was too old or slow to function properly, and when a student-owned device did not have the appropriate security in place to protect students during remote learning. Providing each student with a district device also allowed the district access devices to provide technical support for remote learning. Based on these experiences, unmet need was defined broadly and inventory records were kept, albeit, not perfectly. Action Plan Although the District does not concur with the finding or questioned costs, it is taking this finding seriously and has completed an action plan on how it will implement stronger controls and ensure compliance in the future. That being said, the standard of documentation required by SAO to satisfy ?unmet? need would have been hard to meet even if the District hadn?t been in the midst of a pandemic. The District has internal controls over asset inventory and provided equipment only to students and staff with unmet needs, and all costs were allowable, reasonable and necessary. We look forward to working with the FCC to resolve this finding and we appreciate the guidance that was provided by the FCC, as noted above. Final Remarks The district used devices to support students in a manner we feel is consistent with the guidelines established by the FCC. Devices for remote learning could also be used at school. During the pandemic in Washington State, we experienced times when classrooms, schools, and or districts were closed by the health department and state regulations because of outbreaks. Districts had to be prepared to support remote learning each day with constantly changing guidance on who was allowed to be in person. Further, we are not familiar with any specific guidance stipulating the time frame allowable for the distribution of devices to students, specifically those that were being distributed to students during the audit period to replace obsolete devices that were still in student possession from the hectic period of time where we pivoted to remote learning within days. The ?lack of metrics? and the ?flexibility? allowed by the FCC indicate we were following the guidelines. 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.