2022-001 The District did not have adequate controls for ensuring compliance with federal requirements for allowable costs and cost principles.
Assistance Listing Number and Title: 84.425 – COVID-19 – Education
Stabilization Fund
Federal Grantor Name: U.S. Department of Education
Federal Award/Contract Number: N/A
Pass-through Entity Name: Office of Superintendent of Public Instruction (OSPI)
Pass-through Award/Contract Number: COVID-19, 84.425D – 0135566 COVID-19, 84.425D – 0120018 COVID-19, 84.425D – 0120423 COVID-19, 84.425U – 0138222 COVID-19, 84.425U – 0137228
COVID-19, 84.425D – 0140519
Known Questioned Cost Amount: $240,700
Prior Year Audit Finding: Yes
Description of Condition
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 spent $2,248,620 of its ESF awards, which included $1,350,865 from the Elementary and Secondary School Emergency Relief (ESSER II) Fund subprogram (84.425D), as well as $897,755 from the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/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 program requirements and monitoring the effectiveness of established program controls.
The Office of Superintendent of Public Instruction (OSPI) requires the District to incur allowable costs before requesting reimbursement. The District must maintain documentation supporting the costs it charges to the program. The documentation must be sufficient to demonstrate compliance with program requirements.
Our audit found the District’s internal controls were inadequate for demonstrating that costs charged to the program were allowable and complied with program requirements. Specifically, the District did not maintain supporting documentation for some of the accounts payable and payroll transactions charged to the program.
We consider this deficiency in internal controls to be a material weakness.
Cause of Condition
The District experienced turnover in its staff responsible for managing program costs. As a result, the current staff were unable to find supporting documentation for some expenditures charged to the program.
Effect of Condition and Questioned Costs
Without supporting documentation, the District cannot demonstrate it has effective internal controls in place to ensure compliance with requirements for allowable costs and cost principles. We identified $36,996.29 of unsupported payroll costs and $203,704 of unsupported accounts payable costs. Without support, we cannot confirm the expenditures charged to the program were allowable, so we are questioning these costs.
Recommendation
We recommend the District establish and maintain internal controls to ensure it keeps documentation to demonstrate that costs charged to federal programs are supported, allowable and comply with cost principles.
District’s Response
Hiring of a dedicated accounts payable staff member to ensure all documents are attached, two signatures and filed so that in the future when there is turn over all
documentation are together, filed and ready for review. Cash-Handling SOP has been established and is reviewed by at least two staff members and a form is submitted. Secondly, the duties of the grants will be split for the purpose of having two members reviewing the grants and verifying expenditures. For the purpose of the grants, the first person will write, revise, track the grant. The second person will make the claims after meeting and reviewing expenditures reports and supporting documentation with verification of two signatures. Both staff members will meet to discuss revisions and if an expenditure does not qualify in the grant. The district has created SOP to establish an ongoing expectation of standards for staff and new staff members.
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.