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: COVID-19 ECF202103590 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $397,909 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 $397,909 in ECF Program funds to purchase laptops 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 may only seek reimbursement for the eligible devices and services provided to students and staff with unmet need. Recipients are prohibited from seeking reimbursement for eligible equipment and services purchased for use solely at the school or held for future use (e.g., 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. 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 when it applied for ECF Program funds. However, our audit found the District did not document its determination of actual unmet need for the equipment provided to students and school staff. Specifically, the District purchased laptops based on its estimate of unmet need, and it requested reimbursement for this purchase totaling $397,909. However, the District did not maintain documentation showing it provided each laptop 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. The District paid one service provider $397,909 for laptops, and it could not demonstrate compliance with procurement requirements. 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. This issue was not reported as a finding in the prior audit. Cause of Condition Allowable activities and costs/restricted purpose ? unmet need The District?s information technology (IT) department managed the ECF Program, and employees were not familiar with all its regulations and federal requirements. Specifically, District staff did not know about the requirement to request reimbursement only for actual unmet need. Additionally, the District?s finance department, which often manages the District?s reimbursement requests for its federal programs, was not aware of all the ECF Program?s regulations. Procurement Staff in the IT department did not know about the requirements for procuring equipment in accordance with state bid law and District policy. Restricted purpose ? per-location and per-user limitations Staff said they did not know the District needed to maintain documentation showing it only provided one device 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 to students and school staff 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 the District charged to the award addressed unmet needs. However, the lack of a documented assessment of students? and staff?s 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 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 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 and staff 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 employee in compliance with the ECF Program?s requirements District?s Response The District does concur with the finding regarding the procurement process for the devices. The District will initiate policy reviews further and re-training to staff that has the ability to make purchases. The District does not concur with 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 only provided to those with unmet need. The audit?s condition states that staff did not know the District needed to maintain documentation showing it only provided one device per student and employee. The District?s electronic inventory shows that all devices are currently logged out to students and in use. Inventory logs as of May 11th 2023 were not accepted because they were not during the audit period. The District has paper check-out lists and parent permission slips from the audit period that were gathered, but some teachers did not keep them as the new year rolled and devices were returned and checked out for the new year. Based on the guidance below, we have spent all funds for allowable costs, that those costs were reasonable and necessary and for students with unmet needs. Districts were able to determine whether students had unmet needs, and for our district this meant addressing instances where, the device was too old or slow to function properly, student owned devices did not have the appropriate security in place to protect students during remote learning, and operationally the district could not access personally owned devices to provide the thousands of technical questions and issues students faced during remote learning. Based on these experiences, unmet need was defined broadly, but within allowed parameters and inventory records were kept, albeit, not perfectly. Guidance from 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 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. 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.? 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.? Corrective action the auditee plans to take in response to the findings: The District does not concur with the questioned costs. SAO reviewed various types of documentation and chose not to accept any documentation presented by the District to even consider reducing questioned costs. 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. The District has processes and controls in place for procurement. In this instance these processes weren?t followed. The district will take the opportunity to review purchasing policies and practices and retrain key personnel to ensure that moving forward all procurement is made according to policy. We look forward to working with the FCC to resolve this finding. 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 grant 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.