CNMI PUBLIC SCHOOL SYSTEMState Government

Finding No. 2023-003 Federal Agency: U.S. Department of Agriculture AL Program: 10.555 National School Lunch Program (NSLP) Federal Award No.: 217NMNM3N1174, 227NMNM3N1174 and 237NMNM3N1174 Area: Allowable Costs/Cost Principles Questioned Costs: $-0- Criteria: In accordance with 2 CFR Section 200.303, non-federal entities receiving federal awards must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Based on walkthrough procedures performed over the disbursement process of program funds, PSS lacks documented evidence of review and approval controls over check and ACH payments to ensure that payment amounts agree with approved invoice amounts. Specifically, the process did not include documented review or approval demonstrating that checks and ACH disbursements were verified against supporting invoices prior to payment. As a result, controls designed to ensure the accuracy and validity of disbursements are not adequately documented or evidenced. Cause: PSS lacks adequate documentation evidencing its monitoring and review procedures over disbursements of program funds, including review and approval controls to ensure that checks and ACH payments agree with approved invoice amounts. Effect or potential effect: PSS is in noncompliance with 2 CFR Section 200.303 related to internal control requirements. No questioned costs are identified as testing did not disclose noncompliance with allowable costs/cost principles compliance requirements. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: PSS should implement and enforce adequate documentations over its monitoring control procedures in place over disbursements of program funds. Views of Auditee and Corrective Action Plan: PSS concurs with the findings. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-004 Federal Agency: U.S. Department of Agriculture AL Program: 10.555 National School Lunch Program (NSLP) Federal Award No.: 217NMNM3N1174, 227NMNM3N1174, 237NMNM3N1174 Area: Procurement and Suspension and Debarment Questioned Costs: $725,425 Criteria: In accordance with 2 CFR Section 200.317, when conducting procurement transactions under a Federal award, a State must follow the same policies and procedures it uses for procurements with non-Federal funds. PSS Procurement Rules and Regulations requires the following: 1. § 60-40-205 Competitive Sealed Bidding: • Public Notice - Adequate public notice of the invitation for bids shall be given a reasonable time prior to the date set forth for the opening of bids. Publication of notice shall be on the Public School website over a continuous period of four weeks shall be deemed to be adequate notice; and • Bid Acceptance and Bid Evaluation - Bids shall be unconditionally accepted without alteration or correction, except as authorized in the chapter. Bids shall be evaluated based on the requirements set forth in the invitation for bids, which may include criteria as necessary to reasonably permit a determination as to the acceptability of the bid for the particular purpose intended. 2. § 60-40-225 Competitive Sealed Proposals: • Condition for Use - When the Commissioner of Education determines in writing upon the advise of the legal counsel that the use of a competitive sealed bidding is either not practical or not advantageous to the Public School System, a contract may be entered into by competitive sealed proposals; • Public Notice - Adequate public notice of the request for proposals shall be given in the same manner as provided for in competitive sealed bids; and • Award - Award shall be made to the responsible offeror whose proposal is determined in writing to be most advantageous to the Public School System taking into consideration price and the evaluation factors set forth in the request for proposals. The award cannot be made less than five business days after the issuance of a notice of intent to award pursuant to subsection (g). No other factors or criteria shall be used in the evaluation and the contract file shall contain the basis on which the award is made. 3. § 60-40-560 Authority to Debar or Suspend • After reasonable notice to the person involved and reasonable opportunity for the person to be heard under the Administrative Procedure Act [1 CMC §§ 9101, et seq.], the Commissioner of Education after consultation with the Public School System legal counsel, shall have authority to debar a person for cause from consideration for award of contracts; and • The debarment shall not be for a period of more than three years. The Commissioner of Education, after consultation with Public School System legal counsel, shall have authority to suspend a person from consideration for award of contracts if there is probable cause for debarment. The suspension shall not be for a period exceeding three months. 4. In accordance with 2 CFR §180.220 and §180.300, entities that enter into a covered transaction with another person at the next lower tier for a contract amount that is expected to equal or exceed $25,000, entities must verify that the person with whom they intend to do business is not excluded or disqualified by: (a) Checking SAM.gov Exclusions; or (b) Collecting a certification from that person; or (c) Adding a clause or condition to the covered transaction with that person. Condition: 1. Of twenty-one expenditures tested, aggregating $711,947 of a total population of $17,350,718 in nonpayroll expenditures subject to procurement, the following were noted: a. For one (or 5%), the selected vendor for contract number 00182076-OC was the third lowest bidder, for which documentation of the selection justification, was not provided. b. For one (or 5%), for contract number 00182076-OC only two public announcements of the invitation for bids were provided. No questioned costs are presented as the amount is questioned at Condition 1a. 2. PSS does not verify whether a person or a vendor is not excluded or disqualified pursuant to 2 CFR §180.220 and §180.300, prior to entering into a covered transaction for an amount equal to or exceeds $25,000 with award funds. Cause: 1. Inadequate documentation and inadequate systematic filing of relevant documentation supporting program costs; and 2. Lack of monitoring control procedures to ensure verification as to whether a person or a vendor is not excluded or disqualified pursuant to 2 CFR §180.220 and §180.300 are performed, prior to entering into a covered transaction. Effect or potential effect: PSS is in noncompliance with applicable procurement and suspension and debarment regulations and questioned costs of $725,425 result for Conditions 1a and 2. Identification as Repeat Finding: Finding No. 2022-012 Recommendation: 1. Establish and maintain effective systematic filing of relevant documentation to support program costs and for easier retrieval; and 2. Establish and implement effective monitoring controls over the verification of excluded or disqualified persons or vendors pursuant to 2 CFR §180.220 and §180.300, prior to PSS entering into a covered transaction. Views of Auditee and Corrective Action Plan: PSS concurs with the findings. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-005 Federal Agency: U.S. Department of Agriculture AL Program: 10.555 National School Lunch Program (NSLP) Federal Award No.: 217NMNM3N1174, 227NMNM3N1174, 237NMNM3N1174 Area: Reporting Questioned Costs: $-0- Criteria: In accordance with 7 CFR Section 210.8, to be entitled to reimbursement under this part, each school food authority shall submit to the State agency, a Claim for Reimbursement that must include data in sufficient detail to justify the reimbursement claimed and to enable the State agency to provide the Report of School Program Operations required under § 210.5(d). Such data must include, at a minimum, the number of free, reduced price, and paid lunches and after school snacks served to eligible children. The claim must be signed by a school food authority official. In addition, School food authorities shall maintain on file, each Claim for Reimbursement and all data used in the claims review process, by school. Records shall be retained as specified in § 210.23(c) of this part. School food authorities shall make this information available to the Department and the State agency upon request. In accordance with the applicable reporting requirements, an SF-425 report is required to be accompanied by supporting accounting records to verify the accuracy of the reported amounts. Condition: 1. Of five SF-425 reports that were due for submission during FY2023, the underlying accounting records supporting all five (or 100%) SF-425 reports, were not provided. 2. Of four quarterly program reports that were due for submission during FY2023, the underlying accounting records supporting all four (or 100%) quarterly program reports, were not provided. Cause: 1. PSS lacks monitoring control procedures to ensure data included in the SF-425 and quarterly program reports are supported with underlying accounting records. 2. Inadequate documentation and inadequate systematic filing of relevant documentation supporting the SF-425 and quarterly program reports. Effect or potential effect: PSS is in noncompliance with the applicable reporting compliance requirements. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: 1. PSS should implement and enforce monitoring controls over compliance with applicable reporting requirements; and 2. Establish and maintain effective systematic filing of relevant documentation to support program costs and for easier retrieval. Views of Auditee and Corrective Action Plan: PSS concurs with the findings. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-006 Federal Agency: U.S. Department of Education AL Program: 84.027 Special Education Cluster - Grants to States (IDEA, Part B) Federal Award No.: H027A200106, H027A210106, H027X210106, H027A22106, H027A230106 Area: Activities Allowed/Unallowed, Allowable Costs/Cost Principles Questioned Costs: $5,130 Criteria: 1. Per CFR §200.403(a), costs must be necessary and reasonable for the performance of the Federal award. 2. In accordance with 2 CFR §200.403, costs must be adequately documented in order to be allowable under federal programs. Condition: 1. Of ten nonpayroll expenditures tested, aggregating $184,105 of a total population of $1,241,478, one (or 10%), transaction pertains to an off-island travel from Rota to Saipan to attend PSS’ education day celebration event. There was no documentation provided to justify that such an event is necessary and reasonable for the performance of the federal award, for which the corresponding directly associated travel costs are also questioned. 2. Of thirty payroll expenditures tested, aggregating $75,035 of a total population of $3,488,866, the following were noted: a. For one (or 3%), the differential pay rate for the nine hours paid to an employee was not provided, for which the corresponding directly associated payroll costs are also questioned. b. For one (or 3%), the gross pay comprised of the employee’s payroll cost and annual leave pay out; however, the approved timesheet for the hours worked was not provided, for which the corresponding directly associated costs are also questioned. Cause: 1. PSS lacks monitoring control procedures to ensure program costs are supported; and 2. Inadequate documentation and inadequate systematic filing of relevant documentation supporting program costs. Effect or potential effect: PSS is in noncompliance with the applicable allowable costs/cost principles compliance requirements and questioned costs of $5,130 result as the projected questioned costs exceed the $25,000 threshold. Identification as Repeat Finding: Finding No. 2022-003 Recommendation: 1. PSS should implement and enforce monitoring controls over compliance with applicable allowable costs/cost principles; and 2. Establish and maintain effective systematic filing of relevant documentation to support program costs and for easier retrieval. Views of Auditee and Corrective Action Plan: PSS concurs with the audit findings and the associated questioned costs. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-007 Federal Agency: U.S. Department of Education AL Program: 84.027 Special Education Cluster - Grants to States (IDEA, Part B) Federal Award No.: H027A210106, H027A220106, H027A230106 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Criteria: In accordance with 2 CFR 200.313(b), a state must use, manage, and dispose of equipment acquired under a federal award in accordance with state laws and regulations. In accordance with 2 CFR 200.313(d)(1), property records must include a description of the property, a serial number or another identification number, the source of funding for the property (including the FAIN), the title holder, the acquisition date, the cost of the property, the percentage of the Federal agency contribution towards the original purchase, the location, use and condition of the property, and any disposition data including the date of disposal and sale price of the property. The recipient and subrecipient are responsible for maintaining and updating property records when there is a change in the status of the property. Further, in accordance with 2 CFR 200.313 (3), a control system must be developed to ensure adequate safeguards to prevent loss, damage or theft of the property. Additionally, 2 CFR 200.313(d)(4) requires that adequate maintenance procedures must be developed to keep the property in good condition. PSS Policy Subpart C Inventory Management Policy section 60-20-815 (a)(1) states that PSS shall require a physical count of all stock supply and equipment items at least once each year. Lastly, according to PSS Policy Subpart C Inventory Management Policy section 60-20-815 (c)(5), during inventory counts, all custodians must be matched with the appropriate records of assigned fixed assets maintained at the Central Office. Condition: 1. The capital assets listing maintained by PSS is incomplete and does not include all information for equipment and real property required under 2 CFR 200.313(d)(1), such as the federal participation percentage and the condition of the asset. 2. PSS lacks standardized and consistently implemented internal controls over safeguarding and maintenance of equipment across schools and offices. For four (or 80%) of the five locations selected for testing, no maintenance procedures and safeguarding measures for equipment are documented. 3. For one (or 13%) of eight capital assets selected for testing, PSS did not provide approved count sheets signed nor submitted the assigned custodian to support that a physical count was performed in FY2023. Cause: 1. PSS policies and procedures over capital assets management have not been fully updated to align with federal requirements under 2 CFR § 200.313 (d) (1), resulting in incomplete capital asset records. 2. PSS does not have a centralized and standardized system for safeguarding and maintaining equipment across all schools and offices for each type of equipment. 3. PSS’ document retention and record-keeping practices did not operate effectively to ensure that required inventory documentation, such as approved custodian count sheets, is properly maintained, stored and easily retrievable. Effect or potential effect: PSS is in noncompliance with applicable Equipment and Real Property Management requirements. Incomplete asset records, inconsistent safeguarding and maintenance practices, and insufficient inventory documentation increase the risk of loss, misuse, theft, or deterioration of federally funded property. Questioned costs are undetermined as we are unable to quantify the extent of noncompliance. Identification as Repeat Finding: Finding No. 2022-008 Recommendation: 1. PSS should update the structure and contents of their current capital asset listing to ensure all information required by 2 CFR 200.313(d)(1) is fully captured, maintained, and kept current for all equipment and real property acquired with federal funds. 2. PSS should revise and strengthen policies and procedures related to capital asset management to ensure alignment with federal requirements, including recordkeeping, inventory, safeguarding, and maintenance. 3. PSS should establish and implement centralized or standardized safeguarding and maintenance controls which should serve as minimum required procedures for all schools and offices regardless of equipment type. 4. Lastly, PSS should strengthen physical inventory procedures by requiring annual inventories to be properly documented, reviewed, approved, and retained, including ensuring all custodians submit signed inventory count sheets in accordance with its policy. Views of Auditee and Corrective Action Plan: PSS concurs with the findings. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-008 Federal Agency: U.S. Department of Education AL Program: COVID-19 84.027 Special Education Cluster - Grants to States (IDEA, Part B) Federal Award No.: H027A220106, H027A230106, H027X210106 Area: Matching, Level of Effort, and Earmarking Questioned Costs: $345,823 Criteria: In accordance with IDEA §612(a)(18) as part of the IDEA Part B Application, states may meet the maintenance of State financial support (MFS), on either a total or per capita basis. Additionally, 34 CFR §300.163(a) says a State must not reduce the amount of State financial support for special education and related services for children with disabilities or otherwise made available because of the excess costs of educating those children, below the amount of support for the preceding fiscal year. Condition: 1. Based on the comparison of State expenditures recorded under Business Unit (BU) 111133 against the amount indicated on the Part B Application for MFS, we noted that PSS failed to maintain the required level of State financial support for special education and related services in FY2023. In addition, PSS included open encumbrances as part of its calculation for maintenance of effort. However, PSS was unable to substantiate these encumbrances or provide adequate documentation to support the inclusion of these encumbrances. As a result, questioned costs were determined based on the actual expenditures incurred in FY2023. 2. Per our walkthrough procedures over internal control, evidence of review and approval by the Director of Finance over the local expenditures recorded under business unit 111133 was not provided. Cause: PSS failed to adhere to the maintenance of effort requirements under IDEA §612(a)(18), 34 CFR §300.163 and applicable grant award requirements. Additionally, PSS lacks proper monitoring, review and approval controls over State expenditures recorded under business unit 111133 to ensure compliance with maintenance of effort requirements. Effect or potential effect: PSS is in noncompliance with applicable maintenance of effort regulations and questioned costs of $345,823 result. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: 1. PSS should ensure compliance with maintenance of effort requirements in accordance with applicable federal regulations and grant award terms. 2. PSS should establish and implement policies and procedures for monitoring, reviewing and reconciling State expenditures to accurately compare prior year and current year levels of State financial support for special education and related services. Views of Auditee and Corrective Action Plan: PSS concurs with the finding. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-009 Federal Agency: U.S. Department of Education AL Program: COVID-19 84.027 Special Education Cluster - Grants to States (IDEA, Part B) Award Number: H027A210106, H027A220106, H027A230106, H027X210106 Area: Procurement and Suspension and Debarment Questioned Costs: $102,862 Criteria: In accordance with 2 CFR Section 200.317, when conducting procurement transactions under a Federal award, a State must follow the same policies and procedures it uses for procurements with non-Federal funds. PSS Procurement Rules and Regulations states the following: 1. § 60-40-210 Small Purchases • Purchases not exceeding $500 may be made without securing bids or price quotations if the Chief of Procurement and Supply considers the price reasonable. Such determination shall be made in writing and shall indicate: 1) the reason why price quotations were not sought; 2) the utility of the purchase; and 3) an explanation of why the price is reasonable under the circumstances. • Bidding is not required but is encouraged for procurement under $10,000. Price quotations from at least three vendors must be obtained and the selection based on competitive price and quality for procurement valued at under $10,000. Any price quotations obtained must be written, documented, and submitted to the Chief for approval. However, if it is an emergency and three price quotations are not practicable, the purchase shall function as an emergency procurement and follow § 60-40-220. 2. § 60-40-230 Competitive Selection Procedures for Professional Services: • Procurement Method – The services of accountants shall be procured as provided in this section except when authorized as a small purchase, emergency procurement, sole-source procurement or non-employment services contracts such as special education related services. • Policy – It is the policy to publicly announce all requirements for professional services and negotiate contracts on the basis of demonstrated competence and qualifications at a fair and reasonable price. The Chief Procurement Officer shall maintain files of current statements of qualifications of professional firms. Persons engaged in providing professional services may submit statements of qualifications and expressions of interests providing such types of services. Persons may amend these statements at any time by filing a new statement. • Public Announcement and Form of Request for Proposals – Adequate notice of the need for such services shall be given by the official with expenditure authority through a request for proposals. The request for proposals shall describe the services required, list the type of information and data required of each offeror and state the relative importance of particular qualifications. • Award – Award shall be made to the offeror determined in writing by the official with expenditure authority to be the best qualified based on the evaluation factors set forth in the request for proposals, and negotiation of compensation determined to be fair and reasonable. If compensation cannot be agreed upon with the best qualified offeror then negotiations will be formally terminated with the selected offeror. If proposals were submitted by one or more other offerors determined to be qualified, negotiations may be conducted with such other offeror or offerors, in the order of their respective qualification ranking, and the contract may be awarded to the offeror then ranked as best qualified if the amount of compensation is determined to be fair and reasonable. 3. § 60-40-560 Authority to Debar or Suspend • After reasonable notice to the person involved and reasonable opportunity for the person to be heard under the Administrative Procedure Act [1 CMC §§ 9101, et seq.], the Commissioner of Education after consultation with the Public School System legal counsel, shall have authority to debar a person for cause from consideration for award of contracts; and • The debarment shall not be for a period of more than three years. The Commissioner of Education, after consultation with Public School System legal counsel, shall have authority to suspend a person from consideration for award of contracts if there is probable cause for debarment. The suspension shall not be for a period exceeding three months. 4. In accordance with 2 CFR §180.220 and §180.300, entities that enter into a covered transaction with another person at the next lower tier for a contract amount that is expected to equal or exceed $25,000, entities must verify that the person with whom they intend to do business is not excluded or disqualified by: a. Checking SAM.gov Exclusions; or b. Collecting a certification from that person; or c. Adding a clause or condition to the covered transaction with that person. Condition: Of twelve expenditures tested, aggregating $114,356 of a total population of $1,156,858 in nonpayroll expenditures subject to procurement, the following were noted: 1. For two (or 17%), transactions were procured under the $10,000 small purchases threshold; however, only one quotation was obtained. 2. For two (or 17%), contracts were procured through a competitive sealed proposal for professional services; however, the evaluation for and proposal submitted by the offeror was not provided for contract 00180716-OC. For contract 00190611-OC, the request for proposals outlining scope of work and proposal submitted by the offeror was not provided. 3. PSS does not verify whether a person or a vendor is not excluded or disqualified pursuant to 2 CFR §180.220 and §180.300, prior to entering into a covered transaction for an amount equal to or exceeds $25,000 with award funds. No questioned costs are presented as the amount is questioned at Condition 2. Cause: 1. Inadequate documentation and inadequate systematic filing of relevant documentation supporting program costs. 2. Lack of monitoring control procedures to ensure verification as to whether a person or a vendor is not excluded or disqualified pursuant to 2 CFR §180.220 and §180.300 are performed, prior to entering into a covered transaction. Effect or potential effect: PSS is in noncompliance with applicable procurement and suspension and debarment compliance requirements and questioned costs of $102,862 result for Conditions 1 and 2. Identification as Repeat Finding: Finding No. 2022-013 Recommendation: 1. Establish and maintain effective systematic filing of relevant documentation to support program costs and for easier retrieval. 2. Establish and implement effective monitoring controls to ensure that all procurement regulations are complied with, including over the verification of excluded or disqualified persons or vendors pursuant to 2 CFR §180.220 and §180.300, prior to the PSS entering into a covered transaction. Views of Auditee and Corrective Action Plan: PSS concurs with the finding. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-010 Federal Agency: U.S. Department of Education AL Program: 84.403 Consolidated Grants to the Outlying Areas Federal Award No.: S403A210001, S403A220001, S403A230001 Area: Allowable Costs/Cost Principles Questioned Costs: $-0- Criteria: In accordance with 2 CFR Section 200.303, non-federal entities receiving federal awards must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Based on walkthrough procedures performed over the disbursement of program funds, PSS lacks documented evidence of review and approval controls over check and ACH payments to ensure that payment amounts agree with approved invoice amounts. Specifically, the process did not include documented review or approval demonstrating that checks and ACH disbursements were verified against supporting invoices prior to payment. As a result, controls designed to ensure accuracy and validity of disbursements are not adequately documented or evidenced. Cause: PSS lacks adequate documentation evidencing its monitoring and review procedures over disbursements of program funds, including review and approval controls to ensure that checks and ACH payments agree with approved invoice amounts. Effect or potential effect: PSS is in noncompliance with 2 CFR Section 200.303 related to internal control requirements. No questioned costs are identified as testing did not disclose noncompliance with allowable costs/cost principles compliance requirements. Identification as Repeat Finding: Finding No. 2022-004 Recommendation: PSS should implement, document and consistently enforce appropriate review and approval controls over disbursements of program funds Views of Auditee and Corrective Action Plan: PSS concurs with the finding. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-011 Federal Agency: U.S. Department of Education AL Program: 84.403 Consolidated Grants to the Outlying Areas Federal Award No.: S403A220001 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Criteria: In accordance with 2 CFR 200.313(b), a state must use, manage, and dispose of equipment acquired under a federal award in accordance with state laws and regulations. In accordance with 2 CFR 200.313(d)(1), property records must include a description of the property, a serial number or another identification number, the source of funding for the property (including the FAIN), the title holder, the acquisition date, the cost of the property, the percentage of the Federal agency contribution towards the original purchase, the location, use and condition of the property, and any disposition data including the date of disposal and sale price of the property. The recipient and subrecipient are responsible for maintaining and updating property records when there is a change in the status of the property. Further, in accordance with 2 CFR 200.313 (3), a control system must be developed to ensure adequate safeguards to prevent loss, damage or theft of the property. Additionally, 2 CFR 200.313(d)(4) requires that adequate maintenance procedures must be developed to keep the property in good condition. The PSS Policy Subpart C Inventory Management Policy section 60-20-815 (a)(1) states that PSS shall require a physical count of all stock supply and equipment items at least once each year. Lastly, according to PSS Policy Subpart C Inventory Management Policy section 60-20-815 (c)(5), during inventory counts, all custodians must be matched with the appropriate records of assigned fixed assets maintained at the Central Office. Condition 1. The capital assets listing maintained by PSS is incomplete and does not include all information for equipment and real property required under 2 CFR 200.313(d)(1), such as the federal participation percentage and the condition of the asset. 2. PSS lacks standardized and consistently implemented internal controls over safeguarding and maintenance of equipment across schools and offices. For all seventeen (or 100%) locations selected for testing, no maintenance procedures and safeguarding measures for equipment are documented. 3. For one (or 10%) of ten capital assets selected for testing, PSS did not provide approved count sheets signed and submitted by the assigned custodian to support that a physical counts was performed in FY2023. Cause: 1. PSS policies and procedures over capital assets management have not been fully updated to align with federal requirements under 2 CFR § 200.313 (d) (1), resulting in incomplete capital asset records. 2. PSS does not have a centralized and standardized system for safeguarding and maintaining equipment across all schools and offices for each type of equipment. 3. PSS’ document retention and record-keeping practices did not operate effectively to ensure that required inventory documentation, such as approved custodian count sheets, is properly maintained, stored and are easily retrievable. Effect or potential effect: PSS is in noncompliance with applicable Equipment and Real Property Management requirements. Incomplete asset records, inconsistent safeguarding and maintenance practices, and insufficient inventory documentation increase the risk of loss, misuse, theft, or deterioration of federally funded property. Questioned costs are undetermined as we are unable to quantify the extent of noncompliance. Identification as Repeat Finding: 2022-009 Recommendation: 1. PSS should update the structure and contents of their current capital asset listing to ensure all information required by 2 CFR 200.313(d)(1) is fully captured, maintained, and kept current for all equipment and real property acquired with federal funds. 2. PSS should revise and strengthen policies and procedures related to capital asset management to ensure alignment with federal requirements, including recordkeeping, inventory, safeguarding, and maintenance. 3. PSS should establish and implement centralized or standardized safeguarding and maintenance controls which should serve as minimum required procedures for all schools and offices regardless of equipment type. 4. Lastly, PSS should strengthen physical inventory procedures by requiring annual inventories to be properly documented, reviewed, approved, and retained, including ensuring all custodians submit signed inventory count sheets in accordance with its policy. Views of Auditee and Corrective Action Plan: PSS concurs with the finding and recommendations. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-012 Federal Agency: U.S. Department of Education AL Program: 84.403 Consolidated Grants to the Outlying Areas Federal Award No.: S403A220001 Area: Procurement and Suspension and Debarment Questioned Costs: $1,019,874 Criteria: In accordance with 2 CFR Section 200.317, when conducting procurement transactions under a Federal award, a State must follow the same policies and procedures it uses for procurements with non-Federal funds. PSS Procurement Rules and Regulations states the following: 1. § 60-40-205 Competitive Sealed Bidding: • Public Notice - Adequate public notice of the invitation for bids shall be given a reasonable time prior to the date set forth for the opening of bids. Publication of notice shall be on the Public School website over a continuous period of four weeks shall be deemed to be adequate notice; and • Bid Acceptance and Bid Evaluation - Bids shall be unconditionally accepted without alteration or correction, except as authorized in the chapter. Bids shall be evaluated based on the requirements set forth in the invitation for bids, which may include criteria as necessary to reasonably permit a determination as to the acceptability of the bid for the particular purpose intended. 2. § 60-40-560 Authority to Debar or Suspend • After reasonable notice to the person involved and reasonable opportunity for the person to be heard under the Administrative Procedure Act [1 CMC §§ 9101, et seq.], the Commissioner of Education after consultation with the Public School System legal counsel, shall have authority to debar a person for cause from consideration for award of contracts; and • The debarment shall not be for a period of more than three years. The Commissioner of Education, after consultation with Public School System legal counsel, shall have authority to suspend a person from consideration for award of contracts if there is probable cause for debarment. The suspension shall not be for a period exceeding three months. 3. In accordance with 2 CFR §180.220 and §180.300, entities that enter into a covered transaction with another person at the next lower tier for a contract amount that is expected to equal or exceed $25,000, entities must verify that the person with whom they intend to do business is not excluded or disqualified by: a. Checking SAM.gov Exclusions; or b. Collecting a certification from that person; or c. Adding a clause or condition to the covered transaction with that person. Condition: 1. Of twenty-five expenditures tested, aggregating $846,783 of a total population of $8,192,986 in nonpayroll expenditures subject to procurement, the following were noted: a. For five (or 20%), bid evaluation forms for the unsuccessful bidders for the following contracts procured through invitation for bid, were not provided. For contract number 00181592-OC, none of the bid evaluation forms were provided, including the bid opening summary sheet. b. For two (or 8%), public announcements of the invitation for bids were not provided. No questioned costs are presented as the amounts are questioned at Condition 1a. 2. PSS does not verify whether a person or a vendor is not excluded or disqualified pursuant to 2 CFR §180.220 and §180.300, prior to entering into a covered transaction for an amount equal to or exceeds $25,000 with award funds. Cause: 1. Inadequate documentation and inadequate systematic filing of relevant documentation supporting program costs; and 2. Lack of monitoring control procedures to ensure verification as to whether a person or a vendor is not excluded or disqualified pursuant to 2 CFR §180.220 and §180.300 are performed, prior to entering into a covered transaction. Effect or potential effect: PSS is in noncompliance with applicable procurement and suspension and debarment regulations and questioned costs of $1,019,874 result for Conditions 1a and 3. Identification as Repeat Finding: Finding No. 2022-014 Recommendation: 1. Establish and maintain effective systematic filing of relevant documentation to support program costs and for easier retrieval; and 2. Establish and implement effective monitoring controls over the verification of excluded or disqualified persons or vendors pursuant to 2 CFR §180.220 and §180.300, prior to PSS entering into a covered transaction. Views of Auditee and Corrective Action Plan: PSS concurs with the finding. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-013 Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425A/84.425X Education Stabilization Fund Federal Award No.: S425A200001, S425A210001, S425X210001 Area: Allowable Costs/Cost Principles Questioned Costs: $-0- Criteria: In accordance with 2 CFR Section 200.303, non-federal entities receiving federal awards must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Based on walkthrough procedures performed over the disbursement process of program funds, PSS lacks documented evidence of review and approval controls over check and ACH payments to ensure that payment amounts agree with approved invoice amounts. Specifically, the process did not include documented review or approval demonstrating that checks and ACH disbursements were verified against supporting invoices prior to payment. As a result, controls designed to ensure the accuracy and validity of disbursements are not adequately documented or evidenced. Cause: PSS lacks adequate documentation evidencing its monitoring and review procedures over disbursements of program funds, including review and approval controls to ensure that checks and ACH payments agree with approved invoice amounts. Effect or potential effect: PSS is in noncompliance with 2 CFR Section 200.303 related to internal control requirements. No questioned costs are identified as testing did not disclose noncompliance with allowable costs/cost principles compliance requirements. Identification as Repeat Finding: Finding No. 2022-005 Recommendation: PSS should implement compensating, redundant, or adjacent control activities, including documented supervisory reviews and approval checklists, to ensure compliance with federal requirements. Views of Auditee and Corrective Action Plan: PSS concurs with the finding. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-014 Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425A/84.425X Education Stabilization Fund Federal Award No.: S425A210001 and S425X210001 Area: Equipment and Real Property Management Questioned Costs: Undeterminable Criteria: In accordance with 2 CFR 200.313(b), a state must use, manage, and dispose of equipment acquired under a federal award in accordance with state laws and regulations. In accordance with 2 CFR 200.313(d)(1), property records must include a description of the property, a serial number or another identification number, the source of funding for the property (including the FAIN), the title holder, the acquisition date, the cost of the property, the percentage of the Federal agency contribution towards the original purchase, the location, use and condition of the property, and any disposition data including the date of disposal and sale price of the property. The recipient and subrecipient are responsible for maintaining and updating property records when there is a change in the status of the property. Further, in accordance with 2 CFR 200.313 (3), a control system must be developed to ensure adequate safeguards to prevent loss, damage or theft of the property. Lastly, 2 CFR 200.313(d)(4) requires that adequate maintenance procedures must be developed to keep the property in good condition. Condition: 1. The capital assets listing maintained by PSS is incomplete and does not include all information for equipment and real property required under 2 CFR 200.313(d)(1), such as the federal participation percentage and the condition of the asset. No questioned costs are presented as we are not able to quantify the extent of noncompliance. 2. PSS lacks standardized and consistently implemented internal controls over safeguarding and maintenance of equipment across schools and offices. For twenty-six (or 96%) of the twenty-seven locations selected for testing, no maintenance procedures and safeguarding measures for equipment were documented. Cause: 1. PSS policies and procedures over capital assets management have not been fully updated to align with federal requirements under 2 CFR § 200.313 (d) (1), resulting in incomplete capital asset records. 2. PSS does not have a centralized and standardized system for safeguarding and maintaining equipment across all schools and offices for each type of equipment. Effect or potential effect: PSS is in noncompliance with applicable Equipment and Real Property Management requirements. Incomplete asset records and inconsistent safeguarding and maintenance practices increase the risk of loss, misuse, theft, or deterioration of federally funded property. Questioned costs are undetermined as we are unable to quantify the extent of noncompliance. Identification as Repeat Finding: Finding No. 2022-010 Recommendation: 1. PSS should update the structure and contents of their current capital asset listing to ensure all information required by 2 CFR 200.313(d)(1) is fully captured, maintained, and kept current for all equipment and real property acquired with federal funds. 2. PSS should revise and strengthen policies and procedures related to capital asset management to ensure alignment with federal requirements, including recordkeeping, inventory, safeguarding, and maintenance. 3. PSS should establish and implement centralized or standardized safeguarding and maintenance controls which should serve as minimum required procedures for all schools and offices regardless of equipment type. Views of Auditee and Corrective Action Plan: PSS concurs with the finding. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-015 Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425A/84.425X Education Stabilization Fund Federal Award No.: S425A210001 and S425X210001 Area: Matching, Level of Effort, Earmarking Questioned Costs: Undeterminable Criteria: In accordance with 2 CFR Section 200.303, non-federal entities receiving federal awards must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. In accordance with the terms and conditions in the Grant Agreement, the State Educational Agencies (SEA) will use (a) not less than twenty percent of its ARP-OA SEA allocation to carry out, directly or through subgrants or contracts, activities to address the academic impact of lost instructional time by supporting the implementation of evidence-based interventions; (b) a portion of their ARP-OA SEA allocation to carry out, directly or through subgrants to Local Educational Agencies (LEAs) or through contracts, the implementation of evidence-based summer enrichment programs; (c) and a portion of their ARP-OA SEA allocation to carry out, directly or through subgrants to LEAs or through contracts, the implementation of evidence-based comprehensive afterschool programs. Condition: PSS did not maintain or provide adequate supporting documentation to demonstrate compliance with the ARP-OA earmarking requirements. Specifically, PSS did not provide budgetary documentation evidencing that the required portions of ARP-OA funds were allocated and expended for allowable evidence-based interventions, summer enrichment programs and comprehensive afterschool programs. Questioned costs are undetermined as we are unable to quantify the extent of noncompliance. Cause: PSS does not have an effective internal control over financial documentation related to earmarked ARP-OA funds. PSS lacks established procedures to ensure that budget allocations and supporting record related to earmarking requirements are properly prepared, retained and readily available for audit and compliance reporting purposes. Effect or potential effect: PSS is in noncompliance with the earmarking requirements for the ARP-OA program. Questioned costs are undeterminable as we are unable to quantify the extent of noncompliance. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: PSS should strengthen internal controls over ARP‑OA earmarking compliance by establishing and implementing formal procedures to ensure that: 1. Required earmarking allocations are clearly identified in budgets; and 2. Supporting documentation is retained, organized, and readily available for audit and compliance review purposes. Views of Auditee and Corrective Action Plan: PSS does not agree with the finding. PSS has allocated and expended more than 20% on evidence-based interventions to address learning loss. Specifically, projects listed under the ARP expense report are mapped directly to learning loss categories (e.g. expenses for summer school, extended learning opportunities, high dosage tutors, etc.). Refer to PSS’ Corrective Action Plan for additional information. Auditor Response: The supporting documentation provided, including the ARPA-OA budget that was resubmitted, did not clearly identify the required earmarking allocations and related expenditures for evidence-based interventions, summer enrichment programs and comprehensive afterschool programs. Recalculation or verification of compliance with the earmarking requirements of the ARP-OA program could not be performed. The finding remains.

Finding No. 2023-016 Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425A/84.425X Education Stabilization Fund Federal Award No.: S425A210001 and S425X210001 Area: Special Tests and Provisions - Wage Rate Requirement Questioned Costs: Undeterminable In accordance with 2 CFR Section 200.303, non-federal entities receiving federal awards must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Under 29 CFR 5.5(a), contracts exceeding $2,000 for construction, alteration, or repair of public buildings or public works financed in whole or in part with federal funds must include the required Davis-Bacon labor standards clauses, including the incorporation by reference of all applicable rulings and interpretations (29 CFR parts 1, 3, and 5). Additionally, pursuant to 29 CFR 5.5(a)(3)(ii)(A), contractors or subcontractors must submit weekly, for each week in which any Davis Bacon Act (DBA)- or Related Acts-covered work is performed, certified payrolls to the appropriate Federal agency, if the agency is a party to the contract, but if the agency is not such a party, the contractor will submit the certified payrolls to the applicant, sponsor, owner, or other entity, as the case may be, that maintains such records, for transmission to the agency. Condition: 1. For eight (or 100%) of eight construction contracts selected for testing, the required clauses, as identified in 29 CFR 5.5(a)(1) and 29 CFR 5.5(a)(8), were not inserted or referenced in the contract or purchase order. No questioned costs are presented as we are unable to quantify the extend of the noncompliance. 2. For eight (or 100%) of eight construction expenditures selected for testing, PSS did not provide the certified payrolls from contractors or subcontractors for work subject to Davis-Bacon Act requirements. No questioned costs are presented as we are unable to quantify the noncompliance. Cause: PSS did not establish and effectively implement internal control procedures to address or prevent noncompliance of the applicable wage rate requirements. Effect or potential effect: PSS is in noncompliance with applicable wage rate requirements. Questioned costs are undetermined as we are unable to quantify the extent of noncompliance. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: PSS should establish and implement effective internal controls to ensure compliance with federal wage rate requirements. At a minimum, PSS should: 1. Ensure all applicable contracts and purchase orders include or reference the required Davis‑Bacon labor standards clauses; 2. Require contractors and subcontractors to submit certified payrolls for all Davis‑Bacon–covered work; and 3. Implement procedures to review, approve, and retain certified payrolls and supporting documentation. Views of Auditee and Corrective Action Plan: PSS concurs with the findings. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-017 Federal Agency: U.S. Department of Education AL Program: COVID-19 84.425A/84.425X Education Stabilization Fund Federal Award No.: S425A210001 and S425X210001 Area: Special Tests and Provisions - Private School Participation Questioned Costs: Undeterminable Criteria: In accordance with 2 CFR Section 200.303, non-federal entities receiving federal awards must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. In accordance with 34 CFR 299.7(a)(1), in order to have a timely and meaningful consultation, an agency, consortium, or entity must: (i) Consult with appropriate private school officials during the design and development of the agency, consortium, or entity's program for eligible private school children and their teachers and other educational personnel; and (ii) Consult before the agency, consortium, or entity makes any decision that affects the opportunities of eligible private school children and their teachers and other educational personnel to participate in the applicable program. Additionally, in accordance with 34 CFR 299.7(2), such consultation must continue throughout the implementation and assessment of equitable services. Lastly, based on 34 CFR 299.9 (a)(1), expenditures of funds made by an agency, consortium, or entity under a program listed in 34 CFR 299.6 (b) for services for eligible private school children and their teachers and other educational personnel must be equal on a per-pupil basis to the amount of funds expended for participating public school children and their teachers and other educational personnel, taking into account the number and educational needs of those children and their teachers and other educational personnel. Condition: 1. PSS did not provide adequate documentation to verify that there were timely and meaningful consultations with appropriate private school officials during the design and development of federally funded programs and prior to making decisions involving private school participation regarding the size and scope of the equitable services that will be provided to eligible private school children and their teachers, and other educational personnel, the amount of funds available for those services, and how that amount is determined. 2. The amount allocated to eligible private schools is not equal to the amount of funds expended for participating public schools in FY2023 on a per-pupil basis. Since no adequate documentation was provided for the calculation of the amount of funds for eligible private schools as cited at Condition 1, no questioned costs are presented as we are unable to quantify the extent of the noncompliance. Cause: 1. PSS does not perform timely consultations and follow-ups with the eligible private school officials in accordance with provisions of 34 CFR 299.7. 2. PSS does not have controls established to properly monitor the need for consultations, follow-up or corrective actions to ensure that the plans established are being met. 3. PSS does not have procedures in place to properly calculate and monitor that the per pupil amount for both private and public schools are equal. Effect or potential effect: PSS is in noncompliance with the applicable special test and provision requirements of the participation of private school children. No questioned costs are presented as we are unable to quantify the extent of noncompliance. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: 1. PSS should adhere to the provisions of 34 CFR 299.7 and ensure that timely consultations with the eligible private schools are conducted. Additionally, PSS should establish controls and procedures to ensure that the results of the consultations are properly monitored and implemented. 2. PSS should establish monitoring procedures to ensure that costs budgeted or allocated to private and public schools will remain equal on a per pupil basis. Views of Auditee and Corrective Action Plan: PSS does not agree with the finding. PSS asserts that timely and meaningful consultations were conducted with private school officials prior to making decisions regarding the size, scope, and funding of equitable services for FY2023. Calculations for the equitable share under the Education Stabilization Funds were performed in accordance with federal regulations, ensuring that per-pupil allocations for eligible private school students and teachers were equitable relative to public school expenditures. PSS maintains that consultation timelines, meeting records, and allocation formulas were maintained. While PSS is continuously refining its administrative workflows, the existing documentation and controls were sufficient to satisfy the requirements of 34 CFR § 299.7. Refer to PSS’ Corrective Action Plan for additional information. Auditor Response: The supporting documentation provided, including the minutes of meetings with private schools, did not demonstrate the required timely and meaningful consultation with appropriate private school personnel during the design and development of federally funded programs and prior to making decisions involving private school participation regarding the size and scope. The finding remains.

Finding No. 2023-018 Federal Agency: U.S. Department of Education AL Program: 93.243 Substance Abuse and Mental Health Services Projects of Regional and National Significance Federal Award No.: 1H79SM083644-01, 5H79SM083644-02, 5H79SM083644-03, 5H79SM083644-04 6H79SM086344-01M001,6H79SM086344-01M002, 6H79SM086344-01M003 Area: Allowable Costs/Cost Principles Questioned Costs: $-0- Criteria: In accordance with 2 CFR Section 200.303, non-federal entities receiving federal awards must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: Based on walkthrough procedures performed over the disbursement process of program funds, PSS lacks documented evidence of review and approval controls over check and ACH payments to ensure that payment amounts agree with approved invoice amounts. Specifically, the process did not include documented review or approval demonstrating that checks and ACH disbursements were verified against supporting invoices prior to payment. As a result, controls designed to ensure the accuracy and validity of disbursements are not adequately documented or evidenced. Cause: PSS lacks adequate documentation evidencing its monitoring and review procedures over disbursements of program funds, including review and approval controls to ensure that checks and ACH payments agree with approved invoice amounts. Effect or potential effect: PSS is in noncompliance with 2 CFR Section 200.303 related to internal control requirements. No questioned costs are identified as testing did not disclose noncompliance with allowable costs/cost principles compliance requirements. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: PSS should implement, document and consistently enforce appropriate review and approval controls over disbursements of program funds. Views of Auditee and Corrective Action Plan: PSS concurs with the finding. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-019 Federal Agency: U.S. Department of Education AL Program: 93.243 Substance Abuse and Mental Health Services Projects of Regional and National Significance Award No.: 6H79SM083644 Area: Procurement and Suspension and Debarment Questioned Costs: $307,881 Criteria: In accordance with 2 CFR Section 200.317, when conducting procurement transactions under a Federal award, a State must follow the same policies and procedures it uses for procurements with non-Federal funds. PSS Procurement Rules and Regulations states the following: 1. § 60-40-205 Competitive Sealed Bidding: • Public Notice - Adequate public notice of the invitation for bids shall be given a reasonable time prior to the date set forth for the opening of bids. Publication of notice shall be on the Public School website over a continuous period of four weeks shall be deemed to be adequate notice; and • Bid Acceptance and Bid Evaluation - Bids shall be unconditionally accepted without alteration or correction, except as authorized in the chapter. Bids shall be evaluated based on the requirements set forth in the invitation for bids, which may include criteria as necessary to reasonably permit a determination as to the acceptability of the bid for the particular purpose intended. 2. 60-40-225 Competitive Sealed Proposals: • Condition for Use - When the Commissioner of Education determines in writing upon the advise of the legal counsel that the use of a competitive sealed bidding is either not practical or not advantageous to the Public School System, a contract may be entered into by competitive sealed proposals; 3. § 60-40-560 Authority to Debar or Suspend • After reasonable notice to the person involved and reasonable opportunity for the person to be heard under the Administrative Procedure Act [1 CMC §§ 9101, et seq.], the Commissioner of Education after consultation with the Public School System legal counsel, shall have authority to debar a person for cause from consideration for award of contracts; and 4. In accordance with 2 CFR §180.220 and §180.300, entities that enter into a covered transaction with another person at the next lower tier for a contract amount that is expected to equal or exceed $25,000, entities must verify that the person with whom they intend to do business is not excluded or disqualified by: a. Checking SAM.gov Exclusions; or b. Collecting a certification from that person; or c. Adding a clause or condition to the covered transaction with that person. Condition: 1. Of twelve procurement transactions tested, aggregating $217,154 of a total population of $546,111 of nonpayroll expenditures subject to procurement, the following were noted: a. For one (or 8%), PSS did not provide bid or proposal evaluations for all responsive bidders. b. For one (or 8%), CNMI PSS did not provide evidence of the Chief Procurement Officer’s determination in writing for a shorter period of bidding time for the related contract. c. For one (or 8%), PSS did not provide written summaries of the bid opening and proposals submitted. No questioned costs are presented as they were cited at Condition 1a. d. For one (or 8%), PSS did not provide documentation evidencing the public announcement of the Request for Proposal. No questioned costs are presented as they were cited at Condition 1a. e. For one (or 8%), the contract was procured through a competitive sealed proposal; however, the written determination by the Commissioner of Education upon the advice of legal counsel that a competitive sealed bidding is either not practical or not advantageous, was not provided. No questioned costs are presented as the amount is questioned at Condition 1a. 2. PSS does not verify whether a person or a vendor is excluded or disqualified pursuant to the requirements of 2 CFR 180.300 prior to entering into the following covered transactions that exceeded the $25,000 threshold. Cause: PSS did not consistently comply with its Procurement Regulations and applicable federal requirements due to inadequate internal controls and enforcement mechanisms. Further, PSS’s existing Suspension and Debarment procedures require action only upon approval of the Commissioner of Education, which is not aligned with the verification requirements of 2 CFR §180.300. The absence of standardized procedures, accountability measures, and routine compliance monitoring contributed to these deficiencies. Effect or potential effect: PSS is in noncompliance with applicable procurement regulations and questioned costs of $307,881 result. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: 1. Enforce uniform procurement procedures that require complete documentation of all competitive sealed bidding steps, including public notices, bid openings, bid evaluations, and contract awards. 2. Establish and implement written policies and procedures to verify the suspension and debarment status of all vendors involved in covered transactions prior to contract award, in accordance with 2 CFR §180.300. 3. Require staff training and supervisory review to ensure procurement requirements are consistently followed and adequately documented. 4. Implement ongoing monitoring and internal review processes to ensure continued compliance and to prevent recurrence of similar deficiencies. Views of Auditee and Corrective Action Plan: PSS concurs with the findings and recommendations. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2023-020 Federal Agency: U.S. Department of Education AL Program: 93.243 Substance Abuse and Mental Health Services Projects of Regional and National Significance Award No.: 6H79SM086344-01M001 and 6H79SM086344-01M002 Area: Special Tests and Provisions - Key Level Management Questioned Costs: Undeterminable Criteria: In accordance with 2 CFR 200.303(a), the recipient and subrecipient must establish, document, and maintain effective internal control over the Federal award that provides reasonable assurance that the recipient or subrecipient is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should align with the guidance in “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States or the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Further, in accordance with the grant agreement, PSS key level management are required to provide level of effort as follows: Condition For all six (or 100%) key level management personnel required to provide level of effort, PSS did not provide adequate evidence to substantiate that the required level of effort to the program were complied with. Cause: PSS did not provide documentation evidencing the level of effort of key level management personnel. Effect or potential effect: PSS is in noncompliance with applicable key level management requirements. No questioned costs result as we are unable to determine the extent of noncompliance. Identification as a Repeat Finding: This is not a repeat finding. Recommendation: PSS should maintain documentation for its compliance with the key level management requirement, such as Notice of Personnel Action (NOPA) forms, certification of time worked under federal programs and payroll registers, among others. Views of Auditee and Corrective Action Plan: PSS concurs with the findings. Refer to PSS’ Corrective Action Plan for additional information.

Finding No. 2022-003 Federal Agency: U.S. Department of Education Assistance Listing No. and Title: 84.027 Special Education – Grants to States (IDEA, Part B) Area: Allowable Costs/Cost Principles Questioned Costs: $0 Criteria: The Schedule of Expenditures of Federal Awards (SEFA) must be supported by underlying accounting and other records used in preparing the financial statements. 2 CFR 200.403(g) provides that costs must be adequately documented to be considered allowable under Federal awards. 2 CFR 200.430(i)(1)(i) requires that charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated. Condition: 1. For the year ended September 30, 2022, the total amount of payroll expense under ALN 84.027 determined from the journal entry details supporting the SEFA (or general ledger) was lower by $480,743 as compared to the total amount of payroll expense per labor cost summary (or subsidiary ledger). It was further noted that $404,198 out of this amount pertains to costs initially charged under the program but were reclassified to the Education Stabilization Fund (ESF) federal program through a general ledger entry only. No questioned costs are raised as the payroll costs that caused the variance were identified in detail. 2. For 3 (or 8%) of 40 transactions tested aggregating $61,202 out of $3,196,892 in total payroll expenditures, employee timecards were not provided. No questioned costs are raised as summary timesheets were provided. See Schedule of Findings and Questioned Costs for chart/table. Cause: PSS did not perform a reconciliation of the general ledger and subsidiary ledger for payroll costs. In addition, PSS failed to ensure that costs charged to the grant are adequately supported. Effect: PSS is in noncompliance with applicable allowable costs/cost principles requirements. Recommendation: PSS should implement a regular reconciliation of its labor cost summary report with the general ledger journal entries and ensure that any discrepancies are resolved or validly supported. Further, PSS should strengthen recordkeeping procedures so that documents are readily available to substantiate costs charged to the grant. Views of responsible officials: The PSS Corrective Action Plan provides a detailed rationale for disagreement with the finding. Auditor response: Condition 1 – The finding does acknowledge that PSS reclassified the amount under ESF funds. Given the knowledge of the journal entry limitation, PSS failed to show evidence of effort to regularly reconcile the labor cost summary report with the general ledger. The condition remains. Condition 2 – Based on our understanding of PSS’ internal controls, timecards are required to be provided every pay period to support the payment of salaries and wages. The condition remains.

Finding No. 2022-004 Federal Agency: U.S. Department of Education Assistance Listing No. and Title: 84.403 Consolidated Grants to the Outlying Areas Area: Allowable Costs/Cost Principles Questioned Costs: $28,975 Criteria: 2 CFR 200.403 (g) provides that costs must be adequately documented to be considered allowable under Federal awards. 2 CFR 200.439(b) provides that capital expenditures for general purpose equipment, buildings, and land; special purpose equipment with a unit cost of $5,000 or more; and, improvements to land, buildings, or equipment which materially increase their value or useful life, are unallowable as direct charges, except with the prior written approval of the Federal awarding agency or pass-through entity. Condition: 1. For 25 (or 63%) of 40 transactions tested, aggregating $39,942 out of $4,631,757 in total payroll expenditures, the Notice of Personnel Action (NOPA) form was not provided for differential payments paid to employees. See Schedule of Findings and Questioned Costs for chart/table. Condition, continued: 2. For 2 (or 40%), no evidence of prior approval from the federal agency was provided for equipment acquisitions PS-049031-US and PS-055730-US, which were acquired within fiscal year 2022, totaling $14,299. Cause: PSS failed to ensure that costs charged to the grant are adequately supported. Effect: PSS is in noncompliance with applicable allowable costs/cost principles requirements. The reportable questioned cost is $28,975. Recommendation: PSS should strengthen recordkeeping procedures so that documents are readily available to substantiate costs charged to the grant. Views of responsible officials: The PSS Corrective Action Plan provides a detailed rationale for disagreement with Condition 1. Management agrees with Condition 2. Auditor response: Condition 1 – Part T60-30.1-448 (Approval of Proposals to Provide Premium Pay or Differentials) of the PSS Personnel Rules and Regulations states that all proposals for pay differentials as defined herein shall be submitted by the Commissioner of Education on a request for personnel action (form CSC P 1) to the Personnel Management Officer for review and approval. The request must be accompanied by a letter of justification addressing each of the criteria required to support the particular differential. PSS is in noncompliance with its personnel rules and regulations as it failed to provide documentation supporting a request for personnel action, which is determined to be the NOPA for these instances. The NOPA also determines whether the employee is validly employed at date of payment of the differential. The condition remains.

Finding No. 2022-005 Federal Agency: U.S. Department of Education (ED) Assistance Listing No. and Title: COVID-19 84.425 Education Stabilization Fund ED Subprogram: 84.425A Education Stabilization Fund – State Educational Agency (Outlying Areas; 84.425X American Rescue Plan – State Agency Educational Agency (Outlying Areas) Federal Award No.: COVID-19 S425A200001, COVID-19 S425X210001 Area: Allowable Costs/Cost Principles Questioned Costs: $246,285 Criteria: The Schedule of Expenditures of Federal Awards (SEFA) must be supported by underlying accounting and other records used in preparing the financial statements. 2 CFR 200.403(a) provides that costs must be necessary and reasonable for the performance of the Federal award and be allocable thereto. 2 CFR 200.403 (g) also provides that costs must be adequately documented. In an e-mail communication to PSS, U.S. Department of Education (ED) had stated that the proposed use of ESF funds for the purpose of paying a 10% retention incentive in response to the COVID-19 pandemic is allowable. 2 CFR 200.439(b) provides that capital expenditures for general purpose equipment, buildings, and land; special purpose equipment with a unit cost of $5,000 or more; and, improvements to land, buildings, or equipment which materially increase their value or useful life, are unallowable as direct charges, except with the prior written approval of the Federal awarding agency or pass-through entity. Condition: 1. For the year ended September 30, 2022, the total amount of payroll expense under ALN 84.027 determined from the journal entry details supporting the SEFA (or general ledger) was higher by $802,789 as compared to the total amount of payroll expense per labor cost summary (or subsidiary ledger). It was further noted that $404,198 out of this amount pertains to costs initially charged under ALN 84.027 but were later reclassified to ALN 84.425A through a general ledger entry only. No questioned costs are raised as the payroll costs that caused the variance were identified in detail. Condition, continued 2. For 2 (or 5%) of 40 payroll transactions tested, totaling $58,493 out of $32,152,897 in total gross wages incurred under the program, the employee was paid a retention incentive amounting to $3,000 instead of 10% of the employee’s annual salary, as provided by the retention incentive policy. We further noted that PSS provided fixed retention incentive payments amounting to $3,000 for employees whose annual salaries amounted to $30,000 and below, instead of using the rate of 10% as allowed by ED. No evidence was provided to justify the allowability of retention incentives in excess of the allowable amount for the aforementioned group of employees. Total known questioned costs for this condition amounted to $236,490 under ALN 84.425X. Below is a computation of the excess incentive amount for employees actively employed at fiscal year-end: See Schedule of Findings and Questioned Costs for chart/table. 3. For 1 (or 10%), no evidence of prior approval from the federal agency was provided for equipment acquisition PS-069896-US, which was acquired within fiscal year 2022 amounting to $9,795. Cause: PSS did not perform a reconciliation of the general ledger and subsidiary ledger for payroll costs. In addition, PSS failed to ensure that costs charged to the grant are adequately supported. Effect: PSS is in noncompliance with applicable allowable costs/cost principles requirements. Total known questioned costs of $246,285 are reported. Identification as a repeat finding: 2021-003 Recommendation: PSS should implement a regular reconciliation of its labor cost summary report with the general ledger journal entries and ensure that any discrepancies are resolved or validly supported. Further, PSS should strengthen recordkeeping procedures so that documents are readily available to substantiate costs charged to the grant. Views of responsible officials: The PSS Corrective Action Plan provides a detailed rationale for disagreement with the findings described in Conditions 1 and 2. Management agrees with Condition 3. Auditor response: Condition 1 – The finding does acknowledge that PSS reclassified the amount under ESF funds. Given the knowledge of the journal entry limitation, PSS failed to show evidence of effort to regularly reconcile the labor cost summary report with the general ledger. The condition remains. Condition 2 – A review of the communications between PSS and the U.S. Department of Education shows the latter’s approval to provide a retention incentive of 10% of annual salaries. There was no specific approval on the fixed amount of retention incentive provided for those employees with annual salaries not exceeding $30,000. The condition remains.

Finding No. 2022-006 Federal Agency: U.S. Department of Health and Human Services Assistance Listing No. and Title: 93.356/93.600 Head Start Cluster Area: Allowable Costs/Cost Principles Questioned Costs: $132,591 Criteria: 2 CFR 200.403 (g) provides that costs must be adequately documented. 42 U.S. Code (USC) § 9839 (g) and (h) provide that with prior written approval from the Administration for Children and Families (ACF), Head Start Agencies (HSAs) may use funds for capital expenditures (including paying the cost of amortizing the principal, and paying interest on, loans), such as construction of new facilities, purchase of new or existing facilities, major renovations of existing facilities, and purchase of vehicles used for programs conducted at the Head Start facilities. 42 USC 9839 (c) provides that shared and indirect costs attributable to common or joint use of personnel, facilities, or services by Head Start programs and other programs must be fairly allocated among the various programs that utilize such services. 2 CFR 200.439(b) provides that capital expenditures for general purpose equipment, buildings, and land; special purpose equipment with a unit cost of $5,000 or more; and, improvements to land, buildings, or equipment which materially increase their value or useful life, are unallowable as direct charges, except with the prior written approval of the Federal awarding agency or pass-through entity. Condition: 1. For 1 (or 2%) out of 40 payroll transactions tested totaling $45,917 out of $3,036,667 in total Program payroll costs, gross wages of $1,101 were incurred by the program under FAIN 09CH01116703 for Employee No. 21199 during the pay period ended 06/18/2022. No evidence of fair allocation of the employee’s payroll cost was provided. 2. For 2 (or 40%) out of 5 samples totaling $131,490 out of $165,367 of equipment tested, no evidence of prior approval from the federal agency was provided for equipment acquisitions PS-067026-US and PS-078607-US, which were acquired within fiscal year 2022 under FAIN COVID-19 09HE0009410C6. Cause: PSS failed to ensure that costs charged to the grant are adequately supported. Effect: PSS is in noncompliance with applicable allowable costs/cost principles requirements. The reportable questioned cost is $132,591. Recommendation: PSS should strengthen recordkeeping procedures so that documents are readily available to substantiate costs charged to the grant. Views of responsible officials: The PSS Corrective Action Plan provides a detailed rationale for disagreement with the findings. Auditor response: Condition 1 – The evidence of fair allocation was not provided. The condition remains. Condition 2 – The evidence of prior approval was not received. The condition remains.

Finding No. 2022-007 Federal Agency: U.S. Department of Health and Human Services Assistance Listing No. and Title: 93.356/93.600 Head Start Cluster Federal Award No.: 09ND000031, 09CH011167 Area: Special Tests and Provisions – Program Governance Questioned Costs: $0 Criteria: The 2022 OMB Compliance Supplement page 4-93.600-12 through 13 provides that a Head Start Agency (HSA) must share accurate and regular financial information with the governing body and the policy council, including monthly financial statements, including credit card expenditures and the financial audit (42 USC 9837(d)(2)(A) and (E)). The governing body’s responsibilities include approving financial management, accounting, and reporting policies, and compliance with laws and regulations related to financial statements, including the: (a) approval of all major financial expenditures of the agency; (b) annual approval of the operating budget of the agency; (c) selection (except when a financial auditor is assigned by the state under state law or is assigned under local law) of independent financial auditors; and (d) monitoring of the agency’s actions to correct any audit findings and of other action necessary to comply with applicable laws (including regulations) governing financial statement and accounting practices (42 USC 9837(c)(1)(E)(iv)(VII)(aa) through (dd)). The HSA or the auditee has provided training and technical assistance to the governing body and policy council to support understanding of financial information provided to them and support effective oversight of the Head Start award (42 USC 9837(d)(3)). Condition: 1. Instead of the monthly requirement, PSS’ Director of Finance meets quarterly with the Board of Education’s (BOE’s) Fiscal, Personnel and Administration (FPA) Committee to discuss financial statements and expenditures. 2. No evidence was provided of the BOE’s monitoring of PSS’ actions to correct any audit findings. 3. No evidence was provided that training and technical assistance related to fiscal responsibilities was received by members of the FPA Committee of the BOE. Cause: PSS failed to ensure compliance with applicable special tests and provisions for program governance requirements. Effect: PSS is in noncompliance with special tests and provisions requirements. No questioned costs are reported as we are unable to quantify the extent of noncompliance. Recommendation: PSS should improve its coordination with members of the BOE with regard to the BOE’s oversight over financial statements and the related Single Audits. PSS should proactively communicate with the BOE with regard to the status of corrective actions for audit findings. Views of responsible officials: PSS agrees with the finding and describes corrective actions in the PSS Corrective Action Plan.

Finding No. 2022-008 Federal Agency: U.S. Department of Education Assistance Listing No. and Title: 84.027 Special Education – Grants to States (IDEA, Part B) Area: Equipment and Real Property Management Questioned Costs: $29,988 Criteria: § 2 CFR 200.313(b) provides that a state must use, manage and dispose of equipment acquired under a Federal award by the state in accordance with state laws and procedures. PSS Rules and Regulations § T60-20-815 Inventory Requirements Section (c)(1) provides that a fixed asset at its inception shall be assigned to one individual, who will be responsible for the care and maintenance of the specified fixed asset. The employee, who is in direct control of the fixed asset (not the supervisor of the employee), and who is using the fixed asset, shall sign for the fixed asset. § T60-20-815 Section (c)(5) provides that the Procurement and Supply Department and the Fiscal and Budget Division along with the responsible school principals, program managers and site coordinators shall be responsible for taking an inventory of all fixed assets. During that inventory, all custodians must be matched with the appropriate records of assigned fixed assets maintained at the Central Office. All discrepancies between custodians and their respective fixed assets must be cleared by 90 days after the closing of the fiscal year. Further, § T60-20-815 Section (e) provides that the disposition of fixed assets shall be in accordance with procedures established by the Commissioner. Condition: Of 5 equipment transactions tested, aggregating $29,988 of $59,723 in total amount of equipment identified under the program as of September 30, 2022: 1. For 5 (or 100%), no evidence of custodian signature at inception of the fixed asset was provided. However, printed copies of the property master information record from the JD Edwards system were signed and dated by the custodian and a verifier as evidence of the most recent physical inspection in September 2022. See Schedule of Findings and Questioned Costs for chart/table. Condition, continued: 2. For 2 (or 40%), the custodian’s name and the condition of the equipment was not indicated on the property master information record for PS-012478-US and PS-047509-US, with a total amount tested of $4,872. Evidence that custodian records were matched and updated after physical inspection was not obtained. Cause: PSS’ existing fixed asset management policies are insufficient to ensure proper management of equipment and real property. Effect: PSS is in noncompliance with applicable equipment and real property requirements. The reportable questioned cost is $29,988. Recommendation: PSS should improve its existing fixed asset management policies to align with the Federal requirements on equipment and real property management. The Office of Procurement and Supply should consider developing standard forms and templates that can be used to document compliance with recordkeeping, custodianship, and physical count policies. Views of responsible officials: PSS agrees with the finding and describes corrective actions in the PSS Corrective Action Plan.

Finding No. 2022-009 Federal Agency: U.S. Department of Education Assistance Listing No. and Title: 84.403 Consolidated Grants to the Outlying Areas Area: Equipment and Real Property Management Questioned Costs: $36,244 Criteria: § 2 CFR 200.313(b) provides that a state must use, manage and dispose of equipment acquired under a Federal award by the state in accordance with state laws and procedures. PSS Rules and Regulations § T60-20-815 Inventory Requirements Section (c)(1) provides that a fixed asset at its inception shall be assigned to one individual, who will be responsible for the care and maintenance of the specified fixed asset. The employee, who is in direct control of the fixed asset (not the supervisor of the employee), and who is using the fixed asset, shall sign for the fixed asset. Refusal to sign as the custodian of a fixed asset shall prohibit the employee from custody of the fixed asset. § T60-20-815 Section (c)(5) also provides that the Procurement and Supply Department and the Fiscal and Budget Division along with the responsible school principals, program managers and site coordinators shall be responsible for taking an inventory of all fixed assets. During that inventory, all custodians must be matched with the appropriate records of assigned fixed assets maintained at the Central Office. All discrepancies between custodians and their respective fixed assets must be cleared by 90 days after the closing of the fiscal year. Further, § T60-20-815 Section (e) provides that the disposition of fixed assets shall be in accordance with procedures established by the Commissioner. Condition: Of 5 transactions tested, aggregating $36,244 of $243,308 in total amount of equipment identified under the program as of September 30, 2022: 1. For 5 (or 100%), no evidence of custodian signature at inception of the fixed asset was provided. However, printed copies of the property master information record from the JD Edwards system were signed and dated by the custodian and a verifier as evidence of the most recent physical inspection in September 2022. See Schedule of Findings and Questioned Costs for chart/table. 2. For 1 (or 20%), the following were noted for PS-039791-US, with amount tested of $3,332: a. The custodian’s name was not indicated on the property master information record from the JD Edwards system. Evidence that custodian records were matched and updated after physical inspection was not obtained. b. The property master information record states that the asset is in “working” condition, however, evidence obtained of a survey performed on August 8, 2022 has concluded that the asset is no longer useful for PSS operations and is recommended for destruction or scrapping. The same evidence showed that the destruction/scrapping occurred in September 15, 2022. Cause: PSS’ existing fixed asset management policies are insufficient to ensure proper management of equipment and real property. Effect: PSS is in noncompliance with applicable equipment and real property requirements. The reportable questioned cost is $36,244. Recommendation: PSS should improve its existing fixed asset management policies to align with the Federal requirements on equipment and real property management. The Office of Procurement and Supply should consider developing standard forms and templates that can be used to document compliance with recordkeeping, custodianship, and physical count policies. Identification as a repeat finding: 2021-005 Views of responsible officials: PSS agrees with the finding and describes corrective actions in the PSS Corrective Action Plan.

Finding No. 2022-010 Federal Agency: U.S. Department of Education (ED) Assistance Listing No. and Title: 84.425 Education Stabilization Fund Area: Equipment and Real Property Management Questioned Costs: $854,432 Criteria: The Schedule of Expenditures of Federal Awards (SEFA) must be supported by underlying accounting and other records used in preparing the financial statements. § 2 CFR 200.313(b) provides that a state must use, manage and dispose of equipment acquired under a Federal award by the state in accordance with state laws and procedures. PSS Rules and Regulations § T60-20-815 Inventory Requirements Section (c)(1) provides that a fixed asset at its inception shall be assigned to one individual, who will be responsible for the care and maintenance of the specified fixed asset. The employee, who is in direct control of the fixed asset (not the supervisor of the employee), and who is using the fixed asset, shall sign for the fixed asset. Refusal to sign as the custodian of a fixed asset shall prohibit the employee from custody of the fixed asset. Condition: 1. As of September 30, 2022, the total amount of equipment acquired under ALN 84.425X per equipment schedule or subsidiary ledger was lower by $18,147 as compared to the total amount of equipment expenditures identified in the general ledger journal entry details supporting the SEFA. 2. For 10 (or 100%) of 10 equipment transactions tested, aggregating $854,432 of $2,296,719 in total amount of equipment costs identified as of September 30, 2022, no evidence of custodian signature at inception of the fixed asset was provided. However, printed copies of the property master information record from the JD Edwards system were signed and dated by the custodian and a verifier as evidence of the most recent physical inspection in September 2022. See Schedule of Findings and Questioned Costs for chart/table. Cause: PSS’ existing fixed asset management policies are insufficient to ensure proper management of equipment and real property. Effect: PSS is in noncompliance with applicable equipment and real property requirements. The reportable questioned cost is $854,432. Identification as a repeat finding: 2021-004 Recommendation: PSS should improve its existing fixed asset management policies to align with the Federal requirements on equipment and real property management. The Office of Procurement and Supply should consider developing standard forms and templates that can be used to document compliance with recordkeeping, custodianship, and physical count policies. Views of responsible officials: PSS agrees with the finding and describes corrective actions in the PSS Corrective Action Plan.

Finding No. 2022-011 Federal Agency: U.S. Department of Health and Human Services Assistance Listing No. and Title: 93.600 Head Start; 93.600 COVID-19 Head Start Area: Equipment and Real Property Management Questioned Costs: $165,367 Criteria: § 2 CFR 200.313(b) provides that a state must use, manage and dispose of equipment acquired under a Federal award by the state in accordance with state laws and procedures. PSS Rules and Regulations § T60-20-815 Inventory Requirements Section (c)(1) provides that a fixed asset at its inception shall be assigned to one individual, who will be responsible for the care and maintenance of the specified fixed asset. The employee, who is in direct control of the fixed asset (not the supervisor of the employee), and who is using the fixed asset, shall sign for the fixed asset. Refusal to sign as the custodian of a fixed asset shall prohibit the employee from custody of the fixed asset. The 2022 OMB Compliance Supplement page 4-93.600-9 provides that property records must be maintained for equipment acquired under a federal award that include a description of the property, a serial number or other identification number, the source of funding for the property (including the FAIN), who holds title, the acquisition date, and cost of the property, percentage of federal participation in the project costs for the federal award under which the property was acquired, the location, use and condition of the property, and any ultimate disposition data including the date of disposal and sale price of the property. Condition: For 5 (or 100%) of 5 equipment transactions tested, aggregating $165,367 of $176,733 in total amount of equipment costs as of September 30, 2022, no evidence of custodian signature at inception of the fixed asset was provided. However, printed copies of the property master information record from the JD Edwards system were signed and dated by the custodian and a verifier as evidence of the most recent physical inspection in September 2022. See Schedule of Findings and Questioned Costs for chart/table. Cause: PSS’ existing fixed asset management policies are insufficient to ensure proper management of equipment and real property. Effect: PSS is in noncompliance with applicable equipment and real property requirements. The reportable questioned cost is $165,367. Recommendation: PSS should improve its existing fixed asset management policies to align with the Federal requirements on equipment and real property management. The Office of Procurement and Supply should consider developing standard forms and templates that can be used to document compliance with recordkeeping, custodianship, and physical count policies. Views of responsible officials: PSS agrees with the finding and describes corrective actions in the PSS Corrective Action Plan.

Finding No. 2022-012 Federal Agency: U.S. Department of Agriculture Assistance Listing No. and Title: 10.555 National School Lunch Program Area: Procurement and Suspension and Debarment Questioned Costs: $261,889 Criteria: § 2 CFR 200.317 provides that when procuring property and services, states must use the same policies and procedures they use for procurements from their non-federal funds. PSS Procurement Rules and Regulations Part § T60-40-210(b) provides that purchases not exceeding $500 may be made without securing bids or price quotations if the Chief of Procurement and Supply considers the price reasonable. Such determination shall be made in writing and shall indicate: (1) the reason why price quotations were not sought; (2) the utility of the purchase; (3) an explanation of why the price is reasonable under the circumstances. § T60-40-210(d) also provides that price quotations from at least three vendors must be obtained and the selection must be based on competitive price and quality for procurement valued at under $10,000. Any price quotations obtained must be written, documented, and submitted to the Chief of Procurement and Supply for approval. PSS Procurement Rules and Regulations Part § T60-40-225(a) Competitive Sealed Proposals provides that when the Commissioner of Education determines in writing upon the advice of legal counsel that the use of a competitive sealed bidding is either not practical or not advantageous to the Public School System, a contract may be entered into by competitive sealed proposals. § T60-40-225(c) further provides that adequate public notice of the request for proposals shall be given in the same manner as provided for in competitive sealed bids. Condition: Of 60 non-payroll transactions tested aggregating $263,083 of $14,119,504 in total program non-payroll expenditures, we noted the following: 1. For 2 (or 3%), Doc. Nos. 333590 and 28221, totaling $26, pertained to small purchases not exceeding $500 and for which no price quotations were made. No written determination of the reasonableness of price was provided in accordance with § T60-40-210(b). 2. For 2 (or 3%), Doc. Nos. 332318 and 333718, totaling $739 pertained to small purchases not exceeding $10,000 and for which no price quotations were obtained in accordance with § T60-40-210(d). Condition, continued: 3. For 1 (or 2%), Doc. No. 27345, amounting to $575, pertained to a small purchase not exceeding $10,000 and for which only 2 price quotations were obtained, instead of the 3 quotations required by § T60-40-210(d). 4. For 49 (or 82%), transactions totaling $260,549 were procured through competitive sealed proposals. Evidence was not provided showing that the Commissioner of Education has determined in writing that the procurement satisfies the condition for use of competitive sealed proposals in accordance with § T60-40-225(a). See Schedule of Findings and Questioned Costs for chart/table. Cause: PSS failed to effectively implement its procurement rules and regulations. Effect: PSS is in noncompliance with applicable procurement and suspension and debarment requirements. The reported questioned cost is $261,889. Recommendation: PSS should ensure compliance with its procurement rules and regulations. The Procurement and Supply office should implement additional controls to ensure that procurement documentation is complete in accordance with PSS Procurement Rules and Regulations § T60-40. PSS should also perform a regular review of its procurement rules and regulations to align with federal requirements on procurement. Views of responsible officials: The PSS Corrective Action Plan provides a detailed rationale for disagreement with the finding. Auditor response: Condition 1 – PSS’ procurement regulations in T60-40-210(b) specifically provides the information required to be made in writing by the Chief of Procurement and Supply, namely: (1) the reason why price quotations are sought, (2) the utility of the purchase; and (3) an explanation of why the price is reasonable under the circumstances. The supporting documents signed by the Chief of Procurement and Supply and the Commissioner of Education do not provide these representations. The condition remains. Condition 2 – Upon review of the supporting documents provided, only one vendor provided a supporting quotation. Evidence of effort to obtain the remaining two vendor quotations or justification of not being able to obtain additional quotations were not provided. The condition remains. Condition 3 – Upon review of the supporting documents provided, only two vendor quotations were sought. Evidence of effort to obtain the third vendor quotation or justification of not being able to obtain the additional quotation was not provided. The condition remains. Condition 4 – Ultimately, written communication from the Commissioner of Education for the condition for use of competitive sealed proposals is required in T60-40-225(a). The condition remains.

Finding No. 2022-013 Federal Agency: U.S. Department of Education Assistance Listing No. and Title: 84.027 Special Education – Grants to States (IDEA, Part B) Area: Procurement and Suspension and Debarment Questioned Costs: $105,959 Criteria: § 2 CFR 200.317 provides that when procuring property and services, states must use the same policies and procedures they use for procurements from their non-federal funds. PSS Procurement Rules and Regulations Part § T60-40-210(b) provides that purchases not exceeding $500 may be made without securing bids or price quotations if the Chief of Procurement and Supply considers the price reasonable. Such determination shall be made in writing and shall indicate: (1) the reason why price quotations were not sought; (2) the utility of the purchase; (3) an explanation of why the price is reasonable under the circumstances. § T60-40-210(d) also provides that price quotations from at least three vendors must be obtained and the selection must based on competitive price and quality for procurement valued at under $10,000. Any price quotations obtained must be written, documented, and submitted to the Chief of Procurement and Supply for approval. PSS Procurement Rules and Regulations Part § T60-40-225(a) Competitive Sealed Proposals provides that when the Commissioner of Education determines in writing upon the advice of legal counsel that the use of a competitive sealed bidding is either not practical or not advantageous to the Public School System, a contract may be entered into by competitive sealed proposals. Also, § T60-40-225(g) provides that after proposal evaluation, a notice of intent to award the contract to the responsible offeror whose proposal is determined in writing to be the most advantageous to PSS, taking into consideration price and the evaluation factors set forth in the request for proposals, shall be issued to all offerors. Condition: Of 60 non-payroll transactions tested aggregating $120,642 of $1,895,080 in total program non-payroll expenditures, we noted the following: 1. For 7 (or 12%), transactions totaling $1,356 pertained to small purchases not exceeding $500 and for which no price quotations were made. Evidence was not provided showing that a written determination of the reasonableness of price was performed in accordance with § T60-40-210(b). See Schedule of Findings and Questioned Costs for chart/table. 2. For 18 (or 30%) transactions totaling $104,603 pertained to procurements entered into by competitive sealed proposals. Evidence was not provided showing that the Commissioner of Education has determined in writing that the procurement satisfies the condition for use of competitive sealed proposals in accordance with § T60-40-225(a). Further, Notices of Intent to Award were not provided for the reason that there was only one proposer. § T60-40-225(g) does not discuss exemptions for instances where there is only one proposer. See Schedule of Findings and Questioned Costs for chart/table. Cause: PSS failed to effectively implement its procurement rules and regulations. Effect: PSS is in noncompliance with applicable procurement and suspension and debarment requirements. The reported questioned cost is $105,959. Recommendation: PSS should ensure compliance with its procurement rules and regulations. The Procurement and Supply office should implement additional controls to ensure that procurement documentation is complete in accordance with PSS Procurement Rules and Regulations § T60-40. PSS should also perform a regular review of its procurement rules and regulations to align with federal requirements on procurement. Views of responsible officials: The PSS Corrective Action Plan provides a detailed rationale for disagreement with the finding. Auditor response: Condition 1 – PSS’ procurement regulations in T60-40-210(b) specifically provides the information required to be made in writing by the Chief of Procurement and Supply, namely: (1) the reason why price quotations are sought, (2) the utility of the purchase; and (3) an explanation of why the price is reasonable under the circumstances. The supporting documents signed by the Chief of Procurement and Supply and the Commissioner of Education do not provide these representations. The condition remains. Condition 2 – Ultimately, written communication from the Commissioner of Education for the condition for use of competitive sealed proposals is required in T60-40-225(a). The condition remains.

Finding No. 2022-014 Federal Agency: U.S. Department of Education Assistance Listing No. and Title: 84.403 Consolidated Grants to the Outlying Areas Area: Procurement and Suspension and Debarment Questioned Costs: $24,595 Criteria: § 2 CFR 200.317 provides that when procuring property and services, states must use the same policies and procedures they use for procurements from their non-federal funds. PSS Procurement Rules and Regulations Part § T60-40-210(b) provides that purchases not exceeding $500 may be made without securing bids or price quotations if the Chief of Procurement and Supply considers the price reasonable. Such determination shall be made in writing and shall indicate: (1) the reason why price quotations were not sought; (2) the utility of the purchase; (3) an explanation of why the price is reasonable under the circumstances. § T60-40-210(d) also provides that price quotations from at least three vendors must be obtained and the selection must based on competitive price and quality for procurement valued at under $10,000. Any price quotations obtained must be written, documented, and submitted to the Chief of Procurement and Supply for approval. PSS Procurement Rules and Regulations Part § T60-40-225 Competitive Sealed Proposals provides that when the Commissioner of Education determines in writing upon the advice of legal counsel that the use of a competitive sealed bidding is either not practical or not advantageous to PSS, a contract may be entered into by competitive sealed proposals. Condition: Of 60 non-payroll transactions tested aggregating $57,035 of $13,545,658 total program non-payroll expenditures: 1. For 18 (or 30%), transactions totaling $5,747 pertained to small purchases not exceeding $500 and for which no price quotations were made. No written determination of the reasonableness of price was provided in accordance with § T60-40-210(b). See Schedule of Findings and Questioned Costs for chart/table. 2. For 4 (or 7%), transactions totaling $18,848 pertained to procurements entered into by competitive sealed proposals. Evidence was not provided showing that the Commissioner of Education has determined in writing that the procurement satisfies the condition for use of competitive sealed proposals in accordance with § T60-40-225(a). See Schedule of Findings and Questioned Costs for chart/table. Cause: PSS failed to effectively implement its procurement rules and regulations. Effect: PSS is in noncompliance with applicable procurement and suspension and debarment requirements. The reportable questioned cost is $24,595 because the projected questioned cost exceeds the threshold. Recommendation: PSS should ensure compliance with its procurement rules and regulations. The Procurement and Supply office should implement additional controls to ensure that procurement documentation is complete in accordance with PSS Procurement Rules and Regulations § T60-40. PSS should also perform a regular review of its procurement rules and regulations to align with federal requirements on procurement. Views of responsible officials: The PSS Corrective Action Plan provides a detailed rationale for disagreement with the finding. Auditor response: Condition 1 – PSS’ procurement regulations in T60-40-210(b) specifically provides the information required to be made in writing by the Chief of Procurement and Supply, namely: (1) the reason why price quotations are sought, (2) the utility of the purchase; and (3) an explanation of why the price is reasonable under the circumstances. The supporting documents signed by the Chief of Procurement and Supply and the Commissioner of Education do not provide these representations. The condition remains. Condition 2 – Ultimately, written communication from the Commissioner of Education for the condition for use of competitive sealed proposals is required in T60-40-225(a). The condition remains.

Finding No. 2021-003 Federal Agency: U.S. Department of Education Assistance Listing Number and Title: 84.425A COVID-19 Education Stabilization Fund (ESF) ? State Educational Agency (Outlying Areas) Award Numbers: S425A200001, S425A210001 Area: Allowable Costs/Cost Principles Questioned Costs: $467,888 Criteria: 2 CFR 200.313 (c) (1) provides that a non-Federal entity must not encumber property and equipment without prior approval from the Federal awarding agency. Further, the 2021 ESF Compliance Supplement Addendum page 4-84.425-ESF-14 provides that capital expenditures for general or special purpose equipment purchases are subject to prior approval by the U.S. Department of Education (ED) or the pass-through entity. 2 CFR 200.403 (f) provides that costs must not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period in order to be allowable under Federal awards, except where otherwise authorized by statute. 2 CFR 200.403 (a) provides that costs must be necessary and reasonable for the performance of the Federal award and be allocable thereto. 2 CFR 200.403 (g) also provides that costs must be adequately documented. In an e-mail communication to PSS, ED had stated that the proposed use of ESF funds for the purpose of paying a 10% retention incentive in response to the COVID-19 pandemic is allowable. Condition: 1. The result of analytical procedures on the schedule of expenditures for the Federal award showed that two (2) passenger buses were purchased totaling $344,560 through PO# 163799-OC. PSS charged the costs of the passenger buses to Assistance Listing Number (ALN) 84.425A. However, evidence of prior approval obtained from ED showed that the cost of the passenger buses was approved to be charged under ALN 84.425X and not ALN 84.425A. No questioned costs are raised since after-the-fact approval was obtained from ED in January 2023. 2. Out of sixty (60) payroll expenditures tested totaling $107,881 out of a total population of $29,992,984, we noted the following: a. One sample (or 2%), Employee No. 2455, a Senior Army Instructor, had 50% and 100% of his gross pay included as a cost for both the US Department of Defense (DOD) ? Army JROTC program and ALN 84.425A, respectively. We examined the cost of eight (8) additional instructors which we identified as directly associated with the sample and determined questioned costs of $261,965 that represents costs that were reimbursed under both the US DOD ? Army JROTC Program and ALN 84.425A. b. One sample (or 2%), Employee No. 2309, was paid a retention incentive amounting to $3,000 instead of $2,265 (10% of his annual salary of $22,654). We further noted that PSS provided fixed retention incentive payments amounting to $3,000 for employees whose annual salary amounted to $30,000 and below, instead of using the rate of 10% as allowed by ED. No evidence was provided to justify the allowability of retention incentives in excess of the 10% of annual salary for the aforementioned group of employees. Total known questioned costs amounted to $205,923 under ALN 84.425A. [See Schedule of Findings and Questioned Costs for chart/table] Cause: PSS? review of allowability of costs failed to ensure the charging of costs to the correct Federal award and failed to identify costs that were covered by a cost-shared reimbursement program with other Federal agencies. In addition, PSS failed to ensure that retention incentives in excess of 10% of annual salary are reasonable and adequately supported. Effect: PSS is noncompliant with the requirements of allowable costs/cost principles. Reportable questioned costs total $467,888. Recommendation: PSS should improve its review controls in its recording process to ensure that costs are charged to the correct grant award. The review must also ensure that costs are not included as a cost of other Federal programs, unless specifically authorized by regulation, and must ensure that costs are supported by appropriate documentation. Views of responsible officials: PSS? Corrective Action Plan provides a detailed rationale for disagreement with Conditions 1 and 2a. Management agrees with Condition 2b. Auditor response: Condition 1 ? The finding does acknowledge that PSS sought and received prior grantor approval. However, PSS did not charge the correct Federal award that U.S. ED approved in May 2021, and subsequent approval to correct the noncompliance was sought and received in January 2023 as a response to the audit finding. Condition 2 a ? Ultimately, PSS charged the same costs for Army instructors to both U.S. DOD and U.S. ED.

Finding No. 2021-004 Federal Agency: U.S. Department of Education Assistance Listing Number and Title: 84.425A COVID-19 Education Stabilization Fund (ESF) ? State Educational Agency (Outlying Areas) Award Number: S425A200001, S425A210001 Area: Equipment and Real Property Management Questioned Costs: $0 Criteria: 2 CFR 200.313(d) states the following procedures for managing equipment (including replacement equipment), whether acquired in whole or in part under a Federal award, until disposition takes place will, as a minimum: (1) Property records must be maintained that include a description of the property, a serial number or other identification number, the source of funding for the property (including the FAIN), who holds title, the acquisition date, and cost of the property, percentage of Federal participation in the project costs for the Federal award under which the property was acquired, the location, use and condition of the property, and any ultimate disposition data including the date of disposal and sale price of the property. (2) A physical inventory of the property must be taken and the results reconciled with the property records at least once every two years. (3) A control system must be developed to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft must be investigated. (4) Adequate maintenance procedures must be developed to keep the property in good condition. (5) If the non-Federal entity is authorized or required to sell the property, proper sales procedures must be established to ensure the highest possible return. Condition: 1. The property records for equipment and real property acquired using funds from Assistance Listing Number (ALN) 84.425A did not include the following information as required under 2 CFR 200.313(d)(1): ? Description as to who holds title; ? The percentage of federal participation in the project costs for the federal award under which the property was acquired; and, ? The location, use and condition of the property. Condition, continued: For the year ended September 30, 2021, equipment acquired using funds from ALN 84.425A totaled to $371,511. 2. PSS did not perform a physical inventory of the assets in FY2021. 3. No evidence was provided that PSS had complied with the requirements called for under 2 CFR section 200.313(d)(3) through (5). Cause: PSS lacks a system of internal controls that meet the compliance requirements for equipment and real property management. No questioned cost is presented as we are unable to quantify the extent of noncompliance. Effect: PSS is noncompliant with the requirements of equipment and real property management. Recommendation: PSS must improve its property records to include information required by Federal regulation. PSS must also maintain a written documentation of its system of internal controls to manage (control, use, preserve, protect, repair, and maintain) federal government property, including policies for the disposition and/or sale. Views of responsible officials: Management agrees. Refer to separate Corrective Action Plan.

Federal Agency: U.S. Department of Education Assistance Listing Number and Title: 84.403 Consolidated Grants to the Outlying Areas Award Number: S403A190001, S403A200001, S403A210001 Area: Equipment and Real Property Management Questioned Costs: $0 Criteria: 2 CFR 200.313(d) states the following procedures for managing equipment (including replacement equipment), whether acquired in whole or in part under a Federal award, until disposition takes place will, as a minimum: (1) Property records must be maintained that include a description of the property, a serial number or other identification number, the source of funding for the property (including the FAIN), who holds title, the acquisition date, and cost of the property, percentage of Federal participation in the project costs for the Federal award under which the property was acquired, the location, use and condition of the property, and any ultimate disposition data including the date of disposal and sale price of the property. (2) A physical inventory of the property must be taken and the results reconciled with the property records at least once every two years. (3) A control system must be developed to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft must be investigated. (4) Adequate maintenance procedures must be developed to keep the property in good condition. (5) If the non-Federal entity is authorized or required to sell the property, proper sales procedures must be established to ensure the highest possible return. Condition: 1. The property records for equipment and real property acquired using funds from Assistance Listing Number (ALN) 84.403 did not include the following information as required under 2 CFR 200.313(d)(1): ? Description as to who holds title; ? The percentage of federal participation in the project costs for the federal award under which the property was acquired; and, ? The location, use and condition of the property. The total amount of equipment acquired using funds from ALN 84.403 amounted as follows: Fiscal Year Ended Amount September 30, 2021 $50,934 September 30, 2020 35,748 September 30, 2019 324,705 2. PSS did not perform a physical inventory of the assets in FY2021. 3. No evidence was provided that PSS had complied with the requirements called for under 2 CFR section 200.313(d)(3)-(5). Cause: PSS lacks an adequate system of internal controls to comply with the requirements of equipment and real property management. Effect: PSS is noncompliant with the requirements of equipment and real property management. No questioned cost is presented as we are unable to quantify the extent of noncompliance. Recommendation: PSS must improve its property records to include information required by Federal regulation. PSS must also maintain a written documentation of its system of internal controls to manage (control, use, preserve, protect, repair, and maintain) federal government property, including policies for the disposition and/or sale. Views of responsible officials: Management agrees. Refer to separate Corrective Action Plan.

Federal Agency: U.S. Department of Health and Human Services Assistance Listing Number and Title: 93.243 Substance Abuse and Mental Health Services Projects of Regional and National Significance Award Number: 1H79SM083644-01 Area: Matching, Level of Effort, Earmarking Questioned Costs: $98,711 Criteria: Based on the grant terms and conditions, the level of effort requirement for the Project Director and Project Co-coordinator is 50%. Meanwhile, the level of effort (LOE) requirement for the Project Coordinator and Community Project Managers is 100%. In addition, any changes to key staff ? including LOE involving separation from the project for more than three months or a 25% reduction in time dedicated to the project ? requires prior approval and must be submitted as a post-award amendment in eRA Commons. Condition: The required level of effort is deficient as follows: [See Schedule of Findings and Questioned costs for chart/table] In addition, a change in the LEA 2 Community Project Manager position was not timely communicated. The position was unfilled from the beginning of the grant period (September 30, 2020) until February 2021. The post-award amendment was only submitted in eRA Commons and approved by the Federal agency in June 2021. Cause: PSS lacks an adequate system of internal controls to comply with the requirements of matching, LOE and earmarking requirements. Effect: PSS is noncompliant with the requirements of matching, LOE and earmarking requirements. Reportable questioned costs total $98,711. Recommendation: PSS must regularly monitor compliance with LOE requirements. If deficiencies in LOE are noted, responsible personnel should timely communicate with the grantor and seek approval for necessary award amendments. Views of responsible officials: PSS? Corrective Action Plan provides a detailed rationale for disagreement with the finding. Auditor response: Section IV SM Special Terms and Conditions of the Notice of Award issued on September 15, 2020 for grant number 1H79SM083644-01 identified the Project Director as key staff with 50% LOE. PSS stated that LOE should be measured based on percent of time on the project. No evidence or computation was provided to show how PSS measured and monitored the LOE of key staff using percent of time throughout the grant period. We understand that changes to key staff, including changes in LOE, were communicated to grant officers in a timely manner through e-mail communications and through discussions in monthly meetings. However, no evidence was provided to show that the necessary post-award amendments for the changes were also made in eRA Commons in a timely manner, as required in Section IV SM Special Terms and Conditions of the Notice of Award issued on September 15, 2020.

Area: General Ledger and Schedule of Expenditures of Federal Awards Criteria: Paragraph 200.510 of 2 CFR part 200 requires an auditee to prepare a Schedule of Expenditures of Federal Awards (SEFA) which must include the total federal awards expended for the period covered by the auditee?s financial statements. Condition: The SEFA originally provided did not include all federal awards expended in fiscal year ended September 30, 2020 totaling approximately $2.5 million. Below is the list of federal awards not included: [See Schedule of Findings and Questioned Costs for chart or table] Cause: PSS does not have effective controls over the preparation of the SEFA. Effect: Any interim reporting may contain materially misstated information. Recommendation: PSS should improve controls to help ensure the SEFA is prepared accurately and completely. In addition, accounting personnel should reconcile the SEFA to all Federal grant revenues recorded, included Federal grant revenues recorded in non-major funds. Views of responsible officials: Management agrees. Refer to separate Corrective Action Plan.

Federal Agency: U.S. Department of Education CFDA Number and Title: 84.425A COVID-19 Education Stabilization Fund (ESF) ? State Educational Agency (SEA) (Outlying Areas) Award Number: S425A200001 Area: Allowable Costs/Cost Principles Questioned Costs: $2,467,312 Criteria: The ESF-SEA Frequently Asked Question (FAQ) No. 11 provides that a SEA or Local Educational Agency (LEA) may use ESF-SEA funds for any allowable expenditure incurred on or after March 13, 2020, the date the President declared the national emergency due to COVID-19. Condition: Of sixty (60) nonpayroll expenditures tested totaling $260,106 out of a total population of nonpayroll expenditures of $5,964,311, we noted that for twelve (12) transactions, the program incurred salaries and wages, including taxes and employee share of insurance premium totaling $140,451. These payroll and related expenses pertained to pay periods ended prior to March 13, 2020. Further review of the supporting documents for the twelve (12) transactions revealed additional costs with the same nature charged to the grant that were incurred from pay periods ended from January 4, 2020 up to March 14, 2020 totaling $1,861,469. Upon further investigation, PSS identified utilities expense incurred prior to March 13, 2020 amounting to $465,392 that were also charged to the grant. Cause: The CNMI economy has been negatively affected by the impact of COVID-19. As a result, PSS did not timely receive local funding from the CNMI government and accordingly, PSS requested for federal reimbursement of expenses. Effect: PSS is noncompliant with the requirements of allowable costs/cost principles. Recommendation: PSS should improve its review procedures on the allowability of costs charged to the grant and must consider all available regulatory guidance related to the grant in performing the review. Views of responsible officials: Management agrees. Refer to separate Corrective Action Plan.

Federal Agency: U.S. Department of Education CFDA Number and Title: 84.425A COVID-19 Education Stabilization Fund (ESF) ? State Educational Agency (SEA) (Outlying Areas) Award Number: S425A200001 Area: Cash Management Questioned Costs: $1,090,828 Criteria: Non-federal entities must minimize the time elapsing between the transfer of funds from the U.S. Treasury or pass-through entity and disbursement by the non-federal entity for direct program or project costs and the proportionate share of allowable indirect costs, whether the payment is made by electronic funds transfer, or issuance or redemption of checks, warrants, or payment by other means (2 CFR section 200.305(b)). Condition: Based on our analytical review procedures, we noted that in May to August 2020, PSS recorded $3,849,873 of expenditures related to payroll taxes, employer share of insurance premium and utilities. However, at fiscal year-end, PSS determined that actual expenses were lower than what was requested for federal reimbursement. As a result, $1,090,828 of federal reimbursements exceeded the actual expenditures incurred as of September 30, 2020. PSS has yet to return the $1,090,828 excess reimbursement. Cause: The CNMI economy has been negatively affected by the impact of COVID-19. As a result, PSS did not timely receive local funding from the CNMI government and accordingly, PSS requested for federal reimbursement of expenses. Effect: PSS is noncompliant with the requirements of cash management principles. Recommendation: PSS should ensure compliance with its cash management policy, specifically of minimizing the time elapsing between the transfer of funds from the U.S. Treasury or pass-through entity and disbursement by the non-federal entity for program or project costs. Views of responsible officials: Management agrees. Refer to separate Corrective Action Plan.

Federal Agency: U.S. Department of Education CFDA Number and Title: 84.938A Elementary and Secondary Education Hurricane Relief ? Immediate Aid to Restart School Operations Award Number: S938A190001 Area: Allowable Costs/Cost Principles Questioned Costs: $1,000 Criteria: 2 CFR part 200 requires that costs should not consist of improper payments, including (1) payments that should not have been made or that were made in incorrect amounts (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements; (2) payments that do not account for credit for applicable discounts; (3) duplicate payments; (4) payments that were made to an ineligible party or for an ineligible good or service; and (5) payments for goods or services not received (except for such payments where authorized by law). Condition: Of sixty (60) nonpayroll expenditures tested, totaling $101,023 out of a total population of nonpayroll expenditures of $5,936,276, we noted that for one (1) transaction (PV 160073), the program incurred cost for retention incentive for an employee amounting to $1,000 paid on April 1, 2020; however, the employee who received such retention incentive had already resigned effective in December 31, 2019. Cause: PSS failed to ensure that payees for the retention incentives are still validly employed. Effect: PSS made a payment to an ineligible party and is therefore, noncompliant with allowable costs/cost principles requirements. Known questioned costs exist amounting to $1,000 since likely questioned costs exceeded the threshold. Recommendation: PSS should ensure that payments using grant funds are made to eligible parties. Views of responsible officials: Management agrees. Refer to separate Corrective Action Plan.

Federal Agency: U.S. Department of Education CFDA Number and Title: 84.938A Elementary and Secondary Education Hurricane Relief ? Immediate Aid to Restart School Operations Award Number: S938A190001 Area: Allowable Costs/Cost Principles Questioned Costs: $84,926 Criteria: Part 4 of the 2020 OMB Compliance Supplement, 84.000 Cross-Cutting Section, provides that a ?restricted? indirect cost rate (RICR) must be used for programs administered by state and local governments and their governmental subgrantees that have a statutory requirement prohibiting the use of federal funds to supplant non-federal funds. In addition, the terms and conditions of the grant state that the negotiated indirect cost rate or the indirect cost allocation plan approved for the entity applies to the grant award. The indirect cost negotiation agreement states a fixed carryforward rate of 5.11% and also provides that the base shall be the modified total direct costs which is determined as total direct costs less capital expenditures, food costs, the portion of subawards in excess of the first $25,000, and passthrough funds. Condition: We tested total indirect costs charged to the grant totaling $282,680 and noted that the modified total direct cost base used to compute for the indirect costs included capital expenditures totaling $1,698,519. In addition, the indirect cost rate used was 5% instead of the negotiated indirect cost rate of 5.11%. This resulted in additional indirect cost reimbursements being requested totaling $84,926. Cause: PSS failed to exclude capital expenditures from the modified total direct cost pool and failed to use the negotiated indirect cost rate in computing for indirect costs for reimbursement. Effect: PSS is noncompliant with allowable costs/cost principles requirements. Recommendation: PSS must ensure that indirect costs charged to the grant are computed using the modified total direct cost pool and appropriate indirect cost rate as required by the indirect cost negotiation agreement and in accordance with grant terms and conditions. Views of responsible officials: Management agrees. Refer to separate Corrective Action Plan.

Federal Agency: U.S. Department of Education CFDA Number and Title: 84.938G Elementary and Secondary Education Hurricane Relief ? Project SERV Award Number: S938G190001 Area: Allowable Costs/Cost Principles Questioned Costs: $0 Criteria: The terms and conditions of the grant provide that the Grant Award Notification (GAN) for this grant award shows the indirect cost rate that applies on the date of the initial grant. On the date of the initial grant, the GAN indicated that no indirect cost is allowed and that the project indirect cost rate is not applicable. The terms and conditions further state that after the initial grant date, when a new indirect cost rate agreement is negotiated, the newly approved indirect cost rate supersedes the indirect cost rate shown on the GAN for the initial grant. This new indirect cost rate should be applied according to the period specified in the indirect cost rate agreement, unless expressly limited under program regulations. Subsequent to initial grant date, a fixed carryforward rate of 5.11% was approved for PSS under an indirect cost negotiation agreement. Said agreement also provides that the base shall be the modified total direct costs which is determined as total direct costs less capital expenditures, food costs, the portion of subawards in excess of the first $25,000, and passthrough funds. Condition: We tested total indirect costs charged to the grant totaling $21,687 and noted that the modified total direct cost base used to compute for the indirect costs included capital expenditures amounting to $5,362. In addition, the indirect cost rate used was 5% instead of the negotiated indirect cost rate of 5.11%. Cause: PSS failed to exclude capital expenditures from the modified total direct cost pool and failed to use the negotiated indirect cost rate in computing for indirect costs for reimbursement. Effect: PSS is noncompliant with allowable costs/cost principles requirements. Recommendation: PSS must ensure that indirect costs charged to the grant are computed using the modified total direct cost pool and appropriate indirect cost rate as required by the indirect cost negotiation agreement and in accordance with grant terms and conditions. Views of responsible officials: Management agrees. Refer to separate Corrective Action Plan.

Federal Agency: U.S. Department of Education CFDA Number and Title: 84.403 Consolidated Grants to the Outlying Areas Award Number: S403A190001 Area: Procurement, Suspension and Debarment Questioned Costs: $666,325 Criteria: In accordance with 2 CFR 200.318, the non-Federal entity must maintain records sufficient to detail the history of procurement. These records will include, but are not necessarily limited to, the following: rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price. Furthermore, 2 CFR 200.324 states that a non-Federal entity must perform a cost or price analysis in connection with every procurement action in excess of the $250,000 Simplified Acquisition Threshold including contract modifications. The method and degree of analysis is dependent on the facts surrounding the particular procurement situation, but as a starting point, the non-Federal entity must make independent estimates before receiving bids or proposals. In addition, PSS Procurement Regulations provide the following: ? 60-40-210 Purchases not exceeding $250 may be made without securing bids or price quotations if the Chief of Procurement and Supply considers the price reasonable. Such determination shall be made in writing and shall indicate: (1) the reason why price quotations were not sought; (2) the utility of the purchase; (3) an explanation of why the price is reasonable under the circumstances. ? 60-40-225 When the Commissioner of Education determines in writing upon the advise of the legal counsel that the use of a competitive sealed bidding is either not practical or not advantageous to the Public School System, a contract may be entered into by competitive sealed proposals. Condition: Of sixty (60) nonpayroll expenditures tested totaling $110,628 out of a total population of nonpayroll expenditures of $9,942,870, we noted the following: For one expenditure (PV 307627 amounting to $2,595), the vendor invoice was supported by a contract change order. The contract change order (00138955-OC) totaled $912,072, of which $666,325 was recorded in FY2020, had exceeded the $250,000 Simplified Acquisition Threshold. No documentation was provided to support that a cost or price analysis was performed by PSS in relation to the contract modification, in accordance with 2 CFR 200.324. We also noted there was no cost or price analysis performed for the previous contract change orders or during the original procurement. The original procurement method was under competitive sealed proposals. In addition, no written documentation was provided to support the use of competitive sealed proposals upon initial procurement, in accordance with PSS Procurement Regulations ? 60-40-225. Cause: PSS failed to effectively implement its procurement regulations. Effect: PSS is noncompliant with the requirements of procurement, suspension and debarment. Recommendation: PSS should consistently enforce compliance with its procurement regulations and consider all other applicable procurement requirements. In addition, PSS should ensure completeness of documentation related to each procurement in accordance with the applicable regulations and requirements. Views of responsible officials: Management agrees. Refer to separate Corrective Action Plan.

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