BETHEL SCHOOL DISTRICT

The District did not have adequate internal controls and did not comply with federal suspension and debarment requirements. Assistance Listing Number and Title: 84.027, Special Education Grants to States 84.173, Special Education Preschool Grants Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Washington Office of the Superintendent of Public Instruction Pass-through Award/Contract Number: AD-5592 AD-SNHNI-22 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background During the 2023-2024 school year, the District spent $4,560,575 in federal funds through its Special Education Cluster. The objective of the Special Education program is to ensure eligible students with disabilities receive free and appropriate public education with specifically designed instruction that addresses their unique needs. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Federal requirements prohibit recipients from contracting with or purchasing from parties suspended or debarred from doing business with the federal government. Whenever the District enters into contracts or purchases goods and services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify the contractors are not suspended, debarred or otherwise excluded from participating in federal programs. The District may verify this by obtaining a written certification from the contractor, adding a clause or condition into the contract that states the contractor is not suspended or debarred, or checking for exclusion records in the U.S. General Services Administration’s System for Award Management at SAM.gov. The District must verify this before entering into the contract and must maintain documentation demonstrating compliance with this federal requirement. Description of Condition Our audit found the District did not have internal controls to verify one of five contractors it paid more than $25,000 in federal funds was not suspended or debarred from participating in federal programs. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition District staff were aware of the federal suspension and debarment verification requirements and normally verify this during the procurement process. However, when the District entered into the interlocal agreement, it did not intend to pay for it with federal funds, so staff did not verify the contractor’s status. Effect of Condition The District did not obtain a written certification from the contractor, insert a clause into the contract or check for exclusion records at SAM.gov to verify the contractor it paid using federal funds was not suspended or debarred before contracting. Without adequate internal controls, the District increases its risk of awarding federal funds to contractors that are excluded from participating in federal programs. Any payments the District made to an ineligible party would be unallowable, and the awarding agency could potentially recover them. We subsequently verified the contractor was not suspended or debarred. Therefore, we are not questioning costs. Recommendation We recommend the District strengthen its internal controls to verify all contractors it pays $25,000 or more, all or in part with federal funds, are not suspended or debarred from participating in federal programs, and maintain documentation of this verification. District’s Response During the 2023–2024 school year, Bethel entered into a special education interlocal agreement with a neighboring school district. At the time the agreement was executed, the use of federal funds was not anticipated. However, later in the year, eligible expenditures were reallocated to the federal program as funding became available. To mitigate the risk of noncompliance with federal procurement and grant requirements, Bethel has revised its interlocal agreements to include a suspension and debarment clause. Furthermore, for all other contractual agreements, vendor eligibility will be verified through SAM.gov, or written certification will be obtained. Auditor’s Remarks We thank the District for its cooperation and assistance during the audit and acknowledge its commitment to resolve this finding. We will review the corrective action taken during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 CFR Part 180, OMB Guidelines on Agencies on Governmentwide Department and Suspension (Nonprocurement) establishes nonprocurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.

2023-001       The District did not have adequate internal controls for ensuring compliance with federal suspension and debarment requirements. Assistance Listing Number and Title: 93.493 – Congressional Directives Federal Grantor Name: Department of Health and Human Services Federal Award/Contract Number: 1 CE1HS46512-01-00 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A   Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A      Description of Condition The purpose of the Congressional Directives program is to improve health outcomes and achieve health equity through access to quality services, a skilled health workforce, and innovative, high-value programs. Congress designated funding for congressionally directed spending projects for the construction and renovation of health care and other facilities. During the 2022–2023 school year, the District spent $1,364,186 in program funds for the construction of a new health care facility in one of its high schools. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Federal requirements prohibit recipients from contracting with or purchasing from contractors suspended or debarred from doing business with the federal government. Whenever the District enters into contracts or purchases goods or services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify the contractors have not been suspended, debarred or otherwise excluded. The District may verify this by collecting a written certification from the contractor, adding a clause or condition into the contract that states the contractor is not suspended or debarred or checking for exclusion records in the U.S General Services Administration’s System for Award Management at sam.gov. The District must verify this before entering into the contract or, in this specific case, before charging the costs to a federal award, and must keep documentation demonstrating compliance with this federal requirement. In fiscal year 2023, the District awarded one contract totaling $25,508,085. Our audit found the District did not have adequate controls and did not verify the contractor was not suspended or debarred before entering into the contract and subsequently charging costs to the program. We consider these deficiencies in internal control to be material weaknesses that led to material noncompliance. Cause of Condition The District received notice of federal funding approval for the construction of the health care facility after it already began work. The District had not originally intended to use federal funds to pay for costs incurred under this contract. Upon receiving notice of the federal award, it issued a purchase order that included the required suspension and debarment language; however, the purchase order was not signed by the vendor as evidence of attesting that the vendor was not excluded. Effect of Condition The District did not obtain a written certification, insert a clause into the contract or check sam.gov to verify the contractor was not suspended or debarred. Without this verification, the District increases its risk of providing federal funds to contractors that are excluded from participating in federal programs. Any payments the District made to an ineligible contractor would be unallowable and the federal grantor could potentially recover them. We verified the contractor was not suspended or debarred. Therefore, we are not questioning these payments.   Recommendation We recommend the District strengthen its internal controls to ensure compliance with federal requirements. Specifically, we recommend the District ensure that contractors it pays $25,000 or more, all or in part with federal funds, are not suspended or debarred before entering into contracts with them or charging their costs to the program. District's Response When the District entered into this contract there were no federal funds expected. As soon as the federal funds were awarded, the District updated the purchase order which did include the required suspension and debarment language. We believed our supporting documentation of mailing the purchase order with the acceptance of the purchase order was sufficient to meet this requirement. We have not yet made a claim for reimbursement for this grant so we were able to confirm this vendor was not suspended or debarred prior to the federal grant paying for program expenses. In the future, the District will ensure we have met suspension and debarment requirements by obtaining a written certification or by checking SAM.GOV. Auditor's Remarks We appreciate the District's commitment to resolving this finding, and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 2 CFR Part 180, OMB, Guidelines to Agencies on Governmentwide Debarment and Suspension (Nonprocurement), establishes non-procurement debarment and suspension regulations, implementing Executive Orders 12549 and 12689

2022-001 The District did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Assistance Listing Number and Title: 84.425, COVID-19 ? Education Stabilization Fund Federal Grantor Name: U.S Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: COVID-19 84.425D-120522 COVID-19 84.425U-138243 COVID-19 84.425U-137140 COVID-19 84.425U-140003 COVID-19 84.425U-140602 COVID-19 84.425U-140067 COVID-19 84.425U-712185 COVID-19 84.425W-459002 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In fiscal year 2022, the District spent a total of $8,739,363 in federal funding under its ESF awards. This included $6,203,589 in the Elementary and Secondary School Emergency Relief (ESSER II) Fund subprogram (84.425D), $2,533,071 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $2,703 in American Rescue Plan Elementary and Secondary School Emergency Relief ? Homeless Children and Youth (ARP HCY I & II) subprogram (84.425W). Federal regulations require award recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal money must pay laborers and mechanics prevailing wage rates the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the District must include a provision that the contractor and subcontractor comply with those requirements and the Department of Labor?s regulations. This includes a requirement for the contractor and its subcontractor to submit to the District weekly, for each week they perform any contract work, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition During the 2021-22 school year, the District paid $1,505,365 from its ESSER II award to pay four contracts to install heating, ventilation and air conditioning systems to improve air quality. Our audit found the District did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the District did not: ? Include the required prevailing wage provision in the contracts ? Collect weekly certified payroll reports submitted by the contractors to confirm they paid laborers proper prevailing wages We consider these deficiencies in internal controls to be a material weakness, which led to material noncompliance. The issue was not reported as a finding in the prior audit. Cause of Condition District staff did not know about the prevailing wage rate contract clause requirement, and that the District needed to obtain all certified payroll reports each week. Instead, staff relied on the contractors and their subcontractors to submit weekly certified payroll to the Washington State Department Labor and Industries (L&I) website. Although staff said they checked that the contractors and subcontractors uploaded their weekly certified payrolls to the L&I system before the District paid them, staff did not review the submissions weekly. Effect of Condition Without adequate internal controls to ensure it includes the prevailing wage rate clauses in its contracts and collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District could also be liable for paying any additional wages if the contractors did not pay prevailing wage rates to laborers working on the contracts. The District was required to collect a total of 244 weekly certified payroll reports. During the audit, the District subsequently collected all of them. Recommendation We recommend the District develop internal controls to ensure compliance with federal prevailing wage rate requirements. This should include inserting prevailing wage rate clauses into contracts, as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District?s Response Bethel School District appreciates the State Auditor?s Office review of the federal public works contracts used to improve air quality in our buildings. The District takes seriously its role for stewardship of public resources and prides itself on developing and maintaining systems of strong internal controls. The District generally has not used federal funds for public works contracts. The District is taking steps to ensure future federal funding construction projects are in compliance by including federal prevailing wage rate clauses in the contracts. Ensuring staff are appropriately trained on the federal requirements and obtaining the weekly certified payroll reports. The District will continue its established process for reviewing certified payrolls reports and documents this review on project spreadsheets, this review ensured that the contractors were paying the federal prevailing rate or higher. Auditor?s Remarks We appreciate the District?s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 29 CFR, Section 3.3 ? Weekly statement with respect to payment of wages, and Section 3.4 ? Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports. Title 29 CFR, Section 5.5 ? Contract provisions and related matters establishes the requirements for the contracting officer to insert in full in any contract in excess of $2,000 which is entered into for the actual construction, alteration and/or repair, including painting and decorating, of a public building or public work, or building or work financed in whole or in part with federal funds the clauses listed, which includes but is not limited to the minimum wages to be paid and payrolls and basic records to be maintained (submission of weekly certified payrolls).

2022-002 The District did not have adequate internal controls for ensuring compliance with allowable activities and costs, and restricted purpose requirements. Assistance Listing Number and Title: 32.009, COVID-19 ? Emergency Connectivity Fund Program Federal Grantor Name: Federal Communications Commission Federal Award/Contract Number: ECF2190021036 Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $355,740 Prior Year Audit Finding: N/A Background The Emergency Connectivity Fund (ECF) Program provides funding to meet the needs of students and school staff who would otherwise lack access to connected devices and broadband connections sufficient to engage in remote learning. This is referred to as ?unmet need.? In the fiscal year 2022, the District spent $355,740 in ECF Program funds to purchase iPads for preschool and Transition to Kindergarten students. Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. Allowable activities and costs ECF Program recipients may only seek reimbursement for eligible devices and services provided to students and staff with unmet need. Recipients are prohibited from seeking reimbursement for eligible equipment and services used solely at the school or held for future use (i.e., warehousing). Restricted purpose ? unmet need When submitting applications to the Federal Communications Commission (FCC), schools provided an estimate of their students? and staff?s unmet need. However, when requesting reimbursement, the District could only request program funds for eligible equipment and services provided to students and school staff with actual unmet need. Description of Condition Allowable activities and costs/restricted purpose ? unmet need The District estimated unmet need for eligible equipment when it applied for ECF Program funds. However, our audit found the District?s internal controls were ineffective for ensuring it documented the determination of actual unmet need and only requested reimbursement for equipment provided to students. Specifically, the District purchased iPads, based on its estimate of unmet need, and it requested reimbursement for these purchases totaling $355,740. However, the District did not provide the iPads to the students with unmet need. Instead, they were stored in the District?s warehouse. We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition Allowable activities and costs/restricted purpose ? unmet need District staff thought they had complied with the federal requirements by warehousing the EFC-funded iPads. However, employees were not familiar with all the program?s regulations and federal requirements. Effect of Condition and Questioned Costs Allowable activities and costs/restricted purpose ? unmet need Our audit found 1,210 ECF funded devices, which totaled $355,740, were not distributed to students or staff with unmet need. As a result, we are questioning these costs. Federal regulations require the State Auditor?s Office to report known questioned costs that are greater than $25,000 for each type of compliance requirement. Recommendation We recommend the District work with the granting agency to determine audit resolution. We further recommend the District establish and follow internal controls to ensure staff fully understand the requirements for ECF awards. Specifically, the District should request reimbursement only for eligible equipment and services provided to students with unmet need and maintain documentation demonstrating compliance. District?s Response Bethel School District does not concur with the State Auditor?s office. The District was aware of the Emergency Connectivity Fund (ECF) program requirement, which was to seek reimbursement for devices and services for student and staff who had an ?unmet need.? Due to the unique and challenging circumstances of the COVID-19 pandemic, the district addressed the immediate need of our students, by distributing iPads to students to keep them engaged and allow them to continue their learning progression during the COVID-19 pandemic. Bethel School District followed the Governor?s order and closed all school buildings in March of 2020. Prior to the pandemic, the district provided iPads to all K-12 students, as a part of our Technology commitment to the community. This allowed for a more seamless transition for students and staff to continue to operate and educate students, using the continuous learning models. After applying for and being awarded the ECF grant, our intent was to utilize these funds for our preschool students. We ordered the iPads in June of 2021, however due to distribution delays, the iPads were not received by the first day of school in September of 2021. Due to this delay, Bethel did not want to disrupt student learning, and chose to distribute an older model of iPads to students, that were scheduled for surplus. This allowed our teachers and students to meet and begin their school year without a disruption in their learning. Auditor?s Remarks The State Auditor?s Office is sympathetic to the significant challenges the District faced during the COVID-19 pandemic, and deeply respects its commitment to student learning despite these challenges. SAO knows that in many cases, governments across Washington received significant pandemic-era federal funds without also receiving clear guidance on how to use them. Then, and now, SAO continues to advocate for clear, timely guidance from federal agencies to make sure Washington governments are not put in a difficult position at audit time. However, when auditing federal programs of any kind, governments must provide documentation to substantiate that they met the award requirements. As is our practice and audit standards require, we will review the status of this finding during our next audit. We value our partnership with the District in striving for transparency in public service. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303 Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 47 CFR Part 54, Universal Service, Subpart Q, Emergency Connectivity Fund, describes the ECF Program requirements.