FERNDALE SCHOOL DISTRICT 502

"See Schedule of Findings and Questioned Costs for chart/table"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 $4,718,246 of its ESF awards. This included $2,778,548 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), $1,930,398 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER III) subprogram (84.425U), and $9,300 in the American Rescue Plan Elementary and Secondary School Emergency Relief ? Homeless Children and Youth (ARP ? HCY I and II) subprogram (84.425W). Federal regulations establish principles and standards for determining allowable direct and indirect costs for federal awards. The Office of Superintendent of Public Instruction (OSPI) establishes the indirect cost rate for each award, and districts cannot exceed this approved rate when claiming reimbursement. If there are changes to the rate during a multi-year award, districts must adjust the amount claimed, if needed, to ensure they do not exceed the approved rate.Description of Condition Although the District?s internal controls were adequate for ensuring it materially complied with the program?s allowable activities and allowable cost requirements, it charged the incorrect indirect cost rate for its ESSER II award (84.425D). This issue was not reported as a finding in the prior audit. Cause of Condition Management and staff did not know the District needed to manually adjust its OSPI-issued unrestricted indirect cost rate for ESSER awards that covered two fiscal years. Instead, the District relied on the rate posted in the iGrants system. Effect of Condition and Questioned Costs We reviewed all indirect costs charged to the program. We found the District charged $58,892 more in indirect costs than allowable because it did not use the correct rate for its ESSER II program. 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. We question costs when we find the District has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures. Recommendation We recommend the District ensure it uses the correct OSPI-issued unrestricted indirect cost rate for the fiscal period when charging costs to federal awards. District?s Response The District concurs with the finding and has implemented additional internal controls around the calculation of indirect costs to address this issue. Auditor?s Remarks We appreciate the steps the District has taken to address the issue. We will review the condition 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 403, Factors affecting allowability of costs, describes the cost principles for how direct and indirect costs should be charged to federal programs.

The District did not have adequate internal controls for ensuring compliance with federal requirements for cash management. Description of Condition The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. The District spent $1,081,845 of its ESF awards during fiscal year 2021. This included $700,063 of its Elementary and Secondary School Emergency Relief (ESSER) Fund subprogram award funded by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (ESSER I), and $381,782 was of its ESSER subprogram award funded by the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act (ESSER II). 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. The CARES Act allowed Districts to claim for lost revenue related to unrealized enrollment for the 2020-2021 school year. The Office of Superintendent of Public Instruction (OSPI) provided guidance on how to quantify unrealized enrollment and reminded Districts that any claim against ESSER funds must be spent on allowable uses. Specifically, funds claimed due to unrealized enrollment must be spent in alignment with the allowable uses of funds outlined in the CARES Act, such as expenses necessary for maintaining operations and continuing public school services during the pandemic, providing mental health services, purchasing educational technology, etc. OSPI?s grant system (iGrants) and claims system operates on a reimbursement basis. This means the District is required to incur and pay for eligible costs prior to requesting reimbursement. Our audit found the District?s internal controls were inadequate for ensuring it incurred and paid for costs before submitting reimbursement requests. The District calculated lost revenue due to unrealized enrollment using OSPI?s guidance and submitted a reimbursement request for this amount under its ESSER I subprogram award. However, the District did not specifically identify allowable costs until year-end and did not ensure it had incurred the costs before requesting reimbursement. This resulted in a cash advance, which the awarding agency does not allow. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The District attended multiple trainings and reviewed available guidance to ensure it used program funds for allowable purposes. However, District officials said they did not know cash management requirements applied to the unrealized enrollment lost revenue claimed under the ESSER I subprogram and that they were required to incur and pay costs before requesting reimbursement. Effect of Condition Without adequate internal controls, the District cannot demonstrate it complied with the cash management requirements. Our audit found that the District requested and received reimbursement for $301,523 in costs that it had incurred and paid for after submitting the request. This resulted in a cash advance, which the granting agency does not allow. We estimated the District earned $340 of interest on the cash advance, The District is not liable for paying the interest earned to the grantor as the calculated interest is below the $500 federal threshold for repayment. Recommendation We recommend the District develop and follow internal controls to ensure it complies with federal and OSPI requirements for cash management. This should include ensuring the District incurs and pays for costs before submitting claims related to loss revenues. District?s Response The District disagrees with this finding. The District followed OSPI guidance and instructions for claiming unrealized enrollment revenue, an allowable use of ESSER funds. At the time of the claim, the District had sufficient expenditures to support the claims, and is able to demonstrate that no cash advance was received. Unrealized enrollment revenue was used to offset the cost of Basic Education teachers and paraeducators for the months in question, October and November 2021. Auditor?s Remarks Cash management requirements are outlined in the Department of Education guidance including what is considered a cash advance. While the District states it had sufficient expenditures to support the reimbursement claims, those were not the expenditures the District coded to the program and provided at the time of the audit. We reaffirm our finding. We appreciate the District?s communication and assistance throughout the audit. 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 200, Uniform Guidance, section 305, establishes cash management procedures for grants and contracts over federal programs and comply with federal program requirements.

Background The District received $1,155,590 in Child Nutrition Cluster grant funds during the 2019-2020 school year. Federal regulations require recipients of federal awards to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established controls. When using federal funds to purchase goods or services, governments must apply the more restrictive of federal requirements, state law or local policies by obtaining quotes or following a competitive bidding process, depending on the purchase amount. District policy and state law are most restrictive and require a formal bid process for purchases of goods and services of $75,000 or more. In addition, state and federal requirements allow local entities to bypass normal procurement laws and purchase goods and services using contracts awarded by another government or group of governments via an agreement or cooperative. This is commonly referred to as piggybacking. To comply with this law the entity must enter into this agreement before it purchases services or goods from the other entity?s bid contract. If a school district uses such an agreement, federal regulations require it to confirm the awarding entity followed all procurement laws and regulations applicable to the district when selecting the contractor. Description of Condition Although the District has controls in place over procurement, they were not effective in ensuring compliance with all applicable requirements. The District did not perform competitive procurement procedures or establish an interlocal agreement to piggyback on another district?s existing contract before purchasing $81,581 in milk-related products from the contractor for the federally funded Nutrition program. We consider this a significant control deficiency. This issue was not reported as a finding in the prior audit. Cause of Condition For the past five years, the District contracted with a vendor to provide comprehensive food services and therefore was not required to individually procure food related products and supplies (e.g. food, milk). In the 2019-2020 school year the vendor contract was not renewed and District began direct oversight of the Nutrition program as well as the responsibility to procure such supplies. The District was aware other districts in the area used a milk vendor?s contracted prices and directly contacted the vendor for purchase. By doing so, the District overlooked the requirement to formally bid or enter into an interlocal agreement to allow piggybacking on another district?s already established contract. Effect of Condition Without effective internal controls that ensure it followed procurement or piggybacking procedures, the District cannot demonstrate it complied with applicable federal procurement requirements when purchasing milk products. Recommendation We recommend the District establish and follow internal controls to ensure it complies with procurement requirements for purchases of goods and services. District?s Response As of September 2020, the District established procurement procedures that follow federal procurement requirements when selecting vendors for the food service department. The procedures require an assessment at the beginning of the school year of all food service contracts which are expected to exceed the threshold and would require a formal bidding process. During this assessment the Food Service Director will determine if a formal bid process is required or if renewal of an interlocal agreement for piggy-backed contracts should be executed. For the 2020/21 school year all federal procurement requirements were followed. 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 2 CFR Part 200, Uniform Guidance, Section 318, General procurement standards, allows governments to foster great economy and efficiency by entering into state and local agreements for procurement or use of common or shared goods and services, provided governments maintain documentation demonstrating competition requirements are met. Title 2 CFR Part 200, Uniform Guidance, Section 319 ? Competition, establishes all procurement transactions are to be conducted in a manner providing full and open competition. Title 2 CFR Part 200, Uniform Guidance, Section 320 ? Methods of procurement to be followed, describes each allowable procurement method.

GSA_MIGRATION