NORTH BEACH SCHOOL DISTRICT #64Local Government

North Beach School District No. 64September 1, 2019 through August 31, 20202020-001 The District did not have adequate internal controls in place to ensure compliance with federal procurement and suspension and debarment requirements.CFDA Number and Title:10.553 ? School Breakfast Program10.555 ? National Lunch Program10.559 ? COVID-19 Summer Food Service Program for ChildrenFederal Grantor Name: U.S. Department of AgricultureFederal Award/Contract Number: N/APass-through Entity Name: Office of the Superintendent of Public InstructionPass-through Award/Contract Number: N/AQuestioned Cost Amount: $ 0BackgroundThe District participates in the Child Nutrition Program, which includes the School Breakfast, National School Lunch, and Summer Food Service Program for Children programs. These programs provide free meals for low-income students. The District received $365,263 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 either federal requirements, state law or local policies by obtaining quotes or following a competitive bidding process, depending on the purchase amount. In this case, District policy is the most restrictive and requires the District to obtain price or rate quotations from three or more qualified sources for purchases of goods and services between $10,000 and $75,000.Additionally, federal regulations prohibit recipients from entering into contracts with vendors that have been suspended or debarred from doing business with the federal government. Whenever the District purchases goods or services for at least $25,000, paid all or in part with federal funds, it must verify the contractors have not been suspended, debarred or otherwise excluded. This verification may be accomplished by (1) checking the federal Excluded Parties List System (EPLS) maintained by the U.S. General Services Administration, (2) collecting a written certification from the contractor, or (3) adding a clause or condition to the contract requiring the contractor to state it is not suspended or debarred. The District must meet this requirement before awarding the contract and must maintain documentation to demonstrate compliance.Description of ConditionAlthough the District had controls in place related to procurement, and suspension and debarment, they were not effective in ensuring compliance with all applicable requirements.ProcurementThrough the course of the year, the District made several purchases from one contractor for ?like-kind? items that ultimately totaled $25,811. The District used federal Nutrition program funding for these food service products, but did not follow competitive procurement procedures nor enter into a contract for the purchase.We consider this deficiency in internal controls to be a significant deficiency.This issue was not reported as a finding in the prior audit.Suspension and DebarmentThe District?s controls were not effective to ensure all parties receiving $25,000 or more in Federal funds were not suspended or debarred. The District did not obtain written certification, include a clause in the contract (nor execute a contract), or review EPLS to verify one of the four contractors subject to this requirement was not suspended or debarred from doing business with the federal government.We consider this deficiency in internal controls to be a material weakness.The issue was not reported as a finding in the prior audit.Cause of ConditionDistrict officials either did not follow internal controls, or the controls were inadequate to ensure the District followed procurement policies. The District?s internal controls also were also not adequate to ensure officials checked the suspension and debarment status for all vendors paid $25,000 or more with federal funds. Officials said they were not aware of the $25,000 threshold for suspension and debarment requirements. Finally, District officials said they were not aware of procurement requirements for like-kind purchases.Effect of Condition and Questioned CostsProcurementWithout effective internal controls that ensure it followed procurement procedures, the District cannot demonstrate it complied with applicable federal procurement requirements when purchasing food service products using federal funds nor can it demonstrate that they received the best price for the goods it purchased.Suspension and DebarmentWithout effective internal controls over suspension and debarment requirements, the District cannot provide evidence that it has paid federal funds only to parties that are eligible to participate in federal programs. Any payment of program funds made to ineligible parties would be unallowable and subject to recovery by the funding agency.We verified that the contractor was neither suspended nor debarred. Therefore, we are not questioning costs for these payments.RecommendationWe recommend the District strengthen its internal controls and provide adequate training to staff to ensure it complies with procurement for purchases of goods and services, including like-kind purchases, and that contracts are executed for these purchases. We also recommend the District ensure that it checks suspension and debarment status for contractors, and maintain documentation for all contractors who are paid, or expected to be paid, $25,000 or more in federal funds.District?s ResponseNorth Beach School District understands the requirements to ensure compliance with federal procurement and suspension and debarment requirements. We had a meeting as a district office team on June 9th, 2021 to discuss the finding and ensure everyone knows what part they play in making sure this is corrected and that we have good internal controls in place. We have also looked to find a report that will be run monthly on our vendors to ensure that anyone getting close to the $25,000 threshold has been checked for suspension and debarment, along with making sure the federal procurement processes are followed for anyone we believe will go over the $25,000 threshold.The District will strive to correct this issue for the future.Auditor?s RemarksWe 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 regularly scheduled audit.Applicable Laws and RegulationsTitle 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 319 ? Competition, establishes all procurement transactions are to be conducted in a manner providing full and open competition.Title 2 CFR Part 180, OMB Guidelines to Agencies on Government wide Debarment and Suspension (Nonprocurement) establishes non-procurement debarment and suspension regulations implementing Executive Order 12549 and 12689.Title 2 CFR Part 200, Uniform Guidance, Section 320 ? Methods of procurement to be followed, describes each allowable procurement method.

2019-001 The District did not have adequate internal controls to ensure compliance with federal Title I requirements.CFDA Number and Title: 84.010 ? Title I Grants to Local Educational AgenciesFederal Grantor Name: U.S. Department of EducationFederal Award/Contract Number: N/APass-through Entity Name: Office of Superintendent of Public Instruction (OSPI)Pass-through Award/Contract Number: 203084/270035Questioned Cost Amount: N/ABackgroundThe objective of the Title I, Part A program is to improve the teaching and learning of children who are at risk of not meeting academic standards and who reside in areas with high concentrations of children from low-income families. In fiscal year 2019, the District spent $211,795 in federal funding through its Title I program. Of this amount, the District spent $185,842 on salaries and benefits, and $24,454 on purchases.Federal regulations require recipients to establish and follow internal controls to ensure compliance with program requirements. These controls include understanding grant requirements and monitoring the effectiveness of established program controls.Allowable costs and cost principlesThe District is responsible for ensuring all costs charged to the grant are allowable and supported by adequate documentation, as required by federal regulations and the grantor. For payroll costs, depending on the number and type of activities employees work, time-and-effort records can take the form of a semi-annual certification or monthly personnel activity report, such as a timesheet. For allowable program purchases, such as services, instructional materials, and training, adequate records can take the form of approved purchase order forms and invoices.Participation of private-school childrenFederal regulations require districts using Title I funds to contact all private schools located within their boundaries. For private schools interested in participating in the program, districts must provide benefits on an equitable basis and in a timely manner to eligible children enrolled in those schools. Further, each district must identify if its students attend private schools located outside district boundaries. If the students are eligible to generate funding for Title I equitable services, the school district would also be responsible to provide services to those eligible students.High school graduation rate reportingDistricts must report graduation rate data for all public high schools to the Office of Superintendent of Public Instruction (OSPI) annually. To do this, the districts submit a graduation rate report indicating the student?s enrollment status as graduated, transferred out, dropped out, migrated to another country, or deceased. The District must maintain adequate support for how it classified a student?s enrollment status. To confirm a student transferred out, the District must have official written documentation that the student enrolled in another school or in an educational program that culminates in the award of a regular high school diploma.Description of ConditionAllowable costs and cost principlesWe found the District?s internal controls were not effective to ensure it completed accurate time-and-effort records, as required by federal regulations and the grantor, for five of nine employees tested. The District had procedures in place to provide employees with instructions and examples of how to code their time to the grant when completing monthly timesheets. However, employees did not follow the instructions when completing their timesheets, and business office staff did not identify errors on employee timesheets during review.In addition, we found the District?s internal controls were not effective to ensure costs charged to the grant were allowable and supported by adequate documentation, as required by federal regulations and the grantor. The District did not follow its purchase order approval process, resulting in inadequate review and approval for 21 of 22 purchase orders.We consider these deficiencies to be a significant deficiency in internal controls.This issue was not reported as a finding in the prior audit for this program.Participation of private-school childrenThe District did not establish internal controls and did not comply with requirements to contact private schools within its boundaries and verify if any of its students attended private schools outside its boundaries.We consider this internal control deficiency to be a material weakness.The issue was not reported as a finding in the prior audit.High school graduation rate reportingOur audit examined the District?s documentation for students it classified as ?transferred out.? The District?s controls were not adequate to ensure it gathered the required documents to support its classification of students who left the District. Specifically, the District did not maintain one foreign exchange student application that listed the enrollment period dates. The District also did not obtain official written documentation confirming transferred students actually enrolled in the new district or educational program. Without these documents, the District cannot report the students as a confirmed transfer.We consider this deficiency to be a significant deficiency in internal controls.The issue was not reported as a finding in the prior audit.Cause of ConditionAllowable costs and cost principlesThe District did not dedicate the necessary time and resources to understand the time and-effort requirements and implement an effective control system to ensure these requirements were met.The District had procedures to ensure that costs charged to the grant were allowable and supported by adequate documentation. However, District leadership did not follow established procedures to review purchase orders and instructed staff to process them without proper review or approval, resulting in unsupported and unallowable costs that were not detected before being charged to the grant.Participation of private-school childrenDistrict staff did not sufficiently understand the requirement to contact private schools inside and outside District boundaries and to document that contact.High school graduation rate reportingDistrict staff were not aware of the documentation necessary to classify students as confirmed transfers.Effect of Condition and Questioned CostsAllowable costs and principlesThe District?s noncompliance with grant requirements for payroll and non-payroll costs could jeopardize future federal funding and might require it to return federal funds to the grantor. By not completing accurate time-and-effort records, the District did not comply with OSPI?s documentation requirements to support payroll costs charged to the federal program. Further, federal grantors, cannot be assured the payroll and non-payroll costs charged to the program were accurate and valid.Costs charged to the grant for the five employees did not match the hours worked in the program listed in the time-and-effort documentation, totaling $2,777 in unsupported costs.We tested all non-payroll transactions charged to the grant and determined $13,203 of the costs were unallowable because they were for school buildings that did not participate in the Title I program, unsupported employee reimbursements and services for the next school year that it paid for in advance.Participation of private-school childrenBecause the District did not contact private schools, it did not comply with federal requirements and might have excluded eligible private schools from participating in the program.High school graduation rate reportingNone of the eight students we reviewed that were reported as transferred out had proper documentation to confirm their transfer status, resulting in a 9 percent error rate for total students reported to OSPI on the graduation rate report. By not maintaining proper documentation, the District cannot demonstrate compliance with program requirements and cannot ensure it has provided accurate reports to OSPI. Further, this puts the District at risk of incorrectly calculating graduation rates.RecommendationsAllowable costs and cost principlesWe recommend the District follow its established procedures to ensure grant purchases are allowable and approved and that time-and-effort documentation is accurately prepared and reviewed, as required by federal regulations and the grantor.Participation of private-school childrenWe recommend the District establish and follow internal controls to ensure staff contact eligible private schools and document their contact with schools, as required.High school graduation rate reportingWe recommend the District establish and follow controls to obtain and keep documentation confirming that students who transfer out of the District are properly classified, including foreign exchange student applications and official written notification confirming students enrolled in a new district or educational program.District?s ResponseNorth Beach School District is in the process of implementing several new systems which are meant to streamline our processes and make our reviews more consistent. One of these systems will be a new time & effort process to document those staff coded to federal grants. This should eliminate the employee error of filling out their timesheets incorrectly. The other system is a new electronic Purchase Order process. This will ensure that all purchase orders are reviewed for compliance before purchase and should reduce the change of items being ordered through Title One funds that are not in compliance. These new systems will be in place by the start of the 20-21 School Year. The District is aware this may be a finding received through the 19-20 school year as the year is almost over.Auditor?s RemarksWe 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 the next regular audit.Applicable Laws and RegulationsTitle 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.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 303, internal controls, describesthe requirements for non-Federal entities to maintain internal controls over Federal programs and comply with Federal program requirements.Title 34 CFR Part 200, Title I ? Improving the Academic Achievement of the Disadvantaged, Subpart A ? Improving Basic Programs Operated by Local Educational Agencies, Section 34 ? High School Graduation Rates, discusses the requirements for reporting cohort graduation rates and how changes in student status are classified.Title 34 CFR Part 200, Subpart A ? Improving Basic Programs Operated by Local Educational Agencies, Section 19 ? Other academic indicators, establishes the requirement for Districts to have official written documentation to confirm a student transferred out.Comprehensive Education Data and Research System (CEDARS) Reporting Guidance version 10.1 describes requirements for reporting cohort graduation rates and how changes in student status are classified.Office of Superintendent of Public Instruction (OSPI) Addendum to Bulletin 048-17, Federal Fiscal Policy, establishes requirements for documenting time and effort for employees that work in federal programs.Title 2 CFR Part 200 Uniform Guidance, Section 403 ? Factors Affecting Allowability of Costs, establishes the general criteria costs must meet in order to be allowable under Federal awards.Title 2 CFR Part 200, Uniform Guidance, section 405 Allocable costs, establishes costs are allocable to federal awards in accordance with the benefits received.Title 2 CFR Part 200, Uniform Guidance, section 430 Compensation ? Personal services, establishes requirements for charging costs related to services of employee to federal awards.Office of Superintendent of Public Instruction (OSPI) Bulletin 009-18, Special Programs and Federal Accountability, provides guidance for private school participation in ESEA federal programs, and establishes requirements for private schools as well as school districts.

2019-002 The District did not have adequate controls to ensure compliance with federal procurement and suspension and debarment requirements.CFDA Number and Title: 84.027 ? Special Education Grants to States84.173 ? Special Education Preschool GrantsFederal Grantor Name: U.S. Department of EducationFederal Award/Contract Number: N/APass-through Entity Name: Office of Superintendent of Public Instruction (OSPI)Pass-through Award/Contract Number:N/AQuestioned Cost Amount: $0BackgroundDuring fiscal year 2019, the District spent $144,569 in Special Education grant funds. The objective of the program is to ensure students with disabilities receive a free and appropriate public education. The Special Education program has specifically designed instruction that addresses the unique needs of an eligible student.Federal regulations require recipients 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.ProcurementFederal regulations require recipients to follow their own written procurement procedures, which must reflect applicable state, local and federal laws. The procedures must conform to federal procurement thresholds and procedures to ensure recipients follow the most restrictive of federal, state or local procurement methods when using federal funds. District policy is most restrictive for professional services and requires price or rate quotes from three or more qualified sources for services costing less than $100,000.In addition, federal grant regulations require recipients to maintain written standards of conduct covering conflicts of interest and governing the actions of employees engaged in the selection, award or administration of contracts procured with federal funds.Suspension and debarmentFederal regulations prohibit grant recipients from contracting with parties suspended or debarred from doing business with the federal government. Whenever the District contracts for goods or services that it expects to equal or exceed $25,000, paid all or in part with federal funds, it must verify that contractors have not been suspended or debarred or otherwise excluded. This verification may be accomplished by obtaining a written certification from the contractor or inserting a clause in the contract in which the contractor states it is not suspended or debarred. Alternatively, the District may review the federal Excluded Parties List System (EPLS) issued by the U.S. General Service Administration. The District must meet one of these requirements before entering into a contact with the contractor.Description of ConditionProcurementThe District?s internal controls were not effective to ensure it complied with its policy. Specifically, it did not have monitoring procedures in place and failed to follow its policy to obtain price or rate quotes from at least three qualified sources when procuring two professional service contracts.In addition, while the District?s written procurement and conflict of interest policies included applicable state and local regulations, these policies did not conform to or include federal procurement and standards of conduct requirements outlined in federal regulations.Suspension and debarmentThe District had a process in place, but it was not effective in ensuring it verified the status of one of the two professional service contracts noted above.We consider these control deficiencies to be material weaknesses.The procurement issue was reported as a finding in the prior audit as finding number 2018-001.Cause of ConditionThe District was aware of the procurement and suspension and debarment requirements. However, the District did not dedicate the necessary time and resources to monitor to ensure procurement policies were being followed and that suspension and debarment was being verified.The District was also aware of the requirement to update written policies and procedures to comply with federal regulations. However, the District did not emphasize updating written policies and procedures to meet federal requirements regarding its procurement and conflict of interest policies in a timely manner.Effect of Condition and Questioned CostsProcurementThe District did not comply with procurement requirements. The District procured professional special education services from two contractors for $67,171 and $25,305 without obtaining at least three quotes, as required by District policy. Therefore, the District cannot demonstrate it received the best price for the services it purchased.Additionally, without written procedures addressing federal requirements, the District is at greater risk of not complying with the most restrictive of federal, state, or local procurement methods and standards of conduct requirements when procuring contractors paid with federal funds.We did not question costs because the costs are allowable under the program.Suspension and debarmentWithout adequate internal controls, the District cannot demonstrate that contractors are not suspended or debarred before entering into the contracts and that it pays federal funds only to eligible contractors. Any payments to an ineligible party would be subject to recovery by the grantor.The District paid a professional service contractor $67,171. We verified the contractor had not been suspended or debarred. Therefore, we are not questioning these costs.RecommendationsWe recommend the District:? Improve internal controls over procurement, such as implementing monitoring procedures for compliance with District policy? Improve internal controls to ensure contractors are not suspended or debarred before entering into contracts. This may be accomplished by establishing written procedures for the verification of excluded parties and monitoring those procedures, or by requiring the use of standard forms or templates to ensure compliance.? Update its written procedures to conform to federal procurement and standards of conduct requirements and communicate these requirements to District staffDistrict?s ResponseThe District has implemented a new process for procurement of our professional services and checking suspension and debarment. North Beach was given this finding in our last audit and fixed the procedures at that time though the procurement period for the 18-19 school year had already past, making the audit finding extend through two years. The District went over our new procedures during the audit and documentation for the 19-20 school year and it was found to be acceptable.Auditor?s RemarksWe 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 the next regular audit.Applicable Laws and RegulationsTitle 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.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 303 Internal controls, establishes internal control requirements for management of Federal awards to non-Federal entities.Title 2 CFR Part 200, Uniform Guidance, section 318 General procurement standards, establishes requirements for written procedures.Title 2 CFR Part 200, Uniform Guidance, section 320 Methods of procurement to be followed, establishes requirements for procuring with Federal funds by non-federal entities.Title 2 CFR Part 180, OMB Guidelines to Agencies on Government wide Debarment and Suspension (Nonprocurement) establishes non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.

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