Nine Mile Falls School District No. 325/179Local Government

SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Nine Mile Falls School District No. 325/179 September 1, 2020 through August 31, 2022 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, 84.425U, 0712171 COVID-19, 84.425W, 0459570 COVID-19, 84.425D, 0120524 COVID-19, 84.425U, 0138168 COVID-19, 84.425U, 0137194 Known Questioned Cost Amount: $0 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 $3,272,427 of its ESF awards. This included $1,509,930 in the Elementary and Secondary School Emergency Relief (ESSER II) Fund subprogram (84.425D), $1,751,572 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $10,925 in the American Rescue Plan Elementary and Secondary School Emergency Relief ? Homeless Children and Youth (ARP ESSER ? HCY II) subprogram (84.425W). 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. 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 wage rates that 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 in which any contract work is performed, 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 spent $984,328 from its ESSER III award to pay three contractors and their subcontractors for three projects, which included an addition of a portable building and replacement of the heating, ventilation and air conditioning systems and heating units for two elementary schools. These projects were part of the District?s school facility capital improvement efforts to prevent the spread of COVID-19 by improving the structure of the elementary school buildings and facilitating social distancing in classrooms. During the audit period, the District was responsible for collecting weekly certified payroll reports from the three contractors and their subcontractors. Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements. Specifically, the District did not: ? Include the required prevailing wage rate clauses in two of the three contracts established with contractors ? Collect 22 out of 72 weekly certified payroll reports from the contractors and their subcontractors 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 fully understand the requirements for contract language, and was not aware of the federal prevailing wage rate clauses that needed to be included. Additionally, staff had an established process for collecting and reviewing the weekly certified payroll reports, but could not find documentation showing the District obtained the 22 payroll reports. Effect of Condition Without adequate internal controls that ensure it includes the prevailing wage rate clauses in its contract 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 and subcontractors did not pay prevailing wage rates to laborers working on the contracts. Recommendation We recommend the District continue to improve internal controls to ensure compliance with federal wage rate requirements. This should include: ? Informing District staff and contractors about federal program requirements ? Inserting prevailing wage clauses into contracts ? Implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors ? Documenting and retaining evidence to support the District?s compliance with the requirement to collect weekly certified payroll reports District?s Response The district relied upon experienced contractors during these federally-funded projects to ensure proper contract language was used and to submit weekly certified payroll reports. The two (2) contracts without specific Davis Bacon language both mentioned local prevailing wages, which is higher than federal prevailing wages, so both the contractors and the district thought this was sufficient and would be considered compliant. Future federal projects exceeding $2,000 in federal dollars will include federal language as required by Title 29 CFR, ?5.5. The district has created a project tracking sheet which contains the following information: project location, project description, funding source, estimated contract amount, date of award, awarded contractor, SAM verification date, intent and affidavit numbers and dates, subcontractor information, and certified payroll verification for weeks work completed. 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 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).

The District did not have adequate controls for ensuring compliance with federal requirements for cash management. CFDA 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 the Superintendent of Public Instruction (OSPI) Pass-through Award/Contract Number: 84.425D-0120234 Questioned Cost Amount: $0 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 $356,305 of its ESF award during fiscal year 2021. All of the funds the District received were from the Elementary and Secondary School Emergency Relief (ESSER) Fund subprogram award funded by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (ESSER I). Federal regulations require award recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding program 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. To receive funds related to unrealized enrollment, districts must submit claims through OSPI?s grant system (iGrants) and claims system, which operates on a reimbursement basis. This means districts are 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 costs before submitting its reimbursement requests to OSPI. The District submitted a claim for unrealized enrollment as lost revenues under its ESSER I subprogram award. However, because the District did not incur and pay the costs before submitting its claim, the reimbursement was actually 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. The issue was not reported as a finding in the prior audit. Cause of Condition The District reviewed available guidance to ensure it used program funds for allowable purposes. However, District officials said they did not know that 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 cash management requirements. Our audit found that the District claimed and received $75,306 in cash advances, which the granting agency does not allow. The District calculated that it had earned $464 in interest on the cash advance. However, federal regulations only require recipients to repay interest when it exceeds $500, so the District is not liable for paying this interest to the grantor. 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 it incurs and pays costs before submitting claims related to revenue losses. District?s Response The Nine Mile Falls School District followed guidelines received from OSPI in October 2020 when claiming the dollars for unrealized enrollment through the ESSER I Federal funding. Understanding this was the approved process, the district then used these dollars shorted in state-funded apportionment to offset the payroll contract for one certificated staff member. The district obtained the proper time & effort paperwork to match this decision. The district did have allowable expenditures to support the unrealized enrollment claim, which were sent over during the audit process. Moving forward, the Nine Mile Falls School District will continue to review all grant profiles separating these grants into their categories: Federal, State, Private Foundations, etc. and noting the specific requirements for claiming and allowable charges. Should OSPI release guidance for grant claims in the future and this guidance does not align with the Nine Mile Falls usual and customary practices, the district will follow its usual and customary practices while researching the guidance provided. This research will include, but will not be limited to, keeping all correspondence and guidance with the grant paperwork, reviewing the Code of Federal Regulations (CFR) guidelines for Federal claims, reaching out to the local ESD for guidance, and connecting with the WA State Auditor?s Office (SAO) for their interpretation of the guidance. 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 305, establishes cash management procedures for grants and contracts over federal programs and comply with federal program requirements, including instructions on returning interest earned over $500.

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