Pateros School District No. 122-70JLocal Government

The District did not have adequate internal controls and did not comply with federal suspension and debarment requirements. Assistance Listing Number and Title: 10.553 - School Breakfast Program 10.555 - National School lunch Program 10.582 - Fresh Fruit and Vegetable Program Federal Grantor Name: U.S. Department of Agriculture Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The District participates in the Child Nutrition Cluster, which includes the School Breakfast, National School Lunch, and Fresh Fruit and Vegetable programs. These programs provide funding for free and reduced-price meals for students from low-income families. In fiscal year 2024, the District received $167,866 for these programs. The District purchases food commodities from a contractor procured through a regional purchasing cooperative in 2019 and exercised a renewal option with that contractor for 2024. 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. Federal requirements also 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’s controls were ineffective and it did not verify the one contractor 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 The District experienced turnover among staff responsible for procuring food products through purchase cooperatives and verifying contractors’ suspension and debarment status. Current District staff were unable to locate files to demonstrate the District verified the contractor was not suspended or debarred. 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 $87,482 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 made to an ineligible party would be unallowable, and the awarding agency could potentially recover them. During the audit we verified the contractor was not suspended, debarred or excluded from doing business with the federal government. As a result, we are not questioning these costs. Recommendation We recommend the District strengthen 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 Additionally, we recommend the District retain documentation to demonstrate compliance with this requirement. District’s Response The District experienced turnover among staff responsible for verifying the contractor’s suspension and debarment for ongoing purchasing. The district had reduced training opportunities during COVID due to remote work and increased workloads for certain district staff. The District has ensured the current staff are aware of the issue regarding the Interlocal Agreement to purchase food commodities and the need to verify those documents annually regardless of ongoing business with the entity. The District will annually check the leading agency in August to ensure the suspension and debarment was completed. If the District office does not locate the information on the leading agency, the District will go out to SAM.gov to check the suspension and debarment and save proof that it was completed. Auditor’s Remarks We appreciate the steps the District is taking to resolve this 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 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 Government wide Debarment and Suspension (Nonprocurement), establishes non-procurement debarment and suspension regulations implementing Executive Orders 12549 and 12689.

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 $352,470 of its ESF awards during fiscal year 2021. This included $336,917 of its Elementary and Secondary School Emergency Relief (ESSER) Fund subprogram award funded by the Coronavirus Response and Relief Supplemental Appropriations Act (ESSER II), and $15,553 of its ESSER subprogram award funded by the American Rescue Plan Act (ESSER III). Federal regulations require 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 program controls. The Office of Superintendent of Public Instruction?s (OSPI) grant system (iGrants) and claims system operates on a reimbursement basis. This means the District is required to incur and pay for eligible costs before requesting reimbursement. The District is also required to maintain documentation to support its reimbursement requests and to demonstrate compliance with program requirements. Our audit found the District?s internal controls were inadequate for demonstrating it had incurred and paid for program costs before requesting reimbursement. We consider this deficiency in internal controls to be a significant deficiency. The issue was not reported as a finding in the prior audit. Cause of Condition The District experienced turnover in its staff responsible for managing program cost reimbursements. As a result, current staff were unable to locate supporting documentation for the reimbursements the District submitted during the audit period. Effect of Condition Without supporting documentation, the District cannot demonstrate it had effective controls in place to ensure compliance with federal cash management requirements. We examined nine reimbursement requests for eligible program costs totaling $336,600, and the District could not provide documentation to demonstrate it had incurred and paid for these costs before submitting its reimbursement requests. During the audit, the District worked to identify the costs claimed for each of the nine reimbursement requests. Ultimately, the District was able to show that it had incurred and paid for the program costs before requesting reimbursement. Recommendation We recommend the District establish internal controls to ensure it maintains documentation to demonstrate it has incurred and paid for program costs before requesting federal reimbursement. District?s Response The Pateros School District will maintain documentation to support its reimbursement requests and to demonstrate compliance with program requirements. Auditor?s Remarks We appreciate the District?s commitment to resolving the issue noted and will follow up during the 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. Title 2 CFR Part 200, Uniform Guidance, section 305, Federal payment, establishes requirements for the method of reimbursement and disbursement of Federal funds by non-federal entities. 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.