South Kitsap School District No. 402Local Government

2025-001 The District did not have adequate internal controls and did not comply with federal eligibility requirements. Assistance Listing Number and Title: 12.558, Department of Defense Impact Aid (Supplement, CWSD, BRAC) Federal Grantor Name: U.S. Department of Defense Federal Award/Contract Number: N/A Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $277,368 Prior Year Audit Finding: N/A Background The purpose of the Department of Defense Impact Aid (Supplement, CWSD, BRAC) program is to supplement the U.S. Department of Education Impact Aid program, by providing additional funding to military connected children. Within this program is a subprogram to provide additional funding to military connected children with severe disabilities (CWSD). CWSD funding is provided to reimburse school districts for money previously spent on military connected children with severe disabilities. Only children of active duty military personnel are eligible for program funds. Further, children must also have a severe disability to be eligible for CWSD program funds. The District received $1,196,574 under the Department of Defense Impact Aid program, of which $961,187 was CWSD program funds. Federal regulations require recipients to establish, document and maintain effective internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Description of Condition Our audit found the District’s internal controls were ineffective for ensuring compliance with federal eligibility requirements. Specifically, the District included ineligible students in its application for CWSD funds. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition The District experienced turnover in positions responsible for completing and reviewing the District’s CWSD application during 2024. Staff were not aware of all requirements and did not follow the District’s established practice to obtain a secondary review of the application before submission. Effect of Condition and Questioned Costs The District included 22 students in its application for CWSD funding and although the District requested reimbursement for $1,016,178, the grantor reimbursed the District $961,187. Using a nonstatistical sample, we selected seven students for testing. We found six students whose costs were claimed for reimbursement in the application totaling $293,236 but were not eligible for program funds as they were not dependents of active-duty military personnel. To determine questioned costs we assumed funding was provided in the same proportion as the District requested. Known questioned costs for the six students tested totaled $277,368. Based on the projection of our sample, we identified an additional $594,359 of estimated overpayments for funding provided to ineligible students. Federal regulations require the State Auditor’s Office to report known and likely questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the District received funding for ineligible students. Recommendation We recommend the District strengthen and follow internal controls to ensure it complies with federal eligibility requirements. District’s Response The South Kitsap School District acknowledges the audit finding and agrees with the recommendation to strengthen and follow internal controls to ensure compliance with federal eligibility requirements for the Department of Defense Impact Aid CWSD program. The District has a legitimate population of active-duty military-connected students and incurs significant costs in providing services to students with disabilities. The District believes the issue identified was an administrative and internal control error in the application process, rather than an absence of eligible military-connected students or related service costs. However, the District recognizes that the specific students included on the application were not adequately reviewed against eligibility documentation prior to submission. The District cannot determine with certainty why ineligible students were included on the application. The application was completed by a former Special Services administrator who is no longer employed by the District. During the period under audit, the District also experienced turnover in positions involved in completing and reviewing the application, which contributed to the District’s established review process not being followed. The District takes this finding seriously and has implemented corrective action to ensure future applications are reviewed for eligibility before submission. Going forward, the Business Services Department will perform a secondary review of CWSD application data prior to submission. This review will include comparing the students included on the CWSD application to the District’s source documentation for military-connected students, including the data maintained from the U.S. Department of Education Impact Aid process. The District will also retain documentation supporting student eligibility, review, and approval of the application. The District will strengthen its written procedures to clearly identify the staff responsible for preparing, reviewing, and approving the application. The procedures will require documented review by both the Special Services Department and the Business Department prior to submission. These additional controls are intended to ensure that only eligible students are included on future applications and that the District maintains adequate documentation to support compliance with program requirements. The District will continue to cooperate with the grantor and the State Auditor’s Office regarding any required follow-up or resolution of questioned costs. 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. U.S. Department of Defense DOW Impact Aid provides guidance for eligibility requirements for students under the CWSD program.

2023-001       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: 84.425D, 84.425W0459610, 84.425W459033, 84.425U0142370, 84.425142365, 84.425U140671, 84.425D143122, 84.425D142219, 84.425D120528, 84.425U138219 Known Questioned Cost Amount: $0 Prior Year Audit Finding: Yes, Finding 2022-001 Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In the fiscal year 2023, the District spent a total of $7,324,263 of its ESF awards. This included $648,853 in the Elementary and Secondary School Emergency Relief Fund (ESSERII) subprogram (84.425D), $6,673,249 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U) and $2,161 in the American Rescue Plan Elementary and Secondary School Emergency Relief – Homeless Children and Youth (ARP-HCY) subprogram (84.425W). The District spent $2,000,000 in program funds for various improvements and repairs as part of its pool modernization project. 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. 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 funds 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 contractors and subcontractors comply with those requirements and the Department of Labor’s regulations. This includes a requirement for the contractors and its subcontractors 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 2023 school year, the District spent $2,000,000 for payments to one contractor for the pool modernization project to update air conditioning (HVAC) system controls and repair the roof at the South Kitsap High School pool. 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 federal wage rate provisions in the contract. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition The District does not normally use federal funds on public works projects. Additionally, the District did not initially plan to use federal funding for this project when it began planning the project, but did when it awarded the general contractor contract. While District officials knew about state wage requirements, they were not aware of the federal regulations. Therefore, the District focused on the state requirements. Effect of Condition Without adequate internal controls to ensure it includes the wage rate clauses in its contracts, the District cannot demonstrate it complied with federal wage rate requirements. Additionally, because the District did not notify the contractor that the project was federally funded, the contractor submitted state certified payroll reports instead of federal certified payroll reports. The District could also be liable for paying any additional wages if the contractor and subcontractor did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the District strengthen internal controls to ensure compliance with federal wage rate requirements. This should include inserting wage rate clauses into contracts and obtaining the federal certified payroll reports. Additionally, we recommend the District provide additional training to ensure staff overseeing compliance with federal programs are aware of all applicable requirements. District’s Response The District understands the finding and appreciates the Auditor bringing this to our attention. The District complied with the federal wage requirements but did not note this in the contract as required. We have reviewed the guidance provided by the Auditor, understand the requirement and have put procedures in place to ensure compliance in the future. Auditor’s Remarks We thank the District for its cooperation and the steps it is taking to address these concerns. We will review the status of the District’s corrective action 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 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).

2022-001 The District did not have adequate internal controls for ensuring compliance with 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: 84.425W-0459610, 84.425D-0120528, 84.425U-0137220, 84.425U-0138219, 84.425D-0142219, 84.425U-0712124 and 84.425W-0459033 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 $10,893,556 of its ESF awards. This included $4,246,316 in the Elementary and Secondary School Relief Funds (ESSER II) subprogram (84.425D), $6,638,991 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $8,249 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 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 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 subcontractors 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 The District hired a contractor to repair the roof at the high school and one of the elementary schools. During the 2021?22 school year, the District paid the contractor $867,570 from its ESSER II award for work the subcontractors performed on this project. Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage requirements. Specifically, the District did not collect weekly certified payroll reports from subcontractors to confirm they paid laborers proper prevailing wages. We consider this deficiency 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 The District relied on the subcontractors to submit weekly certified payrolls to the website for the Washington State Department of Labor and Industries (L&I). Although staff said they checked that weekly certified payrolls were uploaded to the L&I system before the District paid the contractor, this process was not documented. Further, staff did not know the District needed to obtain all certified payroll reports each week. Effect of Condition Without adequate internal controls that ensure it 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 subcontractors did not pay prevailing wage rates to laborers working on the contract. While the contractor was not required to submit any certified payroll reports during the period, we tested two subcontractors and found the District should have obtained 12 weekly certified payroll reports, but did not collect any during the audit period. Although the District subsequently collected all weekly certified payroll reports that the subcontractors submitted to the L&I system, all 12 of them only referenced state requirements and did not include federal prevailing wage rate requirements. Recommendation We recommend the District develop internal controls to ensure compliance with federal wage rate requirements. This should include implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from any contractors and subcontractors. District?s Response The District understands the finding and appreciates the Auditor bringing this to our attention. Having never used Federal funds for public works projects in the past, the District was unaware of the requirement to obtain weekly certified payroll reports from all contractors working on the project. We have now reviewed the guidance provided by the Auditor, understand this requirement and have put procedures into place to ensure compliance in the future. Auditor?s Remarks We thank the District for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the District?s corrective action 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 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, establish requirements for contractor or subcontractor submission of weekly certified payroll reports.

South Kitsap School District No. 402 September 1, 2020 through August 31, 2021 2021-001 The District did not have adequate internal controls for ensuring compliance with federal requirements for allowable activities and costs. 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 Superintendent of Public Instruction (OSPI) Pass-through Award/Contract Number: 84.425D / 0120284, 84.425D / 0120528, 84.425D / 0130238 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. The District spent $2,743,049 of its ESF awards during fiscal year 2021. This included $1,517,377 of its Elementary and Secondary School Emergency Relief fund (ESSER) subprogram award funded by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (ESSER I), and $1,193,188 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 award requirements and monitoring the effectiveness of established controls. The CARES Act allowed districts to claim for lost revenue related to child food services for the 2020-2021 school year. To receive funds for lost revenue, the District must submit claims to the Office of Superintendent of Public Instruction?s (OSPI) grant system (iGrants), which operates on a reimbursement basis. This means the District is required to incur and pay for eligible costs before requesting reimbursement, including reimbursement of expenditures that offset the lost revenue for food services. Description of Condition The District submitted claims for lost revenues for food services under its ESSER I subprogram award. However, the District?s internal controls were inadequate for ensuring its records identified specific, allowable ESSER expenditures to support amounts requested for reimbursement, which is required. 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 attended multiple trainings and reviewed available guidance to ensure it used program funds for allowable purposes. However, District officials said they did not know that District records should identify specific, allowable ESSER expenditures to support lost revenue claims for food services under the ESSER I subprogram. Effect of Condition Without adequate internal controls, the District cannot demonstrate it complied with allowable cost requirements. Our audit found the District requested reimbursement for $382,196 of lost revenues. Since the District?s records did not identify specific, allowable ESSER expenditures to support the costs at the time of the claim, they are unallowable. During the audit, the District provided documentation of specific costs it could have charged to the program in support of its reimbursement requests. We performed sampling procedures on those costs and determined they were allowable ESSER expenditures. Therefore, we are not questioning these costs. The District charged the specific costs identified to Program 98, which it uses for tracking expenditures to meet the requirements of the Child Nutrition Cluster grant program. We verified the District had sufficient expenditures in Program 98 to meet Child Nutrition Cluster requirements even if it removed the costs it later identified as ESSER I expenditures. However, because the District had already closed its accounting records by the time it identified the expenditures, the District was unable to move the costs out of Program 98 during the audit. Recommendation We recommend the District develop and follow internal controls to ensure it complies with federal and OSPI requirements for allowable costs. Specifically, the District should ensure its records identify specific, allowable program costs to support any amounts requested for reimbursement. We further recommend the District work with OSPI to determine the appropriate next steps to ensure it appropriately adjusts its Child Nutrition Cluster records to reflect the portion of costs identified as ESSER I expenditures. District?s Response The District understands the finding and appreciates the Auditor bringing this to our attention. The District followed multiple instances of guidance provided by OSPI and was of the belief that an exception to standard practice was allowable for this Federal grant program, ESSER I. We understand now that the guidance was misleading and incomplete which caused the exception made to our standard practices and internal controls. Auditor?s Remarks We appreciate the District?s commitment to resolving the issues noted and will follow up during the next scheduled 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 U.S. Code of Federal Regulations (CFR) Part 200, Subpart E and appendices III-VII establishes principles and standards for determining allowable direct and indirect costs for federal awards. Section 18003(d) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act describes allowable ESSER I activities.