ANACORTES SCHOOL DISTRICT

The District did not have adequate internal controls for ensuring compliance with allowable activities and costs, and restricted purpose requirements. Assistance Listing Number and Title: 32.009, COVID-19 ? Emergency Connectivity Fund Program Federal Grantor Name: Federal Communications Commission Federal Award/Contract Number: Pass-through Entity Name: 145203 N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $824,281 Background The Emergency Connectivity Fund (ECF) Program provides funding to meet the needs of students and school staff who would otherwise lack access to connected devices and broadband connections sufficient to engage in remote learning. This is referred to as ?unmet need.? In fiscal year 2022, the District spent $824,281 in ECF Program funds to purchase laptops for students and school staff. 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. Allowable activities and costs ECF Program recipients must only seek reimbursement for the eligible devices and services provided to students and staff with unmet need. Recipients are prohibited from seeking and receiving reimbursement for eligible equipment purchased for use solely at the school or held for future use (i.e., warehousing). Restricted purpose ? unmet need When submitting applications to the Federal Communications Commission (FCC), schools only had to provide an estimate of their students? and staff?s unmet need. However, when requesting reimbursement, the District could only request program funds for eligible equipment and services provided to students and school staff with actual unmet need. Description of Condition Allowable activities and costs/restricted purpose ? unmet need The District estimated unmet need for eligible equipment when it applied for ECF Program funds. However, our audit found the District?s internal controls were ineffective for ensuring it requested reimbursement only for eligible equipment provided to students and school staff with a documented unmet need. Specifically, the District purchased laptops, based on its estimate of unmet need, and it requested reimbursement for these purchases totaling $824,281. However, the District did not maintain documentation showing it provided each laptop paid with program funds to a student or employee with unmet need. We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition Allowable activities and costs/restricted purpose ? unmet need District staff thought the determination of unmet need provided during the application process was sufficient to comply with this requirement. Therefore, they did not perform additional procedures during the reimbursement process to ensure the District only requested reimbursement for specific students and staff with a documented unmet need. Further, the District used a consultant for administering the program, and it relied on the consultant to ensure documentation to support the reimbursements was complete with all required elements. Effect of Condition and Questioned Costs Allowable activities and costs/restricted purpose ? unmet need Because the District did not have documentation supporting whether it provided eligible equipment to students and school staff with actual unmet need, it cannot demonstrate compliance with the program?s requirements. Given the nature of the program and circumstances, it is likely that at least some of the equipment the District charged to the award addressed unmet needs. However, the lack of a documented assessment of students? and staff?s actual unmet need means that all costs are unsupported. Since we do not have a reasonable basis for estimating how much of the District?s expenditures are allowable, we are questioning all unsupported 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 does not have adequate documentation to support expenditures. Recommendation We recommend the District work with the granting agency to determine audit resolution. We further recommend the District establish and follow internal controls to ensure staff fully understand the requirements for ECF awards. Specifically, the District should request reimbursement only for eligible equipment and services provided to students and staff with unmet need, and maintain documentation demonstrating compliance. District?s Response The Anacortes School District would first like to acknowledge the high level of professionalism, good communication, and overall quality of the audit performed this year. The letter dated May 26, 2023 from Chris Reykdal, Superintendent of Public Instruction, to State Auditor, Pat McCarthy, acknowledges the fact that the State Auditor?s Office is compelled to audit based on the Federal Compliance Bulletin issued ?. . . despite very poor guidance from the federal authorities about the documentation that would be expected from local school districts.? The District understands that our local auditor?s followed the Federal Compliance Bulletin and even sought clarification at the State level in ensuring the quality and accuracy of issues related to this audit finding which demonstrated the high level of integrity our local auditors possess. The Anacortes School District did separate surveys of students and staff to identify unmet needs in our district for electronic devices (Chromebooks) and used this data to apply for the ECF funds. We were awarded the funds based on our application and followed through with the purchase on that basis and claimed reimbursement. The District acknowledges that it did not re-establish documentation for the unmet needs for those students and staff receiving the devices at the time funds were received. The District?s understanding was that the determination of unmet need was to be done by the District and that the District would have flexibility on determining the unmet needs of the students and staff. The District feels that the FCC did not make it clear what, if any, documentation was required regarding re-establishing the unmet need at the time funds were received. This belief was shared by many other school districts as noted in a ?Special to the Times? article in the Seattle Times written by The Washington State Auditor, Pat McCarthy in regards to the FCC stating ?I sent the agency a formal letter detailing the gaps between guidance to schools and instructions to auditors.? It also stated ?When taken together with the unusual number of audit findings, this context suggests school districts believed they were adequately documenting their work. However, it also suggests that the FCC?s communication with school districts was not clear regarding what documentation it would ultimately require.? The District does understand that documentation is important therefore would like to note that in addition to the initial survey results identifying the unmet need the District did have the following documentation for each device: Date purchased, purchase order number, cost of the specific device, serial number, district asset tag, date the device was checked out to a student, when applicable the date the device was returned to the district, and the dates for all software updates and hardware repairs for the device. This documentation includes the fact that the device is still in the hands of the students today and is specific about which student has what device. To summarize, the Anacortes School District believed we were meeting the regulatory requirements throughout this process. It seems like the instructions provided to the auditors were more stringent and less flexible than originally presented to the districts by the FCC. Auditor?s Remarks The State Auditor?s Office is sympathetic to the significant challenges the District faced during the COVID-19 pandemic, and deeply respects its commitment to student learning despite these challenges. SAO knows that in many cases, governments across Washington received significant pandemic-era federal funds without also receiving clear guidance on how to use them. Then, and now, SAO continues to advocate for clear, timely guidance from federal agencies to make sure Washington governments are not put in a difficult position at audit time. However, when auditing federal programs of any kind, governments must provide documentation to substantiate that they met the award requirements. As is our practice and audit standards require, we will review the status of this finding during our next audit. We value our partnership with the District in striving for transparency in public service. 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 47 CFR Part 54, Universal Service, Subpart Q, Emergency Connectivity Fund, describes the ECF Program requirements.

The District did not have adequate internal controls to ensure compliance with federal requirements for time-and-effort documentation and standardized test security. CFDA Number and Title: 84.010 Title I Grants to Local Education Agencies Federal Grantor Name: 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: N/A Questioned Cost Amount: $0 Background The objective of the Title I 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. The District spent $300,741 in federal funds for its Title I program during fiscal year 2020. Employee salaries and benefits made up approximately 95 percent of program expenditures. 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 program controls. Time-and-effort documentation The District is responsible for ensuring it supports all payroll costs charged to the grant with adequate time-and-effort documentation, as required by federal regulations and the grantor. Depending on the number and type of activities employees perform, time-and-effort documentation can be a semi-annual certification or monthly personnel activity report, such as a detailed timesheet. If the District initially allocates payroll expenditures to federal programs based on budgeted or estimated time or amounts, then payroll and time-and-effort records must be compared at least quarterly and adjusted if the difference is 10 percent or more. At year-end, payroll records must match time and effort documentation to ensure federal awards are charged only for work directly supporting them. Standardized test security States, in consultation with school districts, must establish and maintain an assessment system that is valid, reliable and consistent with relevant professional and technical standards. States must have formal, well-documented policies and procedures to maintain test security and ensure that districts implement these policies and procedures for all standardized tests. OSPI provides templates for all districts to document their Test Security and Building Plans (TSBP) for each assessment districts administer. This serves as a district?s written policies and procedures. The template contains a link to detailed guidance as well as other templates for logging staff who attend required training and staff assurances for test security. These templates also provide assurance that school districts are following the prescribed requirements and understand any new requirements. Description of Condition Time-and-effort documentation The District?s controls were not effective to ensure it obtained all time-and-effort documentation from one employee who worked part-time and four employees who worked full-time in the program. Additionally, the District allocated costs to the program based on budgeted time and did not perform quarterly reconciliations or year-end adjustments between budgeted and actual time for six employees, as required by federal regulations and the grantor. 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. Standardized test security The District?s controls were not effective to comply with this requirement. The District did not complete or retain Test Security and Building Plans (TSBP) or other testing documentation for all standardized tests it administered, as required by OSPI. 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 current COVID-19 pandemic has significantly affected District operations, including developing a virtual learning environment and implementing Centers for Disease Control and Prevention health and safety guidelines. Because of this, District staff were not able to dedicate the necessary time to ensure all Title I requirements were met and all supporting documentation was retained. Additionally, the District experienced turnover in the key position overseeing Title I operations. Effect of Condition and Questioned Costs Time-and-effort documentation The District?s noncompliance with grant requirements could jeopardize future federal funding and might require it to return federal funds to the grantor. For five of the six employees tested, we found the District did not obtain time and effort documentation for 13 of 28 payroll transactions that required time-and-effort records and could not support costs charged to the federal program as OSPI requires. Without proper time-and-effort records, federal grantors cannot be assured that $231,966 in payroll costs charged to the program were accurate and valid. During the audit, the District obtained and provided the signed time-and-effort records; therefore, we are not questioning these costs. Additionally, because the District did not perform reconciliations between budget and actual time for all six employees, it charged unallowable payments totaling $3,482 to the program. Standardized test security Without a documented plan, the District cannot demonstrate it implemented and complied with all of OSPI?s assessment security requirements while conducting standardized tests. Recommendations We recommend the District establish and follow internal controls to ensure it complies with federal and OSPI requirements for time-and-effort documentation and assessment system security. Specifically, we recommend the District: ? Obtain all monthly and semi-annual time-and-effort certifications timely and perform reconciliations between budgeted and actual hours for all Title I staff as OSPI requires. ? Establish a written TSBP for each standardized test it administers and ensure the plan contains all elements, as OSPI requires. District?s Response The district agrees with the auditor?s findings. The district will implement both items identified above to correct issues moving forward. ? Obtain all monthly and semi-annual time-and-effort certifications timely and perform reconciliations between budgeted and actual hours for all Title I staff as OSPI requires. ? Establish a written TSBP for each standardized test it administers and ensure the plan contains all elements, as OSPI requires. 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. Time-and-effort documentation Title 2 CFR Part 200, Uniform Guidance, Subpart E, Cost Principles, establishes requirements for determining allowable costs and supporting costs allocated to federal programs. Office of Superintendent of Public Instruction Addendum to Bulletin 048-17, establishes requirements for documenting time and effort. Standardized test security Title 20 U.S. Code section 6311(b)(2)(B)(iii) requires state and local education agencies to establish and maintain valid and reliable assessment systems, consistent with relevant professional and technical standards.