SSD 2013 Procedure Report

Seattle School District No.
1

General
Code: 03Seattle-AC13-SA13
Name: Seattle School District No. 1
Group: Central King County
Type: 03-School District
Location: King
Scope: Accountability, Financial, SA
Team
Lead: Heidi Wiley
Manager: Anastassia Efanova
Procedures

A.1.PRG - TeamMate Administration

Procedure Step: Audit Set Up
Prepared By: AB1, 11/15/2013
Reviewed By: AVE, 1/28/2014

Purpose/Conclusion:
Seattle School District No. 1
Purpose / Conclusion:
Set up TeamMate audit file in accordance with TeamMate Protocol.

Testing Strategy:
All of the following steps are required in order to properly set up the TM file except for the optional step to set up global tickmarks. I f the budget
is less than 100 hours, auditors may skip steps 4-6 (filling out the profile and sending to TC) until the end of the audit.

1. Add the audit team to the project - To do this, go to the Planning tab and select Team. Then select the team from the TeamStore by
clicking the get button.

2. Set Project Manager and Lead - Select the Lead and Manager from the drop down menus in the Team Tab of the Profile. The "Lead"
should be the Auditor-In-Charge of the audit, and the "Manager" should be the Assistant Audit Manager supervising the audit.

3. Fill out initial information in the Profile - The Project Profile captures general information about the audit for the TeamCentral
database. Access the Profile from the Planning tab and populate as many of the required fields in the Profile as possible at this stage of the
audit. A description for each required field can be found in the TeamMate Protocol document.

4. Send Audit to TeamCentral - Go to the Review tab and click the Send to TeamCentral button to bring up the Send Wizard dialog
box. Select next; allow all issues to be sent (there should be none at this point, since the audit is just starting); select okay; select next and then
select the Send directly to TeamCentral web service (recommended) option and then finish.

5. Resolve any email trigger (DINS) issues - Each time you send the audit to TeamCentral, you will receive an email response. The Data
Integrity Notification System (DINS) application performs a series of edit checks on data sent to central to ensure accuracy and conformity to
protocol. If you receive an email response that identifies exceptions, resolve the exceptions and send to central again until you receive an email
response where no errors are noted.

Exceptions could indicate either errors in the TeamMate profile or issue data or errors in other SAO databases. If you have confirmed that
information in TeamMate is correct, contact the TeamMate Administrative Group to initiate corrections to our other databases.
6. Set up your favorite global tickmarks (optional) - Global tickmarks are available throughout the audit file and do not change from
workpaper to workpaper. You can access the global tickmarks screen from the Planning tab.

7. Initialize Audit Attempt to sign off on this step, which will trigger a dialog box asking if you would like to initialize the audit. After
initialization of the audit, you may continue to add users or global tickmarks, but cannot delete any.

Policy/Standards:
See TeamMate Protocol document

Record of Work Done:
1. Added the audit team to the project

2. Set the Project Manager and Lead

3. Filled out the audit profile

4. Sent audit to TeamCentral

5. Resolved all email trigger issues

6. Set up my favorite global tickmarks, if needed

7. Initialized the audit file

A.1.PRG - TeamMate Administration

Procedure Step: Project Review & Finalize
Prepared By: (None)
Reviewed By: JWG, 7/2/2014

Purpose/Conclusion:
Purpose/ Conclusion:
To ensure that audit documentation complies with TeamMate Protocol, the audit file is ready for finalization and archiving, and that any files
outside of TeamMate are completed and reviewed.

Testing Strategy:
Replicas
Ensure that all replicas are merged into the master file and discard any replicas that will never be merged.

Review of workpapers
Review workpapers to ensure they are completed and properly signed off. You can use the Procedure Status Viewer (for all procedure steps) or
the Schedule Status Viewer (for procedure summaries and attachments) to see the status of steps and attachments in the audit file. The Viewers
can be accessed from the buttons on the Navigation Bar at the bottom of the screen.

Coaching Notes
Verify that all coaching notes have been addressed and cleared. You can use the Coaching Notes Viewer to see the status of all Coaching Notes
in the audit file. The Coaching Note Viewer can be accessed by from the button on the Navigation Bar at the bottom of the screen.

During the finalization process, coaching notes will be deleted. If you want to keep these notes you will need to create a report using the Reports
wizard and save it outside of the TeamMate file.

Hardcopy Files and External Data
Ensure that hardcopy files referenced by the audit are completed and reviewed. Also ensure that any unnecessary documentation or files,
including databases with any confidential or sensitive information, are appropriately disposed. If files or databases are needed for future periods,
ensure these are appropriately secured. See the SAO Admnistrative Policy on Data Security and Access.

Project Profile
Review and update the Profile information. See the TeamMate Protocol document for definitions and instructions for each required field. The
Protocol document can be accessed from your Start Menu | All Programs | State Auditors Office or on the I ntranet on the TeamMate page.

Issue Review
Ensure issue content is exactly what was presented to the client per the Exit Document, Management Letter, or Finding. There should only be
one issue for each finding, management letter item and exit comment. Additional information or notes about the issue can be documented in the
"notes" tab. Any other documented issues (that were communicated verbally, at pre-exits or were later combined or dropped) should be either
deleted or marked as "verbal recommendations."

Check that all required issue fields are completed and correct. See the TeamMate Protocol document for definitions and instructions for each
required field. The Protocol document can be accessed under Help | Local Guidance or on the I ntranet on the TeamMate page.

Issue Sign-Off
All issues must be reviewed and signed off by a Supervisor and/or Manager, per Protocol. The finalization process will require all issues to have a
state of "reviewed."

Send Audit to TeamCentral
Go to Tools | Send to TeamCentral Repository to bring up the Send Wizard dialog box. Select next; allow all issues to be sent; select okay; and
then finish.

Resolve any Email Trigger (DINS) Issues
Each time you send the audit to TeamCentral, you will receive an email response. The Data Integrity Notification System (DINS) application
performs a series of edit checks on data sent to central to ensure accuracy and conformity to protocol. If you receive an email response that
identifies exceptions, resolve the exceptions and send to central again until you receive an email response where no errors are noted.
Protocol exceptions could indicate either errors in the TeamMate profile or issue data or errors in other SAO databases. If you have confirmed
that information in TeamMate is correct, contact the TeamMate Administrative Group to initiate corrections to our other databases.

Complete/Finalize Project
After the audit report has been sent to OS the audit should be finalized by the Manager. To do this, go to Project | Finalize. The finalization
process will:
Halt the process if any issues have not been reviewed;
Warn the Manager of unreviewed workpapers and/or steps;
Check for uncleared coaching notes;
Create a backup of a pre-finalized file;
Finalize the project, which prevents any further changes from being made to the file.

Note: if the project is finalized and the team subsequently needs to add or modify the documentation, contact the TeamMate
Administrator for assistance.

Send TeamMate file to be Archived
Teams on the Olympia Network
After the project has been finalized, move the project to the To Be Archived folder on the Olympia Network at the following
location: \\Saogpoly002\TMArchive\To_Be_Archived. The TAS Administrator will access the file from here to start the archiving process.

Remote Teams (all Local Audit Teams except for Olympia and Tacoma)
After the project has been finalized, log back into the project and create a backup copy of the finalized project and place it in the To Be Archived
folder on the remote server. Open Inside SAO and select the TeamMate To Be Archived link on the right side of the screen (if you have to log in,
your user name and password is the same as you would use to log onto the Intranet). Select the Upload File button, click Browse, then navigate
to the location where your finalized backups are saved. Select the file and click Open. [Do Not Use the SAVE AS box] Click Upload. The TAS
Administrator will access the file from here to start the archiving process.

Policy/Standards:
See TeamMate Protocol document

All of the following steps have been completed for this audit file:
All outstanding replicas are merged.
All workpapers have been reviewed.
Coaching notes have been addressed and cleared.
Hardcopy files have been completed and reviewed.
Unnecessary files and databases have been appropriately disposed of, and any files or databases needed for future periods have been
appropriately secured in accordance with SAOs administrative policy on Data Security and Access.
The audit profile has been completed.
Issue content has been reviewed and required fields completed.
All issues have been signed off as reviewed.
Audit was sent to TeamCentral.
All email trigger exceptions are resolved.
The audit will now be finalized and sent to be archived.

B.1.PRG - Accountability Planning - Local Govt

Procedure Step: Entity, Environment & COSO Evaluation

Purpose/Conclusion:
Purpose:
To identify potential accountability risks to consider in the planning conference brainstorm by gaining an understanding of the entity's operations,
environment and entity-wide COSO elements.
Conclusion:
Based on our understanding of entity operations, environment and entity-wide COSO elements, we noted the following potential accountability
risks to be discussed at our planning conference brainstorm.
Excessive turnover and transition in leadership
District has numerous large capital projects scheduled due to BEX IV levy funding.
Accountability over transportation including: failure to report personal use of district vehicle to IRS, lack of cross training resulting in
excessive OT costs, no allocation of transportation costs by school.
Safeguarding assets -- No centralized authority over use of fleet vehicles. No screening procedures to ensure statutory compliance with
DOL (auto license is current, no recent suspensions) No centralized fleet maintenance schedule.
Team SP recommends basic enrollment and transportation testing be performed at the local level.

Testing Strategy:
The following procedures are required to be done:
Review the applicable planning guide(s)
Update the "COSO Evaluation" step in the permanent file
Update the "Entity Operations" step in the permanent file
Maintain a current understanding of significant internal control systems.

To maintain a current understanding of significant internal systems, determine when systems were last reviewed and/or tested. Updates
may be done as part of planning procedures or may be addressed as part of the accountability plan when areas are selected for testing. A
significant internal control systems include controls over safeguarding significant public resources and managing significant compliance
requirements.
Auditors may also consider additional procedures, based on the entitys size, complexity and anticipated risk and the auditors
experience. Additional procedures may include:
Scan the entity's annual report, budget and/or comprehensive plan.
Review recent Client Helpdesk questions submitted by the government. Any accounting and auditing questions and answers can be
viewed in Helpdesk tab of EIS.
Review list of resolutions passed during the period.
Review the entity's organizational chart.
Obtain a list of departments and/or programs.
Review the entity's website.
Tour facilities.
Inquire with management and other key employees as to any significant events or changes occurring since the prior audit (ex: new debt,
major construction, new software, etc).
Identify restricted funds held by the entity.
Review list of contracts awarded or contract activity reports.
Identify significant revenue and expenditure streams.
Identify cash receipting locations.
Obtain a list of petty cash, change funds and imprest funds.
Review permanent file documentation on controls over key systems.
Scan bank account and investment statements or financial statement notes to determine the types of investments and deposits the entity
is holding.
Review Public Disclosure Commission filings for elected officials or request information on personal or family businesses and land holdings
from appointed officials and/or key employees.
Inquire with management to determine whether the entity self-insures for any risks.

Policy/Standards:
SAO Audit Policy 4210 - Planning Accountability Audits

BACKGROUND
The purpose of planning procedures is to identify and assess risks of fraud, loss or abuse of public resources; non-compliance with laws and
regulations; and the internal controls over such matters. Selected risks to audit must be significant to the public and other users either
quantitatively or qualitatively. This is based on auditor judgment. To address those risks, auditors must develop effective audit tests and
strategies.

REQUI REMENTS
1. Auditors will perform the following planning procedures to identify and assess accountability risks:
Review the planning guide.
Review meeting minutes of the governing body.
Gain an understanding of the entity and its control environment.
Maintain a current understanding of the relevant policies, procedures and internal controls over significant accounting systems.
Review the prior audit, the future audit work file (FAWF) and citizen hotline referrals.
Review fraud investigations (including in-process) and other relevant engagements.
Perform planning analytical procedures.

The nature, timing and extent of planning procedures vary with the size and complexity of the entity, and with the auditors experience
with the entity. Auditors will consider whether other planning procedures are necessary to identify risks.

2. Supervisory review of the results of planning procedures will be completed before the planning conference brainstorm.

Supervisors will ensure potential risks are specifically and clearly described to enable an effective discussion during the brainstorm and
provide the basis for developing testing strategies that appropriately respond to selected risks.

3. A planning conference brainstorm will be conducted to finalize the assessment, sort and prioritize risks, and develop
procedures to ensure risks are properly addressed.

The audit manager, supervisor, auditor-in-charge, among others, will hold a planning brainstorm to sort and prioritize risks identified during
planning and to strategize audit tests. The following factors will be considered:
Relevance, considering public sensitivity, the expressed concerns or questions of management and those charged with governance, as
well as the primary activities, systems or events occurring at the government.
Potential impact, considering the likelihood and magnitude of potential impacts such as fraud, abuse, loss or questioned costs
associated with noncompliance.

Sometimes a risk may be addressed by more than one type of engagement. Auditors must sort the risks to determine what audit type
would be most appropriate to address them.

The analysis of risks and decisions made during the brainstorm will be documented in sufficient detail to support the focus and scope of the
audit.

4. An audit plan will be prepared from the results of the brainstorm, and a detailed budget will be developed to track budgeted
and actual audit hours.

Supervisory review is important to determine whether adjustments to the plan are needed based on changing circumstances. Significant
revisions to the audit plan must be approved and documented.

5. Auditors will communicate information about the planned audit to client management and those charged with governance.

Auditors must also ensure significant changes to the planned audit are communicated to the client in a timely manner. All communications
must be documented. Refer to Policies 2130 (Inviting Elected Officials to Entrance/Exit Conferences), and 2210 (Conducting Entrance
Conferences).

RELATED POLI CI ES
4110 Objectives and Authority for Accountability Audits

Procedures Performed to Update Understanding

We reviewed the Entity, Environment & COSO Evaluation at G.1.PRG and G.1.PRG
We reviewed the 2012-2013 budget. See B.1.5 The district continues to face shortfalls in available resources with a $24.8M shortfall for
2012-2013 budget which is approximately 4% of the total general fund budget of $590M. Risks identified: Strained classroom funding
takes precedence over compliance issues. District staff will continue furlough days during 2012-13 school year. Senior management will
take four unpaid days; and the majority of staff will take two unpaid days.
We reviewed the District's organization.SPS_OrgChart_All Excessive turnover and transition in leadership poses uncertainties of the tone
at the top. The organization hierarchy is a work in process. In J une 2012 the District hired J ose Banda to replace interim Superintendent
Susan Enfield. The District hired Kenneth Gotsch as Assistant Superintendent Business & Finance, who will begin December 2nd 2013,
replacing Duggan Harman. Mr Gotsch has held positions in the Chicago and Los Angeles Public Sch Districts. In addition he has served
as Deputy Director for Chicago Dept of Revenue and as Bond Analyst for Illinois Economic and Fiscal Commission. In August 2012 the
District hired Charles Wright, J r. as Deputy Superintendent and Dr. Lester Flip Herndon J r. as Assistant Superintendent, Capital,
Facilities and Enrollment Planning. Mr. Wright is the former Chief Strategy Officer with Denver Public Schools, and Dr. Herndon was
Superintendant of Bremerton Public Schools.
In response to our audit recommendations the district created the Office of Internal Audit IAO and hired Andrew Medina as Director of
IA. IAO focus is on improvement opportunities and finding sustainable solutions. IAO reports to the Audit and Finance committee and
results are reported directly to the School Board. We will review changes in significant positions to determine if accountability is clearly
defined by org and coordinate our efforts with Internal Auditor to ensure our accountability audit work does not overlap or duplicate the
work of the IA.
For informational purposes only, we obtained the total number of schools operated, by type (HS, MS, ES etc.). The District has a total of
95 schools which breaks out as follows: Elementary - 59, K-8 - 10, Middle -9, High - 12, and Service (Alternative) - 5.We obtained FY2013
enrollment report from Kathie Technow. See B.1.8 Overall enrollment is consistent with prior year. Gains in enrollment at the ninth grade
level are lost by grade 12 indicating students entering at the ninth grade level do not complete their eduction through the twelfth grade or
they leave the district prior to completion. Bilingual and special education combined enrollment increased by approximately 11% based on
adopted budget.
Significant Resources: State funding provides the largest portion of district funds at $305.7 million or 51.7% of total resources. Of this
amount $240 million is based on apportionment (no of attending students x legislative funding formula); and 66.1 million are state special
purpose funds for special ed, bilingual ed, student transportation, tutor programs etc. The second largest funding resource -- $154 million (
26% of resources) is a taxpayer supported levy for general education programs and operations. Federal funds provide $73.5 million or
12.4% of resources to fund Title I and Head Start programs and supplemental funding for Special Ed, free and reduced rate lunch
programs. Other revenue funding provides $31.1 million or 5.3% of budgeted resources from rental or lease of district property, investment
earnings, food service fees, and donations. Other resources account for $27.4 million or 4.6% of total resources and includes funds from
prior year school balances carried forward and reserve funds.
Significant Expenditures: Based on budgeted 2012-13 FY expenditures of $590 million, the district budgeted $468 million or 79% for
instruction; and $122 million or 21% for support services.
We reviewed the list of active employees as of 8/31/2013. We noted total employees of 9,712 is comparable to prior year and total
management staff and certificated employees is equal to the prior year. See B.1.9
The District has 100 buildings in current inventory; more than 1/3 are 40+years old. The District relies primarily on Levy funding for capital
improvement of its school buildings. There were two levy measures approved in 2013; both replace expiring levies. Operations Levy
(551.9 million) supports educational programs not fully funded by the state. Capital Levy -- Building Excellence IV (BEX IV) funds the
construction or renovation of 17 schools; retrofit improvements for 37 schools, security camera system at 19 schools and other major
maintenance and technology improvements throughout the District.
We reviewed the meeting minutes at B.1.3 including resolutions passed during the audit period.
Risks Noted from review of Planning Guide: G.2.1
Per review of the planning guide, we noted the following:
Required Risks to Assess
We reviewed the Planning Guide for school districts at G.2.1 with updates made by CKC audit team.
Alternative Learning Experience Programs -- ALE audits are being planned under a separate process. Team School Programs will conduct
all ALE audits. In 2012 Team schools performed a file review resulting in no significant issues that would impact our audit.
Financial Condition We performed financial analysis in prior year audits and there were no indicators of substantial financial
distress. Taxpayers continue to support the District with levy funding for operations and capital improvements.
Evaluating the District's financial condition is required per SAO Schools Planning Guide. We evaluated the financial condition of the school
district using financial indicators posted on the OSPI website as of March 2013 for FY 2012. B.1.7 We summarized the fiscal score for SDS
and for other Districts in its peer group. Districts with higher scores generally have more ability to adapt to unforeseen budget cuts,
revenue losses, unexpected expenditures, etc. In comparion, SDS scores slightly higher than other districts in its peer group and the
score over the last three years has remained consistent. We will perform additional review in our accountability work at D.6.PRG
From the District's F-196, we performed a 3 year trend of non-voted debt to determine if there have been increases in non-voted
debt. For Debt Service Load, 20% is the benchmark given for a high debt load for school districts, according to the Handbook of Debt
Management, edited by Gerald Miller. The SSD averages 11.7% and has been consistent over the past three years.
F-196 Financial Statement FY11 FY12 FY13 $ Change % Change
Total Non-Voted Notes/Bonds $ 32,925,000 $ 32,030,000 $31,045,000 ($985,000) -3%
Red Flags:
Excessive turnover in management and staff positions. Uncertainty of tone at top. Interim Superintendant's contract is renewed and
extended quarterly until the position is permanently filled.
District has a number of large capital projects scheduled due to influx of BEX IV levy funds that will impact communities and result in
students being reassigned to other schools while construction is taking place.
Decentralized control environment resulted in a number of issues affecting accountability over transportation, including
undocumented personal use of fleet vehicles, failure of District to report benefit of district vehicle on employee's W-2, payment of OT not
authorized by Collective Bargaining Agreement, no cross training of transportation salaried employees resulting in excessive OT charges
by select employees, no allocation of transportation costs by school, no review of fuel costs for reasonableness.
No centralized budget/cost center for fleet management. Fleet manager does not have authority to question use of fleet vehicles by
management and staff or establish screening process for appropriate use of fleet vehicle. In addition, there are no screening procedures
in place to ensure statutory compliance with DOL (no review to determine if auto license is expired or currently suspended prior to
granting permission for use of fleet vehicle.)
No maintenance schedule for fleet vehicles. Maintenance is at the discretion of the employee currently assigned use of the vehicles.
Risks Noted from other procedures:
Based on other procedures performed, we noted the following:
We met with Andrew Medina, CPA and Internal Auditor for the District on 11/18/2013. Due to turnover of significant positions Mr Medina
indicated that although the District's internal audits result in a request for corrective action plans, the action plans are not completed within a 6
month framework but rather are pushed back and rescheduled due to management and staffing changes. The IAO continues to review control
environment and ensure procedures are documented. For 2013-14 the IAO will review controls over capital projects, controls over special
education administration, staff mix, testing integrity -- addressing cheating scandals, and tone at the top to determine that District goverernance
and practices address COSO framework.

Apportionment - This is the largest revenue source for the District and is based on three funding drivers - Enrollment, Staff-Mix and
Transportation. The Schools Team suggests we audit basic enrollment for FY13. Enrollment was last reviewed in FY09 and errors were noted in
FTE calculations. Team SP suggests testing enrollment data from two schools (elementary and/or middle school) for September 2012. We will
perform testing at D.3.PRG
We will consider staff mix for review during our planning brainstorm. Transportation regulations and reporting requirements have changed
recently. Team SP suggests local teams plan transportation audits using the 6 step procedure outlined in TeamMate. We will perform testing of
transportation reporting at D.4.PRG.


Procedure Step: Other Engagements & FAWF

Purpose/Conclusion:
Purpose:
To identify potential accountability risks to consider in the planning conference brainstorm from other engagements and the FAWF.
Conclusion:
Based on our review of other engagements and the FAWF, we noted the following potential accountability risks:
Payroll OT reporting was identified as a risk in the prior year.
Payroll benefit personal use of District vehicle and inadequate support of reimbursed fuel expense
Disbursements to personal service contractors prior to signed contract agreement.
Inadequate documentation for sole source determination for personal service contracts
Lack of sufficient and effective monitoring over transportation invoice payments, fuel accountability, personal use of District vehicles
No cost allocation plan for fuel usage.
Insufficient controls over accounts receivable for use of facilities by third party
In prior year we identified exceptions in testing of staff mix; however, District verified that files contained required transcript data. We will
discuss in our brainstorm if staff mix should be included as a risk area.
PY audit identified new asset monitoring system for tracking capital as a risk area. We will consider including this FAWF item in our
brainstorm meeting.

Testing Strategy:
Auditors are required to review the following for information relevant to accountability audit objectives:

FAWF
Review Future Audit Work File (FAWF) items.

OTHER ENGAGEMENTS & STUDI ES
Identify other audits or engagements that may be relevant to accountability audit objectives. Check the Entity Information Suite (EIS) to identify
prior and in-progress SAO audits and special investigations. Auditors should specifically consider:
Prior accountability audit exceptions
Prior accountability audit scope (from plan, exit document or history/cycling matrixes)
Fraud investigations (note: open investigations must be coordinated with Sarah Walker)
Hotline referrals (note: open examinations must be coordinated with J eana Gillis)
Financial, single audit, performance or other SAO reports
Non-SAO audits, attestation engagements or studies that directly relate to accountability audit objectives (see Audit Policy 3530 related
to grant or oversight agency work)
Work of internal auditors (see Audit Policy 3520 for requirements on use of work of internal auditors)
Review identified audits that relate to accountability audit objectives for relevant work and exceptions.

Follow up on any relevant recommendations or findings to determine whether corrective actions were implemented. Follow-up procedures may
be performed at this point or incorporated into the audit plan and referenced in this step.

Policy/Standards:
SAO Audit Policy 3410 Follow Up on Previous Audits (effective 6/ 3/ 08

BACKGROUND

Government Auditing Standards (Yellow Book) require auditors to consider the results of previous audits, attestation engagements and other
studies and follow up on significant findings and recommendations that directly relate to the objectives of the audit.

For example, when conducting an audit under the federal Office of Management and Budgets (OMB) Circular A-133, auditors must follow up on
prior audit findings relative to federal awards. If any uncorrected federal findings were reported in the prior single audit, auditors must then
perform procedures to assess the reasonableness of the summary schedule of prior audit federal findings prepared by the auditee, and report, as
a current year audit finding, when the auditor concludes that the summary schedule to prior audit federal findings materially misrepresents the
status of the prior audit finding. Auditors would also inquire about other reports or reviews on federal programs such as reviews done by
granting agencies and consider these as part of the auditors risk assessment or audit of that federal program.

REQUI REMENTS
1. In planning an audit, auditors will consider findings and recommendations from previous engagements.

Auditors will ask entity management to help identify previous audits, attestation engagements, performance audits or other studies directly
related to the objectives of the audit. This includes work done by other independent auditors, internal auditors, program or grant
auditors.

Auditors will then determine if any significant findings or recommendations were reported and use this information in assessing risk and
determining audit procedures. Refer to Policy 3530 for additional requirements on use of grant or program monitors work as audit
evidence.

2. Auditors will follow up on findings and recommendations from previous engagements that directly relate to the objectives of
the audit and evaluate whether appropriate corrective action has been taken.

Professional judgment is used to determine the level of work necessary to follow up on findings and recommendations.

3. The status of prior audit findings will be reported according to the guidelines provided in the Audit Reports Standards
Manual.

RELATED POLI CI ES
3530 Use of Grant/Program Monitors Work
4210 Planning Accountability Audits
5210 Planning Single Audits
6210 Planning Financial Statement Audits
7210 Planning Performance Audits

REFERENCES
Government Auditing Standards (Yellow Book) 4.09, 7.36
OMB Circular A-133 Audits of States, Local Governments, and Non-Profit Organizations

______________________________________________________________


BACKGROUND
strategies.

REQUI REMENTS







audit.




Conferences).

RELATED POLI CI ES

We will consider the following information in planning our accountability audit:
FAWF
The District implemented a new monitoring system for tracking assets and holding staff accountable for missing assets. The new system
was effective 6/2012. We will review the change in procedures and determine the effectiveness of controls in mitigating risk of lost or
misappropriated assets.
Risk identified: Policies for hiring substitute or special instructors were circumvented at Garfield High School. This was due to a lack of
timeliness for clearing background and fingerprint testing at the District level.

Kiro News summarized results of public records request and reported abuses in OT charges by exempt management. Per news report
dated 11/12/2013, Supervisor of Nathan Hale school radio station, Gregg Neilson made $70,000 in overtime and $80,000 in regular paid
wages during 2012-13 school year. Additional OT payments were made to exempt employees in Transportation Services, including
Transportation Analyst C. Martin, Transportation Mgr, M. Drorbaugh and Team Lead, S. Richard all earned OT during 2012-13 school
year.
In same news reporting of 11/12/2013, Kiro News reported abuse of IRS standards for personal use of the District's fleet vehicles. The
Kiro report is based on internal audit performed by Andrew Medina who was hired to review and report District activities directly to the
Board. In addition, the District does not track fuel use or require employees to keep mileage logs to support business use.
Kiro News reported in May 2013 that the District places students at risk by providing door to door cab services by drivers that work under
contract. Although all taxi drivers must have a valid taxi license and receive a background check by the City or King County, they are not
trained or screened by District standards.
SAO AUDITS
We noted the following weaknesses in internal controls in our prior year audit:
Payroll procedures are not sufficiently documented.
Salary overrides performed in the SAP system are not supported and documented by authorized rate changes. Per PY audit payroll
transactions were also made outside the SAP system.
The payroll module PA30 allows edits to be made to the Master payroll file without an audit trail.
Additional risk that classified employees put on the displaced list continue to receive a paycheck after their position has been eliminated.
Access to the master file by payroll staff was unlimited in the prior year.
Approval of rate increases were made verbally and no confirmation of rate changes or overrides were made for the file or to the
employee.
There were no requests for exception reports or data from IT to identify staff edits to the payroll master file by IP address.
Edits made to the hourly rate in the payroll master file allow the annual salary to increase beyond the grade and step level identified per
the contract.
Adjustments to annual pay were not reported to the budget oversight committee and finance staff thus not ensuring sufficient funds were
available to cover additional payroll expenditures.
The District allowed personal service contract modifications without proper explanation or justification. In addition payouts were made
prior to contract approval.
Unnecessary contract procurement for tasks that could be performed in house by Facilities Dept staff.
The District lacked internal controls to ensure all revenue owed was collected for its numerous properties and facilities.
The District charged salaries to the incorrect fund resulting in improper coding of salaries to capital expenditures.
Overtime payments were issued without authorization by a supervisor with direct knowledge of the employee's work hours.
The District did not hold employees accountable to policy for inventory and return of tools upon termination, allowed employees to exceed
the maximum allowed for lost or damaged tools and allowed one employee to charge tool purchases to the District after being
terminated.
The District does not hold employees accountable for policies over use of fuel cards and fleet vehicles. Employees were not required to
sign a vehicle use agreement; fuel cost invoices were submitted for reimbursement without approval from an immediate supervisor or
review for reasonableness. Employees were not required to document business use via mileage logs and thus no allocation of business to
personal use was performed. In addition the District did not adjust inventory for vehicles acquired and did not mark new vehicles with the
District logo as required per District policy.
Prior audits noted risk of the District not providing after hours tutoring services to students although funding may be available.

FRAUD I NVESTIGATIONS

We will follow-up on our SAO fraud investigations at I.1.PRG

In February 2011, our Office issued a Special I nvestigation Report on the Districts Regional Small Business Development Program (RSBDP). We
found the District paid $1,519,965 for services with a questionable public purpose and $280,005 for services it did not receive and that benefitted
a private company. In October 2011, the King County Prosecuting Attorney filed criminal charges against the former RSBDP Program Manager and
two other individuals who, according to Prosecutors Office documents, billed the District for little or no work.

On October 25, 2011, as required by state law (RCW 43.09.185), the District's Accounting Manager reported a suspected loss of public funds to
our Office. the District stated it had paid $83,430 on nine separate invoices to a vendor for cleaning at Garfield High School. During the period of
this investigation, the Small Works Program and the RSBDP Program were managed by the same individual. Based on the results of this
investigation, the Seattle School District incurred unnecessary costs of $1,279,310 due to a lack of adequate internal controls. These costs were
authorized by the small works program manager who was a part of our previous report. Many of the invoices lacked adequate supporting
documentation.
HOTLINE
We received multiple citizen concerns regarding the illegal occupation of the Horace Mann School building located in the Central district at 24th &
Cherry. We will refer to Hotline Ref Nos. H-13-498; 489;488; 485; and 491
as Hotline Ref No 13-487. We noted the following additional citizen concerns that were open as of the date of our audit: We reviewed details
at B.1.4. We will followup with the District as part of our accountability audit work located at H.1.PRG

Hotline Issue ID Status First Last Submitted Date Sent To Team
H-13-174 Open Chris J ackins 4/1/2013 4/1/2013
H-13-415 Open Chris J ackins 9/16/2013 9/16/2013
H-13-487 Open Anonymous

10/29/2013 10/29/2013
H-13-507 Open Rita Green 11/13/2013 11/13/2013
NON-SAO AUDITS & STUDIES
Internal audit reports are located at http://www.seattleschools.org/modules/cms/pages.phtml?sessionid=&pageid=249073
Based on the internal audit of disbursements by the Transportation Dept through November 2012, the District does not have sufficient and
effective monitoring over transportation invoice payments, fuel accountability, OT charges, use of take home vehicles and sole source justification
of personal service contracts.
Based on IA over accountability of maintenance of school property, the District does not have a systems in place to account for tools valued under
$1,000. The District receives one invoice for the fleets total fuel consumption. In addition costs associated with fuel usage is not charged to cost
center to which the vehicle is assigned.


Procedure Step: Minutes

Purpose/Conclusion:
Purpose:
To identify potential accountability risks to consider in the planning conference brainstorm by reviewing minutes of the governing body.
Conclusion:
Based on our review of minutes, we noted the following potential accountability risks
The District lacked internal controls to ensure all revenue owed was collected for its numerous properties and facilities.
Budget constraints, and decreases in funding present a risk of misuse of restricted funds for general fund expenditures
District signs contingency contracts with prospective employees -- risk of insufficient budget oversight and monitoring of resources to
ensure all program expenditures benefit the District.
New information system for student data collection (Power School)-- risk that enrollment/transfer activity will be under/overreported
during the transition process.
District has numerous public works projects resulting from BEXIV levy funds - risk of non compliance with statutory laws.

Testing Strategy:
Auditors should check with the AIC to determine if there are any known risks or items to look for.

Examples of common risk indicators and important information to note are as follows:
Resolutions, ordinances or policies relevant to accountability objectives.
Discussion of citizen, vendor or management concerns relevant to accountability objectives.
Any actions that appear unreasonable, unexpected or outside the scope of the entitys authority.
Decisions in which board members are abstaining due to potential conflicts of interest.
Debt issuance.
Discussion of possible financial difficulties or business risks.
Significant awarded contracts or public works projects or risk indicators such as:
Governing body approval to waive bidding requirements for purchases or public works projects (ie: for sole source or emergency
reasons).
Use of alternative public works procedures such as design-build or general contractor / construction manager procedures.
Discussion of vendor protests or complaints about bid procedures or results.
Approval of large or numerous change orders.
Discussion of significant cost over-runs or other problems with public works projects.
New software or conversions.
Situations that may trigger major liabilities or impairments, such as disasters, significant losses of capital or infrastructure assets or major
lawsuits.
Transfers or interfund loans.
New grants, revenue sources or rate changes.
New cost allocation plans.
New entities, joint ventures, programs, or activities

Compliance with Open Public Meetings Laws:
During the review of minutes auditors should be alert for any apparent non-compliance with open public meetings requirements, such as:
Absence of quorum
Official actions of governing body do not appear to be documented in minutes
Actions or decisions known to have occurred are absent from minutes
Purpose of executive sessions not identified in minutes
Executive sessions appear to be for unallowable purposes
Minutes do not appear to have been taken for regular meetings, workshops and special meetings
Business conducted at special meetings was not for the published reason meeting was scheduled

Policy/Standards:

BACKGROUND
strategies.

REQUI REMENTS







audit.




Conferences).

RELATED POLI CI ES

We reviewed the District's board meeting minutes for the period of 9/1/2012 through 8/31/2013 and through the most recent
meeting of 10/2/2013 to gain an understanding of the District and its activities.
See minutes review at B.1.3

Based on our review of the meeting minutes the District is is compliance with the Open Public Meetings Act. Specifically we tested for
compliance with the following requirements:

For all meetings a quorum of 4 Board members were present.
Official actions of the governing body appear to be documented in the minutes.
Actions or decisions known to have occurred are not omitted from the minutes.
Purpose and length of executive sessions are identified in the minutes.
Executive sessions are held for allowable purposes.
Business conducted at special meetings is for reasons scheduled and publicly disclosed.
Minutes for regular, special meetings and retreats were approved at the next regularly scheduled meeting
Items noted in the minutes that may impact our accountability audit include:
Numerous public works contracts (both Design/Build and GC/CM contracts were awarded during the audit period. The
District notes increased enrollment and is planning to reopen and expand current inventory plus construct new schools to
meet capacity needs.
The District notes decreases in enrollment and funding for Head Start programs
District notes budget constraints that pose risk of misuse of restricted funds for general fund expenditures.
District must address retiring work force and high turnover of new staff.
Minutes of 9/18/2013 allude to non paying tenants at Horace Mann School facilities.
District rolls out a new system PowerSchool to replace the ESIS.


Procedure Step: Planning Analytical Procedures

Purpose/Conclusion:
Purpose:
To identify potential accountability risks to consider in the planning conference brainstorm by performing planning analytical procedures.
Conclusion:
Based on our planning analytical procedures, we noted the following potential accountability risks :
We identified vendors paid a significant increase in 2013. We will consider testing of these vendors in our brainstorm session.
We noted one hourly employee with a 40% increase in pay from the prior year and will include in our testing as follow-up to deficiencies in
internal control over payroll at D.5.PRG

Testing Strategy:
NOTE: Planning AP differs from AP used as a substantive test in that the purpose of the procedure is discovery rather than
substantiation. Although expectations of some sort are necessary for effective AP, expectations used for planning AP are often very general and
do not need to be documented. Expectations may be derived from events or changes in activity noted during other planning steps, budgets, prior
year figures, figures for comparable entities, or general understanding of relationships between activities and financial figures.
Auditors are encouraged to develop analytics to match the entity's circumstances, activities and risks. The following are examples of general
considerations for planning analytical procedures:
Trend analysis of revenues and expenditures
Auditors would generally start with high level analyticals (such as revenues by fund and 2-digit BARS or expenditures by fund and object)
before considering more detailed trends (ie: to sub-account) for certain high risk funds or accounts.
Total payments by vendor
Total payroll by employee
Trend payroll by department or type of pay (ie: overtime, recognition leave, time loss, exchange time, etc)
Amount of expenditures passing through petty cash funds, imprest accounts and/or credit cards
Surprise cash counts

CAATS Considerations
When analytical procedures involve CAATS, the following documentation guidelines should be followed:
Databases should not be included in TeamMate. Only relevant query results should be included in audit documentation. This can be
done with imported report documents, copied query excerpts, narrative description of queries and results, or other means.
When used as audit evidence, auditors should document where and how they obtained data, how they verified or were reasonably
assured of the completeness and accuracy of the data, and results. NOTE: FAP data has not been validated by Team Local ISA. For
downloads from ASP, BIAS, BiTech, CompuTech, Eden, Springbrook and WSIPC software, data validation testing strategy workpapers are
available in the SAOStore in the Planning & Audit Plan | Accountability folder.

Policy/Standards:

BACKGROUND
strategies.

REQUI REMENTS








audit.




Conferences).

RELATED POLI CI ES

CAATS Considerations Details:
We obtained G/L and Payroll data from SSD and imported the data into a Microsoft Access database. We verified the integrity of the data by
agreeing total revenues, expenses, and certain balance sheet account line items from the database to the F-196. Amounts were identical;
therefore, it appears the database is accurate and complete. We will use this information to analyze data and identify areas that have unusual
discrepancies based upon unusual items or large discrepancies between CY & PY. The MS Access "front-end" for the database is on the server in
our dedicated work space at the District's administrative offices (the path follows: \\SAOPSCKC003\TeamMate\SSD Share\FY13. The actual data
tables are located on secure servers in our Olympia offices, and the Access front-end pulls data from the database in Olympia.

We performed a four year trend analysis for:
Revenue AP B.1.10 No risks identified
Expenditure AP B.1.11 We identified vendors paid a significant increase in 2013. We will consider testing of these vendors as part of our
follow-up to PY issue re personal service contracts in our brainstorm session.
Payroll AP B.1.12 We performed payroll trend analytical procedures to identify risks to bring to the accountability brainstorm. Trend
results coincide with our understanding of high turnover of teachers due to the high percentage of new teachers that do not return the
following school year. We selected employees with a high percentage increase and verified current pay is within the pay scale of the
position. We noted one hourly employee with a 40% increase in pay from the prior year and will include in our testing as follow-up to
deficiencies in internal control over payroll at D.5.PRG.


Procedure Step: AC Brainstorm & Audit Plan

Purpose/Conclusion:
To evaluate accountability risks and develop an audit plan.

Testing Strategy:
EXPECTATI ON: The planning conference brainstorm should take place in person or on the phone after all planning steps have
been completed. The AI C should be prepared in accordance with team expectations - with a proposed priority of risks to
include in the audit. This will allow the brainstorming process to effectively evaluate and finalize scope decisions and design
further audit procedures.

STEP 1: Brainstorming Discussion (Planning Conference)
Professional judgment should be used in determining which audit team members should be included in the discussion. The brainstorm should
include, at minimum, the key members of the audit team. Normally, this would be the AIC, Supervisor and Audit Manager. This could also
include other members of the current audit team, the prior AIC, specialists or program manager or others. Managers should consider the
experience of the AIC and Supervisor and the size and risk of the audit in determining who should attend and the timing and extent of
brainstorming discussion.

The auditor must document how and when the discussion(s) occurred and participants.

STEP 2: Overall Accountability Risk
Assess overall risk for safeguarding of public resources and compliance. When determining overall risk, auditors should consider risks that relate
pervasively to safeguarding and compliance as a whole and potentially affect many audit areas. For example:
Issues with overall COSO elements, such as the control environment or information systems
Use of the County Treasurer
Ability to segregate duties effectively
Major financial distress

Planning should reflect the overall risk assessment in staffing, supervision, audit budget and the overall level of testing.

STEP 3: Determine Accountability Audit Plan
Identify accountability areas selected for testing. The plan should describe each risk selected for testing (what could go wrong) and our planned
audit response (further audit procedures).

Changes to Audit Plan:
Document both the original plan and any changes made during the course of the audit. Changes to the original plan may be documented in the
"Changes to Audit Plan" step or in the Record of Work Done (ie: using a different font color for changes or listing changes in a separate section at
the end of the plan).
Staffing:
Identify the AIC and AAM of the audit in the Team tab of the Profile, considering the knowledge, skill, and ability of personnel assigned significant
audit responsibilities and the appropriate level of supervision.
Independence and Competence:
Determine whether assigned staff are independent with respect to the entity under audit (Policy 3110). Also, ensure the assigned staff
collectively possesses adequate professional competence for the tasks required (Policy 3140).
Reliance on Work of Others:
If the audit will require the use of outside specialists (Policy 3230) or rely on the work of other auditors (Policy 3510), internal auditors (Policy
3520), or grant monitors (Policy 3530), the plan should describe the anticipated nature of this reliance.
Budget:
Develop a detailed audit budget, considering risks, staffing and other circumstances. Initial budget information can be obtained from
TABS. Inform your supervisor and audit manager if TABS is not correct so that changes can be requested.

STEP 4: Communicate risks or information relevant to other SAO audits
Information or risks identified in the planning may affect or be better addressed with a different type of engagement (for example, a financial
statement audit), a future engagement, an engagement of another local government or state agency, or by other parties, such as regulatory
bodies or law enforcement.

Policy/Standards:
SAO Audit Policy 4110 - Objectives and Authority for Accountability Audits

BACKGROUND
Our Office has statutory authority (RCW 43.09 and RCW 43.88.160) to audit financial information and compliance with state, federal and local
laws on the part of all local governments and all state agencies.

Under this authority, we conduct accountability audits. These audits are unique in that they are not required to follow professional auditing
standards although the general standards in Government Auditing Standards have been fully incorporated as policy for all engagements (including
accountability audits) in the Audit Policy 3100 series. A risk-based approach is used to provide meaningful and timely feedback about state and
local governments by focusing on significant risks that may not be material to a financial or federal compliance audit.

REQUI REMENTS
1. Accountability audits will be designed to detect and respond to areas of significant risk.

Accountability risks include fraud, loss or abuse of public resources; non-compliance with laws and regulations; and the internal controls
over such matters. These risks are considered significant when they matter to the public and other users quantitatively or qualitatively.
Fraud involves employees or contractors dishonestly or illegally taking public funds or assets.
Losses include frauds but may also result from a lack of prudent business practices such as inadequate insurance and inadequate financial
planning.
Abuse involves behavior that is improper or unethical when compared with prudent, reasonable and necessary business practices. For
example, creating unneeded overtime, making travel choices that are unnecessarily extravagant or expensive or making procurement or
vendor selections that are unnecessarily extravagant or expensive.
Non-Compliance with laws and regulations that have a public interest. For example, complying with the Open Public Meetings Act, conflict
of interest laws, the proper use of restricted funds, and requirements for investments and deposits.

RELATED POLI CI ES
1210 State and Local Government Audits

REFERENCES
Chapter 43.09 RCW
RCW 43.88.160 (6)

------------------------------------------------------------------------------


BACKGROUND
strategies.

REQUI REMENTS







audit.




Conferences).

RELATED POLI CI ES

Step 1: Brainstorm
Date: J an 7, 2014 we held a meeting at the District.
Attendees: Anastassia Kavanaugh, J im Griggs, Heidi Wiley, Annette Boulmetis
We prepared an index of audit risks at: B.1.13

Step 2: Overall Accountability Risk
We assessed the overall risk as HIGH and will conduct the audit accordingly.

Step 3: Accountability Audit Plan
Based on planning procedures and the planning conference brainstorm, we identified the following risks to be addressed by the accountability
audit, in order of priority:
Accountability Risk Audit Response
Financial Condition We plan to perform procedures using the OSPI
financial indicators to determine if the District has a
healthy financial position. Financial Condition
Required Risk
Enrollment - This area is a significant funding driver
for the District's state apportionment. This area
was last reviewed in FY09 and errors in calculating
FTE were noted. Due to complex reporting
requirements, there is a risk of non-compliance that
puts the District at risk of significant repayments of
apportionment funding.

Special Education Enrollment Risks are that
evaluations and timelines will not be completed in a
timely fashion.

We plan to perform a review of enrollment in
accordance with Team SP's suggestions, to
determine if the District is in compliance with basic
enrollment reporting requirements.
See Enrollment

Team Schools Program will perform testing to
determine if the District is in compliance with
Special Education Enrollment requirements. See
work performed at Special Education Enrollment
Required Risk
Transportation This area was last reviewed in
2007 with exceptions in ridership reporting that
resulted in the District receiving an inappropriate
amount of funding for transportation ridership.

We plan to perform a review of transportation in
accordance with Team SPs suggestions to
determine if the District is in compliance with
transportation reporting
requirements. Transportation

Facilities We noted a PY findingthe District does
not have adequate controls to ensure that it collects
all revenue for facilities usage. Due to the Districts
size and considerable number of assets there is a
risk that contract agreements for use of facilities are
not sufficiently monitored and that the expense of
operating these facilities is not being sufficiently
offset by potential revenue putting the District at
risk of financial hardship.

We plan to select contracts for testing to determine
if the District is monitoring contracts and is in
compliance with permitting and
insurance requirements for all parties concerned.
Also to verify the District has a collection process in
place to ensure timely invoicing and monitoring of
delinquent accounts and payment. Facilities
Payroll We noted several issues in the PY of
inadequate internal controls over access to HR and
payroll data files. I n addition we noted payroll costs
related to the general fund were charged to capital
and that changes made to the employee pay were
We plan to follow-up on prior year issues and
determine if the District has made progress toward
addressing these issues and document if corrective
action is in process or is in draft form. Payroll
not adequately supported by Personnel Change
forms and authorization by Management and failure
to report personal use of district vehicle to IRS
Ineligible Capital Expenditures We noted durring the
py audit the District continued charging non-capital
costs to Capital Project Fund.
We will follow up on management letter issue
regarding
charging of noncapital costs to Capital Project Fund
at Central Administrative Costs

Fleet Management -- How does the District
inventory
and perform maintenance on its fleet. To follow up
on a finding
that we issued for FY 2011 ( no follow up was done for
FY 2012).
We will obtain the District's current fleet inventory
to
determine if it is updated and maintenance
schedules
are being monitored. Fleet Management

Staffing - The auditor in charge and supervisor, as well as all assistants, are listed in the Team tab of the Profile. We have planned the audit
staffing to ensure that all staff are adequately supervised.

Independence and Competence - Assigned personnel are independent and collectively have the technical knowledge, skills and experience
necessary to perform the audit.

Reliance on work of others - We considered the use of specialists and the potential for reliance on other SAO audits or the work other CPAs,
internal auditors or grant monitors. We do not plan to rely on specialists, other SAO audits, or work of others.
Budget -We developed a detailed audit budget as documented in 2013 Budget vs. Actual Audit Hours.

Step 4: I nformation to be considered in other SAO audits:
We identified no significant information that should be considered for other SAO audits or communication to outside parties.


Procedure Step: AC Entrance Conference

Purpose/Conclusion:
To communicate our audit responsibilities and the planned scope and timing of the audit to management and the governing body.

Testing Strategy:
If no entrance conference was held, explain the situation in the record of work done (and the Entrance Conference Explanation
Field in the custom tab in the profile). The record of work done must describe how the required information above was
communicated to management and those charged with governance.

BEFORE the Entrance Conference:
If not clearly evident from the governance structure, determine those charged with governance for purposes of audit communication
and document our conclusion.
Those charged with governance are those responsible for overseeing the strategic direction of the government and fulfillment of the
governments objectives and obligations. In some governments, multiple parties may be charged with governance, including oversight
bodies contracting for the audit, members or staff of legislative committees, boards or audit committees. The auditors evaluation would
consider how the government delegates authority and establishes accountability for management.
Communicate with management who will conduct and attend the Entrance conference.
Set up the Entrance conference at a time convenient for client and SAO staff.
Invite elected officials to the Entrance conference (see template letter available in the SAOStore).
Prepare the Entrance conference handout the using the required template available in the SAOStore. The template must be adjusted as
necessary for each audit.
The entrance document is normally used in lieu of an engagement letter to document our understanding with the client. However, if a
more formal agreement is needed (for example, to set firm deadlines for audit readiness), an engagement letter may be used - see Audit
Policy 2140 for details.

DURI NG the Entrance Conference:
Present and discuss information on the entrance conference handout to ensure there is a clear understanding of the following areas: Scope and
timing of the audit, including the month we expect to issue our report; reporting levels for audit recommendations; audit costs; audit staffing;
expected communications; and other information considered important to the audit.

AFTER the Entrance Conference:
Attach the entrance conference handout and any other documents that were presented.
Document the conference attendees (SAO and client) as well as the date of the conference.
Document any significant conversations that might result in a change in our risk assessment or audit plan.
Send copies of the entrance document to any elected officials who were not able to attend the conference, unless the governing body
uses a finance/audit committee for contact with the auditor.

Policy/Standards:
SAO Audit Policy 2130 - Inviting Officials to Entrance and Exit Conferences

SAO Audit Policy 2210 - Conducting Entrance Conferences

Invitations:
Invitations to the entrance conference were sent to board members and executive management via email.

Entrance Conference:
The entrance conference handout is documented at Entrance Conference Document - 2013 SSD Audits. The following people attended the official
entrance conference, held in accordance with Audit Policy 2210:
Charles Wright, Deputy Superintendent
Sherry Carr, Board member and Audit & Finance Committee Chair
Susan Peters, Board member and Audit & Finance Committee member
Harium Martin, Board member and Audit & Finance Committe member
Kathie Technow, Accounting Manager
Andrew Medina, I nternal Auditor
Ken Gotsch, Business & Finance Assistant Superintendent
Linda Siebring, Budget Manager
Kimberly Fry, Internal Audit employee
J im Griggs, SAO Audit Manager
Anastassia Kavanaugh, SAO Assistant Audit Manager
Heidi Wiley, SAO Auditor in Charge
In addition to the topics shown on the entrance conference handout, the following items were also discussed:
The reason why Head Start was selected as a program for the single audit when the feds came in and did a thorough audit. We explained
the feds did a program audit and because of the program is a major program that we needed to select it to meet certain requirements.
Does SAO and the District have a contract since the audit cost is more than $250,000 since District policy is that any cost above that
amount is required to be approved by the Board with a contract. Sherry Carr explained to Ken Gotsch that SAO is a different case as the
District is required to have the audits done. But Charles Wright will follow up with legal to make sure the District is following their policy.
Board and Superintendent's office offered their assistance in making sure the District cooperates and information is provided. I f we run
into any problems we can contact them directly.
We also sent copies of the entrance conference handout via email to the following people:
'schoolboard@seattleschools.org'; 'superintendent@seattleschools.org'; 'kcgotsch@seattleschools.org'; 'paapostle@seattleschools.org'; kcorrigan@
seattleschools.org; 'lmsebring@seattleschools.org'; 'pmcevoy@seattleschools.org'; 'mftolley@seattleschools.org'; 'lherndon@seattleschools.org'; 'c
wright@seattleschools.org'

B.2.PRG - School F196 Planning

Procedure Step: Entity, Environment & COSO Evaluation
Prepared By: HCW, 2/21/2014

Purpose/Conclusion:
Purpose:
To identify potential financial statement risks to consider in the planning conference brainstorm by gaining an understanding of the entitys
operations, environment and entity-wide COSO elements.

Conclusion:
Based on our understanding of the entity, environment and entity-wide COSO elements, we noted the following potential risks, which will be
evaluated further during our planning conference brainstorm.
District financial condition continues to be a risk as the District faces budget shortfalls.
The Seattle School District uses SAP/FAST systems to record transactions in the payroll module and general ledger unlike most School
Districts in Washington State who use WESPAC.
There has been significant turnover in almost all departments, including Assistant Superintendents, Executive Directors and other
supervisory roles. There is a risk for a lack in turnover of duties, policies and procedures and a lack of District and state law knowledge.
Over the past several years the District received an excess of audit recommendations, had a fraud that resulted in criminal prosecution of a former
district employee and resignations of the Superintendent and Internal Auditor. SAO assessed in fiscal year 2012 that the Tone at the Top was
promoting a culture of dysfunction and unethical behavior throughout the District. Since then, the District has undergone significant changes in
management. The new senior management is addressing prior year issues and is emphasizing accountability at the department level. The
Superintendent and Assistant Superintendent of Business and Finance organized an audit kick-off meeting with Districts personnel involved in SAO
audits to set audit expectations. Please see SAO kick-off meeting handout. The Assistant Superintendent of Business and Finance is also involved with
the weekly status meetings between SAO and the District. Even though the Tone at the Top has changed, we should note the results of this change
may not be fully recognized until subsequent year audits.(Financial Statement and Accountability Risk)
We established quantitative materiality at 5% instead of the default 10% due to our experience with auditing this District. We perceive a
risk of deliberate attempts to misclassify capital expenditures to the general fund by management and misclassify central administration
expenditures in order to make line items appear reasonable to their respective budgets. We also believe that the District may be making
unallowable transfers (out of activity 99 - transportation) (Financial Statement Risk).

Testing Strategy:
REQUIRED PROCEDURES:
The following procedures are required to be performed:
Review Planning Guide - Review the applicable planning guide for the entity-type. Consider also reviewing other guides that may be
applicable to departments or areas of the audit (ex: courts).
Update the District Operations step in the permanent file
Update the Overall COSO Evaluation section of the F/ S Internal Controls School F196 step in the permanent file
Update the "Key Software Applications" step in the permanent file
For financial audit purposes, key software applications include general ledger software and other software that processes significant
(volume or type) transactions that roll up into the general ledger or financial statements.
Document significant events and changes occurring during the audit period, specifically:
Changes in the reporting entity or potentially discloseable organizations documented in the PERM file.
Changes to key operational information documented in the PERM file.
Changes in significant accounting policies in the PERM file.
Note: I f there were significant changes in accounting principle, the auditor may be required to modify our report if the change has
a material effect on the statements or if the change was not valid or justified (see AU 508.50 for criteria).
Other significant events or changes identified by procedures, such as implementation of new software, significant new contracts or
agreements, changes in officials or key staff. Refer to the planning guide for additional examples of significant events and changes.
When identifying changes, the auditor may want to include description or background information about the change and an
evaluation of the effects on the audit.

PROCEDURES TO CONSI DER:
In addition to required risk assessment procedures performed in other planning steps (ie: review of minutes, FAWF, planning analytical
procedures, etc) and required above, consider the following. The extent of any additional planning procedures should reflect the size,
complexity and risk of the entity.
Review recent Client Helpdesk questions submitted by the government. Any accounting and auditing questions and answers can be
viewed in Helpdesk tab of EIS.
Inquire with management, key staff or other personnel. For example, inquiry as to any significant events and changes occurring since the
prior audit.
Review the Districts website.
Obtain a list of facilities, departments and/or programs to better understand the nature and scope of activities.
Review and update the inventory of key software applications on the IT Systems tab of the Entity Information Suite (EIS). I f this is
done, any updated information should be emailed to Team Local ISA.
Review list of resolutions passed during the period.
Review list of contracts awarded or contract activity reports.
Scan the Program/Activity/Object Report (part of the F196) to review the types and relative size of programs and activities.

Policy/Standards:
SAO Audit Policy 6210 Planning Financial Statement Audits (effective 5/ 21/ 10)

BACKGROUND

Auditors must plan the audit to be responsive to assessed risks of material misstatement. The nature, timing and extent of planning procedures vary with the size
and complexity of the entity, and with the auditors experience with the entity. Planning is an iterative process that continues throughout the audit.

REQUIREMENTS

1. Auditors will complete and document all financial statement planning steps in TeamMate.

These steps include the following required risk assessment procedures:

a) Gaining an understanding of the entitys operations and environment, including the nature of the entity, relevant environmental factors, relevant
business risks, and measures of the entitys financial performance. Refer to Policy 6230. Auditors must review the applicable planning guide for the
entity type as part of obtaining an understanding.

In evaluating an entitys operations and environment with multiple locations or components, auditors should consider the following factors:
The nature and amount of assets and transactions executed at the location or component.
The degree of centralization of records or information processing.
Managements direct control or ability to effectively supervise activities at the location or component.
Monitoring activities performed by the entity or others at the location or component.
J udgments about materiality of the location or component.
Risks associated with the location, such as political or economic instability.

b) Reviewing the future audit work file (FAWF), the prior audit, investigations and other audits, attestation engagements or studies that directly
relate to the financial statement audit objectives. Refer to Policy 3410.

c) Reviewing meeting minutes of the governing body, as applicable, for relevant information that would have an impact on the financial
statements or the entitys financial health.

d) Performing procedures related to the risk of material misstatement due to fraud. Refer to Policy 6320.

e) Identifying laws, regulations, contracts and grants that have a direct and material effect on the financial statements. Also, assessing the risk of
material misstatement due to violations of compliance requirements and determining whether audit procedures are necessary. Refer to Policy 6330.

f) Performing planning analytical procedures. Refer to Policy 6240.

g) Brainstorming to evaluate the magnitude and likelihood of identified risks that could result in a material misstatement. The objective of the
brainstormis to evaluate how and where the audit teambelieves the entitys financial statements might be susceptible to material misstatements due to
error or fraud based on planning procedures. The following topics must be discussed during the brainstorm:
Results of analytical procedures.
Risk of material misstatement due to fraud and the importance of maintaining a proper state of mind regarding the potential for such risk.
Risk of material misstatement due to violations of laws, regulations, contracts or grants.
Unusual accounting policies or procedures.
J ournal entries.
Significant accounting systems.
Areas susceptible to management override of controls.
Materiality and planned further audit procedures.
Identification of significant risks and how those risks will be addressed
Importance of maintaining a questioning mind and exercising professional skepticismthroughout the audit.

h) Identifying material balances and relevant assertions, and set tolerable error, using both quantitative and qualitative factors. Refer to Policy
6220.

In identifying relevant assertions, auditors will evaluate the nature of the assertion, the related volume of transactions or data, and the nature
and complexity of systems, including the use of information technology.

i) Assessing inherent risk, gaining an understanding of internal controls, and assessing control risk relevant to identified risks of
misstatement. Refer to Policy 6230.

j) Assessing the risk of material misstatement by relevant assertions at the individual account balance, class of transactions, or disclosure level.

Auditors will consider additional risk assessment procedures depending on the size, complexity and overall risk of the entity, as well as the
auditors experience.

2. Auditors will develop an audit plan and a detailed audit budget that will be monitored throughout the audit.

Significant revisions to the audit plan should be documented to respond to changes in circumstances. Auditors will address the following areas in the
audit plan:

a) Identification of potential users of the statements and audit report and their needs.

b) Consideration of the knowledge, skill, and ability of personnel assigned significant engagement responsibilities, and the appropriate level of
supervision. Factors to assess whether an information technology specialist is needed on the audit include the:

Complexity of the entitys systems and IT control.
Significance of changes to existing systems or implementation of new systems.
Extent to which data is shared among systems.
Participation in electronic commerce.
Significance of audit evidence available only in electronic form.

c) Whether we plan to rely on the work of other auditors or external specialists. Refer to Policies 3230, 3510, 3520, and 3530.

d) A reference to the testing strategies that address the nature, timing and extent of procedures planned at the relevant assertion level for each
material class of transactions, account balance and disclosures. Auditors will ensure sufficient procedures, responsive to assessed risks of material
misstatement are planned in order to limit the risk of an incorrect opinion (audit risk) to an acceptably low level.

e) Identification of further procedures that will be performed to comply with generally accepted auditing standards.

3. Planning will be conducted and reviewed in a timely manner.

Planning should begin soon enough to determine the most efficient and effective time to conduct audit procedures. Refer to Policy 3160 - Supervision
and Review.

4. Auditors will communicate information to the auditee or audit committee regarding the nature, timing, and extent of planned testing and
reporting.

Refer to Policies 2130 - Inviting Elected Officials to Entrance/Exit Conferences, and 2210 - Conducting Entrance Conferences.

RELATED POLICIES

2130 - Inviting Elected Officials to Entrance/Exit Conferences
2210 - Conducting Entrance Conferences
3160 - Supervision and Review
3230 - Using the Work of Specialists
3250 - InterimProcedures
3510 Use of External CPA Firms Work
3520 Use of Internal Auditors Work
3530 Use of Grant/ProgramMonitors Work
6220 - Materiality
6230 - Understanding Internal Control
6240 - Planning Analytical Procedures

REFERENCES

AU 311 Planning and Supervision
AU 312 Audit Risk and Materiality in Conducting an Audit
AU 319 Internal Control in a Financial Statement Audit
Government Auditing Standards (Yellow Book) Chapter 4

___________________________________________________________

SAO Audit Policy 6230 Understanding I nternal Control and Assessing Control Risk (effective 2/ 17/ 09)

BACKGROUND

Gaining an understanding of the auditees internal controls over financial reporting is necessary to assess the risk of material misstatement due to error or fraud,
and to design the nature, timing and extent of further audit procedures. This understanding is used to identify types of potential misstatements, consider factors
that affect the risk of material misstatement, design tests of controls when applicable, and design substantive tests.

REQUIREMENTS

1. Auditors will obtain and document an understanding of internal control sufficient to plan the audit.

Internal control consists of five interrelated components: control environment, information and communication, risk assessment, monitoring and control
activities. Auditors should consider the nature and extent to which the entity uses information technology in understanding each of the five components
of internal control. Auditors should also consider whether the selection and application of accounting policies are appropriate and consistent.

In obtaining an understanding of control activities, the auditors primary consideration is whether and how specific controls prevent or detect and correct
material misstatements. Auditors should document controls they consider necessary to assess control risk for relevant assertions for material
balances. Key controls are those that the auditor has determined are suitably designed to prevent or detect and correct a material misstatement in a
relevant assertion.

Obtaining an understanding of internal control involves evaluating the design of key controls and determining whether they have been
implemented. Implementation of a control means that the control exists and is placed in operation. Auditors cannot use inquiry alone to determine
whether a key control is placed in operation.

2. An auditors understanding of internal control includes key controls performed by external service organizations, if any are used by the auditee.

Service organizations are other separate entities that provide services to the auditee that comprise part of the auditees internal controls. When an
auditee uses a service organization, transactions that affect the auditees financial statements are subject to controls that are, at least in part, physically
and operationally separate fromthe auditee.

Auditors have the same responsibility to obtain an understanding of controls, regardless of whether such controls are applied by the auditee or a service
organization. For those processes judged significant to the auditee, auditors must gain a sufficient understanding of the service organizations relevant
internal control structure to plan the audit. In determining whether a service organizations process is significant, auditors should consider the nature
and materiality


of transactions processed by the service organization and the degree of interaction between the activities of the auditee and the service organization.

If the service organizations auditor issues a Report on controls placed in operation or a Report on controls placed in operation and tests of operating
effectiveness, it may be used for gaining an understanding of internal control to assess risk. In considering whether the service organization auditor's
report is appropriate to rely upon, auditors should refer to Audit Policy 3510.

If no report is available, auditors might utilize manuals, systemdocumentation, contract specifications, or other evidence that may be available fromthe
auditee to gain an understanding of the internal controls related to the service organization. If these are insufficient, auditors might request, through the
auditee, specific information fromthe service organization, request that the service organization engage an auditor to supply the necessary information,
or visit the service organization and performthe necessary procedures. Approval fromthe Audit Manager should be obtained prior to visiting a service
organization.

Assessing control risk below maximumrequires either reliance on the service organization auditors Report on controls placed in operation and tests of
operating effectiveness or an agreed-upon procedures report on relevant tests of controls, tests of the auditees control over the service organizations
activities, or tests of the organizations controls by our Office. In relying on reports on tests of controls of a service organization, auditors should
consider whether the nature, timing and extent of the relevant controls provide appropriate evidence to reduce control risk below maximum.

3. Auditors will perform tests of key controls when their control risk assessment includes an expectation of the operating effectiveness of controls
(control risk assessed at a level less than maximum) or when substantive procedures alone will not provide sufficient appropriate audit
evidence.

Auditors should consider whether sufficient appropriate evidence is available and whether it would be efficient to performtests of controls in order to
reduce substantive testing. In testing the operating effectiveness of controls, auditors should obtain evidence about how key controls were applied at
relevant times during the period under audit, the consistency with which they were applied, and by whomor by what means they were applied. Auditors
should refer to Audit Policy 3240 when using an audit sample for a test of controls.

For automated controls, procedures to verify that the control has been placed in operation will generally also serve as sufficient tests of
controls. Moreover, such procedures may be limited to only one or a few instances of the control operation. This is because information technology
processes are inherently consistent. That is, an automated control will function consistently unless the program(including the tables, files, or other
permanent data used by the program) is changed.


4. When key controls being tested include one or more automated controls, auditors will also test related general information technology (IT)
controls.

When an automated control is tested, auditors should also performappropriate tests of general IT controls to determine that the automated control
operated consistently during the audit period. General IT controls are the policies and procedures that maintain the integrity of automated controls and
the data used by such controls. General IT controls should be assessed in relation to their effect on specific automated controls.

While ineffective general controls do not, by themselves, cause misstatements, they may permit automated controls to operate improperly and allow
misstatements to occur and not be detected and corrected.

5. Auditors will determine if it is appropriate to use evidence about the operating effectiveness of key controls obtained in prior audits to assess
control risk at a level less than maximum.

Auditors may only use evidence about the operating effectiveness of controls obtained in prior audits if all of the following conditions are met:

Key controls, including personnel who affect the application of the control, have not changed since they were last tested.
Controls do not relate to a significant risk.
Controls are tested in the current audit for at least one other systemso that auditors are not relying on prior audit work for all control testing.
The prior control testing is froman audit performed within the last two cycles in an annual audit or within the last cycle for a two or three-year
audit.

In determining whether it is appropriate to use evidence about the operating effectiveness of controls obtained in prior audits, auditors will also consider:
Effectiveness of other components of internal control, including the effectiveness of IT general controls if the control is automated.
Risks arising fromthe characteristics of the control, including whether controls are manual or automated.
Effectiveness of the control and its application by the entity, including the nature and extent of deviations in the application of the control fromtests of
operating effectiveness of prior audits.
Whether the lack of a change in a particular control poses a risk due to changing circumstances.
Risk of material misstatement and the extent of reliance on the control.

Auditors should document the conclusions reached about using audit evidence about the operating effectiveness of controls that was obtained in a prior
audit.


6. Auditors will assess and document control risk at the relevant assertion level.

The assessment of control risk is based on the understanding of controls and results of any testing of the operating effectiveness of controls. Auditors
will evaluate any control deficiencies and determine whether those deficiencies, individually or in combination, are significant deficiencies or material
weaknesses using the following factors:
The likelihood and magnitude of misstatement.
Whether there are other control deficiencies that affect the same account balance, disclosure, relevant assertion, or component of internal control.
Possible mitigating effects of compensating controls that have been tested.
Whether prudent officials, having knowledge of the same facts and circumstances, would agree with the auditors classification of the deficiency.

Significant deficiencies and material weaknesses will be communicated in a finding to entity management and those charged with governance. The
finding will be included in our Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters in
Accordance with Government Auditing Standards.

RELATED POLICIES

3240 - Sampling

REFERENCES

AU 314 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement
AU 318 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained
AU 324 Service Organizations
AU 325 Communicating Internal Control Related Matters Identified in an Audit
AU 350 Audit Sampling

Procedures Performed to Update Understanding
We reviewed the planning guide at G.2.1. We noted this is the latest updated planning guide and is for the FY12 audit year and not
FY13. We obtained the FY13 DRAFT school planning guide at DRAFT-School Districts Planning Guide-2013 SSD Specific Planning Guide -
updated 11-13-2013. We noted the following items that potentially impact for the financial statement audit from the most current
planning guide received that is for FY12 audit year:
Financial Condition - Many School Districts face budget shortfalls, including the Seattle School District. We started auditing the
financial condition for the District in the FY10 audit and have continued since to monitor the District's financial condition and the
decline will not impact future school years. Although in prior year audits, the testing of the financial condition noted no concerns,
we will continue to monitor the condition at 2012 Required Risk - Financial Condition
Fund Balance Classification -The Accounting Manual for School Districts will reflect GASB 54 guidance on fund balance
classification for governmental funds. This guidance became effective for FY12 and the District implemented GASB 54 in FY11.
We audited the fund balance noting no exceptions in the FY11 audit. Thus, this is not a potential fnancial statement risk.
However, due to TeamMate issues, the FY11 audit is corrupt and unable to open. Therefore, we cannot verify whether fund
balance classification was included as part of the audit. We will perform testing at Implementation of SD Accounting Manual
Changes
Deposit Arrangement with ESDs - We met with Kathie Technow, Accounting Manager to determine where the District
deposits money to fund future compensated absences, unemployment and workers compensation liabilities. The District is self-
insured up to one million dollars and is part of the Washington State Risk Pool to fund any liabilities over this. The District does
not have any deposit arrangements with ESDs. Although this is not a potential financial statement audit risk, we will remain aware
throughout the audit for any changes.

We gained an understanding of the District's operations and environment, including identification of the reporting entity, key operational
information and significant accounting practices. Our understanding is documented in the Permanent File section of the audit at G.1.PRG.
We noted the following items that potentially impact the financial statement audit:

We gained an understanding of internal control components (based on the COSO framework) for the District as a whole. Our
understanding is documented in the Permanent File section of the audit at G.1.PRG. We noted the following items potentially impacting
the financial statement audit:

Over the past several years the District received an excess of audit recommendations, had a fraud that resulted in criminal prosecution of
a former district employee and resignations of the Superintendent and I nternal Auditor. SAO assessed in fiscal year 2012 that the Tone at
the Top was promoting a culture of dysfunction and unethical behavior throughout the District. Since then, the District has undergone
significant changes in management. The new senior management is addressing prior year issues and is emphasizing accountability at the
department level. The Superintendent and Assistant Superintendent of Business and Finance organized an audit kick-off meeting with
Districts personnel involved in SAO audits to set audit expectations. Please see SAO kick-off meeting handout. The Assistant
Superintendent of Business and Finance is also involved with the weekly status meetings between SAO and the District. Even though the
Tone at the Top has changed, we should note the results of this change may not be fully recognized until subsequent year
audits.(Financial Statement and Accountability Risk)

We identified and evaluated key software applications in the Permanent File section of the audit at G.1.PRG. Although this is not a
potential financial statement audit risk, we will remain aware throughout the audit for any changes.
Significant Events and Changes Noted:
We inquired with management as to any significant events or changes occuring since the prior audit (e.g., accounting policies, key operational
information, new software). The significant changes/events that management identified are noted below.
Many Assistant Superintendents and other key management left the District during the audit period. See the complete listing at Personnel
Changes FY2013.
Seattle Skill Center started up in September 2012 for the 2012-2013 school year. (This is not a cooperative with other districts, but
administered totally by SSD).
A new student information system is being implemented, to be functional for the 2013-2014 school year.
The Building Excellence IV (BEX IV) levy Capital Program was approved by voters in February 2013 for $694.9 million. The BEX IV
levy will address earthquake and safety issues, capacity needs, building condition and infrastructure improvements, and major preventive
maintenance needs thorughout the school district. More information can be found
at http://www.seattleschools.org/modules/cms/pages.phtml?sessionid=&pageid=294001
The District is facing budget shortfall due to the following: the State of Washington have slashed funding for public education, the District
no longer receives I-728 funds, and American Recovery Reinvestment Act funds are mostly closed out. As a result, the District
has continued laying off staff and reducing expenditures in as many departments as possible. This is a potential financial statement risk.
Other Procedures Performed:
In addition we performed the following procedures to consider risks associated with the financial statement audit:
We reviewed EIS "Helpdesk" tab for any recent Client Helpdesk questions submitted by the government. We noted on question about the
whether the District could pay salaries and benefits for a Construction Auditor by paying from the general fund and reimbursing from the
Capital Fund through BEX I V levy funds. SAO's response is it would depend on exact levy language and what the Board specifically
approves, but in general it would be okay. We referred the District to inquire with their legal counsel to make a final determination. This is
a potential financial statement risk as part of capital expenditures.
We reviewed the Districts website
at http://www.seattleschools.org/modules/cms/pages.phtml?pageid=203809&sessionid=460026896782723807df93d33e6d676d&t. We
noted that the website has a current list of the District's faciliteis, departments and programs.
We reviewed the inventory of key software applications on the IT Systems tab of the Entity I nformation Suite (EIS). We noted that
EIS was up to date.
We also scanned the Program/Activity/Object Report (part of the F196 page 26-27) to review the types and relative size of programs and
activities https://www.k12.wa.us/safs/rep/fin/1213/17001196.pdf


Procedure Step: Other Engagements & FAWF

Purpose/Conclusion:
Purpose:
To identify potential financial statement risks to consider in the planning conference brainstorm from other engagements and the FAWF.
Conclusion:
Based on our review of other audit work and the FAWF, we noted the following potential risks:
Central administration expenditures could be misclassified to make accounts appear reasonable (lower than they really are) to the Board
adopted budget.

Testing Strategy:
Auditors are required to perform the following procedures to identify information relevant to the financial statement audit:

FAWF
Review Future audit work file (FAWF) items.
OTHER AUDITS, ENGAGEMENTS & STUDIES
Identify other audits or engagements that may be relevant to financial audit objectives.
Check the Entity I nformation Suite (EIS) on the Reports tabs to identify prior SAO audits and special investigations.
Check the Entity I nformation Suite (EIS) on the Special Investigations tabs to identify prior and in-progress special
investigations
Auditors should also inquire with the entity or perform other procedures to identify any non-SAO audits, engagements or studies
related to financial audit objectives
If the entity has an internal audit function, auditors should inquire with internal auditors or review results of internal audit work to
identify any potential risks. However, reliance may not be placed on the work of internal auditors unless requirements of audit
policy 3520 are followed
Review identified audits that relate to financial audit objectives. Auditors should specifically consider:
Exceptions from the prior financial statement audit.
Corrected and uncorrected misstatements from the prior financial statement audit. The auditor should specifically evaluate
whether any uncorrected misstatements will affect the current statements. If so, follow up with management to determine
whether the misstatements have been corrected. Document this consideration and your conclusion in this step and document
any uncorrected prior year misstatement with a current affect in the Aggregation of Misstatements worksheet
Other audits, attestation engagements or studies done that directly relate to financial statement audit objectives. See Audit Policy
3530 related to grant or oversight agency work and Audit Policy 3520 for additional requirements for use of the work of internal
auditors as substantive audit evidence.
Follow up on any relevant recommendations or findings to determine whether corrective actions were implemented. Follow-up
procedures may be performed at this point or incorporated into the audit plan and referenced in this step.

Policy/Standards:
SAO Audit Policy 3410 Follow Up on Previous Audits (effective 6/ 3/ 08)

BACKGROUND


REQUIREMENTS
Auditors will ask entity management to help identify previous audits, attestation engagements, performance audits or other studies
directly related to the objectives of the audit. This includes work done by other independent auditors, internal auditors, program or grant
auditors.

evidence.


Manual.

RELATED POLICIES

REFERENCES

_____________________________________________________________

SAO Audit Policy 6210 Planning Financial Statement Audits (effective 5/ 21/ 10)

BACKGROUND

Auditors must plan the audit to be responsive to assessed risks of material misstatement. The nature, timing and extent of planning procedures vary with the size
and complexity of the entity, and with the auditors experience with the entity. Planning is an iterative process that continues throughout the audit.

REQUIREMENTS

1. Auditors will complete and document all financial statement planning steps in TeamMate.

These steps include the following required risk assessment procedures:

a) Gaining an understanding of the entitys operations and environment, including the nature of the entity, relevant environmental factors, relevant
business risks, and measures of the entitys financial performance. Refer to Policy 6230. Auditors must review the applicable planning guide for the
entity type as part of obtaining an understanding.

In evaluating an entitys operations and environment with multiple locations or components, auditors should consider the following factors:
The nature and amount of assets and transactions executed at the location or component.
The degree of centralization of records or information processing.
Managements direct control or ability to effectively supervise activities at the location or component.
Monitoring activities performed by the entity or others at the location or component.
J udgments about materiality of the location or component.
Risks associated with the location, such as political or economic instability.

b) Reviewing the future audit work file (FAWF), the prior audit, investigations and other audits, attestation engagements or studies that directly
relate to the financial statement audit objectives. Refer to Policy 3410.

c) Reviewing meeting minutes of the governing body, as applicable, for relevant information that would have an impact on the financial
statements or the entitys financial health.

d) Performing procedures related to the risk of material misstatement due to fraud. Refer to Policy 6320.

e) Identifying laws, regulations, contracts and grants that have a direct and material effect on the financial statements. Also, assessing the risk of
material misstatement due to violations of compliance requirements and determining whether audit procedures are necessary. Refer to Policy 6330.

f) Performing planning analytical procedures. Refer to Policy 6240.

g) Brainstorming to evaluate the magnitude and likelihood of identified risks that could result in a material misstatement. The objective of the
brainstormis to evaluate how and where the audit teambelieves the entitys financial statements might be susceptible to material misstatements due to
error or fraud based on planning procedures. The following topics must be discussed during the brainstorm:
Results of analytical procedures.
Risk of material misstatement due to fraud and the importance of maintaining a proper state of mind regarding the potential for such risk.
Risk of material misstatement due to violations of laws, regulations, contracts or grants.
Unusual accounting policies or procedures.
J ournal entries.
Significant accounting systems.
Areas susceptible to management override of controls.
Materiality and planned further audit procedures.
Identification of significant risks and how those risks will be addressed
Importance of maintaining a questioning mind and exercising professional skepticismthroughout the audit.

h) Identifying material balances and relevant assertions, and set tolerable error, using both quantitative and qualitative factors. Refer to Policy
6220.

In identifying relevant assertions, auditors will evaluate the nature of the assertion, the related volume of transactions or data, and the nature
and complexity of systems, including the use of information technology.

i) Assessing inherent risk, gaining an understanding of internal controls, and assessing control risk relevant to identified risks of
misstatement. Refer to Policy 6230.

j) Assessing the risk of material misstatement by relevant assertions at the individual account balance, class of transactions, or disclosure level.

Auditors will consider additional risk assessment procedures depending on the size, complexity and overall risk of the entity, as well as the
auditors experience.

2. Auditors will develop an audit plan and a detailed audit budget that will be monitored throughout the audit.

Significant revisions to the audit plan should be documented to respond to changes in circumstances. Auditors will address the following areas in the
audit plan:

a) Identification of potential users of the statements and audit report and their needs.

b) Consideration of the knowledge, skill, and ability of personnel assigned significant engagement responsibilities, and the appropriate level of
supervision. Factors to assess whether an information technology specialist is needed on the audit include the:

Complexity of the entitys systems and IT control.
Significance of changes to existing systems or implementation of new systems.
Extent to which data is shared among systems.
Participation in electronic commerce.
Significance of audit evidence available only in electronic form.

c) Whether we plan to rely on the work of other auditors or external specialists. Refer to Policies 3230, 3510, 3520, and 3530.

d) A reference to the testing strategies that address the nature, timing and extent of procedures planned at the relevant assertion level for each
material class of transactions, account balance and disclosures. Auditors will ensure sufficient procedures, responsive to assessed risks of material
misstatement are planned in order to limit the risk of an incorrect opinion (audit risk) to an acceptably low level.

e) Identification of further procedures that will be performed to comply with generally accepted auditing standards.

3. Planning will be conducted and reviewed in a timely manner.

Planning should begin soon enough to determine the most efficient and effective time to conduct audit procedures. Refer to Policy 3160 - Supervision
and Review.

4. Auditors will communicate information to the auditee or audit committee regarding the nature, timing, and extent of planned testing and
reporting.

Refer to Policies 2130 - Inviting Elected Officials to Entrance/Exit Conferences, and 2210 - Conducting Entrance Conferences.

RELATED POLICIES

2130 - Inviting Elected Officials to Entrance/Exit Conferences
2210 - Conducting Entrance Conferences
3160 - Supervision and Review
3230 - Using the Work of Specialists
3250 - InterimProcedures
3520 Use of Internal Auditors Work
3530 Use of Grant/ProgramMonitors Work
6220 - Materiality
6230 - Understanding Internal Control
6240 - Planning Analytical Procedures

REFERENCES

AU 311 Planning and Supervision
AU 312 Audit Risk and Materiality in Conducting an Audit
AU 319 Internal Control in a Financial Statement Audit
Government Auditing Standards (Yellow Book) Chapter 4

Future Audit Work File items:
We reviewed the FAWF for items relevant to the financial audit and noted the following:
Central administration expenditures - The prior audit identified risks related to expenditures from central administration, but due to audit
timing this area was not reviewed. The risk is that the District is coding central administration expenditures to the incorrect account to
make them appear lower than they really are and to be in-line with the Board adopted budget. In addition, District parents have
scrutinized the District over spending too much money on administration and too little in the classroom. There may be pressures from
within to misreport actual administration expenditures. This is a risk to the financial statement audit.

Exceptions and Uncorrected Misstatements from Prior Financial Audit:
We reviewed exceptions and misstatements identified in the last financial statement audit and noted the following:
Uncorrected misstatements
The General Fund salaries and benefits were incorrectly reported in the Capital Projects fund totaling $123,652. These salaries and
benefits were associated with ongoing technology and maintenance expenditures. The District should have reported these expenditures
under the general fund, and transferred the funds out of the capital projects fund to the general fund to cover those costs. This item is an
uncorrected classification misstatement and will not impact the current statement audit due to its immaterial amount.
We did not note any patterns regarding identified misstatements.

Other audits or exceptions:
We checked for other audits or engagements that may be relevant to the financial audit and noted no audits relevant to the financial statement
audit. The one report obtained involves a single audit grant and is documented in the single audit planning.
Internal Audits:
The District has an Office of Internal Audit. They maintain independence from the District by reporting directly to the Audit and Finance
Committee. The audits are performed using a risk-based approach. The completed audits are reported and made available to the public
at http://training-for-content-
owners.www.seattleschools.org/modules/cms/pages.phtml?sessionid=3db13d1bd2529ef9be3a3c29b11da677&pageid=249073 .

During our audit period, the internal auditors issued nine reports. The audits are further described in the accountability audit planning at -
B.1.PRG We reviewed the audit reports from the SSD website and determined none impact or have potential risks to the financial statement audit.


Procedure Step: Minutes

Purpose/Conclusion:
Purpose:
To identify potential financial statement risks to consider in the planning conference brainstorm by reviewing the minutes.

Conclusion:
Based on our review of minutes, we noted the following potential risks:
We noted a new grant from the City of Seattle that is a new revenue stream.
The District may shift restricted fund expenditures to the general fund.
We noted several large dollar amount construction contracts awarded that we will keep in mind during our planning analytical procedures
as this may effect trending calculation differences from last year balances.

Testing Strategy:
Identify relevant information that would have an impact on the financial statement amounts or disclosures. Such as:
Debt issuances, retirements, refundings, etc.
Changes in revenue streams (ex: major new grant awards, etc.)
Construction projects or other large contracts or commitments
Changes to rates charged for services
Changes to terms on major intergovernmental contracts
Changes affecting payroll expectations (ie. COLAs, other pay raises, FTE levels, etc.)
Creation of new entities or joint ventures
Significant changes in operations
Implementation of new accounting software or major upgrades
Major litigation or concerns about compliance with laws, regulations, contracts, grants or bond covenants
Quorums are present for budget and budget amendments approval, if necessary
Note: if minutes were reviewed in planning the Accountability Audit, make sure to either link to that review or copy and paste the relevant
financial information to this step.

Policy/Standards:
SAO Audit Policy 6210 Planning Financial Statement Audits

We reviewed the minutes from J anuary 4, 2012 to August 31, 2012 at B.1.3. We noted the following items of potential relevance to the
current financial statement audit:

Budget Compliance
J anuary 25, 2012 - Approved the Unassigned Fund Balance Usage of 3.25% of non-grant General Fund expenditures when developing
2012-13 budget. We noted this is not a change in previous year unassigned fund balance percentage for non-grant General Funds
expenditures. We reviewed the adopted budget for 2012-2013 school year and noted the 3.25% is what was adopted. We determined this
is not a potential risk to the financial statement audit. Although this is not a potential financial statement audit risk, we will remain aware

We then reviewed the minutes from September 1, 2012 to October 2, 2013 at B.1.3 and noted the following items of potential relevance to the
current financial statement audit:

Revenue Streams
September 5, 2012 - Accepted a grant from the City of Seattle with a projected total funding amount for 2012-13 of $8.7 million. We
determined this is a potential risk to our financial statement audit.
September 19, 2012 - In accordance with RCW 28.A.335.060 the District authorized to direct lease and rental earnings to the general fund
up to a maximum of $2.7 million. We reviewed state law and determined the revenues are classified correctly in the correct fund. We
determined this is not a potential risk to the financial statement audit. Although this is not a potential financial statement audit risk, we will
remain aware throughout the audit for any changes.
General Fund Levy
October 17, 2012 - The District is required by RCW 84.52.020 to recertify the EP&O levy collection amount each year. Fiscal impact to this
action will be $159,468,576, which is the maximum allowed per RCW 84.52.0531, even though voters approved a collection of
$175,800,000. The revenue is collected through King County as part of the General Fund levy. We will perform a reconcilation of the
District's general ledger to the County's reports to ensure all revenues collected are accounted for . We determined this is not a potential
risk to our financial statement audit. Although this is not a potential financial statement audit risk, we will remain aware throughout the
audit for any changes.
Expenditures
J uly 3, 2013 - Board approves the transfer of $3,346,000 from the capital projects fund to the general fund. Our risk is the District may shift
restricted fund expenditures to the general fund. We determined this is a potential risk to our financial statement audit. Although this is not
a potential financial statement audit risk, we will remain aware throughout the audit for any changes.
We noted several large dollar amount construction contracts approved for remodeling school buildings or designing and constructing new
school buildings. This may effect total expenditure balance to increase overall and in the Capital Projects Fund. We will keep this in mind
during our trending in analytical procedures at B.2.PRG as there could be a significant increase in expenditures. We determined this is a
potential risk to our financial statement audit. Although this is not a potential financial statement audit risk, we will remain aware
Budget Compliance
J uly 24, 2013 - Board approves resolution budgets of $639,298,428 for General Fund; $6,399,694 for ASB Fund; $46,003,675 for Debt
Service Fund; and $168,713,855 for Capital Projects Fund. We noted the District properly adopted the resolution prior to the August 31st
deadline and the District's actual expenditures did not exceed appropriations in the ASB fund for 2012-2013 school year. We determined
this is not a potential risk to our financial statement audit. Although this is not a potential financial statement audit risk, we will remain
aware throughout the audit for any changes.



Procedure Step: Material Compliance Requirements

Purpose/Conclusion:
Purpose:
To identify compliance requirements or violations that may have a direct and material effect on financial statements.

Conclusion:
Based on our understanding of the entitys legal framework and planning procedures, we noted no compliance requirements or potential
violations that may have a direct and material financial statement effect.

Testing Strategy:
BACKGROUND:
Auditors are responsible to obtain sufficient appropriate evidence regarding material amounts and disclosures in the financial statements that are
directly affected by the requirements of laws, regulations, contracts or grant agreements. Auditors are also required to perform certain general
procedures to review for compliance violations.

Identified compliance requirements and violations will be assessed at the planning conference brainstorm to make a final determination of
whether it is direct and material to the financial statements and whether any further audit procedures are necessary.

To identify compliance requirements that may have a direct and material effect on financial statement, auditors are required to perform the
following procedures:
Obtain a general understanding of legal and regulatory framework and identify requirements of laws, regulations, contracts or grant
agreements that have a significant and direct effect on determining financial statement amounts. At minimum, auditors should perform
the following procedures:
Review the planning guide
Update the Entity Operations with any special compliance requirements
See Policy/Criteria tab for examples of laws, regulations, contracts or grants that may have a significant and direct effect on
financial statements. For this step, auditors should identify all potential requirements; at the brainstorm, a final decision will be
made on compliance requirements that are material and require further audit procedures to verify compliance.
Identify any licensing, regulatory, contracting or granting oversight agencies with the ability to impose material penalties or otherwise play
a fundamental role in the entitys operations or ability to continue.
The Office of Superintendent of Public I nstruction (OSPI) would be considered an oversight agency over schools. OSPI can hold
back apportionment and grant funds, is able to regulate many aspects of school operations, and has authority to impose binding
conditions on schools in financial distress. We would not expect to identify any other oversight agencies for schools. Contact the
Schools Program Manager for assistance if a potential oversight agency other than OSPI is identified.
Review for indications of potential compliance violations and evaluate the financial statement effect of any potential violations. At
minimum, auditors should perform the following procedures:
Inquire about any relevant correspondence from OSPI and follow up as necessary. Relevant correspondence would include specific
concerns or directives from OSPI to the District, not including general communications from OSPI to all Districts. Contact the School
Program Manager if assistance is needed to follow up on OSPI concerns or directives.
Review any recent program reviews conducted by OSPI (for example, program reviews on Special Education, Title I, LAP or other
programs).
Consider results of inquiry about compliance violations and risks as documented in the Risk Assessment I nquiry step.
Consider results of the most recent accountability, single audit or other engagements as documented in the Other Audits & FAWF step.
Start the legal matters inquiry as documented in the Attorney Letter step.

Policy/Standards:
Examples of violations of laws, contracts or grants that may have a direct and material effect on financial statements include:
Debt covenants for revenue bonds violations are required to be disclosed.
Unallowable use of bond or special levy proceeds actual use of bond or special levy proceeds that is not in accordance with bond
issuance documents or voter-approved levy purpose may require disclosure and/or reclassification of expenditures.
Apportionment reporting requirements violations may require disclosure or cause liabilities.
Requirements on reports used to determine grant revenues violations may require disclosure or cause liabilities.
Exceeding statutory authority if a project or program is outside an entitys statutory authority to perform or if an otherwise allowable
activity was done outside the entitys boundaries or jurisdiction, disclosure may be required.

SAO Audit Policy 6320 - Consideration of Fraud, Noncompliance and Abuse

Compliance Requirements:
We gained a general understanding of the governments legal and regulatory framework and considered whether any significant requirements had
a direct effect on financial statement amounts or disclosures through:
We reviewed the planning guide at G.2.1 We noted this is the latest updated planning guide and is for the FY12 audit year and not FY13.
Once we receive the FY13 planning guide we will review and make any necessary changes to the audit. We obtained the
updated planning guide atDRAFT-School Districts Planning Guide-2013.
We updated our understanding of the Districts's operations and special compliance requirements in the permanent file at G.1.PRG and
noted no special compliance requirements.
Oversight Agencies:
We identified the following licensing, regulatory, contracting or granting agencies with the ability to impose potentially material penalties or
otherwise play a fundamental role in the Districts operations or ability to continue:
Office of Superintendent of Public I nstruction (OSPI) can hold back apportionment, and federal and state grant funds which could have a
material financial statement effect if significant errors are identified.
Compliance Violations:
We reviewed for potential violations by performing the following procedures:
We inquired about any relevant correspndence from OSPI and noted no specific concerns or directives to the District that were separate
from any general communications.
We reviewed the Other Engagements & FAWF step at Other Engagements & FAWF and noted no program reviews were conducted by
OSPI in the prior year and noted there was a Consolidated Program Review for federal and state program compliance for 22 school
districts in the United States as a whole. This included the Seattle School District as part of the audit. We scanned the report obtained
from Kathie Technow, Accounting Manager and determined there are no risks for the financial statement audit. The objective of the audit
was to determine 1) whether the District spent or planned to spend the ARRA stimulus funds, 2) factors that influenced how the District
spent the funds, 3) identified results from using the funds, and 4) whether they expected to experience unsustainable commitments. We
determined this if not a financial statement risk. Although this is not a potential financial statement audit risk, we will remain aware
We inquired about potential noncompliance and risks of noncompliance as documented in the Risk Assessment Inquiry step at Risk
Assessment Inquiry
We considered results of the most recent accountability audit and Single Audit and any other relevant engagements in the Other Audits &
FAWF step.
We started the legal matters inquiry as documented in the Attorney Letter step at Attorney Letter
We will remain alert throughout the audit for compliance violations that may have a financial statement effect. In the FS Summary & Report step
at the conclusion of the audit, we will re-consider any work done on other SAO engagements for any compliance violations with a financial
statement effect.


Procedure Step: Planning Analytical Procedures

Purpose/Conclusion:
Purpose:
To identify potential financial statement risks to consider in the planning conference brainstorm by performing planning analytical procedures.

Conclusion:
Based on our planning analytical procedures, we noted the following potential risks:

Capital Projects - I n past audits we reported instances where the District coded salaries to the incorrect fund. During current year AP, we
noted unusual fluctuations in the Capital Projects Fund balances for capital outlay and in the General Fund's capital outlay. Our risk is the
District is continuing to record non-capital fund expenditures in the capital fund.

Testing Strategy:
NOTE: Planning AP differs from AP used as a substantive test in that the purpose of the procedure is discovery rather than
substantiation. Standards do not require auditors to document expectations for planning analytical procedures only for
substantive analytical procedures. Although expectations of some sort are necessary for effective AP, expectations used for planning AP are
often very general and do not need to be documented. Expectations may be derived from events or changes in activity noted during other
planning steps, budgets, prior year figures, figures for comparable entities, or general understanding of relationships between activities and
financial figures.

The following procedures are required:
Scan the current year financial statements and notes for a) obvious errors, omission or inconsistencies, b) deviations from general
expectations or c) transactions or activity that appears inherently high risk.
Note: some auditors prefer to perform a full financial statement review, including tick-and-tie procedures during the planning phase of the
audit. If this is the case, the procedures may be referred to in this step along with any risk assessment information noted. However,
details of these substantive procedures should be documented in the Review Financial Statements folder where they are required.
Start or complete the County Treasurer Reconciliation.
Note: the County Treasurer Reconciliation is a substantive step and must be documented in the County Treasurer Reconciliation folder in
the substantive testing section. However, by starting the reconciliation at this point, auditors will have more precise risk assessment
information about reconciling items.

For example, auditors should consider general expectations regarding the types and amount of reconciling items. Unusual or
unexpectedly high reconciling items may lead to the auditor identifying Misstated Reconciling Items as an additional risk.
Start or complete review of financial condition ratios in the 2012 Required Risk - Financial Condition accountability step.
Note: the Financial Condition step and ratio analysis template are accountability steps associated with the required risk to consider in the
planning guide. I f the audit does not include an accountability audit, this step should be added to the financial planning folder and
completed as part of financial statement audit planning.

The analysis must be documented in that step. However, by starting the financial condition analysis at this point, auditors are able to
consider any risk indicators identified by the analysis.

For example, auditors should consider general expectations regarding the amount and trend in expenditures per student. An unexpected
trend or amount may lead to the auditor identifying Misstated Reconciling Items as an additional risk.

The following procedures are considerations:
Multi-year trend of financial statement line items, considering general expectations of types of activity and level of activity and
relationships between line items.
Procedures to identify high-risk journal entries or adjustments, such as CAATS or scanning to identify a) manual entries, b) entries made
to unrelated, unusual, or seldom-used accounts, c) made by individuals who typically dont make journal entries, d) recorded at the end of
the year or as post-closing entries that have little or no explanation or description, e) made either before or during the preparation of the
financial statements that dont have account numbers, or f) containing round numbers or a constant ending number.
Review and follow up on the Financial Edit Report messages.
The Financial Edit Report is the last section of the F196. It contains the results of over 200 automated edit checks of the F196. There are
3 types of checks: (1) errors, which are required to be corrected, (2) warnings, which are required to be either corrected or explained
and (3) informational messages that may indicate a potential issue. We would therefore never expect to see errors (since these should
be corrected prior to the final F196) and would expect the District to have ready explanations and support for any warnings or
informational messages.
Run FAP queries and scan results.
CAATS Considerations
When analytical procedures involve CAATS, the following documentation guidelines should be followed:
Databases should not be included in TeamMate. Only relevant query results should be included in audit documentation. This can be
done with imported report documents, copied query excerpts, narrative description of queries and results, or other means.
When used as audit evidence, auditors should document where and how they obtained data, how they verified or were reasonably
assured of the completeness and accuracy of the data, and results. NOTE: FAP data has not been validated by Team Local ISA. For
downloads from WSPI C and Eden software, data validation testing strategy workpapers are available in the SAOStore in the Planning &
Audit Plan | Accountability folder.

Policy/Standards:
SAO Audit Policy 6240 Planning Analytical Procedures (effective 6/ 13/ 07)

BACKGROUND
Analytical procedures are required in planning financial statement audits to help gain an understanding of entity operations and financial events
occurring during the period and assess the risk of potential material misstatement.

REQUIREMENTS
1. Analytical procedures will be performed in planning the audit.
Analytical procedures enhance our understanding of the entity and the transactions and events that have occurred since the last audit, as well as
identify areas of risk.

2. Professional judgment will be used to determine the type of analytical procedures used in planning the audit.
Planning analytical procedures generally involve high-level data. Auditors should consider the size and complexity of the entity in the use of
analytical procedures.

3. Analytical review procedures are evaluated in terms of auditor expectations.
a. Expectations for analytical procedures used in planning the audit are not as precise as those required for substantive analytical
procedures. Auditors may develop expectations using sources such as budget data or financial information from prior years with
consideration of known changes.

b. Unlike substantive analytical procedures, auditors are not required to document expectations and the factors considered to develop those
expectations in performing analytical procedures used to help plan the audit. Also, auditors are not required to request and corroborate
management responses to deviations from auditor expectations as part of the audit planning process.

RELATED POLICIES

REFERENCES
AU 329 Analytical Procedures

______________________________________________

SAO Audit Policy 3220 Use of Computer Assisted Audit Techniques (CAATS) (effective 6/ 3/ 08)

BACKGROUND
Audit objectives are the same regardless of whether the information being audited is processed manually or by computer or whether the audit
test is applied manually or by software. Computer assisted auditing techniques (CAATS) refer to audit tests performed by or with
software. CAATS are used to audit electronic data that cannot be audited manually or as a more efficient and/or effective substitute for manual
tests.

REQUIREMENTS
1. Auditors will use CAATS where appropriate to increase audit efficiency and/ or effectiveness.
Auditors are responsible for determining when CAATS is appropriate for an engagement. In making this decision, auditors should
consider the costs and benefits of CAATS in relation to alternative manual tests.

2. Auditors will consider the accuracy and completeness of data used and the validity of queries or techniques applied in CAATS
tests.
Auditors will consult with their supervisors in determining appropriate CAATS procedures. Auditors should also consider consulting with
the Local I S Audit Team for local government engagements or the Statewide Technology Audit Team for state agency engagements.


RELATED POLICIES
3210 Audit Evidence
3230 Using the Work of Specialists

REFERENCES
AU 329 Analytical Procedures
AU 316 Consideration of Fraud in a Financial Statement Audit
AU 314 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement
AU 318 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained
AU 326 Audit Evidence

We performed the following audit procedures:
We scanned the current year financial statements and notes for a) obvious errors, omission or inconsistencies, b) deviations from general
expectations or c) transactions or activity that appears inherently high risk. We noted no omissions or errors other than the District does
not report using GAAP. See F-196 at B.2.19. The complete review will be documented at F.3.PRG.
We scanned the County Treasurer Reconciliation. This spreadsheet will be completed as substantive step and will be documented in the
County Reconciliation folder at County Treasurer Reconciliation. We scanned this spreadsheet looking for reconciling items that may
impact the scope of the financial statement audit. We identified significant variances that will be investigated as part of our financial
statement audit (e.g. GF/CPF ending cash, G/F/DSF/CPF revenue anticipation notes payable, GF/ASB/DSF/CPF- ending revenues and
expenditures, and GF/DSF/CPF- Transfer's out).
We reviewed the District's financial condition ratios in the Schools - Financial Condition accountability step at Financial Condition. We did
not identify any potential risks that could impact the scope of the financial statement audit.
We performed three-year trends of the F-196 overall and by fund for planning the financial statements and identified the following risks or
indications of material misstatements.
Balance Sheet at B.2.15
There were no risks identified. Although this is not a potential financial statement audit risk, we will remain aware throughout the
audit for any changes.
Statement of Revenues & Expenditures at B.2.16.
We noted fluctuations in the General Fund's capital outlay - other and Capital Projects Fund's capital outlay - buildings and capital
outlay - equipment. Based on auditor knowledge of the District, there is history of misclassification of capital outlay between the
General Fund and Capital Projects Fund, in both payroll and non-payroll related expenditures. There were significant increases in
capital outlay - equipment that appear unusual as capital outlay overall decreased.
In past audits, we reported instances where the District coded salaries to the incorrect fund. We analyzed employees' whose salaries were
charged to the Capital Projects fund at Analytical Procedures - Capital Payroll. We identified several staff members whose salaries appear
to have been charged to the incorrect fund. This is a potential risk for the CY financial statement audit.


Procedure Step: Risk Assessment Inquiry

Purpose/Conclusion:
Purpose:
To identify potential financial statement risks to consider in the planning conference brainstorm from inquiry with management.

Conclusion:
Based on our inquiry, we noted the following potential risks of misstatement (including risks related to misappropriation of assets and fraudulent
financial reporting):

Property Line Item -In allother urban School Districts, Ken has seen the financial statements contain a line item specific to property.
This is the line item he has most seen misstatements in the past. Based on District knowledge it does notappear that we have reviewed
property to ensure it is reported correctly and is a risk to the financial statements. (Financial Statement risk)
Capital Projects Fund - The District can easily shift funds and quite often and this may not be allowable depending on the project and
where the funds are coming from (BEX III , BEX IV, etc.). This is a potential financial statement audit risk. (Financial Statement risk)
Athletics Department-The Athletics department for athletic participation fees may not be accurately paid or overpaid to benefit the
particular sport or for personal benefit. There is a concern there are no controls at the school level to ensure the payments are made and
accurate. (Accountability risk)
Executive Director positions -There is a concern there are too many key school positions laid off, yet there are more hires of
Executive Directors. There is a concern the higher paid positions are not meeting their job descriptions and effectively addressing audit
findings as there is continued issues. (Accountability risk)
Construction Contracts -There is a risk the District is paying more for construction projects than is necessary because of excessive
change orders due to construction errors that may occur. The District may be overcharged for construction that is not necessary or is the
fault of the contractor. The risk is the construction contract is not followed by the contractor. (Accountability risk)
Schools and its ASB cash handling process- The schools sites are at a high risk for not properly tracking ASB funds in District's
account. Our risk is the District is not complying with its own policies and procedures and with the Accounting Department.
(Accountability risk)
School facility usage - There is a continued risk of schools not appropriately charging outside organizations the proper fee
and complying with District's policies and procedures. (Accountability risk)

Testing Strategy:
Auditors are required to use the attached workpaper to inquire with the following key personnel, at minimum:
Appropriate members of management.
Inquiry should be made with members of management and those charged with governance who exercise overall responsibility over
financial and operating matters and who are responsible and knowledgeable about the matters covered by the inquiry. Generally, this will
be the chief executive officer (e.g. city manager, mayor, superintendent) and the chief financial officer (e.g. finance officer, business
manager, clerk/treasurer). But it may be or include deputy officers or members of the governing body depending on the structure of
responsibilities and oversight or due to potential conflicts of interest or lack of segregation of duties. Auditors need to use professional
judgment to determine the appropriate persons to communicate with depending on the circumstances.
Audit committee (as a whole or at least the committee chair), if one has been formed.
Internal audit personnel, if applicable
Also consider inquires of others.

For example, the human resource manager, key accounting staff, facility manager, prosecuting attorney or managers responsible for
operation of significant components or functions of the government. Also, consider talking with employees who may be able to
corroborate information from management or others.
Inquiry should be performed using the following guidelines:
Inquiry should be done in person whenever possible, rather than by phone or email.
Due to the potential sensitivity of certain questions, auditors should be careful to ask them in a professional manner and be prepared to
explain that professional standards require us to ask such questions on every financial statement audit.
The inquiry should be a conversation - auditors should be prepared to explain terms, rephrase questions in their own words and ask
follow-up questions.
Auditors should be prepared to prompt the auditee with follow-up questions regarding potential risks described in the planning guide,
identified in prior audits or identified in other planning steps.
The workpaper describes the minimum extent of the inquiry as a whole, although not every question will be applicable to every person
the auditor inquires with. Also, auditors should consider additional questions about identified risks or controls as necessary.
Document response details in the attachment and a summary of significant items in the record of work done and/or conclusion.

Policy/Standards:
SAO Audit Policy 6320 Detecting Material Misstatements Resulting from Fraud, Illegal Acts, or Abuse (effective 10/ 1/ 04)

BACKGROUND

Auditors must plan and performthe audit to obtain reasonable assurance about whether the financial statements are free frommaterial misstatement, whether
caused by error or fraud. Statement on Auditing Standards No. 99 establishes the standards and provides guidance in meeting that responsibility, as it relates to
fraud, and Statement on Auditing Standards No. 54 provides guidance regarding illegal acts (violations of laws or regulations).

Government Auditing Standards (Yellow Book) requires an auditor to also be alert to situations or transactions that could be indicative of abuse.

REQUIREMENTS

1. Auditors will assess and document the risk of material misstatements of financial statement amounts or other financial data significant to the
audit objectives due to fraud and illegal acts (violations of laws and regulations). Auditors will consider how entity management could
perpetrate and conceal fraudulent financial reporting, and how assets could be misappropriated. That assessment will be used in designing and
evaluating audit procedures to be performed.

a. Auditors will performthe following in assessing risk:

Make inquiries of management and others within the entity (including those charged with governance) to obtain their views about the risks of
fraud and how they are addressed.
Consider any unusual or unexpected relationships identified in performing analytical procedures.
Consider whether fraud risk factors exist such as an ineffective control environment.
Consider other information that may be helpful in the identification of risks of material misstatement due to fraud.

b. Auditors will document the following:

Procedures performed to obtain information necessary to identify and assess the risks of material misstatement due to fraud.
The planning brainstorm, including how and when the discussion occurred, the audit teammembers who participated, and the subject matter
discussed. Refer to Policy 6210.
Specific risks of material misstatement due to fraud that were identified, and a description of the auditors response to those risks.
Reasons supporting an auditors conclusion that improper revenue recognition is not a risk of material misstatement due to fraud.
Results of procedures performed to address the risk of management override of controls.
Other conditions that caused additional procedures needed to address such risks or conditions.
Communications about fraud made to entity management, those charged with governance, and others.

c. An understanding of the possible effects of laws and regulations that are considered to have a direct and material effect on the determination of
the financial statement amounts or other significant financial data must be obtained by auditors.

d. Tests will be performed to provide reasonable assurance of detecting fraud, illegal acts, or other types of non-compliance which may be
material to the financial statements.

e. Auditors should be aware that illegal acts may have a material indirect effect on financial statements. For example, some laws and regulations
relate more to an entitys operating aspects than to its financial and accounting aspects, and their financial statement effect is indirect.

2. Auditors will be alert to situations or transactions that could be indicative of abuse.

Abuse is distinct fromfraud or illegal acts in that no law or regulation is violated. The Yellow Book describes abuse to involve behavior that is
deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and
circumstances.

3. When specific information comes to the auditors attention indicating possible fraud, illegal acts or abuse:

a. Auditors will performprocedures to determine if the fraud, illegal act or abuse occurred; the impact on financial statement amounts or other
financial data; and the significance to the anticipated report users.

b. Auditors will informentity management and those charged with governance. All communication with the entity will be documented.

4. Auditors will exercise professional judgment in pursuing indications of possible fraud, illegal acts, or abuse in order not to interfere with
potential future investigations or legal proceedings.

RELATED POLICIES

6210 Planning Financial Statements Audits

REFERENCES

Government Auditing Standards (Yellow Book) 4.10.13
AU 316 Consideration of Fraud in a Financial Statement Audit
AU 317 Illegal Acts by Clients

Identification of Key Personnel
1. We reviewed the District's list of department management
at http://www.seattleschools.org/modules/cms/pages.phtml?pageid=206892&sessionid=40018983bb37fe461efe1331be4617e6.

2. We reviewed the District website and identified the Board members that are part of the Audit & Finance Committee
at http:/ / www.seattleschools.org/ modules/ cms/ pages.phtml?sessionid=40018983bb37fe461efe1331be4617e6&pageid=2055
35&sessionid=40018983bb37fe461efe1331be4617e6.

3. We tried to review the organization chart
at http://www.seattleschools.org/modules/groups/homepagefiles/cms/1583136/File/Departmental%20Content/communications/documents/SPS_
OrgChart_All.pdf?sessionid=40018983bb37fe461efe1331be4617e6, however we determined the chart is not updated or accurate based on
discussion with Kathie Technow, Accounting Manager. The chart online was last updated J anuary 9, 2013. The organizational structure of who
reports to the Superintendent and Deputy Superintendent have changed, in addition to several turnovers in Assistant Superintendents. We have
requested an updated organizational chart from Kathie, but as of December 17, 2013 we have been unable to receive one.

4. We identified the key personnel for the risk assessments. We contacted Theresa Hale, Board Office Manager to schedule the meetings with the
Superintendent, Deputy Superintendent, Assistant Superintendent, and Board. We scheduled the meetings with the Internal Auditor and
Accounting Manager individually on our own.

We identified the following key personnel to conduct risk assessments on for FY2013 and further identified any risks related to the financial
statement audit:

J ose Banda, Superintendent -- Risk Assessment Inquiry Questions - J ose Banda (Superintendent)

We identified no area for potential risk of misstatement relating to misappropriation of assets and fraudulent financial reporting or for the
accountability audit.

Charles Wright, Deputy Superintendent - B.2.4

accountability audit.

Sherry Carr, Boardmember and Audit & Finance Committee Chair - B.2.5

We identified no area for potential risk of misstatement relating to misappropriation of assets and fraudulent financial reporting. We noted
the following risk for the accountability audit.

1. Athletics Department - The Athletics department for athletic participation fees may not be accurately paid or overpaid to benefit the
particular sport or for personal benefit. There is a concern there are no controls at the school level to ensure the payments are made and
accurate.

Betty Patu, Boardmember and Audit & Finance Committee member - B.2.6

We identified no area for potential risk of misstatment relating to misappropriation of assets and fraudulent financial reporting that are not
already mentioned by other risk assessments. We noted the following risks for the accountability audit.

1. Executive Director positions - There is a concern there are too many key school positions laid off, yet there are more hires of
Executive Directors. There is a concern the higher paid positions are not meeting their job descriptions and effectively addressing audit
findings as there is continued issues.
2. Construction Contracts -There is a risk the District is paying more for construction projects than is necessary because of excessive
change orders due to construction errors that may occur. The District may be overcharged for construction that is not necessary or is the
fault of the contractor. The risk is the construction contract is not followed by the contractor.
3. Schools and its ASB cash handling process- The schools sites are at a high risk for not properly tracking ASB funds in District's
account. Our risk is the District is not complying with its own policies and procedures and with the Accounting Department.

Harium Martin, Board member and Audit & Finance Committee member - B.2.7

We identified an area for potential risk of misstatement relating to misappropriation of assets and fraudulent financial reporting.

1. Capital Projects Fund - The District can easily shift funds and quite often and this may not be allowable depending on the project and
where the funds are coming from (BEX III , BEX IV, etc.). This is a potential financial statement audit risk.

Pegi McEvoy, Operations Assistant Superintendent - B.2.8

We identified no area for potential risk of misstatement relating to misappropriation of assets and fraudulent financial reporting. We noted
the following risk for the accountability audit.
1. School facility usage - There is a continued risk of schools not appropriately charging outside organizations the proper fee
and complying with District's policies and procedures. We determined this area as part of follow-up to prior audit issues and will be
reviewed at Risk Assessment Inquiry Questions - J ose Banda (Superintendent)

Ron English, General Counsel -- B.2.9
We identified no area for potential risk of misstatement relating to misappropriation of assets and fraudulent financial reporting.

Andrew Medina, I nternal Auditor -- B.2.10

accountability audit that is not already mentioned in other risk assessments.

Kathie Technow, Accounting Manager -- B.2.11

We identified no area for potential risk of misstatement relating to misappropriation of assets and fraudulent financial reporting. Kathie was
able to provide us with additional information noting there was one unusual transaction related to the High School Graduation grant (CFDA
84.360) to reclassify grant expenditures to the general fund as they were found not allowable to the grant. This is a direct result of the
audit finding last year and will be reviewed at High School Grant Initiative - CFDA 84.360.

Paul Apostle, Human Resources Assistant Superintendent - B.2.12


Ron McGlone, Ombudsman -- B.2.13


Kenneth Gotsch, Business & Finance Assistant Superintendent - B.2.14

We identified an area for potential risk of misstatement relating to misappropriation of assets and fraudulent financial reporting.

1. Property Line I tem - I n all other urban School Districts, Ken has seen the financial statements contain a line item specific to property.
This is the line item he has most seen misstatements in the past. Based on District knowledge it does not appear that we have reviewed
property to ensure it is reported correctly and is a risk to the financial statements.

Lester ("Flip") Herndon, Capital, Facilities & Enrollment Assistant Superintendent - B.2.18

accountability audit that is not already mentioned in other risk assessments.



Procedure Step: FS Brainstorm

Purpose/Conclusion:
To evaluate financial statement risks and develop our audit plan.

Testing Strategy:
EXPECTATI ON: The planning conference brainstorm should take place in person or on the phone after all planning steps have
been completed. The AI C should be prepared in accordance with team expectations - with a proposed Material Balance
Spreadsheet. This will allow the brainstorming process to effectively evaluate and finalize decisions related to risk assessment
and further audit procedures.

Information and decisions discussed may be relevant to work performed by other members of the engagement team not involved in the
discussion, specialists or other auditors who are performing a portion of the audit. The AIC should communicate relevant matters as necessary
with auditors not involved in the brainstorming discussion.

Brainstorming Discussion (Planning Conference)
Professional judgment should be used in determining which audit team members should be included in the discussion. The brainstorm should
include, at minimum, the key members of the audit team. Normally, this would be the AIC, Supervisor and Audit Manager. This could also
include other members of the audit team or specialists. Managers should consider the experience of the AIC and Supervisor and the size and risk
of the audit in determining the extent of the managers involvement in the brainstorming discussion.

The auditor must document how and when the discussion(s) occurred, participants, and the subject matter discussed. At a minimum the
discussion must include the topics below.

Results of Analytical Procedures:
Were any risk indicators or unexpected relationships noted in the "Planning Analytical Procedures" step?

Unusual accounting policies or procedures:
Does the entity have any unusual accounting policies or procedures that indicate a higher risk of material misstatement? Also, would these
accounting policies or procedures result in a proper application of GAAP to major financial events or activities identified in planning? Refer
to significant accounting policies identified in the "Entity Operations" step in the permanent file folder.

Areas Susceptible to Management Override of Controls:
Are there any systems or areas susceptible to management override of controls? Management override of controls could include: (a) not
responding when controls indicate a potential problem, (b) recording fictitious journal entries, (c) intentionally biasing assumptions and
judgments used for estimating account balances, or (d) altering records related to significant and unusual transactions. Specifically consider
results of the Risk Assessment Inquiry step, Entity Operations and Overall COSO Evaluation steps, the journal entry process and the extent
of monitoring and transparency of financial data.

Risk of Material Misstatement due to Fraud:
Are there any external and internal risk factors affecting the entity that might (a) create incentives/pressures for management and others
to intentionally misstate the financial statements, (b) provide the opportunity for fraudulent reporting or material misappropriations or
misuse of resources, and (c) indicate a culture or environment that enables management to rationalize fraudulent reporting or material
misappropriation or misuse of resources? Refer to the "Risk Assessment Inquiry" step.

Risk of Material Misstatement due to Noncompliance with Laws, Regulations, Contracts or Grants:
Were there any risks of material misstatement due to noncompliance with laws, regulations, contracts or grants identified in the "Material
Compliance Requirements" step that require further audit procedures?

Significant Accounting Systems:
Do overall COSO elements or significant accounting systems represent increased or decreased risk of material misstatement? Specifically
consider any significant changes to COSO elements and accounting systems, such as new key personnel or implementation of new
software systems. Refer to "Overall COSO Evaluation" step in the permanent file folder.

Materiality and Planned Further Audit Procedures:
What decisions should be made regarding preliminary materiality threshold, material balances, relevant assertions, inherent risk and
tolerable misstatement allocations? Should internal controls be relied upon to reduce substantive testing for certain balances and
assertions? Also, what substantive testing should be planned in light of these decisions?

Importance of maintaining professional skepticism:
Supervisors should emphasize the need to maintain professional skepticism throughout the audit and highlight any areas of potential
concern or where special care or consideration may be needed.

Discussion among the engagement team about risks of material misstatement should continue throughout the audit. Auditors do not need to
document every discussion, but should consider documenting any additional key brainstorming discussions, particularly if there were major re-
evaluations or updates to the audit plan.

Information to be considered in other SAO audits:
[Either state that planning identified no significant information that should be considered for other SAO audits or communication to outside
parties, or else list communications or referrals]

Policy/Standards:
SAO Audit Policy 6210 - Planning Financial Statement Audits

Brainstorm
Date: J anuary 7, 2014

Attendees in person:
J im Griggs, Audit Manager
Anastassia Efanova, Assistant Audit Manager
Heidi Wiley, Auditor in Charge
Annette Boulmetis, Assistant State Auditor

Subject Matter Discussed:
Results of analytical procedures
We noted a new grant from the City of Seattle that is a new revenue stream during our review of the minutes. We did not identify
any additional risks of this new revenue stream during review of the financial statement analytical procedures.
We noted several large dollar amount construction contracts awarded during our review of the minutes. We noted capital outlay - buildings as a
whole significantly decreased and is a risk due to the contracts awarded. We recognize the potential the construction contracts awarded may be
in the initial phase and construction not fully under way. However, we would not expect such a significant decrease in capital outlay. - We will
include this in our audit plan for testing the Capital Projects Fund.
We identified the Capital Projects Fund as a whole and the General Fund's capital outlay as higher risk as we have reported in prior audits
instances where the District coded salaries to the incorrect fund. We noted unusual fluctuations in the Capital Projects Funds balances for
capital outlay and in the General Fund's capital outlay. There is a risk the District is continuing to record non-capital fund expenditures in the
capital fund. We will include this in our audit plan for testing the Capital Projects Fund
Unusual entity accounting policies or procedures
supervisory roles. There is a risk for a lack in turnover of duties, policies and procedures and a lack of District and state law
knowledge. - We will keep this in mind during our internal control understanding in the permanenet file and financial statement
testing as a whole.
Areas susceptible to management override of controls
Over the past several years the District received an excess of audit recommendations, had a fraud that resulted in criminal
prosecution of a former district employee and resignations of the Superintendent and Internal Auditor. SAO reported in fiscal year
2012 that the Tone at the Top was promoting a culture of dysfunction and unethical behavior throughout the District. Since then,
the District has undergone significant changes in management. The new senior management is addressing prior year issues and is
emphasizing accountability at the department level. The Superintendent and Assistant Superintendent of Business and Finance
organized an audit kick-off meeting with Districts personnel involved in SAO audits to set audit expectations. The Assistant
Superintendent of Business and Finance is also involved with the weekly status meetings between SAO and the District. - Even
though the Tone at the Top has changed, we should note the results of this change may not be fully recognized until subsequent
year audits and will keep this in mind throughout the financial statement testing as a whole.
Risk of material misstatement due to fraud - As noted above, the District had a fraud that resulted in criminal prosectuion of a former
district employee and resignations of the Superintendent and Internal Auditor that we reported in the FY2011 audit. SAO reported in fiscal
year 2012 that the Tone at the Top was promoting a culture of dysfunction and unethical behavior throughout the District. Since then, the
District has undergone significant changes in management. The new senior management is addressing prior year issues and is
emphasizing accountability at the department level. The Superintendent and Assistant Superintendent of Business and Finance organized
an audit kick-off meeting with Districts personnel involved in SAO audits to set audit expectations. The Assistant Superintendent of
Business and Finance is also involved with the weekly status meetings between SAO and the District. - Even though the Tone at the Top
has changed, we should note the results of this change may not be fully recognized until subsequent year audits and will keep this in
mind throughout the financial statement testing as a whole.
Risk of material misstatement due to noncompliance with laws, regulations, contracts or grants
The District may shift restricted fund expenditures to the general fund. - We will include this as part of the audit plan for testing
capital projects fund expenditures to make sure they are not general fund expenditures.
The property line item is the line item Ken Gotsch, Assistant Superintendent of Business & Finance has seen most misstated in
past audits in his experience with other school districts. As the capital projects fund is part of our financial statement audit risk
this area will also be included in the financial statement audit.
The District can easily shift funds and quite often and this may not be allowable depending on the project and where the funds
are coming from (BEX III , BEX IV, etc.). This is a potential financial statement audit risk and will be included in our testing of
capital projects fund expenditures.

Significant accounting systems
The District uses SAP/FAST systems to record transactions in the payroll module and general ledger unlike most School Districts in
Washington State who us WESPAC. - Although this does not increase our risk for the financial statements, we will keep this in
mind as a risk for the financial statement payroll and transaction selection for testing.

Materiality, material balances, relevant assertions and plannedfurther audit procedures
We established quantitative materiality at 5% instead of the default 10% due to our experience with auditing this District. We
perceive a risk of deliberate attempts to misclassify capital expenditures to the general fund by management and misclassify
central administration expenditures in order to make line items appear reasonable to their respective budgets. We also believe
that the District may be making unallowable transfers (out of activity 99 - transportation significant risks) - We will keep this in
mind during the financial statement testing as a whole.
We will rely on internal controls to reduce substantive testing for the balances and assertions. We will perform substantive testing
of the capital projects fund payroll and non-payroll expenditures.
Importance of maintaining professional skepticism
We discussed the importance of maintaining professional skepticism and to work with the District instead of having a "gotcha"
attitude. We have scheduled weekly meeting with the District to make sure all concerns are addressed and any additional
information can be provided timely. We also discussed how any concerns will be addressed in the record of work done,
concluding steps, writing the issues, and how to discuss and report to the District.
Discuss potential risks that were identified during the planning steps:
We discussed the potential risks identified during the planning steps and addressed them in the steps above. There were no other
financial statement risks identified in the planning steps that are not already addressed in the steps above.

Information to be considered in other SAO audits:
Accountability Audit considerations:
Athletics Department-The Athletics department for athletic participation fees may not be accurately paid or overpaid to benefit the particular sport
or for personal benefit. There is a concern there are no controls at the school level to ensure the payments are made and accurate.
Executive Director Positions -There is a concern there are too many key school positions laid off, yet there are more hires of Executive Directors.
There is a concern the higher paid positions are not meeting their job descriptions and effectively addressing audit findings as there are continued
issues.
Construction Contracts -There is a risk the District is paying more for construction projects than is necessary because of excessive change orders
due to construction errors that may occur. The District may be overcharged for construction that is not necessary or is the fault of the contractor.
The risk is the construction contract is not followed by the contractor.
Schools and its ASB cash handling process - The schools sites are at a high risk for not properly tracking ASB funds in District's account. Our risk is
the District is not complying with its own policies and procedures and with the Accounting Department.
Central administration expenditures - There is no understanding of how the central administration accounts are spent for and how they roll-up
into the budget adopted by the Board.
We will consider these risks during Accountability Brainstorm.


Procedure Step: FS Audit Plan

Purpose/Conclusion:
Purpose:
To finalize our audit plan to reduce audit risk to an appropriately low level.

Conclusion:
See documented plan in the Record of Work Done.

Testing Strategy:
An audit plan template has been developed in the Record of Work Done for a local government School F196 financial statement audit. Make edits
as necessary to complete the template and modify it for the specific circumstances of the audit.

CHANGES TO AUDIT PLAN:
Document both the original plan and any changes made during the course of the audit. Changes to the original plan may be documented in the
"Changes to Audit Plan" step or in the Record of Work Done (ie: using a different font color for changes or listing changes in a separate section at
the end of the plan).

Planning Methodology
Modify as necessary for applicable financial statements and special planning approaches (such as interim work or audits with multiple major
components or locations).

Audit Risk at the Overall Financial Statement Level
Assess risk at the overall financial statement level. Planning should reflect the overall risk assessment in staffing, supervision, audit budget and
the overall level of substantive testing.

When determining overall risk, auditors should consider the number and nature of red flags identified by planning. Auditors should also
consider any risks that could potentially affect many balances and assertions, such as:
Issues with overall COSO elements, such as the control environment or information systems
Issues with the financial statement preparation process
Major financial distress
Preliminary Quantitative Materiality
While the quantitative threshold is a starting point, auditors will consider qualitative factors when applying materiality to planning
decisions. SAOs rule of thumb for the quantitative threshold is 10% of total expenditures.

Tolerable Misstatement
Tolerable misstatement (also known as performance materiality) is a method of applying materiality to individual accounts with an allowance for
undetected errors. It is used to make decisions about substantive testing (such as the extent of testing) and to evaluate initial test results to
determine if further or different testing is needed. SAOs rule of thumb is 75% of materiality.

Aggregation of Misstatements Floor
The "floor" to the aggregation of misstatements is the threshold below which misstatements are considered trivial and do not need to be
accumulated or communicated to management. The floor should be set to an appropriately low level such that un-accumulated misstatements
would never reasonably be material, either individually or when aggregated with other misstatements, and considering the possibility of additional
undetected misstatements.

The default floor is 0.002 multiplied by the materiality threshold, rounded up to the nearest $1,000. Auditors may use professional judgment to
adjust the default floor, as documented on the Aggregation of Misstatements worksheet.

Balances, Assertions, Systems and Risk Assessments for the County Treasurer Reconciliation
Modify the record of work done as needed to describe affected balances, relevant assertions, the significant system and IR, CR and RMM
assessments related to the planned County Treasurer reconciliation test.

Balances, Assertions, Systems and Risk Assessments for Additional Risks
Based on planning and brainstorming, identify any additional risks requiring further audit procedures that are not covered by the planned County
Treasurer reconciliation. Management override of controls is considered an additional risk for every audit. List and describe other additional risks
in the record of work done.

For each identified additional risk (risks not covered by the County Treasurer reconciliation), auditors must:
Describe the risk
List or describe the financial statement balance(s) affected
List the relevant assertion(s)
Assess the inherent risk (IR) for the relevant assertion(s) and balance(s)
List the significant accounting system(s) related to the relevant assertion(s) and balance(s)
Gain an understanding of internal controls for significant accounting systems and assess control risk (CR)
Assess the risk of material misstatement (RMM) for the relevant assertion(s) and balance(s)
Note: assessments should be identified by assertion, if different. For example, IR and RMM may be assessed at MAX and MOD
respectively for the existence assertion, but LOW and LOW for the rights & obligations assertion.

Examples of potential risks that would NOT be covered by the County Treasurer reconciliation include the following. Testing strategies
are available in the Store for each of the following examples of potential risks.

Misstated reconciling items (existence / completeness)
Invalid or missing reconciling items in the County Treasurer reconciliation
Unreported transmittal, imprest or petty cash funds
Misstated Current Assets (existence, completeness, valuation)
Reported current assets do not exist
Modified-accrual Districts are not presenting all types of current assets as defined by the Schools Manual
Incorrect valuation or accounting for current assets
Misstated Current Liabilities (existence, completeness, valuation)
Reported current liabilities do not exist
Modified-accrual Districts are not presenting all types of current liabilities as defined by the Schools Manual
Incorrect valuation or accounting for current liabilities
Misstated Long-Term Liabilities on the Schedule of Long Term Debt (existence, completeness, valuation, classification)
Reported long-term liabilities are incorrectly calculated
Not all types of long-term liabilities as defined by the Schools Manual are reported.
Long-term liabilities are incorrectly classified
Misclassified Revenues, Expenditures, Assets or Liabilities (classification)
Amounts are misclassified between funds or line items
Misclassified Fund Balance (classification)
Fund balance amounts are incorrectly presented as reserved, designated or unreserved
Noncompliance with a financial statement effect (rights & obligations) - see the Material Compliance Requirements step for additional
details.
Exceeding statutory authority (ie: project / program outside jurisdiction or authority)
Inaccurate apportionment reporting
Noncompliance with grant or entitlement requirements leading to questioned costs
Noncompliance with bond covenants or special levy requirements
Unallowable use of donations or fiduciary funds
Unallowable transfers, interfund loans or interfund transactions
Unallowable investments
Misstating the ownership of funds (rights & obligations) - this risk is primarily related to activity with joint ventures, related parties,
cooperative programs and fiduciary funds.
Incorrectly accounting for balances or activity related to another entity, joint venture or cooperative program
Invalid payments (existence / rights & obligations)
Erroneous payments (ex: duplicate or accidental over-pay)
Unallowable payments (ex: gift of public funds)
Fraudulent payments
Unreported receipts (completeness)
Misappropriation of locally receipted revenues before the revenues are deposited
Misappropriated accounts receivable, which may be shown as current, past due or adjusted/written off in the accounting records
Disclosure issues
Missing, inaccurate or unclear note disclosures
NOTE: we would consider any additional risks identified to be "significant risks" that require special audit consideration.

Relevant Assertions
For each additional risk, describe what could go wrong. Then identify the relevant assertion, which should match the description of what
could go wrong. Assertions are representations by management embodied in the financial statements. Relevant assertions are those that,
based on auditor judgment and planning procedures, are applicable and present a consequential risk of misstatement. Multiple assertions
may be identified, which may reflect either multiple risks or different ways in which a risk may affect balances. Assertions are defined as
follows:
Existence / Occurrence amounts reported exist as of the financial statement date and reported transactions and events occurred during
the fiscal year
Completeness - all amounts that should have been recorded for the fiscal year have been recorded
Rights & Obligations amounts reported properly represent the entitys legal rights, authority, responsibilities and obligations
Valuation amounts reported are valued or calculated properly
Classification amounts are recorded in the proper fund and line item
Inherent Risk (IR)
Inherent risk is the susceptibility of an assertion to misstatement, assuming there are no related controls. In other words, what is the
likelihood of misstatements that are more than inconsequential if no key controls were in place? Auditors should consider both the
likelihood of accidental misstatements as well as the risk of intentional misstatements (ie: if there are inherent motivations to misstate).

Significant Accounting Systems (including outside service organizations)
Identify the significant accounting system(s) that contains key controls over relevant assertions for affected balances. Significant
accounting systems identified should match the internal control systems documented in the permanent file folder.

When significant accounting systems or key controls are performed by outside service organizations, auditors still must gain and
understanding of the controls. See Audit Policy 6230 for more information.

Control Risk (CR)
For each significant accounting system identified, document an understanding of controls in the permanent file folder and assess control
risk.

Risk of Material Misstatement (RMM)
For each material balance, document your assessment of the risk of material misstatement. RMM is a combined assessment of inherent
and control risk based on auditors judgment. I f inherent and control risk are assessed differently, it is a matter of professional judgment
as to whether the combined assessment is moderate or if one factor outweighs the other.

Audit Staffing
Identify the AIC, AAM and other planned members of the audit team in the Team tab of the Profile, considering the knowledge, skill, and ability of
personnel assigned significant engagement responsibilities and the appropriate level of supervision.

Independence and Competence
Determine whether assigned staff are independent with respect to the entity under audit (Policy 3110). Also, ensure the assigned staff
collectively possesses adequate professional competence for the tasks required (Policy 3140).

Reliance on Work of Others or Other Audits
If the audit will require the use of external specialists (Policy 3230) or rely on work performed by externalauditors (Policy 3510 and 6240), in
other SAO audits (6240) or by internal auditors (Policy 3520), describe the planned nature and extent of reliance.

Work done by others or in other SAO audits needs to be completed, evaluated and the results incorporated into this audit prior to
issuance of the report. See the FS Summary & Report step for details.

Budget
Develop a detailed audit budget, considering risks, staffing and other circumstances. Initial budget information can be obtained from TABS.
Inform your supervisor and audit manager if TABS is not correct so that changes can be requested.

Develop Initial Substantive Testing Strategies
Develop testing strategies to address identified risks. A County Treasurer reconciliation step and template, as well as example testing strategies
to consider for common additional risks, are available in the SAO Store.

Policy/Standards:

SAO Audit Policy 6220 - Materiality

SAO Audit Policy 6230 - Understanding Internal Control and Assessing Control Risk

PLANNING METHODOLOGY
Objectives - The objectives of our audit are based on the reports we plan to issue. We have planned the audit to gain sufficient appropriate audit
evidence in support of the reports planned to be issued:
Independent Auditor's Report on Compliance and I nternal Control Over Financial Reporting in Accordance with Government Auditing
Standards
Independent Auditor's Report on Financial Statements
We will obtain reasonable assurance that the financial statements are free of material misstatement - whether due to error, fraud or
noncompliance with laws, regulations, contracts, or grants - in accordance with the basis of accounting described in the notes. We will report the
following conditions discovered during the course of our audit:
Significant deficiencies or material weaknesses in internal controls over financial reporting. Material instances of fraud or noncompliance
with laws or regulations and any other instances that warrant the attention of those charged with governance
Material noncompliance with, contracts or grant agreements
Material abuse
Standards - We will conduct our audit in accordance with Government Audit Standards (GAS). We are planning and performing the financial
statement audit to achieve a low overall audit risk. Audit risk is the risk that any material misstatements are not detected by the audit. The
assessed risk of material misstatement (which is a combination of inherent and control risk) is addressed by planned further audit procedures
designed to achieve a corresponding level of detection risk (a measure of the quality and quantity of audit evidence). These assessments will be
re-evaluated during the course of the audit and at the conclusion of the audit.

Determination of further audit procedures - A cash flow reconciliation will be performed that will provide assurance over most balances and
assertions. This test was assumed during planning, so although planning procedures were designed to assess risks for all balances and
assertions, these procedures were focused on assessing risks other than risks addressed by the base test. Substantive testing (other than the
cash flow reconciliation) is also performed for any additional risks (other than risks addressed by the reconciliation) that are identified in planning.
Presentation & Disclosure - A review of presentation and disclosure will be performed, the extent of which will be based on risk.
Special Planning Methodology - None

MATERIALITY
Materiality and risk of material misstatement are based on planning procedures and are designed to achieve a low overall audit risk. Decisions
reflect an overall assessed risk of material misstatement of MODERATE.

Planning Materiality - Our quantitative materiality threshold is $35,387,804, based on 5% of expenditures. Qualitative factors are based on
auditor judgment after considering our understanding of the Districts operations and environment, potential users, and results of other planning
procedures.

Tolerable Misstatement - Our tolerable misstatement threshold is 75% of materiality. We will reevaluate judgments made in planning and our
planned audit procedures if we identify net misstatements exceeding our tolerable misstatement threshold for cash or revenues / expenditure
balances.

Aggregation of Misstatements Floor - The floor is documented in the Aggregation of Misstatements worksheet.

CASH FLOW RECONCILI ATION TEST
We plan to reconcile cash, revenues, expenditures, interfund activity and debt to the County Treasurer statements. This test will cover:

Balance(s): Cash & Cash Equivalents, Investments, Warrants Outstanding, Revenue Anticipation Notes Payable, Interfund Loans Payable
and Receivable, Matured Bonds Payable, Bonds Outstanding, Transfers In and Out, Revenues and Other Financing Sources and
Expenditures and Other Financing Uses.
Assertion(s): Existence and completeness risks related to the statements not agreeing with actual cash, interfund and bond activity per
the County Treasurer.
Inherent Risk: MAX
Significant Accounting System: County Treasurer Reconciliation, see F/S Internal Controls at F/S Internal Controls - School F196 and
testing at County Treasurer Reconciliation
Control Risk: MAX
Risk of Material Misstatement: MAX

ADDITIONAL RISKS:
The following are risks that require further audit procedures in addition to our County Treasurer reconciliation step:

Management Override of Controls: Management is in a unique position of control over financial reporting. Since this risk
is unpredictable and always present, it must be considered a significant risk.
Balance(s): all
Assertion(s): all
Inherent Risk: MAX
Significant Accounting System: Period End Financial Reporting at F/S I nternal Controls - School F196
Control Risk: MAX
Planned Testing:
We updated our understanding of the period end financial reporting process in F/S Internal Controls - School F196
We will also scan and test year-end adjusting journal entries, including any consolidating entries and off-book adjustments, and consider
additional testing of journal entries throughout the period in Management override of controls
We will review accounting estimates for biases in Management override of controls
No red flags or significant pressures or incentives to intentionally misstate revenues. We therefore do not consider improper revenue
recognition as a risk of material misstatement due to fraud.
No unusual, unsupported or disputed transactions identified during our risk assessment inquiry or other planning procedures.
No significant related party or other transactions occurring outside the governments normal course of business
We will remain alert for indications of management override during the course of the audit and will test journal entries for material
balances based on risk in Management override of controls
Description of Risk: Unallowable interfund transactions - The District is transferring resources from capital projects fund
to reimburse general fund for unallowable expenditures (e.g., transferring capital projects fund expenditures to the
general fund by manual journal entries)
Balance(s): Assets, Liabilities, and Other Financing Sources/Uses
Assertion(s): Rights and Obligations
Inherent Risk: MAX
Significant Accounting System: Interfund J ournal Entries, See J ournal Entries/Interfund Transfers
Control Risk: MAX
Planned Testing: We will test Capital projects transfers out at Misstated Reconciling Items by reviewing journal entries to determine
whether the journal entry is allowable and made in accordance with the Schools Accounting Manual.

Description of Risk: Misclassified Expenditures - The District is recording general fund expenditures in the capital project
funds
Balance(s): Expenditures
Assertion(s): Classification
Inherent Risk: MAX
Significant Accounting System: J ournal Entries at J ournal Entries/Interfund Transfers, Payroll Expenditures at Payroll
Expenditures and Non-Payroll Expenditures at Non-Payroll Expenditures/Year-End Accruals .
Control Risk: MAX
Planned Testing: We will review payroll expenditures and non-payroll expenditures coded to the capital projects fund to determine
whether expenditures are capital expenditures and in accordance with the Schools Accounting Manual.

AUDIT RESOURCES
Staffing - The auditor in charge, supervisor and all assistants are listed in the Team tab of the Profile. We have planned the audit staffing to
ensure that all staff are adequately supervised.

Independence and Competence - We determined that assigned personnel are independent and collectively have the technical knowledge, skills
and experience necessary to perform the audit.

Reliance on work of others or other audits - We considered the use of specialists and the potential for reliance on other SAO audits or the work of
external auditors or internal auditors. We do not plan to rely on specialists, other SAO audits, or work of others.

Budget We developed a detailed audit budget as documented in 2013 Budget vs. Actual Audit Hours.

INITIAL TESTING STRATEGIES
We developed initial audit programs as reflected in the folders, steps and testing strategy tabs for financial statement work. Our initial audit
programs reflect mainly considerations and general guidance for assistants, who will document procedures reflecting the final audit program in the
record of work done tab.


Procedure Step: FS Entrance Conference

Purpose/Conclusion:

Testing Strategy:
If no entrance conference was held, explain the situation in the record of work done (and the Entrance Conference Explanation
Field in the custom tab in the profile). The record of work done must describe how the required information above was
communicated to management and those charged with governance.

BEFORE the Entrance Conference:
If not clearly evident from the governance structure, determine those charged with governance for purposes of audit communication
and document our conclusion.
Those charged with governance are those responsible for overseeing the strategic direction of the government and fulfillment of the
governments objectives and obligations. In some governments, multiple parties may be charged with governance, including oversight
bodies contracting for the audit, members or staff of legislative committees, boards or audit committees. The auditors evaluation should
consider how the government delegates authority and establishes accountability for management.
Communicate with management on entrance conference logistics, such as the time and place of the meeting, who to invite and how to
communicate invitations..
Invite appropriate members of management, the governing body or audit committee and others to the Entrance conference (see template
letter available in the SAOStore).
Prepare the Entrance conference handout the using the required template available in the SAOStore. The template must be adjusted as
necessary for each audit.
The entrance document is normally used in lieu of an engagement letter to document our understanding with the client. However, if a
more formal agreement is needed (for example, to set firm deadlines for audit readiness), an engagement letter may be used - see Audit
Policy 2140 for details.

DURI NG the Entrance Conference:
Present Entrance conference handout. The conference must include discussion of the following:
Planned scope and timing of the audit
Auditor responsibilities for the engagement
Management responsibilities for the engagement
An overview of work to be performed by other auditors or in other audits upon which we plan to rely, and the nature of our involvement
in this other work
Reports to be issued and the level of assurance provided
Any potential restriction of reports associated with the different levels of assurance services
Engagement staffing
Estimated cost of the engagement (local governments or special engagements only)
Procedures for informing entity management of the status of the engagement, including significant issues, and the appropriate
representative(s) with whom to communicate
Any issues that concern the entity's management or governing body
Additional information that may be provided to the governing body at the end of the financial audit, if applicable
Also, consider presenting the Management Representation Letter request and Attorney Letter request (if applicable) with the estimated
end of fieldwork date.

AFTER the Entrance Conference:
Attach the entrance conference handout and any other documents that were presented.
Document the conference attendees (SAO and client) as well as the date of the conference.
Document any significant conversations that might result in a change in our risk assessment or audit plan.
Send copies of the entrance document to any members of the governing body or audit committee who were not able to attend the
conference.

Policy/Standards:


The financial statement audit scope, timing and responsibilities were communicated with management and those charged with governance at the
financial statement entrance conference see AC Entrance Conference for details.

B.3.PRG - Single Audit Planning

Procedure Step: Minutes, Other Engagements and FAWF

Purpose/Conclusion:
Purpose:
To review the minutes, other audits and FAWF for items to consider in planning the single audit.

Conclusion:
We reviewed the minutes, other audits and FAWF for items to consider in the planning the single audit. We noted the following risks to consider:

Funding for the Regional Coordinator Health I ntervention Program was previously charged to the High School Graduation Initiative grant
but in April 2013, was moved to the Title I grant. There is a risk of supplanting because of the McKinney-Vento Act. We will review the
HSGI audit at High School Graduation I nitiative - CFDA 84.360
There may be continued HSGI unallowable costs charged to the grant. We will review the HSGI audit at High School Graduation Initiative
- CFDA 84.360
There has been continued issues with time and effort certifications being signed timely. Time and effort internal controls and testing are a
centralized control and will be tested at Time and Effort Certifications for each selected single audit.
There were prior audit concerns in the Nutrition Cluster for eligibility and reporting requirements. We will follow up with the concerns
during the audit at Child Nutrition Cluster CFDA10.553/10.555

Testing Strategy:
Review the minutes, other audits and the future audit work file (FAWF) for information that would have an impact on the Single Audit to be
performed as well as the Schedule of Expenditures of Federal Awards:
Review minutes for information relevant to the single audit, such as:
New grants or federal loans.
Indications of difficulty with grant-related projects.
Staffing changes that effect grant management.
Note: if minutes were reviewed in another section of the audit please be sure to either link to that review or copy and paste the relevant
single audit information to this step.
Review the FAWF for items relevant to the single audit.
Review prior single audit exceptions. Use the Prior Findings (if applicable) step to document any prior findings and our follow-up
procedures.
Review other audits or studies done that directly relate to single audit objectives. See Audit Policy 3530 related to grant or oversight
agency work.

Policy/Standards:
SAO Audit Policy 5210 Planning Single Audits (effective 9/ 17/ 07)

BACKGROUND
The Office of Management and Budget (OMB) Circular A-133 requires a risk-based approach to identify major federal programs for audit. This
risk-based approach involves specific steps that must be followed to meet audit requirements.

REQUIREMENTS
1. Auditors planning single audits will complete and document all applicable pre-planning steps in the TeamMate Single Audit
program. Those steps include the following:

Determining if the Schedule of Expenditures of Federal Awards is fairly presented.
Determining if the entity qualifies as a low-risk auditee to be eligible for reduced audit coverage.
Making a preliminary judgment about materiality.
Identifying major programs to audit using a risk-based approach.
Following up on prior audit findings, performing procedures to assess the reasonableness of the summary schedule of prior audit
findings, and reporting as a current-year audit finding when the auditor concludes that the summary schedule of prior audit findings
materially misrepresents the status of any prior audit finding.

2. Pre-planning procedures and preliminary audit plans should receive supervisory review in a timely manner.
Refer to Policy 3160 - Supervision and Review.

3. Auditors will communicate information to the auditee or audit committee regarding the nature, timing, and extent of planned
testing and reporting.
Communication to the auditee must include planned testing and reporting on compliance with laws and regulations and internal control over
financial reporting. Refer to Policies 2130 - Inviting Elected Officials to Entrance/Exit Conferences and 2210 - Conducting Entrance Conferences.

REFERENCES
Single Audit Act Amendments of 1996
AU 801 Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance

The following items were noted in the review of minutes, FAWF items and other audits that may impact the single audit:

Minutes Review
We reviewed the minutes from September 1, 2012 to October 2, 2013 at B.1.3 and noted the following items of potential relevance to the
current single audit:
J anuary 23, 2013 - The District is completing an audit to apply for the 2012 J obs Now Act Operational Cost Savings Grant. We spoke with
Kenny Ching, Account Supervisor II and reviewed the OSPI website and determined this is not a federal grant award. This is a state grant
the District is applying for. This is not a risk to the single audit.
March 20, 2013 - The District approved OSPI award for $264,444 to improve science instruction in elementary and middle schools. We
reviewed the minutes and noted this is federal award CFDA 84.366B Mathematics and Science Partnerships. We reviewed the SEFA and
noted the District reported $153,098 expenditures in FY13, which is considered a Type B program. We will discuss this program during
our brainstorm to determine whether this program should be selected for review as a Type B program, if we select a risk method
including Type B program audit review.
J une 19, 2013 - The District received a "Diplomas Now" grant for $600,000 over three years for Denny International and Aki Kurose
Middle School. We reviewed the minutes and the Grants and Fiscal Compliance and Active Grant Inventory
at http://www.seattleschools.org/modules/groups/homepagefiles/cms/1583136/File/Grants/board%20grants%2013-14.pdf and
determined this is not a federal grant. The grant funds come from the Paul G. Allen Foundation. This is not a risk to the current year
single audit.

FAWF I tems Review
We reviewed the FAWF for items relevant to the single audit and noted the following:
Per Dinah Ladd, Regional Coordinator Health Intervention Program, salaries had been previously charged to the HSGI grant. In April
2013, her funding was moved to the Title I grant. This may be considered for supplanting because per the McKinney-Vento Act, the
District is required to have a McKinney-Vento Act liaison. This position may be a required baseline position. This is a risk to the single
audit.
The District purchased 30 I-pads with HSGI grant funds, with the invoice dated September 27, 2012 and paid in October 2012. The prior
audit noted the I-pads were distributed to District staff members whose salaries were not charged to the grant, or only a low FTE was
charged to the grant. The costs of the I-pads were not allocated between funding sources based on FTE. Risk Identified: There is a risk
these I-pads are not allowable to the grant. This is a risk to the single audit.

Prior Single Audit Exceptions
Findings - The prior audit findings and detail are located at Prior Findings

Management Letters - There were no prior audit management letters.

Exit I tems

Cost Principles, Time and Effort - CFDA 84.367 Title II, Part A Improving Teacher Quality; CFDA 84.010/84.389 Title I Cluster; CFDA
84.027/84.173 Special Education Cluster; CFDA 84.388 ARRA - School Improvement Grant; CFDA 84.374 Teacher Incentive Fund; CFDA
93.724 ARRA - Prevention and Wellness

Semi-Annual Certifications: We found 50 certifications signed between 30-60 days late, 58 certifications signed between 60-90 days late, 12
certifications signed between 90-120 days late and 2 certifications signed more than 120 days late.
Monthly PAR Certifications: We found 20 certifications signed between 30-60 days late, 6 certifications signed between 60-90 days late, 6

Although the time and effort certifications were signed between one and three months late, the District has made significant improvements
in this area since the previous audit. We do not consider one and three months late material to the grant. In the prior audits, we noted the
District did not sign the time and effort certifications until after we selected those programs for audit. This is a potential single audit
risk and will perform the testing at Time and Effort Certifications as this is a centralized control work for the District. B.1.3

Eligibility - CFDA 10.553/10.555 Nutrition Cluster

Entering information from a students Free and Reduced Priced Meals application into the Districts PCS software system determines the
students meal eligibility. We tested 30 students and found that one students application information was incorrectly entered, which lead to
the student being placed in the wrong eligibility category. This is a potential single audit risk for the Nutrition Cluster. We will perform
testing at E-L. Eligibility/Reporting B.1.3

Reporting - CFDA 10.553/10.555 Nutrition Cluster

The Department requests reimbursement of expenses for the Child Nutrition Grant from the Office of the Superintendent of Public
Instruction (OSPI). A secondary review to ensure accuracy and completeness of these reimbursement requests is not performed before
they are sent to OSPI. This is a potential single audit risk for the Nutrition Cluster. We will perform testing at E-L. Eligibility/Reporting

Reporting, Special - CFDA 84.027/84.173 Special Education Cluster
The District was not able to produce Federal Child Count Report and logic for producing the report in November 2011. Compliance
testing indicated that the District included included two children with invalid IEPs into data used for Federal Child Count Report. Further
investigation indicated that the district over-reported up to 260 students or 4.3% of total reported on Federal Child Count Report. Although
there are potential single audit risks in the current audit, we have not selected this program to audit as Team School Programs is auditing
this same area for Enrollment. Also, we determined to provide the District with more time to make changes as the FY2012 audit report was
issued late in the FY2013 school year in May 2013. We will FAWF for the next audit at FAWF.

ARRA Special Tests (SEFA Presentation) - CFDA 84.388 School Improvement Grants
The District did not include schools in the SEFA footnotes, Note 3 Schoolwide Programs for the SIG grant. We determined all SIG schools
operate as schoolwide programs. The District subsequently corrected the SEFA. Due to other SEFA presentation errors and the fact the
district corrected the errors during the planning, we determined the issue is an exit item since it isn't material to the program taken as a
whole. This is not a potential single audit risk as we reviewed the current SEFA and noted the notes to the SEFA include the SIG
schools. This is not a potential single audit risk as the District has addressed the concern by correcing the error and submitting a new
SEFA for the FY2012 audit.

Verbal I tems

Private Schools (Special Tests) - CFDA 84.010/84.389 Title I Cluster; CFDA 84.367 Title II, Part A Improving Teacher Quality
Federal guidelines for Title I require the District to contact private schools that did not submit its decision of whether or not to participate in
the Title I program. The District must attempt to contact these schools at least twice and retain documentation in the Private School
Contact Log. Contact must be in person, by telephone, e-mail or fax. I n the prior year audit the District was unable to provide
documentation they contacted schools. I n the current audit year, we also found one school at all and another school for a second attempt
which were not documented. However, we reviewed documentation for the 2012-2013 year which shows the District has corrected the
error. This is not a potential single audit risk as the District has addressed the concern for FY2013.

Cost Principles, Unauthorized Payments - CFDA 84.027/84.173 Special Education Cluster
During our procurement testing for Special Education Cluster we noted that the District did not follow its own procurement policies. The
district did not create and approved Purchase Order when obtaining services from Public Consulting Group, I nc. for technical support for
IEP online system. The Accounting Department noted noncompliance when the district received an invoice from Public consulting Group,
Inc. for $17,800. To resolve this issue Purchasing Manager consulted responsible employees on the districts procurement policies. Also,
open PO was created to accommodated future payments to this vendor. Although this is a potential audit risk, we determined to provide
the District with more time to make changes as the FY2012 audit report was issued late in the FY2013 school year in May 2013. We will
FAWF for the next audit at FAWF

Procurement, Sole Source - CFDA 84.027/84.173 Special Education Cluster
We reviewed fifteen contracts paid out of Special Education Cluster funds. We noted improvement in documentation provided for sole
source justificaion. However, four out of eleven personal service contracts tested still did not have sufficient documentation of the steps
that the District took to determine that a vendor was a sole source provider. Although this is a potential audit risk, we determined to
provide the District with more time to make changes as the FY2012 audit report was issued late in the FY2013 school year in May 2013.We
will FAWF for the next audit atFAWF

Other Audits Review
1. Department of Education Audits
High School Graduation I nitiative grant: We met with Kathie Technow, Accounting Manager and Kevin Corrigan, Grants Manager and
obtained a letter from the Department of Education (ED) for their onsite visit at the District for the High School Graduation Initiative. The
DOE conducted a site visit May 9 and 10, 2013 in which they reviewed that the District is on track to implement the activities and
procedures in the grant are followed. The site visit letter noted the following areas of concern:

The Communities that Care (CTC) Mobilizer positions are not fully staffed as outlined in the application. There is currently only 1.1 FTE
positions hired and the concern is the District is not committed to administering the program.

The Truancy Intervention Specialist positions are not fully staffed as outlined in the application. There is currently only 6.2 FTE positions
hired and the concern is the District is not committed to administering the program.

The ED placed special conditions on the Year 4 (2013-2014 school year) continuation award. They require the District to expeditiously hire
the staff needed to support the implementation of student services key to the project and to submit quarterly reports on the progress of
hiring the necessary staff. This is a single audit risk for the HSGI grant. We will perform the audit at High School Graduation Initiative -
CFDA 84.360B.1.3

Indian Education grant: The Department of Education examined the District's administration of the I ndian Education Grants program and
and audited the FY2012 grant applications. They confirmed the SAO prior year audit findings are accurate. The also determined the
common reasons for student ineligibiltiy include: 1) the eligibility form was signed and dated after the last day of the count period, 2) the
student was not a member of an eligible tribe, band or group of Indians, and 3) the information included in the eligibility form
contradicted the definition of "I ndian" as provided on the form. The ED determined they will not seek recovery of the $6,530 in ineligible
funds nor require further corrective action becauswe the District has take sufficient steps to address the issues. We will follow up with this
as part of the single audit at Prior Federal Findings

2. OSPI Audit
OSPI conducted a Consolidated Program Review for federal and state program compliance for 22 school districts in the United States as a whole.
This included the Seattle School District as part of the audit. We scanned the report obtained from Kathie Technow, Accounting Manager and
determined there are no risks for the financial statement audit. The objective of the audit was to determine 1) whether the District spent or
planned to spend the ARRA stimulus funds, 2) factors that influenced how the District spent the funds, 3) identified results from using the funds,
and 4) whether they expected to experience unsustainable commitments. This is not a risk to the single audit as the OSPI audit focus was not on
ARRA expenditures and what is reported in the District financial statements.


Procedure Step: Schedule of Expenditures of Federal Awards

Purpose/Conclusion:
Purpose
To assess the risk of material misstatement and determine whether the SEFA is complete and properly presented in relation to the financial
statements taken as a whole.

Conclusion:
We assessed the risk of material misstatement as moderate; we noted no material weaknesses or significant deficiencies in internal controls
over SEFA preparation.

Based on work performed, we determined that the SEFA is fairly presented in relation to the financial statements taken as a whole. However,
we provided a verbal recommendation for one ARRA CFDA program title error, in which the District provided a new SEFA to correct the error.
See SA_V: SEFA preparation

Testing Strategy:
Auditor Note: Read the Policy/Standard tab for more information about SEFA preparation and materiality considerations for the SEFA.

ARRA alert: If any major programs contain ARRA funding, auditors are required to test internal controls over SEFA preparation as a Special Tests
and Provisions compliance requirement.

Option for a Program-Specific Audit
If an auditee expends federal funding under only one program (or cluster) and the grantor does not require an audit of the auditees financial
statements, the auditor could perform a program-specific audit. I n such a case, the audit scope is limited to (1) the internal controls and
compliance of the federal program and (2) the Schedule of Expenditures of Federal Awards, which is the sole financial statement required.

Step 1: Assess Inherent Risk
Inherent risk of material misstatement would usually be assessed as HIGH over SEFA preparation due to the complexity of this schedule and its
importance for properly planning the single audit and meeting A-133 coverage requirements, unless there are only a few grants to report that are
not complex.

Step 2: Gain Understanding of Controls over SEFA preparation
Obtain an understanding of the auditee's SEFA preparation process and identify the key controls that ensure the schedule is complete and
properly presented.

Step 3: Confirm Understanding
Confirm your understanding to determine whether key controls have been placed in operation (that is, whether the entity has actually
implemented key controls).

A walkthrough of a transaction is considered the most effective way of corroborating your understanding of internal controls. I nquiries,
inspection of records and observation are other acceptable methods. However, inquiry alone is not sufficient to determine a control has been
implemented.

When a key control is discovered to not actually be placed in operation, a significant deficiency likely exists. Depending on the magnitude and
likelihood of potential effects and any compensating controls, the deficiency may represent a material weakness.

Step 4: Test Controls (if applicable)
If the auditor plans to support a control risk assessment of less than MAX, test the operating effectiveness of key controls (whether controls were
consistently and effectively applied).

If a key control is not consistently or effectively applied, a significant deficiency likely exists. Depending on the magnitude and likelihood of
potential effects and any compensating controls, the deficiency may represent a material weakness.

ARRA alert: If any of your major programs contain ARRA funding, auditors are required to test controls over SEFA preparation as a ARRA
grant Special Tests and Provisions compliance requirement (unless we are reporting a finding at this point for a significant deficiency or
material weakness in controls).

For audits with no major programs having ARRA funding, we would typically not test controls and instead assess control risk at MAX for
efficiency purposes.

Step 5: Assess Final Control Risk (CR)
Evaluate the results and document a final control risk assessment. Consider whether any internal control issues identified represent material
weaknesses or significant deficiencies.

Control risk is the risk that material misstatements would not be prevented or detected timely by internal controls. In order to support a
control risk assessment that is less than MAX, the auditor must test the operating effectiveness of controls in step 4. Regardless of this
decision, the auditor must report any significant deficiencies or material weaknesses discovered in either the design or operation of controls.

A material weakness exists when the design or operation of controls results in a reasonable possibility that controls will not prevent or
detect material misstatements. A significant deficiency is a control deficiency that is less severe than a material weakness, yet important
enough to merit the attention of the governing body. See the Policy/Criteria tab for more guidance on evaluating whether an identified issue
represents a material weakness or significant deficiency.

All potential material weaknesses and significant deficiencies should be discussed with the AI C or AAM, since they must be
reported as findings.

Step 6: Assess Risk of Material Misstatement (RMM)
Assess the RMM at LOW, MODERATE or MAX. This is a combination of inherent risk and control risk based on auditor judgment. This assessment
should be considered when designing the nature and extent of substantive procedures.

Step 7: Substantive Testing of SEFA
Test the SEFA by tracing reported expenditures to source accounting records, reviewing the SEFA for completeness, reviewing presentation and
disclosure and any additional procedures as necessary. Auditors gain additional assurance regarding existence, rights and valuation of reported
amounts when testing direct and material compliance requirements for each major program.

Tracing to Accounting Records:
The extent of tracing expenditures to accounting records is determined by auditor judgment. It is recommended to trace amounts reported for all
Type A programs and any Type B programs that would require a risk assessment.

Reviewing SEFA for Completeness:
Consider the following procedures to review SEFA for completeness:
Do the expenditure amounts reported on the SEFA agree to the auditee's accounting records and other supporting documentation?
Are there any new awards that need to be added to the SEFA? Consider comparing total grant revenue with the amount reported as
expended on the SEFA as a reasonableness test.
Are there any programs listed on prior-year schedule that have been omitted during current year? Consider comparing total grant
revenue with the amount reported as expended on the SEFA as a reasonableness test.
Are there any federal loans on the grantee's debt schedule that should be listed on the SEFA? Did the grantee omit a loan it received
from a state agency that it believed to be state-funded and instead of federal-funded?
Does the SEFA reflect all the operations of the reporting entity (all departments, offices, agencies, etc.)?
Does the auditee have any component units? I f yes, are the federal awards expended by the component unit(s) included in the auditees
SEFA or did the component unit elect to have its own separate single audit conducted?
Reviewing SEFA Presentation & Disclosure:
Consider the following procedures to review SEFA presentation and disclosure:
If schedule was obtained from LGCS (that is, generated by online filing), the schedule will foot and presentation will match the BARS
manual. Otherwise, determine that schedule foots and presentation matches the BARS manual.
Is the name of the grantor agency (both direct and any pass-through agency) properly identified?
If schedule was obtained from LGCS (that is, generated by online filing), the CFDAs, federal agencies and program titles will default to
correct values but can be changed by the entity. Consider checking CFDA numbers and program titles manually.
CFDA numbers and official program titles can be checked at www.cfda.gov. Any incorrect numbers or titles should be included on our
aggregation of misstatements.

ARRA Alert: many new programs and CFDA numbers were created under ARRA. The OMB has stated that all expenditures funded by
ARRA must be listed in a separate row in the SEFA and the title of the award should begin with the prefix ARRA. Examples: CFDA
84.394, ARRA State Fiscal Stabilization Fund; CFDA 10.780, ARRA Community Facilities Loans and Grants.

Are the "other identification numbers" listed on the schedule, such as contract or grant agreement numbers?
If the auditee has a cluster, is each program of the cluster identified separately?
Did the auditee include footnotes describing its significant accounting policies and other explanatory information?
Refer to Single Audit Planning Guide for additional information about reporting loans, receipt of property (supplies, equipment,
vaccines), Medicaid, FEMA disaster assistance, program income, etc.

I f significant misstatements are identified
If you find significant errors on the SEFA, determine whether they were caused by an internal control deficiency related to the preparation of the
SEFA.

Also, if changes to the SEFA were made after you planned the single audit, you should ensure that the required percentage of federal
expenditures coverage (50% or 25%) is still met.

Policy/Standards:
Background:
This Schedule of Expenditures of Federal Awards (SEFA) is required by Circular A-133 when the auditee expends $500,000 or more in federal
awards in a year. However, SAO requires all school districts and BARS users to prepare this schedule even if their annual federal expenditures are
less than $500,000. The SEFA is known as "Schedule 16" for auditees who use the BARS manual.

Since the SEFA is reported as a supplemental schedule with the financial statements, auditors need to gain an understanding of controls, report
any significant deficiency or material weakness in controls over financial reporting, assess the risk of material misstatement and test the SEFA to
determine if it is fairly presented in relation to the financial statements taken as a whole.

Refer to the SAO Single Audit Planning Guide for additional considerations over SEFA preparation.

Expenditures
Once the auditee has been officially awarded federal assistance (either directly from a federal agency or from a pass-through agency),
expenditures should be reported on the SEFA in the year that activity related to the project or program takes place, even if the auditee has not
yet received the federal funds. Note: There are some exceptions to this general rule for auditees that report expenditures on the cash-basis of
accounting and some revenue-based grant programs. Generally, the auditee should not report its award on the SEFA based on the date that the
federal funds are received (e.g., a cash advance or the date it received a reimbursement payment).

For example:
A city was awarded a grant from a federal agency in October 2010 and is given authorization to proceed with the grant project. The city
began work and incurred grant-related costs (they hired a contractor to perform construction work) in November 2010. I n December
2010, the city received the contractor's invoice for work performed. The city did not pay the contractor's invoice until February 2011. The
city submitted a request for reimbursement for these costs to the grantor in February 2011 and received its payment in March 2011.

SEFA treatment: If the city uses accrual-based accounting, the grant expenditures should be reported in the city's 2010 SEFA because
the expenditure and liability is recognized in 2010.

If the city uses cash-basis accounting, the grant expenditures should be reported in the city's 2011 SEFA because the "expenditure" does
not take place until the city actually disburses cash.

From OMB Circular A-133, section 205:

The determination of when an award is expended should be based on when the activity related to the award occurs. Generally,
the activity pertains to events that require the non-Federal entity to comply with laws, regulations, and the provisions of contracts
or grant agreements, such as: expenditure/expense transactions associated with grants, cost-reimbursement contracts,
cooperative agreements, and direct appropriations; the disbursement of funds passed through to subrecipients; the use of loan
proceeds under loan and loan guarantee programs; the receipt of property; the receipt of surplus property; the receipt or use of
program income; the distribution or consumption of food commodities; the disbursement of amounts entitling the non-Federal
entity to an interest subsidy; and, the period when insurance is in force.

Materiality
Quantitative considerations of materiality are based on the financial statements taken as a whole (total expenditures for all opinion units added
together). It is unlikely a control deficiency over SEFA preparation will be material based on this quantitative measure. The reason for reporting
the deficiency in a finding will likely be due to a qualitative factor. Qualitative considerations would be based on whether the misstatement could
(or did) cause the entity to fail to meet the requirements of OMB Circular A-133.

Situations that could be considered a significant deficiency or material weakness for qualitative reasons include:
An understatement or overstatement of expenditures that, once corrected, creates a new major program that must be audited.
An understatement of expenditures that could cause the entity to conclude it did not need a single audit when in fact it had exceeded the
$500,000 threshold.
An understatement of expenditures that, once corrected, could cause the auditor to fail to meet the required audit coverage (25% or
50%).

SEFA findings should be classified as significant deficiencies and are reported in the Auditors Report over Financial Reporting in Accordance with
Government Auditing Standards (I-2 template) instead of the A-133 Compliance report. If you feel the finding should be classified as a material
weakness (in contrast to a significant deficiency), contact the Single Audit Coordinator for guidance.

SAO Audit Policy 5110 Conducting Single Audits and Program-Specific Audits

SAO Audit Policy 5120 Audit Standards for Single Audits

SAO Audit Policy 5210 Planning Single Audits

STEP 1: Inherent Risk of Misstatement
We have considered inherent risk factors that apply to the Schedule of Expenditures of Federal Awards and assess the inherent risk of material
misstatement at HIGH due to the complexity of the SEFA schedule and its importance for properly planning the single audit and meeting A-133
coverage requirements.
STEP 2: Understanding of Internal Controls
In obtaining our understanding of internal controls over compliance, we considered the five components of internal control per SAS 78 (control
environment, risk assessment, control activities, information and communication, and monitoring) and the internal control objectives set forth in
OMB Circular A-133. See the Permanent File folder for additional documentation of our overall COSO evaluation.

The Schedule of Expenditures of Federal Awards (SEFA) is prepared in late October and early November by Kenny Ching, Accounting Supervisor
II. Kenny runs a report in the District's general ledger (SAP) that includes all federal, state and local grant direct expenditure activity. The grant
fund codes range from 1aaa to 1zzz and Fund 1000. Fund 1000 are revenues received for the Nutrition Service grants, CFDA 10.553/10.555. The
report is exported into an Excel grants inventory worksheet called "Grant_Data", which contains each federal, state and local and grant awarded
to the District. The Grant Data worksheet also identifies the grant period, fund number, CFDA number, expenditure account number, and funding
source which is not included in SAP. He identifies the federal grants by the fund and fund center codes and separates these from the state and
local grants. Kenny then calculates the indirect costs for each grant by multiplying the total direct expenditures by the specific grant indirect cost
rates determined by the grant award contract. The indirect rate is different for each program. He then totals the direct and indirect expenditures
to create the total expenditures for the grants in the fiscal year to be reported on the SEFA. Federal Stimulus grant awards (ARRA) are coded to
unique expenditure account numbers and CFDA numbers as outlined per the Schools Accounting Manual. Kathie Technow, Accounting Manager
reviews the SEFA prior to submitting to OSPI to ensure the SEFA is complete and properly presented.

KEY CONTROL:
Key Control #1: Kenny Ching, Accounting Supervisor II prepares and Kathie Technow, Accounting Manager reviews to ensure all ARRA
and non-ARRA federal grant awards expenditure activity are complete in the SEFA and properly presented.
STEP 3: Confirm Key Controls
We met with Kenny Ching, Accounting Supervisor II on November 25, 2013 to confirm our understanding of key controls. Kenny walked us
through running the SAP report "FMRP_REFFMEP 1FX" that is exported to prepare the SEFA. He showed us how he reviews the downloaded
report and confirms to SAP the expenditure amounts are correct. He showed us the printout of the SEFA preparation guidance in in accordance
with the Schools Accounting Manual. We inspected Kenny's Grant Data worksheet. Specifically, we inspected the tab "Grant_Data" and ensured it
contained all elements described to us during our understanding of internal controls.

We met with Kathie Technow, Accounting Manager and she walked us through how she reviews the SEFA. She obtains the SEFA from Kenny and
compares the expenditure amounts reported to Kenny's SAP exported reports. She randomly selects a few larger of the grant activity programs
like Title I, Nutrition Cluster, and Special Ed and compares the amounts to prior years to see if the numbers appear reasonable and then look at
the amounts in SAP. She also reviews the notes to the SEFA to make sure they appear reasonable given there are no requirements to have a
notes to the SEFA.

Based on our interactions with Kenny Ching and Kathie Technow, we found them to have the skills, knowledge, time and ability to perform his
job. This control appears to be in place and operating as intended.

STEP 4: Test Key Controls
We reviewed the SEFA and determined there are Type A major programs that contain ARRA funding. Therefore, testing key controls over SEFA
preparation is required.

Key Control #1:
Kenny Ching, Accounting Supervisor II prepares and Kathie Technow, Accounting Manager reviews to ensure all ARRA and non-
ARRA federal grant awards expenditure activity are complete in the SEFA and properly presented.
We met with Kenny on November 25, 2013 to go over how he prepares the SEFA. Kenny showed us the workbook he uses to create the SEFA
which is titled, "SEFA_FY13". We noted the workbook has 11 tabs on it, notes, schedule, grant-data, table, checking by fund, dept, CFDA, SWP,
SWP exp, R6198, and Rpt-10. Kenny showed us the grant data tab and explained that the source of the dollar amounts in this tab are downloads
from the District's G/L. Kenny showed us column B which is the fund code and column Q which is expenditure account number and explained that
the fund codes and expenditure account numbers are the unique identifiers to signal the fund is being used to account for a Federal grant. Kenny
showed us how he downloads the expenditure and revenue account detail from the SAP g/l for the current fiscal year. He reviews the revenue
and expenditure accounts to ensure they are correct by double checking to the g/l once included in the SEFA. We asked Kenny how he ensures all
programs that are ARRA funded include the ARRA at the beginning of the program title. Kenny showed us the CFDA tab in his workbook and
explained he keeps the program titles of every CFDA number in this tab and the CFDA numbers that are ARRA funded will have the ARRA at the
beginning of the program title. This tab drives the program titles in the SEFA. We also discussed how the notes to the SEFA are prepared. We
noted they include Note 2: Non-cash the food commodities are identified by the revenue fund code. He explained this is related to the child
nutrition programs. For the schoolwide programs note he identifies the schools by the template used for the schoolwide programs at the school
site. He reviews the school site to see if they have a schoolwide program plan. He reviews the plan to see which grants are included in the plan
and then adds these expenditures for that specific grant to the notes.

Based on our discussion, we determined Kenny has the time, knowledge, experience, and commitment to oversee comparability requirements for
this grant program. This control appears to be in place and operating as intended.

STEP 5: Final Control Risk Assessment
LOW - We noted no matters involving internal control over SEFA preparation (including SEFA reporting of ARRA grants as applicable) that we
consider to be significant deficiencies or material weaknesses. We will place reliance on the controls, based on our control testing above.
STEP 6: Risk of Material Misstatement
Based on our assessment of inherent risk and control risk above, we assessed the risk of material misstatement at MODERATE.
STEP 7: Substantive / Compliance Testing
Kenny Ching provided us with the District FY13 SEFA at B.3.4 on November 15, 2013.

1. Tracing to Accounting Records:
We ran CAATS database query "Expense_GF_ByProgram" to agree the SEFA to the general ledger at B.3.5. We noted the query only presents
direct expenditures and therefore indirect costs are not included. This caused our initial review to appear as though the SEFA were overreported
significantly. We spoke with Kenny and were provided an Excel spreadsheet showing each Federal program and their designated indirect cost
rate. We used this to recalculate the indirect cost rates for each program and then determined the difference between the g/l and recalculated
indirect cost to the SEFA. We noted a total difference of $46,093, which is immaterial to the total SEFA amount reported of $51,485,499.

2. Reviewing SEFA for Completeness:
We reviewed the testing strategy and single audit planning guide and performed the following procedures to review the SEFA for accuracy and
completeness:
Are there any new awards that need to be added to the SEFA? No. We reviewed the meeting minutes for grants that may have been
omitted from the SEFA, noting none. We also compared the total grant revenue with the amount of reported as expended on the SEFA.
We determined that revenues are in-line with expenditures.
Are there any programs listed on the prior-year schedule that have been omitted during current year? Yes, the following programs were
listed on the FY12 SEFA and were not included on the FY13 SEFA:
45.310 Grants to States ($10,168)
84.386 ARRA - Education Technology State Grants, Recovery Act ($12,281)
84.391 ARRA - Special Education Grants to States, Recovery Act ($-10,337)
84.410 ARRA - Education J obs Fund ($153,054)
93.293 Improving Health & Educational Outcomes of young People ($137,513)
94.004 Learn and Serve America_School and Community Based Programs ($6,439)
These programs had a small amount of expenditures in FY2012 indicating these programs probably ended in FY2011 and appears
reasonable they would not be included in the FY2013 SEFA. We reviewed Kenny's spreadsheet to identify the period of availability of each
grant and confirmed that these programs ended in FY12. Therefore, we would not expect to see activity for these programs on the
FY2013 SEFA. No exception.
Are there any federal loans on the grantee's debt schedule that should be listed on the SEFA? We did not identify any federal loans that
were omitted on the SEFA.
Does the SEFA reflect all the operations of the reporting entity (all departments, offices, agencies, etc.)? Yes.
Does the auditee have any component units? No.
3. Reviewing SEFA Presentation & Disclosure:
We reviewed the testing strategy and performed the following procedures to review the SEFA for accuracy and completeness:
Is the name of the grantor agency (both direct and any pass-through agency) properly identified? Yes, our review determined the name
of the grantor agency is properly identified. There are separate columns that identify the Federal agency and the pass through agency,
as applicable to the grant.
Are the CFDA numbers correctly reported? Yes.
Are the official CFDA program titles reported? We noted the following errors during review of the SEFA program titles:
The title for CFDA 93.701 was "Trans-NIH Recovery Act Research Support" . Per the CFDA website the title should be "ARRA -
Trans-NIH Recovery Act Research Support".
We asked Kenny Ching about the possible error to the SEFA. Kenny looked up the program title for CFDA 93.701 and agreed that
it should have been titled ARRA - Trans-NIH Recovery Act Research Support. He missed the ARRA at the beginning because the CFDA title
does not state ARRA at the beginning like most of the ARRA funded grants. We documented the error at ISS.1 as a verbal
recommendation as the error is minor in nature and there were no other CFDA title or expenditure amount errors reported. Kenny
changed the SEFA to reflect this and provided us with an updated SEFA on December 9, 2013 at B.3.6
Are there "other identification numbers" listed on the schedule, such as contract or grant agreement numbers? We noted the District fund
and contract numbers are listed on the SEFA.
If the auditee has a cluster, is each program of the cluster identified separately? Yes, the program clusters are listed separately.
Did the auditee include footnotes describing its significant accounting policies and other explanatory information? Yes. We reviewed the
footnotes and noted the following:
The required Note 1 for the basis of accounting is included in the footnotes.
The District has ARRA funded grants, but chose to not disclose which ones in the footnotes like most other entities. This isn't
required so is not an exception.
We reviewed the Schoolwide Programs, Note 3 and determined the grants included with expenditure amounts are correct and
there are no other grants that should be included.
We reviewed the Federal Indirect Rate, Note 5 and determined the amounts reported are correctly presented based on
conversation with Kenny.


Procedure Step: Single Audit History

Purpose/Conclusion:
Purpose:
To review the single audit history for planning purposes.

Conclusion:
We reviewed the single audit history for planning purposes.

Testing Strategy:
Update the attached single audit history matrix. This will help you determine whether the auditee qualifies as a low-risk entity and assess risk for
individual federal programs. Use of this standard matrix is highly recommended. If you have developed your own matrix, you can use that
version so long as it captures the same information.

Policy/Standards:

The attached matrix B.3.1 was updated. It identifies the Type A and Type B programs that were audited as major programs, and it also
documents whether there was a finding, management letter, or exit item for each major program. This matrix will be used to help determine
whether an entity qualifies as a low-risk entity and assess risk for federal programs as applicable.


Procedure Step: Low-Risk Auditee Status

Purpose/Conclusion:
Purpose:
To determine if the entity qualifies as a low-risk auditee.
Conclusion:
We determined the entity does not qualify as a low-risk auditee because a grant received a qualified opinion in the prior audit.

Testing Strategy:
Low Risk Auditee Criteria

NOTE 1: Granting of Extensions Eliminated by OMB under the American Recovery and Reinvestment Act (ARRA). The single audit
report is a key tool used to drive accountability for Federal awards under ARRA. Due to the importance of single audits and the reliance of
Federal agencies on the audit results to monitor accountability for all Federal programs, OMB has advised Federal agencies that they should not
grant any extension requests to grantees for fiscal years 2009 through 2011. Federal agencies have either already adopted or are in the process
of adopting this policy.

NOTE 2: Clarification of Low-Risk Auditee Criteria. In response to ARRA, the OMB has stated that in order to meet the criteria for a low-
risk auditee in the current year, the prior two years audits must have met the requirements of OMB Circular A-133, including submitting the A-133
report to the federal clearinghouse by the due date. For example, unless the auditee is granted an extension bya federal agency, it would not
meet the criteria for a low-risk auditee for the fiscal year ended J une 30, 2010, if the audits for either of the prior two years audits (fiscal years
J une 30, 2008 or 2009) were not submitted to the federal clearinghouse by the due date 9 months after the fiscal year ended (March 31, 2009
and 2010, respectively).
How do I know when the audit was submitted to the Federal Audit Clearinghouse (FAC)?
Go to the data collection form search the database page at the following
link: http://harvester.census.gov/sac/dissem/disclaim.html

Click retrieve records.

Select Entity Search and enter the name of your auditee, and then click view search results.

After the search returns the results of the audits for your auditee, look for the column FAC accepted date, which will contain the
date the form was accepted.

Contact the single audit specialist if you have any questions.
-----------------------------------------------------------------------------------------------
Determine whether the auditee qualifies as a "low risk auditee."

An auditee which meets all of the following conditions for each of the preceding two years qualifies as a low-risk auditee and is eligible for
reduced audit coverage (25% of total federal expenditures):

Single audits were performed on an annual basis in accordance with the provisions of Circular A-133. (This means they must have had
a single audit conducted for each of the prior two years.) ARRA Alert: This criteria includes a determination of whether the grantee
submitted its single audit report to the clearinghouse within 9 months of the end of its fiscal year (see explanation above).

The auditor's opinions on the financial statements and the schedule of expenditures of Federal awards were unqualified (see Note 1)

There were no deficiencies in internal control which were identified as material weaknesses under the requirements of Government
Auditing Standards (Yellow Book) (see Note 1). This includes findings under SAS 115 for financial statements or the SEFA that are
material weaknesses.

None of the Federal programs had audit findings from any of the following in either of the preceding two years in which they were
classified as Type A programs:

1. Internal control deficiencies which were identified as material weaknesses;

2. Noncompliance with the provisions of laws, regulations, contracts, or grant agreements which have a material effect on the
Type A program (i.e., a qualified opinion on compliance for the program);

3. Known or likely questioned costs that exceed 5% percent of the total Federal awards expended for a Type A program during
the year.

Note 1: The auditee's federal cognizant or oversight agency can provide a waiver if it determines that an opinion qualification or material
weakness does not affect the management of Federal awards.

Policy/Standards:

BACKGROUND

REQUIREMENTS




REFERENCES


We determined if the entity met all of the following conditions for each of the preceding two years in order to qualify as a low-risk auditee:

Single audits were performed on an annual basis in accordance with the provisions of Circular A-133 - Criteria met
The single audit reporting package was submitted to the clearinghouse within the 9 month deadline - Criteria met

The auditor's opinions on the financial statements and the schedule of expenditures of Federal awards were unqualified (see Note
1 in the Testing Strategy) - Criteria met

There were no deficiencies in internal control over financial reporting which were identified as material weaknesses under the
requirements of Government Auditing Standards (see Note 1 in the Testing Strategy). This includes SAS 115 findings for financial
statements or the SEFA that are material weaknesses. - Criteria met

None of the Federal programs had audit findings from any of the following in either of the preceding two years in which they
were classified as Type A programs: Criteria not met - We issued a qualified opinion for CFDA 84.360 High School
Graduation Initiative, which was a Type A program in fiscal year 2012.
1. Internal control deficiencies which were identified as material weaknesses;
2. Noncompliance with the provisions of laws, regulations, contracts, or grant agreements which have a material effect on
the Type A program (i.e., a qualified opinion on compliance); Known or likely questioned costs that exceed five percent of
the total Federal awards expended for a Type A program during the year.
3. Known or likely questioned costs that exceed five percent of the total Federal awards expended for a Type A program
during the year.



Procedure Step: Materiality

Purpose/Conclusion:
Purpose:
To document materiality for our audits of federal programs.

Conclusion:
We have established our preliminary judgments about how we will evaluate the materiality of internal control deficiencies and instances of
noncompliance should they arise during our audit of a major program.

Testing Strategy:
Review the standard materiality policy stated below in the Record of Work Done. Consult with a supervisor if you determine a modification needs
to be made to the materiality preliminary judgments for your auditee. Sign off on this step after you read the materiality guidance.

Policy/Standards:
AICPA's "Government Auditing Standards and Circular A-133 Audits (October 1, 2009)" section 10.07, provides the following guidance on
materiality in relation to federal programs:

In a compliance audit, the auditor's consideration of materiality differs from that in an audit of financial statements. Materiality is affected by (A)
the nature of the compliance requirement, which may or may not be quantifiable in monetary terms, (B) the nature and frequency of
noncompliance identified with an appropriate consideration of sampling risk, and (C) qualitative considerations, such as the needs and
expectations of federal agencies and pass-through entities. Qualitative factors that indicate that an identified instance of noncompliance may be
immaterial include (A) a low risk of public or political sensitivity, (B) a single exception that has a low risk of being pervasive, or (C) an indication,
based on the auditor's judgment and experience, that the affected federal agency or pass-through entity would normally not need to resolve the
finding or take follow-up action.

Decisions about the materiality of noncompliance and the significance of internal control deficiencies will be made at the individual compliance
requirement level (e.g., allowable costs, eligibility, matching, etc.) for each major program. I n addition, if accumulated findings and questioned
costs are material to the major program taken as a whole, we will consider the need to qualify our opinion on the auditee's compliance with
requirements applicable to the major program.

Internal Controls

When evaluating deficiencies found in an auditees internal controls over compliance, we will use the following chart as guidance. This evaluation
will be made for each compliance requirement selected for audit:

Likelihood of
Noncompliance
Magnitude of Potential or Actual Noncompliance
Less than Material

Material
(Greater than 10% of total
federal expenditures of the
program)
Remote

Control deficiency
(Control Risk is LOW)

Control deficiency

More than
remote
(at least reasonably
possible)

Assess control risk as high and report a
finding for a significant deficiency if:

(1) the control deficiency(ies) did, or could,
lead to noncompliance between 5%-10% of
total grant expenditures; and
(2) the grantor, inspector general, and/or
public views the issue as being important
and would expect corrective action to be
taken. (refer to Note 1 below)

If the deficiency does not meet the above
criteria, assess control risk at low.
Material Weakness
program)

Report a Finding
(Control Risk is high)

Note 1: Control deficiencies related to American Recovery and Reinvestment Act (ARRA) funds are deemed important to the federal
government and should be qualitatively material.

Tests of Compliance

Individual compliance areas - We will report as findings any known and likely questioned costs that exceed $10,000 for a particular compliance
requirement. For other instances of noncompliance without questioned costs (for example, a financial report that contains errors or a case where
subrecipients have not been monitored), we will consider reporting a finding if the monetary value or effect associated with the noncompliance
exceeds 10% of total program expenditures. When our test size is less than 10% of the program total expenditures, auditors should consider
either expanding testing or extrapolating the results to determine whether the 10% threshold would likely be exceeded. However, this general
rule will not preclude us from reporting a finding for lesser amounts, nor will this preclude us from reevaluating our materiality threshold and
expanding and/or modifying the nature and extent of testing. We also recognize that noncompliance can occur in areas without an associated
monetary value and not result in questioned costs. Such cases will be evaluated using qualitative factors such as (1) the level of public or political
sensitivity, (2) isolated exceptions with a low risk of pervasiveness, and (3) the perspective of the grantor agency as to the importance of the
issue.
Opinion on compliance for each major program I f the dollar amount associated with instances of noncompliance, either for an individual
compliance requirement or aggregated compliance requirements, exceeds 20% of the total program costs, we will consider qualifying our
opinion on compliance for the program as a whole. This does not preclude auditors from qualifying their opinion for lesser amounts. I n addition
to this quantitative measure, auditors should use qualitative factors such as (1) the level of public or political sensitivity, (2) isolated exceptions
with a low risk of pervasiveness, and (3) the perspective of the grantor agency as to the importance of the issue when considering whether to
qualify their opinion on compliance for the program. Auditors should also recognize it may be necessary to qualify their opinion on compliance
for scope limitations where sufficient and appropriate audit evidence could not be obtained for examination.


Procedure Step: Risk Assessments & Major Programs

Purpose/Conclusion:
Purpose:
To perform risk assessments as applicable to determine the major programs. Also, to obtain audit programs from the SAOStore.

Conclusion:
We performed risk assessments as applicable to determine the major programs. We then obtained audit programs from the SAOStore.

Testing Strategy:
Selecting Major Programs for Audit

Note to Auditor: Please refer to new 2010 planning considerations for American Recovery and Reinvestment Act (ARRA) funds below in red font.

Use the attached spreadsheet to document risk assessments and determine the major programs you will audit:

Step 1. I nput the fiscal year end date where indicated in the spreadsheet.

Step 2. I nput the total federal expenditures where indicated based on the final Schedule of Expenditures of Federal Awards.

Step 3. Select the percentage of coverage required -- 25% or 50% -- based on whether the auditee qualified as a "low risk auditee". (The
spreadsheet will then calculate the dollar amount of required coverage).

The purpose of the percentage of coverage rule is to ensure that a minimum amount of expenditures are covered in an audit conducted
under Circular A-133. Accordingly, the auditor must audit programs with federal awards expended that, in aggregate, encompass at least
50% of total federal awards expended. I f the auditee meets the criteria for a low-risk auditee, the minimum coverage is reduced to 25%.

Step 4(a). Determine Type A and Type B programs based on the final SEFA.

Type A programs are those with expenditures exceeding the larger of $300,000 or 3% of total federal expenditures. (For auditees that have total
federal expenditures greater than $100 million, the Type A threshold increases to the larger of $3 million or 0.3% of total federal expenditures).
Any federal programs not labeled "Type A" are considered "Type B" programs.
All awards with the same CFDA number are considered a single "program".
Clusters. You may have to combine one or more programs into a "cluster" and re-evaluate if the aggregated amount has become a Type
A.
A "cluster of programs" as designated by OMB is considered a single program when classifying Type A and Type B programs and
assessing risk. For the most recent list of clusters, refer to Part 5 of the Circular A-133 Compliance Supplement. Part 5 has
information about the Research and Development Cluster, Federal Student Aid Cluster, and Other Clusters. The list of "Other
Clusters" is located near the end of Part 5.

CAUTION The American Recovery and Reinvestment Act (ARRA) has created several new clusters. For FY2010 audits, you
should consult the most recent list of clusters found in Part 5 of the 2010 Compliance Supplement. For FY2009 audits, you should
consult the list of clusters found in Part 5 of the 2009 Compliance Supplement Addendum dated 6-30-2009.

CAUTION - While there are many new ARRA clusters, it is possible that the grantee did not spend any ARRA funding within the
cluster in your audit period. For example: A new cluster has been defined for the Title I program in school districts. The cluster
has two CFDA numbers: 84.010-Regular Title I and 84.389- Recovery Act Title I. However, if the school district did not spend any
Title I Recovery Act funds under CFDA 84.389 within the audit period, then the cluster does not exist and the regular Title I
program could still potentially qualify as a low risk program (see risk factors below).
Excluding certain loans from the Type A calculation (auditor judgment): According to Circular A-133, the inclusion of large loans should
not result in the exclusion of other programs being classified as Type A programs. When a large Federal loan significantly affects the
number or size of Type A programs, the auditor should consider this Federal loan as a Type A program and then exclude its value in
determining other Type A programs.
Rules for excluding large loans from the Type A threshold calculation:

1. Each individual program or cluster that includes loans or loan guarantees that does not exceed four times the largest non-loan
program is not considered to be "large." A cluster of programs is treated as one program.

2. Auditors are only required to perform a recalculation of the Type A threshold when the expenditures for a loan or loan
guarantee program is more than four times that of the largest non-loan program (a cluster of programs is treated as one
program). The recalculation is performed after removing the total of all large loan and loan guarantee programs from the SEFA
total.

Example SEFA:

Loan #1 $10,000,000
Grant #1 $ 300,000
Grant #2 $ 325,000
Grant #3 $ 2,000,000
Grant #4 $ 1,500,000
All others $ 875,000 (each individual grant is below $300,000).
TOTAL $15,000,000

Based on total federal expenditures of $15 million, the Type A threshold is $450,000. But, if you exclude the "large loan" (i.e.,
any loan that exceeds 4 times the largest non-loan program for example, grant #3 multiplied by 4) from the total
expenditures, the Type A threshold, when recalculated, drops to $300,000. As a result, you would classify Grant #1 and Grant
#2 as additional Type A programs when you normally would not have done so under the original Type A threshold of $450,000.

Step 4(b). I nput into the spreadsheet the Type A and Type B programs that require a risk assessment.

The spreadsheet will automatically determine whether a program is a Type A or Type B based on the total federal expenditures you input in
Step 2 above.
You are required to perform risk assessments for all Type A programs.
You are required to perform risk assessments only for the Type B programs that exceed the larger of $100,000 or 0.3% of total federal
expenditures when the auditee has less than or equal to $100 million in total Federal expenditures. (For auditees that have total federal
expenditures greater than $100 million, the Type B risk assessment threshold increases to the larger of $300,000 or 0.03% of total
federal expenditures.)
If the grantee (1) does not have any Type A programs or (2) does not have any low-risk Type A programs, you do not have to assess risk
for any Type B programs.
If you choose Option 2 of step 6 (see below), you do not have to identify more high-risk Type B programs than the number of low-risk
Type A programs.

Step 5(a). Assess the risk of noncompliance for Type A and Type B programs (determined above) using the attributes identified on the
spreadsheet.

The risk attributes to consider are found in 6 columns in the spreadsheet.
Audit history
Recent audit findings
Inherent risk
Control Risk
Oversight risk
Fraud Risk
Each column will require a yes or no answer. You will need to gather data about each program to make these decisions. Read the comment
box found in each column to identify the types of information that you will need to assist you in making the assessment. The source of the
information for each risk factor varies and could come from: prior year workpapers; audit reports; management letters; inquiry of the grantee;
inquiry of the grantor agency (or pass-through agency); brainstorming with other auditors; input from the SAO single audit coordinator, etc. The
auditor comment box included at the end of each row in the spreadsheet is available for you to add the rationale for your risk assessment.

Fraud risk column Consider whether there are any known or perceived risks of material noncompliance due to fraud in each Type A and B
included in the spreadsheet (e.g., misappropriation of federal assets, intentionally misreporting financial or program information to the grantor,
false client eligibility determinations, etc.). I f you determine there is a risk of material noncompliance due to fraud, be sure to identify the specific
compliance requirement that is susceptible to fraud in the Auditor Notes column of the spreadsheet (e.g., Activities Allowed, Eligibility, Equipment,
Reporting, etc.).

ARRA Caution: American Recovery and Reinvestment Act (ARRA) risk assessments
Consider the following from Appendix 7 of the 2010 Compliance Supplement when assessing risk of ARRA programs and clusters. (The guidance
below does not apply to the Federal Student Aid cluster or the Research and Development cluster.)

a.) Type A Clusters with ARRA expenditures in the current audit period

Clusters, as listed in Part 5 of the 2010 Supplement, to which a new ARRA CFDA number(s) has been added that has current-year
expenditures should be considered a new program and would not qualify as a low-risk Type A program (i.e., the cluster will not meet
the requirement of having been audited as a major program in at least one of the two most recent audit periods because the Federal
program funded under ARRA was not previously included in the cluster).

b.) Type A Programs With ARRA Expenditures

Even though a Type A program otherwise meets the criteria as low-risk under section .520(c) of OMB Circular A-133, due to the inherent
risk associated with the transparency and accountability requirements governing expenditures of ARRA awards, any program or cluster
with expenditures of ARRA awards would not qualify as a low-risk Type A. Even a de minimus amount of ARRA expenditures
would not support identifying the program as low risk.

OMB Exception:

However, the auditor may consider a Type A program or cluster to be low-risk if all of the following conditions are met:
(1) The program or cluster had ARRA expenditures in the prior audit period;
(2) The program or cluster was audited as a major program in (choose the criteria for the applicable audit period):
o the prior audit period (audits of years beginning after 6/30/2010)
o either of the two prior audit periods (audits of years beginning after 6/30/2011);
(3) The ARRA expenditures in the current audit period are less than 20 percent of the total program or cluster expenditures; and
(4) The auditor has considered the traditional risk factors of OMB Circular A-133 and determined that the program or cluster is
otherwise low-risk.

c.) Type B Programs with ARRA funds

When assessing the risk of Type B programs (those exceeding the larger of $100,000 or 0.3% of total federal expenditures), the auditor
should consider all Type B programs and clusters with expenditures of ARRA awards to be high risk and these should be a priority when
selecting Type B programs for audit. However, the auditor, when applying the options for selecting Type B programs, is not
precluded from selecting an especially risky Type B program that does not contain ARRA expenditures to audit as a major
program in lieu of a Type B program or cluster with ARRA expenditures.

Step 5(b). Brainstorm Fraud Risks
Based on your results from Step 5(a) above, discuss any risks of material noncompliance due to fraud with your supervisor. This discussion
should take place before the auditor begins work on any major programs and should be documented in the ROWD.

IMPORTANT: Although a risk of noncompliance due to fraud may exist in a particular program, this risk does not require the program to
be selected as a major program.

Step 6. Select the programs to audit and specify in the "selection description" cell of the spreadsheet the option you used for making the
selection. The programs you select for audit are called major programs no matter if they are a Type A or Type B. At a minimum, you must
audit all of the following as major programs:
All high-risk Type A programs.
High-risk Type B programs using one of the following options:
Option 1: At least one half of the Type B programs identified as high-risk. Note: the auditor is not required to audit more high-risk Type B
programs than the number of low-risk Type A programs (note, in general you should treat an ARRA-funded program as a priority over
a non-ARRA program, but you are not precluded from selecting an especially risky non-ARRA Type B program over an ARRA Type B
program).

Option 2: One high-risk Type B program for each Type A program identified as low-risk (note, in general you should treat an ARRA-
funded program as a priority over a non-ARRA program, but you are not precluded from selecting an especially risky non-ARRA Type B
program over an ARRA Type B program).
Such additional programs as may be necessary to comply with the 50% rule (or 25% rule). At this point, you can select from among all
remaining low risk Type A programs and any Type B programs to meet the required coverage (note, you should treat an ARRA-funded
program as a priority over a non-ARRA program, but you are not absolutely required to pick low risk Type A ARRA programs or ARRA
Type B programs when they are needed solely to meet the percentage of coverage rule (50% or 25%)).

Step 7. Select Major Program Testing Strategies from SAOStore. I f a specific program is not available, use the Standard Program-Local and
customize this as needed. In order to import more than one Standard Program to a TeamMate file, the standard program folder within the audit
must be renamed before getting the next program.

Policy/Standards:


BACKGROUND

REQUIREMENTS




REFERENCES

First, we determined which programs were classified as Type A and Type B. We then performed risk assessments for the Type A and Type B
programs as applicable.

Fraud Brainstorm: On J anuary 7, 2014, J im Griggs, Audit Manager, Anastassia Kavanaugh, Assistant Audit Manager (my supervisor) and I, Heidi
Wiley discussed whether there are any known or perceived risks of material noncompliance due to fraud with any compliance requirements for
Type A and Type B programs. Any risks will be considered when we audit the major program.

Based on the work documented on the attached spreadsheet at B.3.2, the following are major programs for the current audit (we obtained the
audit programs from the SAOStore):

Program Title - CFDA Number
Child Nutrition Cluster - 10.553/555
Title I - 84.010/389
High School Graduation I nitiative - 84.360
ARRA - School Improvement Grants - 84.388
Head Start - 93.600


Procedure Step: Prior Findings
Prepared By: AVE, 2/7/2014

Purpose/Conclusion:
Purpose:
To document our plans to audit an enity's follow-up procedures on prior audit findings on federal programs (whether they are major programs or
not).

Conclusion:
We documented our plans to audit the District's follow-up procedures on prior audit findings on federal programs (whether they are major
programs or not).

Testing Strategy:
Perform the following steps if the auditee has any federal findings that will be listed in the summary schedule of prior audit findings.

The auditor must perform audit follow-up procedures regardless of whether a prior audit finding pertains to a major program in
the current year or whether it pertains to a non-major program.

1. Obtain the template for the Schedule of Prior Federal Findings. You must obtain this template manually, which is available in the store under
the Audit Administration cabinet | Audit Wrap Up | Template Prior Audit Findings (the Federal Finding portion is on the second page).

The auditee is responsible for preparing two sections of the federal schedule: Status of Corrective Action and a description of Corrective Action
Taken. The other sections are prepared by you. Our objective is to follow-up on the finding to make sure the information prepared by the
auditee is accurate. (For more detailed instructions about the template, please refer to the SAO Audit Reporting Standards Manual, Pt. 2, Ch. 4.)

2. After you enter the auditor-required information of the template for each prior federal finding, provide the auditee with either an electronic
copy or a hard copy of the schedule so that it can provide the information for its sections.

3. If the prior year issue pertains to a grant that is a major program in the current audit, incorporate your follow-up work in the Record of Work
Done for the applicable compliance area of that program. Because it's a major program, you will be performing both internal control testing and
compliance testing and should report any exceptions based on your assessment of their materiality.

4. If the prior year issue pertains to a grant that is a non-major program and not being audited, determine the extent of corrective action taken
by the auditee and compare this with the status that the auditee reports on its summary schedule of prior audit findings. We should not expect
that corrective action will be complete for every finding, and we do not have to re-report internal control weaknesses or compliance for non-major
programs unless you become aware of questioned costs exceeding $10,000 (which should be reported as a finding). You can document your
work for non-major programs in the Record of Work Done under the step located at CONCLUDI NG SI NGLE AUDI T PROCEDURES / STATUS OF
PRIOR FEDERAL FINDI NGS.

5. After the single audit is complete, go to the record of work done under CONCLUDI NG SI NGLE AUDI T PROCEDURES / STATUS OF PRI OR
FEDERAL FI NDI NGS and compare the results of your follow-up work (step 3 and/or 4 above) with the status of corrective action listed by the
auditee in the Schedule of Prior Federal Findings to ensure the information supplied by the auditee is accurate.

Policy/Standards:
Circular A-133 states that the auditor shall follow-up on prior audit findings, perform procedures to assess the reasonableness of the summary
schedule of prior audit findings, and report, as a current year audit finding, when the auditor concludes that the summary schedule of prior audit
findings materially misrepresents the status of any prior audit finding.

Circular A-133 also states that the auditee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility,
the auditee shall prepare a summary schedule of prior audit findings (see instructions for preparing the summary schedule of prior audit findings
are located under Single Audit - Wrap-up).
______________________________________________________________________

SAO Audit Policy 3410 Follow Up on Previous Audits (effective 6/ 3/ 08)

BACKGROUND


REQUIREMENTS
Auditors will ask entity management to help identify previous audits, attestation engagements, performance audits or other studies
directly related to the objectives of the audit. This includes work done by other independent auditors, internal auditors, program or grant
auditors.

evidence.


Manual.

RELATED POLICIES

REFERENCES

In the prior audit, we reported findings for the following federal programs:

High School Graduation Initiative CFDA 84.360
Indian Education Grants to Local Educational Agencies CFDA 84.060

We have completed the auditor-required sections of the Schedule of Prior Federal Findings at B.3.3 and provided Kathie Technow, Accounting
Manager with a copy of the template so the District can enter its information for the Status of Corrective Action and a description of Corrective
Action Taken. We provided her with the template on November 20, 2013. We were provided a response to the prior audit findings on December
3, 2013 and documented at E.1.1.

Major program(s) in the current audit: We will incorporate our follow-up work in the Record of Work Done for the High School Graduation
Initiative grant (CFDA 84.360) as this is a major program. Work will be completed at E.2.PRG

Non-major program: We will determine the extent of corrective action taken by the auditee and compare this with the status that the auditee
reports on its Summary Schedule of Prior Audit Findings. We will document our work for the I ndian Education Grants to Local Educational
Agencies grant (CFDA 84.060) in the Record of Work Done under Concluding Single Audit Procedures / Prior Federal Findings at Prior Federal
Findings Template - Prior Audit Findings


Procedure Step: SA Entrance Conference

Purpose/Conclusion:

Testing Strategy:
Typically communication of our planned single audit occurs at the financial statement entrance conference, which is documented in a separate
step. Auditors should ensure that the required single audit communications (as included in the entrance conference template) are covered at this
conference.

If no entrance conference was held, explain the situation in the record of work done and the Entrance Conference Explanation
Field in the custom tab in the profile. The explanation must include a description of how the required information above was
communicated to the entity and those charged with governance.

If a separate entrance conference is held to communicate about the single audit, auditors must document invitations,
conference date, attendees and discussion topics (see the financial statement entrance conference step for detailed
instructions).

Policy/Standards:


The single audit scope, timing and responsibilities were communicated with management and those charged with governance at the financial
statement entrance conference see B.2.PRG for details.

C.1.PRG - School District

Procedure Step: Contact Team SP
Reviewed By: HCW, 6/17/2014

Purpose/Conclusion:
Purpose:
To coordinate audit work and communication of audit results with Team School Programs.

Testing Strategy:
Auditors should perform the following special planning procedures for all School District audits:

Contact School Programs, either by phone or email - please contact Cheryl Thresher threshec@sao.wa.gov / (360) 725-5608 as soon as
the audit is scheduled to determine if any work has already been done or is scheduled to be done by Team School Programs.
Obtain Team SP recommendations for local audit team testing of apportionment areas for consideration during planning.
Communicate with Team SP on any District-specific apportionment area risks that the local team is aware of.

Although audit work can be done by both the local audit team and by Team School Programs, SAO desires to issue only one report and have only
one formal entrance and exit conference. Communication is therefore vital to ensuring that this occurs. The local team can expect that Team SP
will inform the audit management of scheduled on-site dates and audit results and will pre-exit with the District on all work they perform. School
programs will discuss with each team their preference for communication of issues.

Starting with FY 2009, School Programs will perform all of their apportionment work inside of TeamMate external of the local teams audit. This
will require that the local team reference the work of school programs, rather than include the work school programs has done into their own
TeamMate file.

The exit conference and audit reports will still include the scope of all of the work done by both the local team and School Programs, so reliable
communication needs to occur between the local team and School Programs; for example, we must ensure that all work performed by School
Programs is completed and reviewed before finalizing the audit or having an exit conference, as well as referencing the School Program files in the
local audit workpapers. These files will be referenced by project code, following this protocol: entity type (03 for schools, 04 for ESDs), District
name, -APPT (for apportionment) and the two digit year. For example, Vancouver School District would be:

03Vancouver-APPT09

The planning document in your audit should briefly describe the scope of work done by School Programs, i.e. Special Education, Enrollment,
Transportation, and/or Staff Mix. I f you have a multiple year audit, make sure and include references to the audit work done by School Programs
for each year (School Apportionment audits will be one year in scope).

Any questions regarding this process should be directed to Rick Bonner: bonnerr@sao.wa.gov / (509) 662-0463 or to Cheryl
Thresher threshec@sao.wa.gov / (360) 725-5608.

Policy/Standards:

The following audit work has been done by Team SP related to this audit:
Analytical procedures to assess risk for apportionment areas (staff mix, enrollment and transportation). Documentation of these
procedures and results is retained and reviewed by Team SP.
Special Education Enrollment work. See D.3.PRG
The following audit work has been done by TeamCKC to address School District related risks:
Transportation D.4.PRG
Enrollment D.3.PRG
Note: no Staff Mix work was done this year. Team SP did staff mix work last year and SSD was still resolving our recommendations when we
were planning the audit. We consulted with Manager of Team SP and decided that it would not be reasonable to audit staff mix this year.

D.1.PRG - Concluding Accountability Audit Procedures

Procedure Step: Changes to Audit Plan

Purpose/Conclusion:
Purpose:
To document changes in the audit plan and determine whether changes caused audit objectives not to be met.

Conclusion:
After documenting and analyzing changes in the audit plan, we determined that these changes supported audit objectives.

Testing Strategy:
Document any changes to the original audit plan.

Changes made during the course of the audit should be differentiated from the original audit plan. These changes may be documented in
the Record of Work Done below or as part of the original audit plan (ex: using a different font color or listing the changes in a separate
section of the original plan).

Determine whether changes to the original audit plan support audit objectives.

Auditors should consider whether permanent file information needs to be updated to capture any significant new information discovered during
the course of the audit.

Policy/Standards:

During the course of the audit we identified two additional risks:
1. Procurement of technology purchases. We became aware of the risk is that SSD does not comply with the law when awarding contract to
Apple, Inc. after phone conference with Team School Programs on 2/5/2014.
See D.10.PRG
We determined that the District appropriately procured technology purchases.
2. Self-Insurance - during our audit we noted that this area was not reviewed in the past five audits. We performed initial risk assessment to
determine if SSD self-insures for any risks and if SSD uses ESDs.
See D.11.PRG
We determined that the District does not use ESDs. The district self-insures for worker's comp, liability and potentially for health - vision only.
During initial risk assessment we did not notice any apparent signs of noncompliance. We did not have sufficient resources to perform detailed
examination, so we will consider this area when planning next audit.


Procedure Step: Letter of Representation - Local Govt

Purpose/Conclusion:
Purpose:
To confirm the continuing applicability of managements explicit or implicit representations and reduce the possibility of
misunderstanding.

Conclusion:
We confirmed the continuing applicability of managements explicit or implicit representations and reduced the possibility of misunderstanding.

Testing Strategy:
To confirm managements representations, auditors are required to perform the following procedures:

STEP 1:
Using the TeamMate template letter located in the SAOStore (Audit Administration | Audit Wrap-Up folder), determine the applicable written
representations needed from management for all periods covered by our audit report. Auditors should use one of the following templates:
GAAP use for all GAAP presentations (including ESDs and GAAP basis school districts)
BARS Cash Basis use for all governments that are reporting on a BARS Cash Basis or that do not prepare financial statements.
School F196 use for all school districts that report using the F196 on a cash or modified accrual basis.

The template should be modified as needed to reflect the audit scope and situation.

The "general representations" section should be included in all situations; other sections should be deleted if unneeded. For example,
auditors should delete the "additional representations related to the financial statements" section if a financial statement audit is not done
or when issuing an opinion on single audit work at a later date than the financial statement opinion.

STEP 2:
Consider whether any additional representations need to be obtained beyond the standard representations included in the template. Contact TAS
if you need assistance regarding any additional representations that may be needed.

The following are common examples of additional representations (see also AU-C 580, Exhibit B):
The entity has used the work of a specialist, such as for determining environmental remediation, pension, OPEB, self-insurance or landfill
obligations.
The entity has changed accounting principles.
Short-term debt is being reported as long-term based on managements ability and intention to refinance it.
Financial circumstances are strained and we are reporting either an emphasis of a matter or going concern paragraph.

STEP 3:
Obtain and review the representation letter to ensure 1) all representations were properly made and are consistent with expectations; 2) it is
dated as of our report date, and 3) signed by appropriate members of current management. Attach a scanned copy of the letter into TeamMate.

The representation letter must be dated as of the report date. However, the letter may be received after the report date so long as it is
obtained before issuing the report.

The letter should be signed by members of management with overall responsibility of financial and operating matters who are responsible
and knowledgeable about, directly or through others in the entity, the matters covered in the representations. Generally, the letter is
signed by the chief executive officer (e.g. city manager, mayor, superintendent) and the chief financial officer (e.g. finance officer,
business manager, clerk/treasurer).

When such persons were not present during all periods referred to in the letter, they may assert that they are not in a position to provide
some or all of the representations; this fact, however, does not diminish managements responsibilities and would not be reason for the
auditor to accept this risk or responsibility.

Policy/Standards:
SAO Audit Policy 3420 - Obtaining Management Representation Letters

STEP 1:
We selected the appropriate representation letter template from the Store.
We obtained letter of representaion on May 28, 2014 for AC and SA audits. We obtained AC only Management Representaions Letter in adition to
cover period from May 28th to J une 19th.
STEP 2:
We considered whether any additional representations were needed beyond the standard ones included in the template. We determined that no
additional representations were needed. The template was provided to the entity and a list of uncorrected misstatements was included as an
attachment .

STEP 3:
We obtained the representation letter and reviewed it to check that:
All representations were properly made and consistent with expectations;
It was dated the same as our report date; and
It was signed by appropriate members of management.

See full letter at F.4.9
See updated rep letter at D.1.8


Procedure Step: AC Quality Control Assurance Certification

Purpose/Conclusion:
To review and certify adherence to applicable audit standards and policy with regard to the Accountability audit.

Testing Strategy:
This step should be signed-off by the Auditor-in-Charge, the Assistant Audit Manager, and the Audit Manager. The Quality Control Assurance
Certification should be signed-off before the Accountability audit report is issued.

If a requirement does not apply, it should be noted on the certification. If a requirement was not met an explanation needs to
be documented and approved by the Audit Manager. No other modifications to the form should be made. It is not necessary to reference
applicable sections of the certification to the audit documentation.

Policy/Standards:
SAO Audit Policy 3430 Quality Control Assurance Certification

Quality Control Assurance Certification
The certification must be signed-off before the Accountability audit report is issued.

Auditor in Charge Statements
1. I am free, both in appearance and in fact, from personal and external impairments to objectivity and independence in matters related to this
audit (Audit Policy 3110).

2. I informed assistants, if any, of responsibilities and objectives of the procedures they were planned to perform (Audit Policy 3160).

3. I monitored the audit budget compared to actual audit hours and requested approval in advance from the supervisor and Audit Manager if
additional audit hours were needed (Audit Policy 3160).

4. I promptly informed my supervisor of potential audit issues encountered (Audit Policy 3160).

5. I informed my supervisor of modifications to the audit plan (Audit Policy 3160).

6. Work performed was documented in accordance with Audit Policy 3310.

7. I reviewed audit documentation prepared by assistants to ensure work was adequately performed and properly documented (Audit Policy
3160).

8. I promptly resolved any coaching notes (Audit Policy 3160).

9. Sufficient and appropriate audit evidence was obtained and evaluated to ensure that specific audit objectives were achieved (Audit Policy
3210).

10. An entrance conference was conducted in accordance with Audit Policies 2130 and 2210.

11. An exit conference was conducted in accordance with Audit Policies 2130 and 2220
Assistant Audit Manager (Supervisor) Statements

2. I reviewed audit documentation to ensure work was adequately performed and evaluated whether the results are consistent with the
conclusions presented in the engagement report. My review was completed prior to the exit conference and report issuance (Audit Policy 3160).

3. I ensured that all coaching notes were resolved (Audit Policy 3160).

4. I informed the Audit Manager of significant problems or audit issues (Audit Policy 3160).

5. I agree with the certification statements made by the auditor-in-charge.

Audit Manager Statements


3. I requested approval for audit budget changes from the Director of State and Local Audit or delegate (Audit Policy 1220). Also, I
communicated audit budget changes to Team Financial Services.

4. In my opinion, the staff assigned to conduct each engagement collectively possess adequate professional competence for the tasks required
(Audit Policy 3140).

5. I immediately informed the Director of State and Local Audit or delegate if the report was anticipated to be issued 30 days or more after the
timeliness goals established in Audit Policy 2320.

6. The protocol for findings and management letters as outlined in Audit Policy 2310 was followed.


Procedure Step: AC Summary & Report

Purpose/Conclusion:
Purpose:
To (1) determine if the Accountability audit has been properly completed and (2) to prepare the audit report.

Conclusion:
We determined that the Accountability audit has been properly completed and prepared the audit report.

Testing Strategy:
Auditors are required to perform the following procedures to determine whether the Accountability audit has been properly completed and to
summarize results to be included in our audit report:

(1) Accountability Audit Procedures
Check that all accountability work is completed.
Evaluate whether procedures and documentation were sufficient to address major risks identified in planning and to support any findings.
If certain areas or risks were cycled to a future audit, ensure this expectation is documented in a FAWF note.
(2) Accountability Report
Determine the reporting level of audit exceptions.
Prepare the audit report using ORCA and the ARS manual.
Check the Description of Entity and Officials sections with the entity.
Route Findings and Management Letters to the appropriate personnel.
All files sent to OS should be kept at AS3: Reports for OS.

Policy/Standards:
Refer to ARS manual for details regarding audit report contents and preparation.

SAO Audit Policy 4410 Accountability Reporting

SAO Audit Policy 2120 Notification of Audit Reports with Findings


(1) Accountability Audit Procedures
To determine if the Accountability audit has been properly completed, we:
Checked that all accountability work was complete.
Evaluated whether procedures and documentation were sufficient to address major risks identified in planning and to support any
findings.
Filed notes for future audits in the FAWF.

(2) Accountability Report
To prepare our accountability audit report, we:
Determined the reporting level of audit exceptions.
Prepared the audit report using ARS Manual templates or the ORCA program.
Checked the Description of District and Officials sections with the entity.
Routed Findings and Management Letters to the appropriate personnel.
See AS3: Reports for OS for final documents sent to OS.


Procedure Step: AC Exit Conference

Purpose/Conclusion:
To communicate the results of our audit with management and those charged with governance.

Testing Strategy:
I f no exit conference was held or if the report was issued prior to the date of the exit conference, explain the situation in this
step (and in the Exit Conference Explanation field in the Custom tab of the Profile) and document how the auditor ensured that
adequate communication with management and elected officials occurred.

Pre-Exit Meetings:

If pre-exit or departmental exit conferences are held, the official handout (if any) should be attached and the meeting documented in this
step. Attachments for pre-exit or departmental exit meetings should be clearly labeled to distinguish them from the official exit conference.

BEFORE the Exit Conference:
Communicate with management as to who will attend the exit conference and arrange for a convenient time and location for the exit
conference.
Invite elected officials to the exit conference (approved invitation letter templates are available in the SAOStore).
Prepare the exit conference handout using the template available in the SAOStore. Note: management letter, finding and status of prior
audit finding templates are also available in the SAOStore, if needed.
Prepare a separate handout for exit items and share these items with management prior to the exit conference along with any draft
management letter or finding issues.
Exit items are referenced, but not included, in the exit conference document. Auditors should bring the handout to the exit and be
prepared to discuss exit items if requested.
For financial statement audits, print a schedule of uncorrected misstatements from the Aggregation of Misstatements spreadsheet to
attach to the exit handout. Also attach a copy of the Management Representation Letter.
Plan the presentation of audit results by considering the following:
Who will attend from SAO?
Who will present each section?
Detail of audit scope?
DURI NG the Exit Conference:
Present Exit conference handout. The conference must include discussion of significant audit results, such as:
All non-trivial uncorrected misstatements. Auditors should attach a schedule of uncorrected misstatements by following the printing
instructions on the Aggregation of Misstatements spreadsheet.
Any material corrected misstatements, if not already reported as part of a significant deficiency or material weakness finding.
Representations requested from management. A copy of the Management Representation Letter should be attached.
Significant disagreements with management and their resolution.
Significant difficulties encountered during the audit.
Our views on significant questions that management consulted with other CPAs about.
Any other significant issue related to the governing bodys financial reporting responsibilities.

AFTER the Exit Conference:
Document the conference attendees (SAO and entity) in the Record of Work Done.
Send copies of the exit document to any elected officials who were not able to attend the conference (do not include the handout of exit
items).
Include the official exit document and handout of exit items in the AS2 Team Reports folder.
Ensure that exceptions documented in TeamMate match the official handout of exit items, management letter and findings, as applicable.
The final exit conference document, handout of exit items, management letters and findings should be attached at AS2: Team Reports.

Policy/Standards:

SAO Audit Policy 2220 - Conducting Exit Conferences

SAO Audit Policy 2310 Protocol for Findings and Management Letters

Invitations:
We invited all the Board Directrors to our accountability audit exit conference in person during our May 28th financial statements and federal
single audit exit conference. Our accountability conference will take place during Audit and Finance committee meeting.
Exit Conference:
The exit conference handout is documented at D.1.3. Attachmets documented as follows:
Management Letter D.1.4
Exit ItemsD.1.2
Audit Memorandum Draft D.1.7
The following people attended the official exit conference, held in accordance with Audit Policy 2220:
SSD Members of Audit and Finance Committee - Director Martin-Morris and Director Peters
Ken Gotsch, Assistant Superintendent for Business and Finance
Mark Rapozo, Deputiy Director
Heidi Wiley, AIC
Anastassia Kavanaugh, Audit Supervisor
members of the public and SSD employees

D.3.PRG - Enrollment

Procedure Step: Enrollment

Purpose/Conclusion:
Purpose:
To review controls over enrollment reporting and test FTE reported by the District.
Conclusion:
Based on our review the District has adequate controls to ensure accurate FTE reporting and is in compliance with its policies and procedures. We
tested FTE reported by the District and found no issues.

Testing Strategy:
See also Enrollment Summary step; this step is required whether using the Team SP program or local audit team procedures.

Contact Team SP and they will provide you with the District specific Audit Program, Risk Analysis, and Enrollment Worksheet.

In recent years, the cause of most Enrollment reporting errors has been:
o Not generating and saving required enrollment and attendance reports I f district does not retain report they may not be able to
generate it at a later date. If district uses WSIPC we know they cannot.
o Not calculating partial FTE based on actual minutes of enrollment
o Running reports on dates other than count dates
o Counting students who did not participate in the first four days of September
o Some districts think September does not count I T DOES!
o Counting students absent > 20 consecutive count days at count date
o Incorrect FTE calculations
o Double counting students who attend more than one school
o Counting students in juvenile detention
o Counting running start students college class time as college FTE and H/S FTE
o Lack of written plans for alternative experience learning program students
o Voc Ed classes not taught by voc certified instructors
o Voc Ed classes not approved by OSPI
o Clerical errors
o Not testing Bilingual students
o Counting Bilingual students after they achieve test proficiency
o Not retaining or reconciling Work Based Learning records
o Not obtaining release from Home District prior to enrolling in ALE Internet Program

Perform analytical procedures over enrollment in order to select one grade and month at one school for detailed testing.
a. Review risk analysis for this district to see if particular grades, months, or years were identified as problematic. If so,
recommendation is to key in on those months/grades/years (if multi-year audit) to determine cause of fluctuations.
b. If risk analysis did not identify particular grades/months/years, recommendation is made to select 12
th
grade at a high school
grade since risk of errors is higher due to students attending less than full time.
c. If this is a multiple year audit (2 year or 3 year audit cycle) and risk assessment did not identify problems in a particular school
year, recommendation is to select your month from school year 2008-09 as it will provide the best indicator of current controls.
d. If errors appear to be pervasive, consult with your Team Management to determine if testing should be carried into the current
year (FY10).
e. Do Not include students the district identifies as Alternative Learning Experience students, or Work Based
Learning students. They are outside the scope of this audit program
f. If your local team has other methods to select the test population for basic enrollment follow their suggestions.

Obtain the P223 report for grade/month/school selected and gain an understanding of the internal controls over the compilation at
the District level.
a. The P223 report identifies the number of FTE reported for funding by the school for each grade level. You will be verifying
the number of FTE on this report for the grade/ month/ year you selected.
b. Obtain a brief description of how the district employee compiles the enrollment reports from all of the individual schools.
c. Inquire whether district office staff makes any changes to the P223 submitted by the individual school. I f so, obtain a copy of all
additions or deletions made at the district office and the reason for the adjustments.
d. Note: I f the district has more than one high school, select one of the high schools for detail testing based upon local team
knowledge of risks within the district.

Obtain an understanding of the internal controls over the P223 compilation at the individual school level selected for testing. They may
have a worksheet that you can use as the basis of performing the remaining audit steps.
a. With the P223 for the individual school you obtained at the district office go to the school you selected for
testing. Obtain a brief explanation from the individual who prepares this monthly report of how they arrive at the FTE number.

Obtain the detail roster of students counted for the selected month/grade/school to ensure controls are in place to support counts.
a. If the District uses the WSI PC system, this will be the Student Roster by Grade report which identifies students by headcount not
FTE. Subsequent audit steps will describe how to make adjustments to the number of students on this report to arrive at audited
FTE.
b. If the District does not use WSIPC, the report will have a different report number or name.
c. If the District is unable to provide detail support of who specifically was counted, contact your AIC or Supervisor. In this event
Team SP may need to conduct expanded work.

Ensure that student count dates are the 1
st
school day of each month except September. September count date is the fourth school day
of the month, even if shool began in August.
a. Determine the count date for each month of the school year and the first four days of school for September in this district.
b. Determine the date the Student Roster by Grade report or equivalent report was run. Reports should be run on count date
(4
th
school day of September, 1
st
school day of October May).
c. For the month of September only, have the school identify what the first four school days of the month were (they are often split
up by weekends and Labor Day).
d. If the monthly enrollment report was not run on the proper dates, this increases the likelihood of errors due to students who
withdrew or enrolled around count date. In addition to not running reports on the proper date, it is possible not all enrollments
and withdrawals were input prior to running the report.

Determine the method the district uses to track students who attend less than full time and obtain a copy of the report for the month and
grade selected for audit.
a. If the district uses WSIPC this will be the FTE Warnings report. If the district does not use WSIPC they must have some method
to track the less than full time FTE students.
b. Inquire what parameters the district uses to generate the FTE Warnings report or equivalent. (i.e.) How many classes does the
district consider to be full time?
c. Also obtain a brief explanation of the course coding used. Often districts specifically identify when students are in running start or
are signed up for courses that they are not counting toward FTE.
d. FTE for any student who attends less than 25 hours per week or 300 minutes per day, (grades 4-12) or 20 hours per week
(grades 1-3) must be pro-rated downward accordingly (i.e.) a 10
th
grade student who is scheduled for 16 hours per week may
only be counted as 16/25 or 0.64 FTE.

Evaluate the accuracy of the FTE Warnings report by calculating the time and FTE that should be reported for each period.
a. Obtain the bell schedule that was in place for the month under review and calculate the FTE that should be reported for each
period.
b. Inquire if the district has calculations in minutes per week they used to calculate FTE per period. If they do, allocate pass times
between periods in the same manner as the school did (if their method is consistent with the rules). If they do not have a
method of allocating pass time you may use your own judgment on how to allocate it to individual periods. (For WSIPC districts
weekly minutes will be converted to hours).
c. Using the bell schedule worksheet, enter the beginning and ending times for each period and calculate the number of minutes of
instruction time for each period. Do not count lunch or any time that does not produce credit, other than pass time.
d. Add the pass time to the appropriate periods and calculate total minutes per period per week. Divide total weekly minutes per
period by 1,500 to obtain audited FTE per period. Pass time rules:
1. Up to 10 minutes of scheduled pass time per 50 minutes of instruction time
2. Pass time before or after school may be included IF: (1) the time is on a published schedule and/or other communication
to students, staff and community; AND (2) students are expected to be present during the scheduled passing times AND;
(3) Normal operations of school buses are completed before the morning passing time begins or do not start until after
the end of the day passing time is over.
3. Scheduled pass time before or after lunch, if scheduled, may be included.
4. To The extent that a school does not schedule the full 10 minutes of passing time for each 50 minutes of instruction, the
school may utilize this unused passing time elsewhere in the school day for other scheduled services to students (silent
sustained reading, advisory, etc.). This time may be allocated to the class periods with the limit of 10 minutes of total
pass time and allocated pass time per 50 minutes of instruction.

Compare the amount of FTE the district uses to calculate reportable FTE for students by period to the calculations you arrived at.
a. If there are differences you will need to recalculate reportable FTE for all students on the FTE warnings report (and probably
students not on the FTE Warnings report. (See next bullet).

Ensure the FTE Warnings Report is generated based on the correct number of classes required per auditors calculated FTE.
a. If you determine the FTE Warnings report is generated based on the incorrect number of classes required for 1.0 FTE (i.e. district
set parameters at 4 classes, you determined 5 classes required for 1.0 FTE) obtain the student schedules for each student on the
monthly Student Roster by Grade report and identify all students who should have been included on the report.
b. Recalculate FTE for each of the affected students. The difference between reported and audit calculated FTE for each student
will be questioned.

Ensure Student Roster by Grade includes only actively enrolled students.
a. Obtain the monthly enrollment and withdrawal list from the school. Compare to the Student Roster by Grade report and
determine if students included on enrollment and withdrawal list should be included on the Student Roster by Grade report based
on enrollment or withdrawal dates.
b. If any errors are noted identify the specific students by student number, grade, month, and year. Students who enroll on or
before count date may be included. Students who withdraw on or before count date may not be counted.
c. Note - Your local audit management may require that you trace to enrollment cards (hard copy) rather than to rely on the data
in the computer reports. This will be used in bullet 14, below.

Ensure that students in juvenile facilities on count dates are not counted by the school they normally attend.
a. Obtain a copy of the juvenile detention report for the month. The district/schools should be receiving these from the local
juvenile facilities.
b. Students in juvenile facilities on count date should not be counted by the school they normally attend because they are counted
by the juvenile facility.
c. Compare names of students in detention to students counted by the district on the Student Roster by Grade report. If any
students were in detention and were counted by the district, identify the students by student number, grade, month, and
year. This will be used in bullet 14, below.

Ensure that skill center students FTE is split between the school district and the skills center based on the inter-local agreement, and that
combined is 1.6 FTE. . Beginning in the 07-08 school year the resident district may count a student for up to 1.0 FTE and the sckills
center may count the student for up to 0.6 FTE.
a. Determine whether the school participates in a Skills Center. Skills centers create the risk that students may be counted in both
their home district and the skills center district in excess of 1.0 FTE statewide.
b. If district does participate, the district that hosts the skills center should provide a roster of students to each participating home
district to inform them of who is enrolled in the skills center. Obtain a list of students who attended the skills center during the
month(s) of audit. Identify any students on the Student Roster by Grade report that are identified as attending a skills center.
c. The district should have an agreement with the skills center identifying how the students FTE shall be split between the host
district and participating district.

Ensure that running start students are only being counted for high school FTE for high school classes and not college classes.
a. Obtain a copy(s) of the college report to the school district (P223RS) of who was enrolled in running start for the month and year
(11
th
and 12
th
grade only). Colleges generally report running start FTE to the school district which then reports the FTE for
funding and reimburses the college.
b. Although students in running start may be counted for over 1.0 FTE in total (high school seat time and college credits) the college
credits should not be counted toward high school FTE. If students are reported as running start, assure each student is only
being counted for high school FTE for high school classes, not college classes.

Verify that each student included on the September roster attended one of the first four days of September. (September review
month only)
a. For districts that start in August, we can also accept participation in any day in August. The student only has to participate in one
class to be considered as having met the requirement for active participation.
b. If documentation is not available to support attendance this is a serious deficiency, notify your AIC or Supervisor.
c. A quick method to identify students counted in September who probably should not have been is to obtain the October Student
Roster by Grade report and compare the two rosters, even if the district does not have attendance records for
September. Identify anyone on the September roster who is not on the October roster. There is a good chance the student
never showed up and should not have been counted. If you identify any students in this manner request the district provide
some method of proving the students attended one of the first four days of the month. I f they cannot, question the enrollment of
the student.

Ensure students were not included in the count who were absent 20 consecutive days or more at count date. (October May review
months)
a. Request evidence students included on the Student Roster by Grade were not absent 20 consecutive days at count date. If
school cannot provide such a report, inquire how they provide this assurance on a monthly basis. Notify your AIC if this process
does not appear to be in place.
b. If report is available identify any students on the Student Roster by Grade report who were absent 20 consecutive days at count
date for your month and should not have been counted. Record the student number, grade, month and year for each student
identified.

Count the number of students (headcount) claimed for the month substantiated on the Student Roster by Grade report or
equivalent. Adjust to the audited FTE by adding or subtracting students:
a. Who enrolled or withdrew prior to count date and should have been included or excluded on the roster depending on report run
date
b. Were in juvenile detention on count date
c. Were enrolled in a skills center in another district
d. Were absent 20 consecutive days at count date (October May)
e. Did not participate in one of first 4 school days (September only)
f. Were less than a full FTE

Policy/Standards:
See the School District Guide for details on basic enrollment.

WAC 392-121-106 Enrolled Student As used in this chapter, enrolled student means a person residing in Washington state who: ( 4) Actually
participated on a school day during the first four school days of the current school term (semester or quarter), or on a school day during the
current school term on or prior to the date being counted.

WAC 392-121-108 Enrollment Exclusions (1) Absences .a student whose consecutive days of absence from school exceed twenty school
days shall not be counted as an enrolled student until attendance is resumed.

WAC 392-121-119 Enrollment Count Dates As used in this chapter, enrollment count dates means the fourth school day of September and the
first school day of each of the eight subsequent months of the school year

WAC 392-121-122 Definition Full Time Equivalent Student

Secretary of State Disposition Authority Number GS51-01-02-03: Retention period for enrollment reports that generate apportionment funding is
3 years or until completion of audit.

Secretary of State Disposition Authority Number GS51-04-04: Retention period for attendance reports that support enrollment reports is 3 years.

We noted in our planning at B.1.PRG Team Schools Program recommends local teams audit basic enrollment for FY13. Enrollment was last
reviewed in FY09 and errors were noted in FTE calculations. We will test enrollment data from two schools (elementary and/or middle school) and
high school for September 2012 and verify the reported FTE for one grade in each building
Source:
Enrollment Handbook updated December 2013 by Team Schools Program
Electronic Student I nformation System (ESIS) FTE reports provided by Sylvia Shiroyama
P223 Reports submitted to OSPI obtained from the District's website
http://www.seattleschools.org/modules/groups/homepagefiles/cms/1583136/File/Departmental%20Content/siso/enroll/2012/p223.htm
Data files and worksheets prepared by Steve Wright and Virginia Pfleuger

Audit Procedures:
1. Team SP performed risk analysis and suggested a review of enrollment data for September 2012 Elementary and/or middle school grade. We
determined one high school grade be selected due to the higher probability of part time status at the 12th grade level. Per Steve Wright, IT
Specialist for SPS, Running Start correspondence from Community Colleges was submitted as of October 2012. Therefore, for HS testing we used
October enrollment data. For Elementary/Middle School testing, we randomly selected 6 elementary/middle schools to review for enrollment
fluctuations. Of the six we selected one, Aki Kurose, Middle School, which had the highest rate of enrollment fluctuation. For the High
School testing, we learned that there were staff changes in the registrar office at Franklin HS, which would place this school at a higher risk for
inaccurate FTE reporting.
We did not include students identified as ALE. Per Team SP, ALE is not included in the scope of our school year 2013 accoutability audit.

We met with Sylvia Shiroyama, Data Analysis Manager to obtain an understanding of how the district compiles enrollment data for state reporting.
Sylvia explained that she is new to this position and is still learning about the job duties of her employees. Sylvia indicated enrollment fluctuates
significantly from Sept to Oct count dates due to parents disputing the assigned school, or removal of students from an assigned school to a
private school or a home school setting. She also explained the District migrated to a new student tracking system known as Power School in
September 2013. We agreed that our review would focus on the process and system used for FY13 (Sept 2012 through May 2013 which is based
on eSI S system. We recommend enrollment reporting be tested for School Year 2014 as the District migrated to Power School in Fall 2013. FAWF

2. We obtained the P223 reports for grade level 8 Aki Kurose students and grade level 12 Franklin HS student. The report includes head count
and FTE count. Virginia Pfleuger, Business Analyst, provided us with an understanding of the reporting process. Enrollment is reported to the state
based on admission status (# hours a student receives class instruction in one week) as recorded in the eSI S system. Students are registered
when they arrive at their scheduled classes. Attendance is tracked by the School Registrar and schedule changes must be approved by the
Counselor or Advisor. Consecutive Absence Report (ATT605P) tracks all students who are absent for 20 or more consecutive days (excused or
unexcused). A partial day absence does not count in the 20 consecutive day rule. A student is withdrawn as of the 21st absence date. Exceptions
are allowed only by written and signed agreement between parent and school administrator, or if student receives home/hospital care. The
monitoring performed at the District level is to extract data from eSIS by the cutoff date and to adjust FTE to account for data provided by 3rd
parties (community colleges and vocational institutes). The analysis performed by DoTS is District wide and provides the total adds/deletes and
adjustments to head count and FTE counts by month to OSPI.

3. The District does not use the WSIPC system and there are no student rosters per se. We obtained the head counts for the grades/schools
selected by requesting the data extract from eSIS of students enrolled as of the 1st count date
(Sept 5th). On the first school day of Sept the data by student in eSIS is updated to account for FTE based on each student's registration status
as of 7:00 p.m. New students may be registered as they arrive and registration is reversed for students who do not arrive. Note: a registration
reversal does not cancel a student assignment to a class or classes. The reverse registration merely accounts for the absence to the Home Room
or the student's first class period. If a student does not register but arrives at school the student is added to the Enrolled/Not Registered
(STU705P) report and is subsequently registered.
Key Control: The Data Analyst reviews Consecutive Absence Report (ATT605P) to determine if the attendance information
provided by the Registrar is correct.
Virginia provided us a copy of an absence report she ran in November 2012 (saved to her hard drive) of the total consecutive absences by
student. I f any student has 20 or more absences and is not shown as withdrawn, Virginia will send a notice to the school registrar to confirm the
enrollment status. If the student has an education plan in process the student is able to keep their enrollment status. I f not, the student is
withdrawn. Virgina showed us the Enrollment Accounting Adjustment Form received from Laurie Cepa, Registrar at Franklin HS. The Accounting
Adjustment form shows the current FTE, the amount that should be reported, and the reason for the adjustment. We noted one Grade level 12
Franklin student was deleted (no longer enrolled) and 8 Franklin student FTE's were adjusted to allocate enrollment credits as skills center credits.
Vocational credits are equal weighted to HS credit; however. OPSI requests that the District track vocational educ credits separately and total HS
and voc ed credits may not exceed 1.6FTE. The adjustment was dated 11/21/12. See worksheet at 0203_Franklin Gr 12 P223 Sept 2012.

4. We verified with Virginia Pflueger the first four count dates of September (Sept 5th, Sept 6th, 7th, and Sept 10th.) and these dates coincide
with the dates reported to OSPI. The data Sept data was extracted as of Sept 11th. Virigina was knowledgeable of the procedures for counting
enrollment. She verifies that the student was present on one of the first 4 count days of September to be included in the September count. The
data extraction reports are reviewed by the School Registrars to verify the data in eSIS reconciles to the student's registered class schedule. We
reviewed the extraction report dates and noted the data was extracted on Oct 2nd; Nov 2nd and Dec 4th, 2012, which is one day after the
respective count date. Key Control:Registrar at each school verifies the data extracted from eSIS reconciles to student course
schedule. This ensures that enrollment is not based on a rollover of hours from the prior school year but is based on current data from the eSIS
student tracking system.

Due to the decentralized nature of the school district we would expect FTE Admission procedures to be well documented and accessible. Virginia
provided us with the Start of School Procedures document that is used as a training and monitoring tool for determining admission status. See -
StartOfSSchoolProcedures and eSIS_enroll_0560_admissionStatusFTE. The procedures outline the sequence of monitoring duties to be performed
prior to school start date and for each of the first 4 days of September. The report was current and referenced the first count date of FY 2013 i.e.
Wed Sept 5th, 2012 etc. I n addition we noted the Start of School document is linked to various QRD's or Quick Reference Documents for more
detailed information of key areas. The QRD's are username and password protected and available from the District's inweb.

5. We obtained the eSIS raw data support for the grade/month and schools selected for testing. Steve Wright provided us with a spreadsheet
of adjustments by student, including Running Start FTE status reported by participating community colleges: (North and Central Seattle
Community Colleges). Steve adjusts the college FTE as needed to ensure total FTE does not exceed 1.2 We reviewed Steve's spreadsheet and
noted HS FTE status was correctly adjusted to account for Running Start classes and that all students with RS credits were adjusted so that the
total RS and HS credit did not exceed 1.2FTE. We designed a reconciliation of Head Count to FTE by student and we were able to arrive at the
adjusted amount reported to OSPI -- within an acceptable variance. See 0203_Franklin Gr 12 P223 Sept 2012

6. We verified the FTE reported for Grade level 8 students at Aki Kurose using the FTE calculator from the Team Store. We obtained the published
bell schedule for Aki from Amber Kemp, Registrar for Aki Kurose. Based on the testing of Aki Kurose school grade level 8 all students were
enrolled for 7 periods for a total of 1.1 FTE per student. See workpaper at D.3.1 Allocated Bell Schedule Calculation Boilerplate. Based on our
discussion with Amber Kemp daily attendance and schedule changes are entered directly into eSIS. Any changes made after the count date are
submitted to Virginia on the Monthly Enrollment Accounting Adjustment form. See Allocated Bell Schedule Calculation Boilerplate

We obtained the Franklin High School grade level 12 students' course schedules from Terese Machmillan, Data Analyst. The data range for each
selected student included the courses attended, the number of minutes per course, the period, date, course description and the teacher assigned.
Using the bell schedule at Bell Schedules 2012 we calculated total pass time and course minutes attended per day. Using this data we were able
to confirm each student's FTE was accurately calculated based on the student's enrolled course schedule and that FTE counts reported to OSPI
were accurate and adequately supported.
See FTE test_Franklin Grade 12.

7. We reviewed Virginia's reporting of Franklin HS students registered for vocational education courses. The FTE must be allocated to HS and Voc
ed and may not exceed 1.6 FTE. Vocational ed courses are weighted the same as High School credit classes however OSPI requires the
District to track the total number of students district wide enrolled in vocational ed classes. There were 8 Franklin HS students identified as
enrolled in partial FTE at the skills center. The P223 was not impacted by the enrollment activity at the skills center and was reported for
information purposes only.

8. We verified with Virginia students assigned to the I nteragency Detention School (IDS) are excluded and thus are not reflected in the P223
FTE. Students in juvenile detention are exited from their current schools and enrolled in school #715, which is the location code for the
IDS. Virginia provided us with the E-672 report of students actively registered in school 715. The form was signed by the principal of I DS, Kaaren
Andrews. This report summarizes the total number of students in King County registered in school 715. Since all actively enrolled students are
identified by school code on the count date, the students mapped to 715 are not included in the P223 submitted to OSPI. Stated another way, the
SQL code used to pull data from eSI S on the count date lists all the District schools by school number to pull active registration and the data code
for school #715 is not included.

Based on our review of enrollment monitoring and reporting procedures the District has adequate controls in place to ensure FTE reports to the
state are accurate and that the District is in compliance with its policies and procedures.

D.3.PRG - Enrollment

Procedure Step: Special Education Enrollment
Prepared By: (None)

Purpose/Conclusion:
Purpose:
To document the special education enrollment audit work performed in Seattle School District.
Source:
November 2012 P223H Monthly Special Education Enrollment report
Selected student files
entry/withdraw report
Conclusion:
A total of 330 files were reviewed to ensure that special education compliance requirements were met during the 2012-13 school year. All special
education students must have a current evaluation, current IEP and be enrolled in the district to be counted for the monthly special education
count.
In 1 of 330 files, the student did not have an IEP completed on time. In this case, the student transferred in with an expired IEP that was not caught
by the district. A total of six months were over reported and will be included in an audit memorandum submitted to the audit resolution
department at OSPI.

Testing Strategy:

Policy/Standards:

Special Education enrollment work was performed by Team School Programs. Work is documented in TeamMate File 03Seattle-APPT13.


D.4.PRG - Transportation

Procedure Step: Transportation

Purpose/Conclusion:
Purpose:
To review controls over reporting transportation ridership apportionment and test the District's compliance with state reporting requirements
and District policies and procedures.
Conclusion:

We reviewed controls over reporting transportation ridership apportionment and the District's compliance with state reporting requirements. Based
on our testing we noted a control deficiency which did not impact District funding. See recommendation at Transportation Allocation Reporting .
Based on our review the District is in compliance with state requirements for transportation financial reporting and with District policies and
procedures.

Testing Strategy:
Ridership Testing
Obtain the transportation worksheet for this district from Team School Programs Share point site. http://saoapoly002.sao-
nt.wa.gov/TeamPortals/sp/Pages/default.aspx
Audit Steps:
Verify total ridership reported by season to district summary report totals.

You will be using Fall and Winter counts from 2012-13 school year and Spring count from 2011-12 school year.

Have district identify 3 consecutive days it used for winter count and confirm day with middle total ridership (basic plus special) was
selected for reporting.
Select 10 routes or bus numbers for testing. Verify daily driver log (1022D) or equivalent to district summary report. Document any
mathematical, ridership type, or data transfer errors.

Count AM and PM riders only. Do not include mid-day riders (look at bus route times and confirm with district).

Special Program Riders may not ride on a basic education route and be counted/included as Special Program Riders. EXCEPTION Special
education students requiring a lift or special aide may ride a basic education route and be counted/included in the special program
reporting numbers.

Verify mileage reported on Bus Mileage Report matches district summary supporting documentation.
Financial Testing
Program 99 should include only to-from transportation costs which should include supervision and transportation insurance costs.

Review FAP to assure Program 99 includes activity 51 (Supervision) and 56 (Insurance costs). If not inquire with district why costs are not
included and document response.

For non-to-from transportation, inquire how district calculates costs of field trips and extra-curricular event transportation. These costs
should be transferred out of Program 99 to program receiving the transportation. Document district response.

Districts should be using the long or short form discussed in the Schools Accounting Manual Appendix E, or an equivalent method. Team
SP found most districts are using a cost per mile plus driver costs per hour. Costs transferred out should include fuel costs.

Policy/Standards:
See also the School District Planning Guide. Contact Team School Programs for assistance with Transportation testing or
questions about audit criteria.

RCW 28A.160 - Student Transportation

WAC 392-141-320 - District Reporting Requirements

WAC 392-141-330 - School Bus Driver Daily Logs

WAC 392-141-340 - Determination of Walk Area

WAC 392-141-350 - Authorization and Limitation on District Payment for Individual and In Lieu Transportation Arrangements

WAC 392-141-360 - Operation Allocation Computation

WAC 392-141-370 - Transportation and Hold Harmless Provisions

WAC 392-141-380 - Alternate Funding Systems for Low Enrollment Districts, Non-high Districts, Districts Participating in I nter-district
Transportation Cooperatives, and Educational Service Districts Operating Special Transportation Services.

WAC 392-141-400 - Efficiency Evaluation Review

WAC 392-141-420 - District Recordkeeping Requirements

We noted in our planning at B.1.PRGTeam Schools Program suggested local teams plan transportation audits using the 6 step procedure outlined
in TeamMate.

Source:
Cheryl Martin Transportation Analyst
Ellen Reyes, Assistant Mgr, Transportation Business Ops
Michelle Drorbaugh, Manager, Transportation Business Ops
Bob Westgard, Director, Transportation Business Ops

Ridership data for Spring 2012 and Fall and Winter 2013

1) We reviewed the Transportation testing strategy prepared by Team Schools Program at TRANSPORTATI ON OVERVIEW

We met with Cheryl Martin, Transportation Analyst to review procedures for providing eligible ridership counts to OSPI. Prior to the beginning of
count week, the Transportation Director meets with drivers to review procedures for completing driver logs which are generated from the Versa
Trans system. The data extract from Versa Trans identifies all student addresses and generates the route including the GPS location for each
stop. Drivers are provided preprinted logs generated from Versa Trans that lists the eligible student name and address outside the walk area or
areas inside the 1 mile perimeter of the school that are deemed unsafe pedestrian areas. At each stop the driver puts a check mark by
each student transported on the count day. At the conclusion of each route the Driver signs and dates the log sheet in ink and submits it to the
Transportation Analyst. Cheryl manually recounts the total basic and special ed students transported on each route and prepares a cover sheet
that shows ridership counts by category (basic ed, spec ed, gifted, etc.)
Reporting ridership counts to OSPI. 2) We selected Fall and Winter 2012/2013 and Spring 2011/2012 for testing. We verified the ridership counts
are due to OSPI on the 1st day of February and the 1st day of May for Winter and Spring respectively. The Fall report is to be submitted no later
than the last day of October. We noted the District submitted ridership reports by the scheduled due dates. We obtained the worksheets from
Cheryl Martin to verify the median ridership reported to OSPI for Spring and Winter reporting periods. See SeattleFY13TranWorksheet. These
Excel worksheets represent the accumulated total of all driver logs on the respective count date.

For Fall 2012-13 the counts were taken October 9 -11, 2012. We noted the District over reported median ridership by 263 students. See -
SeattleFY13TranWorksheet.
For Winter 2012-13 the count week was Dec 3rd - Dec 7, 2012, We noted the District accurately reported median ridership of 25,260.
For Spring 2011-12 the count was taken March 19-21, 2012. We noted the District under reported median ridership by 155 students.
Based on our review we noted a control deficiency that resulted in inaccurate reporting to the state. See exception at Transportation Allocation
Reporting The net effect of over/under reporting resulted in an over reporting of 108 students. We reviewed the results of our testing with Dale
Sando from Team Schools and learned that the error did not impact SSD funding.

We noted from our discussion with Cheryl Martin that ridership data reported to the state during the audit period was not reviewed by a
Supervisor. We discussed this with the Transportation Operations Manager, Michelle Drorbaugh. Michelle concurred that staff would receive
training to address the reporting inaccuracies. As of Fall 2013/14 Michelle Drorbaugh reviewed all driver logs and the median count reporting to
OSPI. We corroborated this additional review process is now in place with Bob Westgard during our meeting with staff on 1/31/14 -
SeattleFY13TranWorksheet

2) We selected 10 routes from the District's Winter 2013 ridership data provided to us by Cheryl Martin. Based on the data, the District had a total
of 1,679 bus routes. Of this amount, 689 or 41% were "A" routes and 815 or 49% are "S" routes.
We were provided driver logs for all routes selected. Per Cheryl, in lieu of a form P 122D, the District prepares its own form for documenting and
reporting ridership by route to OSPI. We checked that the necessary elements were included in the cover sheet and that the log sheets were
accurately summed. The logs included the driver's name, bus number, route number, destination, and student count by destination. I n some
instances the driver manually added students to the logsheet. These adjustments represented students that recently moved to the District
and were not entered in Versatrans. We verified the pick up and drop off times for all routes and noted all routes were full day routes and
therefore eligible for counting. The District ridership forms were completed and signed in ink by the authorized driver. We noted no exceptions
during our testing of the 10 routes. I n addition we verified all stops were located outside the walk area. Students manually added to the driver log
were confirmed to be basic ed students residing outside the walk area and were included in basic ed reported counts, which is consistent with
District protocol.

Versatrans is also used to generate the K-5 within one mile report. In Versatrans, the report preparer simply selects the school, sets parameters
(grade levels, distance one mile, etc.) and the system reports the number of students whose addresses are within one straight-line mile of the
school. Cheryl Martin showed us the 1 mile radius mile map for all the stops selected in our testing population to confirm that all students
counted were outside the 1 mile radius.

Financial testing of Transportation Costs:
The contract with First Student is for the period of 2012-2015, with renewal options for two additional years. The contract is $26,842,119 for the
2012-2013 school year. Total transportation costs charged to Program 99 is $31,601,768.77. Of this amount $22,061,402.40 is charged to
account 7020 Chartered Bus Service.
The superintendent requires districts to separate the costs of operating the program for the transportation of eligible students to and from school
as defined by RCW 28A.160.160 (3) from extracurricular pupil transportation costs in the annual financial statement.

Kathie Technow, Manager of Accounting Services explained how transportation costs are coded. All to/from costs are charged to the general
fund using cc/org 34 under account 7020 -- Chartered Bus Services. Extracurricular activities are also charged to account 7020 but are charged
directly to the school or to the ASB fund. These costs do not hit program 99 cost center. Kathy explained the coding for to/from transportation
costs is a 10 digit code beginning with the cost code 34X99. The coding for extracurricular costs posted to the school are 10 digit codes beginning
with the alphabetical code assigned for each school. Costs charged to the ASB fund would be coded with a 7 digit number beginning with the
alpha code by school.

We reviewed the detail of extracurricular transportation activities charged to Chartered Bus Service Acct 7020. For Cleveland HS we noted the
program coding is preceded by alpha code CL. Transportation cost allocation. The total extracurricular transportation cost coded to Cleveland HS
for 2012/13 was $26,734. We noted all of these cost were coded to Programs: 01(Basic Ed); 21(Spec Ed); 31(Vocational Ed); and 79(I nstruct
Prog). Transportation cost allocation
We reviewed invoices for Transportation expenditures from December 2012 through March 2013. We noted on the invoices a credit was received
for fuel used on field trips. The invoices included a breakdown of all field trips charged for the period, total excess hours, miles and fuel cost.
The fuel cost paid for extracurricular events by Central Accounting is reimbursed by the School Program. I nvoice review is performed by Ellen
Reyes. Ellen reviews the rates charged are correct and the mileage billed reconciles to the daily driver logs. To verify the control is operating as
intended we reviewed gl detail under fuel account. See Transportation cost allocation We tied the credits per the invoice support to the credit
posted to Program 99 -- transportation operations. No exceptions noted. This confirms our understanding that all driver time and fuel costs for
extracurricular activity is tracked separately.
Transportation of Homeless Students
The District charges to Program 99 the cost of transporting homeless students to and from their school. Under the
McKinney Vento Act,...."if a homeless child's or youths living arrangements terminate and the child or youth begins living in an area served by
another local education agency, the local educational agency of origin and the local education agency in which the homeless child or youth is
living shall agree upon a method to apportion the responsibility and costs for providing the child with transportation to and from the school of
origin. I f the local educational agencies are unable to agree upon such method, the responsibility and costs for transportation shall be shared
equally (Section 722 (g) (J )(iii))
We noted the District arranged for transportation of over 2,000 homeless students at all grade levels and invoiced neighboring districts in
accordance with this guidance. Barry Tsoi provided us with the Accounts Rec status for shared transport expenses for school year 2012/13. Total
cost of $154,443.30 was shared by 6 neighboring districts. Total payments received was $149,835, with one outstanding balance of $4,608 owed
by Shoreline School District. Per Barry, the invoice was currently being reivewed by the Shoreline SD.

D.5.PRG - Payroll

Procedure Step: Controls over Human Resource systems

Purpose/Conclusion:
Purpose:
To determine whether HR controls are adequate to safeguard public resources.
Conclusion:
Based on our review the District responded to our recommendations to bolster HR written policies and procedures, and to maintain documentation
of authorized changes made in the Master Data file. Based on our review of edits made to the HR system there were no unauthorized changes
made to the HR Master Data file during the audit period.

Testing Strategy:
Refer to the Policy/Criteria tab for the primary control objectives and typical controls over 1) Wages and Salaries, 2) Employee Benefits, and 3)
Compensated Absences (Leave). This information should be reviewed prior to performing the payroll internal control work.

To determine whether payroll controls are adequate, consider the following procedures based on inquiry, observation, and review of employment
agreements and written policies and procedures:

Controls over Wages & Salaries
Review written payroll policies regarding wages and salaries. Among other items, we would expect these policies to establish: pay dates
and any mid-month draw or payroll advance options; salary/wage amounts and increase methods; award, incentive, merit, or bonus
programs; payroll disbursement methods (mid month draws, direct deposits, etc); and required authorization, approval, and reviews.
Gain an understanding of internal controls over wages and salaries and document key controls and weaknesses. Consider the following
questions:
o When a new employee is hired, how are they set up in the system?
o Who is able to set up new employees or change employee information?
o How do you ensure that payroll and personnel functions are segregated? If not segregated, what monitoring procedures are in
place to ensure that personnel and payroll information is valid?
o How does the entity ensure that wages and salaries are charged to the correct timecode?
o Who enters monthly pay-period data (hours by account code)? How do you ensure accurate data-entry?
o How are errors corrected? How are corrections or changes made to the system?
Can changes be made to payee or amount fields after payroll warrants/checks are issued?
Who has access to make changes?
Who is responsible for making corrections/changes?
Who authorizes corrections/changes?How is monthly pay-period data supported (ie: timesheets)?
o How is overtime documented and approved?
o How are timesheets or other documents approved? Are there employees that dont have to complete timesheets?
o Is direct deposit available for employees? If so, how does it work?
o How are W-2 / W-3 forms created?
o Is payroll paid from a separate zero-balance account? If so, who reconciles this account?
o Who do employees complain to when they note errors?
o Does the entity have any award, incentive, merit, or bonus programs?
Are these established by entity policy/resolution?
Per the policy/resolution, are performance standards/goals clearly defined and measurable, and do these goals exceed
normal employee performance requirements?

Controls over Employee Benefits
Review written payroll policies regarding benefits (other than compensated absences). Among other items, we would expect these
policies to establish: eligibility for benefits, types of benefits allowed and how much the entity will pay for the benefits.
Gain an understanding of internal controls over benefits and document key controls and weaknesses. Consider the following questions:
o How does the entity ensure that benefits are only paid to eligible employees?
o Who handles benefit payments?
o Are benefit payments ever reconciled to employee deductions and expected employer contributions per the payroll module?
o Are payment details or confirmations reviewed by an independent person to ensure the remittance does not include any non-
employees or incorrect amounts?
o How are errors corrected?

Controls over Compensated Absences (Leave)
Compensated absences includes accruals and usage of sick, vacation, comp, exchange time or other paid time in lieu of time actually
worked. Compensated absences are considered a benefit.
Review written payroll policies regarding compensated absences. Among other items, we would expect these policies to establish: leave
accrual methods, rates, and types; any leave accrual balance limits; leave donation procedures, if any; leave buyout procedures, if any;
and procedures, approval and documentation for using accrued leave.
Gain an understanding of internal controls over compensated absences and identify key controls and weaknesses. Consider the following
questions:
o How are leave balances tracked? Is the same tracking system used for all employees and all types of leave?
o How does the entity ensure that accruals or additions to leave balances are accurate?
o How does the entity ensure any leave balances limits are not exceeded?
o How does the entity ensure all leave usage is approved, documented and subtracted from the balance? Is the same tracking
system used for all employees (including managers and executive staff) and all types of leave?
o How are errors corrected?

Policy/Standards:
Wages & Salaries
Primary control objectives for wages and salaries are as follows:
Employee information (salary/wage, default fund allocations, tax info, and deductions) used to calculate and record payroll is valid,
accurate and in accordance with entity policy.
Pay-period information (timesheets, actual fund allocations, leave records, etc) used to calculate and record payroll is valid, accurate and
in accordance with entity policy.
Award, incentive, merit, or bonus programs are established by policy/resolution and are in accordance with state law.

Typical controls over wages and salaries are as follows:
Employee personnel files are created for each employee before they are allowed to start work. A checklist is used to ensure all required
forms and information is included in the file.
Employment contract/notification document (which describes the position, wage, and benefit information) is signed by both the employee
and entity, and is included in the personnel file.
Personnel clerk enters employee information into the payroll module from source documents included in the personnel file. Any changes
must be supported by a signed document or official notification and can only be entered into the system by the personnel clerk.
Segregation of duties exists between personnel (employee information) and payroll (pay-period information) functions. Software
permissions can enforce this segregation.

Note: an appropriate segregation of duties should ensure that no individual can both create an employee and pay them. Failure to
segregate duties increases the risks of ghost employees, unauthorized pay changes, and/or continuing pay for a terminated employee.
Timesheets (which include hours worked by fund or project and any leave taken) are completed by employees. Timesheets are certified
by employees and supervisors, and indicate hours worked (by account code/activity) and leave used. Supervisor timesheets are signed by
other managers such that no employee approves their own timesheet.
The entity retains documentation justifying and approving all overtime/comp time recorded and paid
Software or payroll clerks ensure that timesheets are completed and approved.
Software includes pre-formatted screens and edit checks to help ensure accuracy of input (whether by payroll clerks from printed
timesheets or by employees in electronic timesheets).
Software automatically calculates payroll based on employee and pay-period information.
Exception reports are generated and reviewed by an independent person to identify potential problems with employee or period data.
The payroll module automatically posts to the general ledger or is reconciled to the general ledger.
Payroll is paid from a zero balance account that is reconciled each month by an independent person.
Department heads receive monthly reports that detail costs charged to their department.

Employee Benefits
Primary control objective for employee benefits is as follows:
Benefit payments are supported by adequate documentation.
Benefits are only provided to eligible employees in accordance with entity policy.
Benefits are charged to the correct fund and account.

Typical controls over employee benefits are as follows:
Benefit information is based on source documents included in the personnel file. Any changes must be supported by signed documents
that are included in the personnel file.
Software automatically calculates eligibility for benefits based on employee and pay-period information.
To the extent that payroll software supports this function, benefits are only paid out of the payroll module (rather than accrued by the
payroll module and subsequently paid through the AP system, which could introduce discrepancies between accrued and paid amounts if
the accrual account is not independently reconciled).
Remittances or confirmations are reviewed by an independent person to ensure the remittance does not include any non-employees or
incorrect amounts.
The payroll module automatically posts benefit expenditures in same proportion as wage and salary expenditures for the employee.
The payroll module automatically posts to the general ledger.

Compensated Absences (Leave)
Primary control objectives for payroll systems are as follows:
Accruals of leave hours are applied in accordance with entity policy.
Leave buy-outs are accurately calculated in accordance with entity policy.
All leave usage, donations and buy-outs are properly documented and deducted from the accrued balance in accordance with entity
policy.
Employees are not paid for leave in excess of accrued balances (which would be a prohibited gift of public funds).

Typical controls over compensated absences are as follows:
Regular leave accruals are applied by software based on employee information entered by personnel. See above for typical segregation
of duties between personnel and payroll functions.
Leave usage is documented on signed timesheets or leave slips which are also approved or reviewed by the employees supervisor.
Leave accrual balances are tracked in the payroll module software.
Software checks disallow accrual of leave beyond the set maximum or usage of leave that brings the balance below 0.
A report of all manual adjustments to leave balances is reviewed each month by an independent person.
Exception reports are generated and reviewed by an independent person to identify potential leave accrual, usage or balance issues.
Leave balances are reported to employees each month on paystubs.

Key Employees:
Dan Dizon, Director, Human Resource Operations
Lynn Flekal, Manager, Compensation & Benefits
Laurel Moody, HR Supervisor
Ryan Seko, Database Administrator

In a prior year audit we identified weak I T controls over HR systems. Because we made recommendations in J une of 2013 and therefore will
focus our compliance testing on 2014 transactions.
In the prior year audit we noted the following weaknesses in internal controls:

(1) Insufficient documentation and monitoring of pay grade changes
(2) Independent review of changes made to employee information in the HR system.
(3) Maintain documentation supporting authoirzation for employee promotions and approval of temporary salary upgrades.
(4) Perform review of adjustments made to HR Master Data information prior to period when access was restricted.
(5) Limit HR Master Data system access of Nutrition and Facilities Operations administrators to only the employees within their departments.

To follow up on prior audit recomendations we performed the following:

We met with Laurel Moody to obtain an understanding of the payroll process. We reviewed the payroll process at Understanding of payroll
process. Our accountability audit focuses on non represented employees and the authorization process and documentation of new hires and
promotions of current non represented employees. Authorization of increases for certified and classified represented staff is mandated by S275
reporting requirements whereby salaries are driven by the collective bargaining agreements and the credentials of the employees. Authorizations
for pay increases to represented staff are maintained in the respective employee file for annual audit by OSPI .

Our expectation is that all salary and grade level changes made for non represented employees must be made in accordance with established
procedures and that all actions are documented and adequately supported. To address (1) insufficient documentation
and monitoring, we reviewed the Districts updated Compensation Manual for non represented employees. See Comp Manual Dec 2013. We
noted Sect 5.6 outlines procedures of the Hire process which requires a Salary Placement form and a Personnel Change Request (PCR)
with authorized signatures prior to entry in HR system.
The Salary Placement form is prepared by Lynn Flekal to verify the job code and fund source of the position. The PCR form identifies the employee
who will fill the respective position. For positions at grade level 25 and above the authorization includes the Operations Committee in addition to
the HR Director, Dan Dizon.

All salary changes regardless of the level of salary grade must be approved by the budget manager in PCR tracking system before the change can
be submitted to HR for processing. The tracking system becomes locked at each review level. For instance the Administrator cannot make changes
unless the PCR is reviewed and rejected by the manager. This becomes problematic if a manager leaves the District while a PCR is in process. There
are only two District employees who can unlock and reset the PCR tracking system -- Laurel Moody and Database Administrator-- Ryan Seko. We
noted in our response to the prior year issue, the District requires all requests for a change in classification and/or compensation of non
represented employees be approved by the Director of Human Resources, Dan Dizon and Lynn Flekal, Compensation Mgr . (2) This serves as an
independent review by individuals that do not have edit rights to the HR Master Data file.

(3a) After the Salary Placement Worksheet and the PCR is complete, the process to add the position to the HR data file is done by the "Request for
FTE Position." This form references the PCR tracking number so that authorization history of a position change can be reviewed at any time. The
Request for FTE identifies the org and fund accounts assigned by the budget analyst to which the FTE is charged. Actual pay can be modified after
the FTE is authorized. Based on our understanding, if the pay rate exceeds the amount budgeted, the additional funds will be drawn from a
contingency reserve fund. We noted that stipends and extra payments are not included in the budget process. See our recommendation at -
ISS.6 Our understanding is that the budget process may be modified with the hiring of a new budget manager, Linda Sebring. We recommend
follow-up of budget monitoring in future audits. AS4.e

To confirm our understanding of change in salary grade/title we reviewed the Request for FTE for the position Supervisor Accounts Payable. The
request was dated 11/1/13 (School year 2014). The employee recommended for the position was Allen Murdock; the position was also
advertised. Per the form, the salary cost was allocated to funds 1000, 2730 and 2600. Mr Murdock was promoted from a grade 22 to a grade 26
position. The promotion required authorization by Dan Dizon, Director of HR Operations. Additional review was performed by Lynn Flekal,
Compensation Analyst and Paul Apostle, Asst Superintendent of Labor Relations. Lynn Flekal told us that all job descriptions for non represented
staff are filed in SAP, no hard copies in the files. Lynn printed the job description for Allen Murdock. Per the description the job is a grade MS1-
026. MS1 refers to the 260 day work schedule. A schedule of the non represented is attached at 2013-14 MS1 (260 Day) Salary Schedule We
noted the Ops Committee increased the salary from a step 4 to a step 8 on 12/20/13. This was subsequent to budget approval for the promotion
dated 11/1/13.
We inquired how budget approval is quantified. Dana DeJarnatt, HR Manager indicated that budget approval consists of verifying that an FTE
position is open in the cost center. Each cost center has a fixed number of FTE positions included in the annual budget. The assumption is that if a
position is open there is funding available. Ken Gotsch indicated this is standard procedure in school districts. Linda Sebring indicated the
contingency reserve for salary expense in excess of budget is $635,000 for school year 2015.

(3b) In addition to salary/grade changes, non represented employees may be awarded a temporary upgrade. This change is documented per the
Temporary Upgrade and Extension Authorization form. We note the form requires a start and end date and the employee id and position that is
being replaced temporarily. The temporary upgrade must be authorized by the Department Supervisor, the HR Director and the Budget
Director. The Employee's job code is not changed in the Master Data file but the difference in the salary is calculated on a monthly basis and
added as a lump sum to the employee's pay by the payroll analyst for the duration of the temporary assignment . We reviewed Julie Davidson's
worksheet for Asst Manager, Faau Manu. The monthly supplemental payments were tracked in an excel spreadsheet with the date each monthly
payment was entered in the SAP system. Per Julie of the approximate 9,000 District employees there are only two currently (school year
14/15) receiving a temporary salary upgrade.

An employee who is assigned an upgraded position on an interim basis is entered in the HR Master Data file under the newly assigned job code.
The interim assignment is generally open ended but is renewed or canceled at the end of each school year. The budget for the interim assignment
is authorized per the Personnel Change Request form. As of May 15, 2014 there are 10 employees assigned an interim position. The term
"interim" is included in their job title. The interim title and pay is due to expire as of 7/1/2014. When the interim assignment terminates there will
be a PCR to reassign the employee to their previous job code. At the end of each school year Laurel Moody runs an accounting report of all interim
job assignments and distributes them to the Directors and Assistant Superintendents to confirm termination or extension of the interim
assignment.

(3c) This work was performed in response to anonymous citizen concern H-14-086.
Supplemental assignments are granted at the District level and at the department level for represented and non represented employees
respectively. For represented employees the supplemental assignment may fall under the purview of the CBA contracts, which include
compensation awards for specific duties. We verified supplemental payments issued to employees acting as Assistant Principals that fall under the
purview of the PASS contract. We noted a stipend of $10,000 was paid to Farah Thaxton for accepting a transfer from Madrona School to Emerson
- a low performing district school. The stipend was supported by an internal change memo and a letter to the employee authorizing the payments.
Our audit noted the stipend process is driven by a Request for Supplemental Stipend Payment form. We reviewed two requests for stipend
payments for Assistant Principal, Ron Timmons. The forms were authorized by the Superintendent of HR, Paul Apostle. The form indicates the
funding source and an amount (which may relate to a one time payment or a monthly payment over a designated period. The ambiguity of the
frequency of payment resulted in the one time stipend of $876 to be issued monthly and resulted in an overpayment of $4,380 or $876 x 5
additional payments. A Request for Supplemental Stipend Payment for a separate assignment to be paid to the same employee resulted in a one
time stipend of $2,453 to be issued monthly over the course of six months. This resulted in an overpayment of $12,265 or $2,453 x 5. The total
overpayment is $16,645. See ISS.18 We noted this issue in our draft ML at D.5.12.
4) We met with Dan Dizon to inquire about exception reports that are run to review edits made to the HR Master Data file. Per Dan, the HR
Supervisor, Laurel Moody runs a report weekly that shows who has made edits to the system. Laurel also provided us a report to show edits made
to the HR Master Data file prior to our recommendation to restrict access issued in our Accountability audit of June of 2013. Based on our review
of this report (run for the period of 9/1/2012 through 8/31/2013 all edits were made by authorized HR Administrators. We verified the 3 employees
who made changes in the system and were not included in the current list of authorized users have separated from the district but were
authorized users at the time of separation. For future audits we requested SAO be provided access to SAP (read only rights) to facilitate our audit
of payroll.

(5) We followed up with Dan Dizon, Director of Human Resources to determine what procedure changes if any were made subsequent to our audit
recommendation to limit access to HR Master Data file. Dan provided us with a table of employees that had access to the Master Data file as of our
last audit. See worksheet at HR Master Data file. The employees that will have access after adjustments are complete are listed at HR Master
Data file. We noted the District followed up on our recommendation and reduced by 50% the number of employees with edit rights to the HR
Master data file (originally 66 employees reduced to 32) (These 30 employees have HR Administrator rights and 2 are System Administrators). We
followed up with Ryan Seko, Database Administrator, to verify the edit rights for Teresa Fields, Manager, Nutrition Services and Helen Jones,
Supervisor. Ryan verified these two individuals have edit rights in the HR system for employees in their respective departments only.

Based of the results of the procedures performed we determined that the District responded to our recommendations to bolster HR written
policies and procedures, and to maintain documentation of authorized changes made in the Master Data file. Based on our review of edits made
to the HR system there were no unauthorized changes made to the HR Master Data file during the audit period. However, we noted that the
District still does not have sufficient process in place to make sure that only authorized payments are made to principals and assistant principals.
We documented our recommendaitons at ISS.18

D.5.PRG - Payroll

Procedure Step: Overtime and Extra Time Controls

Purpose/Conclusion:
Purpose:

To determine in current controls are adequte to make sure that only authorized overtime is paid.
To determine whether overtime and extra time pay is valid and adequately supported.

Conclusion:
Based on the results of our audit we determined that the District does not have sufficient controls to ensure that overtime and extra
time compensation is adequately supported and authorized. The District anticipates that most errors in recording and authorizing overtime and
extra time pay will be detected at the departmental level by immediate supervisors when approving timesheets. The District does not have
policies or procedures in place for paying overtime or extra time to exempt employees. See ISS.17.

Testing Strategy:
To determine whether selected payroll salaries and wages are valid and adequately supported, consider the following procedures:

See the Payroll Analytical Procedures step for example analytical procedures to help identify risks or high risk employees/transactions. Staff
members who have access to the payroll system, such as HR, IT or management are typically considered high-risk, as well as employees who
received large amounts of extra pay (overtime or special payments).

Salary or Wages
J udgmentally select hourly employees to test. For each selected employee, recalculate wages for the period based on timesheets and
personnel records or trace hours per the system to supporting timesheets. This test could be done for a selected month(s) or for the
entire period.
Compare actual compensation for salaried employees to the approved salary schedule and/or contracts approved by the legislative body.
Sum of the number of hours worked and claimed in a period does not exceed 24 hours per day or other unreasonable amounts.
Timesheets agree with security logs or observations.
Verify that mid-month draws are accurately calculated, in compliance with entity policy, and properly deducted from month-end
payments.
Check or re-perform the entitys reconciliation of the payroll clearing account for a selected month.
Match the details of the electronic file sent to the bank for electronic payments to payroll reports for that period. Any differences are a
fraud indicator and should be followed-up on.

Overtime / Compensation time
Ensure the entity retains documentation justifying all overtime/comp time recorded and paid.
J udgmentally select employees for testing (such as employees with excessive overtime/comptime amounts). For each selected employee,
consider performing the following tests to determine whether overtime and compensation time is reasonable, authorized, and supported
per entitys policies (these tests may be done for a selected month(s) or for the entire period):
o Compare overtime/comp time amounts paid per the payroll system to timesheets or other sources documents
o Ensure overtime/comp time accrual and payments (number of hours and rates) are accurately calculated
o Review the sum of the number of hours claimed in a period to ensure it does not exceed 24 hours per day or other unreasonable
criteria
o Verify that overtime/comp time accrual and payments are in agreement with entity policy (an example may be adequate support
of overtime approval/authorization prior to commencement of overtime worked)
o Where a work-week is split between two-months, verify that the overtime/comp time claimed is accurately calculated
o Ensure employees are not paid for overtime and standby pay for the same time

Bonus or Incentive Payments - see "Bonus & Incentive Payments" TeamMate step for testing strategy and criteria

Policy/Standards:
RCW 41.06 State Civil Service Law

RCW 41.06.070 Exemptions to state civil service law

State Constitution, Article I I, Section 25 prohibits extra compensation to employees
"The legislature shall never grant any extra compensation to any public officer, agent, employee, servant, or contractor, after the services shall
have been rendered, or the contract entered into, nor shall the compensation of any public officer be increased or diminished during his term of
office. Nothing in this section shall be deemed to prevent increases in pensions after such pensions shall have been granted."
Overtime provisions for classified non-union staff are established in the applicable civil service rules (WAC 357-28-240 through 285).
Overtime eligibility must be identified in the compensation plan.

For purposes of computing OT -- paid holidays during the employees regular work schedule are considered time worked. Leave with pay during
the employee's regular work schedule is not considered time worked.

Positions that are overtime exempt may be granted overtime payment when:
an employee is assigned to work an excessive amount of time for an extended period with HR and Budget approval
the Supervisor approves compensatory time on a straight time basis.
HR Tool -- Employee Roster
SAP report to designate who is exempt/non exempt
Do Managers understand the classification of exemption?
Provide documentation and training
Admin guidelines
Admin procedures to be enforced by payroll
formalized by Board.
When duties differ significantly from primary responsibility
extraordinary circumstances -- employee with significant overpymt -- kim camara compensated for full year 260 day cycle; work additional
assignments.
want CBA'S
review by Asst Supr of HR

Background
During our accountability audit planning we identified the risk of unauthorized OT and failure to report personal use of district vehicles to IRS. In
addition, a Seattle Times article published 11/12/13 cited SSD salaried employees receive overtime pay under special agreements with their
Supervisors. We noted $1.7 million in overtime pay to classified (represented and non represented) staff under program 97 -- (District-wide
support), and $99,585 in overtime pay under program 99 --( transportation services.)
We performed the following procedures to determine what controls district has in place for overtime and extra time paid to
exempt employees:

We interviewed J ulie Davidson, Payroll Supervisor to review the overtime verification process. Per our discussions with J ulie, there are exempt
employees who receive overtime pay routinely and there are varying reasons for this, for examplean exempt non-represented employee holding
the an Accounting Manager position receives a premium rate for athletic coaching activities, and an exempt data analyst receives overtime for
work performed as a translator. Also, per District policy employees who work over 8 hours on their scheduled work days are allowed overtime
during the weeks in which they are furloughed.

In addition to overtime district pays extra time for duties outside regular. The District does not require written pre-authorization and justification for extra
time fromsupervisors. We noted in-sufficient documentation of extra duties and/or the duration of additional assignments. Extra time or supplemental pay is
awarded to non-represented employees on a case by case basis when an employee works outside the pay cycle or calendar days per the job function.
Based on our understanding, the employee should obtain permission to work overtime in advance; however the approval is
verbal. If overtime is charged to a separate fund source it is recorded and authorized manually on a separate timesheet rather
than in the payroll system. This creates numerous documents that must be tracked and verified by the payroll analyst before
entering the time in the payroll system.

We noted from our review of HR practices that "special arrangements" for overtime between the employee and supervisor that are
charged to the regular cost center are not documented and authorized in the payroll system. Also these special arrangements are not
included in the budget review process for a specific time period. We will include this in our verbal recommendation to the District at Reserve for
controls over HR systems

We met with the District Compensation Analyst, Lynn Flekal to review the District's policy for payment of overtime to exempt employees. Lynn
confirmed that there is no policy district wide that addresses overtime payments to exempt employees. Per Lynn the exempt or non
exempt status of the employee is included in the HR Module -- Master Data file. This file is restricted access and therefore not visible to
Supervisors during the time sheet review process. Since the exempt status is not immediately transparent to the Supervisor during the review
process, this may contribute to the confusion regarding overtime payments to exempt employees.

We examined District's time reporting system - ESS. Payroll supervisor showed us the ESS system. A triangle indicates unapproved time, an X
indicates rejected time and a checkmark indicates approved time. "Free text" or a note can be added by the supervisor to explain why the OT was
necessary. We noted during our testing that the "free text" field was not completed or did not include sufficient detail to support overtime
payments and/or additional compensation was owed for duties performed outside the job function. We did note that activity in the ESS
system has a date and time stamp to record edits by id code. We noted a high frequency of final payroll authorizations made by
the payroll analyst. This indicates extensive review is performed by the payroll analyst without direct knowledge of the
employee's activities and that errors made on time sheets such as math errors and misallocation of regular and overtime hours
were not caught by the Supervisor in the review process. We noted recommendations to address these issues in our draft ML at D.5.11

Testing:
We obtained data extracts of exempt and nonexempt employees who received overtime and extratime. We determined 14 exempt employees
received overtime and 14 employees received extratime. See analysis at D.5.4
As a result of our analysis at D.5.4interviewes with Payroll Supervisor and HR analysts we noted 14 exempt level employees who received
overtime pay of 1.5 times their regular rate for a total of 1,659 hours. In 11 instances we noted that overtime was paid for immediate duties and
was not properly authorized. In three instances we noted employees were paid overtime for performing duties outside their immediate job
function. These employees were paid one and a half times their regular pay rate instead of the applicable rate for the job function. We also noted
nine non represented employees were paid extra time for a combined total of 509 hours for duties performed outside the assigned work days.
The payments were based on verbal agreements made at the departmental level.

We selected a total of 18 employees who received overtime of which seven were exempt and 11 nonexempt for testing at Payroll
wksht_2012_SSD

During our review we noted that all seven exempt employee were not eligible to receive overtime, in those case overtime did not have aduqute
documnetion and should not be authorized at all . We also noted that exempt employees were paid OT rate for hours that did not exceed the 40
hours in a 7 day work week and that extra time compensation was paid for duties that were not distinguished as being outside the routine job
duties.

In addition we noted that the review at the department level did not detect unsupported overtime and extra time payments to
exempt employees and over/ under payments to nonexempt employees that resulted from timesheet errors.

To Conclude:

Based on the results of our examination we noted that the District anticipates that most errors in recording and authorizing overtime and extra
time pay will be detected at the departmental level by immediate supervisors when approving timesheets. However, departamental supervisors do
not get enough training and often do not have knowledge if employee should receive overtime or extra time when approving time summaries. The
District does not have policies or procedures in place for paying overtime or extra time to exempt employees. See our issue at ISS.17

We recommend the District:
Establish a district wide policy for overtime payments to non-represented exempt employees and a policy for special assignments and/or dual
assignments.
Require written pre-authorization and justification of extra time that would include a reason for an additional assignment, pay scale
and duration of duties.
Require supervisors to consult with the Human Resource Compensation Analyst for appropriate pay scales when allowing
employees to undertake additional job functions.
Provide training to Supervisors responsible for authorizing and approving timesheets.
Perform random payroll audits at the department level to bolster oversight and monitoring of overtime payments.

Additional testing to address citizen concerns:
During our audit we receive a concern from citizen that prior Deputy Superintended got paid over $300,000 during school year 2013. We reviewed
extra time payments for an employee Robert Boesche who was hired as an interim Deputy Superintendent per letter dated May 7, 2012 from the
Assistant Superintendent of Human Resources, Paul Apostle. The interim assignment extended through the audit period and beyond to J anuary
2014. Per Section 13(a)(17) of the FLSA an employee performing at the executive level with responsibility for decisions of weight and for
supervising others would be designated as a salaried position with predetermined pay regardless of the number of hours worked. We noted
regular pay and extra pay to this hourly employee over the course of three years amounted to approximately $800,000. We pass further review
based on the signed letter authorizing the hourly rate of $160 per the Asst Superintendent and believe this is an isolated incident prompted by
turnover of significant key positions, including the Chief Superintendent position during this time period.

To address citizen concern H-14-086 from H.6.PRG. We reviewed supplemental payments made to Principals and Assistant Principals. We noted
these are represented employees and that additional compensation may come under the purview of the PASS contract. We selected the three
highest supplemental contract payments and verified that the payments were made in accordance with PASS contract allowances D.5.13. Based
on our testing two of the three employees were paid in accordance with PASS negotiated contract amounts for additional compensation. The Asst
Principal Ron Timmons recv'd supplemental compensation based on additional hours worked as a second evaluator (not under the purview of the
PASS contract.) Ron completed two evaluations and submitted timesheets for the work performed. Based on the timesheets he was due to be
paid a lump sum of $3,329.27. Ron was not paid a onetime stipend payment but rather was paid six monthly payments for a total of $19,977.12
resulting in an overpayment of $16,647.85. This is the HR issue and we noted it at Controls over HR systems row.

D.5.PRG - Payroll

Procedure Step: Reporting of Fringe Benefits

Purpose/Conclusion:
Purpose: To review the District's compliance with federal reporting requirements and its own policies and procedures for reporting
the fringe benefit of commuting in a District vehicle.

Conclusion: Based on our audit the District does not have sufficient documentation to accurately account for and report employee
use of district vehicles per IRS guidelines. See Issue 17.

Testing Strategy:
(iii)Vehicle special valuation rules--

(A)Vehicle by vehicle basis. Except as provided in paragraphs (d)(7)(v) and (e)(5)(v) of this section, the vehicle special valuation rules of
paragraphs (d), (e), and (f) of this section apply on a vehicle by vehicle basis. An employer need not use the same vehicle special valuation rule
for all vehicles provided to all employees. For example, an employer may use the automobile lease valuation rule for automobiles provided to
some employees, and the commuting and vehicle cents-per-mile valuation rules for automobiles provided to other employees. For purposes of
valuing the use or availability of a vehicle, the consistency rules provided in paragraphs (d)(7) and (e)(5) of this section (relating to the
automobile lease valuation rule and the vehicle cents-per-mile valuation rule, respectively) apply.

(f)Commuting valuation rule
(1)In general. Under the commuting valuation rule of this paragraph (f), the value of the commuting use of an employer-provided
vehicle may be determined pursuant to paragraph (f)(3) of this section if the following criteria are met by the employer and
employees with respect to the vehicle:
(i) The vehicle is owned or leased by the employer and is provided to one or more employees for use in connection with the
employer's trade or business and is used in the employer's trade or business;
(ii) For bona fide noncompensatory business reasons, the employer requires the employee to commute to and/or from work in the
vehicle;
(iii) The employer has established a written policy under which neither the employee, nor any individual whose use would be taxable
to the employee, may use the vehicle for personal purposes, other than for commuting or de minimis personal use (such as a stop for
a personal errand on the way between a business delivery and the employee's home);
(iv) Except for de minimis personal use, the employee does not use the vehicle for any personal purpose other than commuting; and
(v) The employee required to use the vehicle for commuting is not a control employee of the employer (as defined in paragraphs (f)
(5) and (6) of this section).
ii)Value per employee. If there is more than one employee who commutes in the vehicle, such as in the case of an employer-sponsored
commuting vehicle pool, the amount includible in the income of each employee is $1.50 per one-way commute. Thus, the amount includible for
each round-trip commute is $3.00 per employee. See paragraphs (d)(7)(vi) and (e)(5)(vi) of this section for use of the automobile lease valuation
and vehicle cents-per-mile valuation special rules for valuing the use or availability of the vehicle in the case of an employer-sponsored vehicle or
automobile commuting pool.

(5)Control employee definedNon-government employer. For purposes of this paragraph (f), a control employee of a non-government
employer is any employee
(i) Who is a Board- or shareholder-appointed, confirmed, or elected officer of the employer whose compensation equals or exceeds $50,000,
(ii) Who is a director of the employer,
(iii) Whose compensation equals or exceeds $100,000, or
(iv) Who owns a one-percent or greater equity, capital, or profits interest in the employer.
For purposes of determining who is a one-percent owner under paragraph (f)(5)(iv) of this section, any individual who owns (or is considered as
owning under section 318(a) or principles similar to section 318(a) for entities other than corporations) one percent or more of the fair market
value of an entity (the owned entity) is considered a one-percent owner of all entities which would be aggregated with the owned entity under
the rules of section 414 (b), (c), (m), or (o). For purposes of determining who is an officer or director with respect to an employer under this
paragraph (f)(5), notwithstanding anything in this section to the contrary, if an entity would be aggregated with other entities under the rules of
section 414 (b), (c), (m), or (o), the officer definition (but not the compensation requirement) and the director definition apply to each such
separate entity rather tha to the aggregated employer. An employee who is an officer or a director of an entity (the first entity) shall be
treated as an officer or a director of all entities aggregated with the first entity under the rules of section 414 (b), (c), (m), or (o). Instead of
applying the control employee definition of this paragraph (f)(5), an employer may treat all, and only, employees who are highly compensated
employees (as defined in 1.132-8(g)) as control employees for purposes of this paragraph (f).
Providing company vehicles for employees or business owners to use either while at work or while away from work can be very beneficial to the employer as
well as the employee. However, there are certain pitfalls to this arrangement if you are not aware of the tax consequences. Generally speaking, if the company
vehicle is used entirely for company business, there are no consequences to the
employee. The business is allowed a deduction for 100% of the vehicles expenses. If the company allows the employees or company owners to drive the
vehicle for personal business, there are a few complications. Because the employee or owner received a non-cash benefit from the company (i.e. free use of
a company car), he or she will be subject to taxes based upon the value of the benefit.

The first problem to be aware of is what is personal use and what is business use of a company vehicle. Business use of a company vehicle is using the
vehicle to perform some aspect of your job required by your employer. It can be making deliveries, traveling, etc. On the other hand, personal use
encompasses anything that is not business related, including commuting. If you are using a company vehicle, you are required to keep a log to keep track of all
trips taken in the car. The log should include the date, mileage of the trip and purpose of the trip. At the end of the year you can determine what percentage of
the mileage was for personal use and what percentage of the mileage was for business
use. These percentages will be useful in determining the taxability of the personal use of the vehicle to the employee. If you did not complete a log during the
year, you may still be able to determine your business vs. personal use of a company vehicle by alternative means, however, this approach is not
advisable as it can be highly subjective and involves using estimates that may or may not be agreeable to the IRS. If you do not have a completed vehicle log
and can not determine your business vs. personal use through alternative means, it will be assumed by the IRS that you used the vehicle entirely for personal
use. According to IRS Publication 15-B, Any use of a company-provided vehicle that is not substantiated as business use is included in income.

The next problem that arises once you are aware of business vs. personal use is what is the value of the personal use of the company vehicle? As with all non-
cash benefits, the IRS requires your employer to calculate the fair market value of the benefit. For vehicles, you are required to use one of three methods
for the computation: Cents-Per-Mile Rule, Commuting Rule, and Lease Value Rule.

Under the cents-per-mile rule you simply multiply the current mileage rate ($.51 for January through June 2011; $.555 for July through December 2011) times
the personal use mileage. To use this method you must, among other requirements, use the vehicle more than 10,000 miles per year and the vehicle must be
valued at less than the maximum permitted value when placed in service ($15,300 autos,
$16,000 truck or van for 2010), and meet the regular use requirements.

Valuation for the commuting rule is based on $1.50 per one-way commute (per employee). To qualify for this method you must (1) provide the vehicle for
bona fide business purposes and require the employee(s) to commute in the vehicle, (2) establish a written policy under which you do not allow the vehicle to
be used for personal purposes other than commuting, (3) if the vehicle is an automobile it cannot be used by a control employee.

Most employees will qualify under the lease value rule based on the fair market value that is equal to what it would cost to lease a similar vehicle from a third
party, known as the annual lease value. To make this calculation easy, the IRS provides an annual lease value for vehicles based on the vehicles fair
market value. The vehicles fair market value can be determined from any number of websites or automobile appraisers. I like to use Kelley Blue Books
website: www.kbb.com. Once you have the vehicles fair market value, you can use the annual lease value table provided by the IRS in Publication 15-B.

Once you have determined the personal usage percentage and the annual lease value, you multiply the two items together to determine the taxable value of
the benefit. The taxable value of the benefit is subject to both income and payroll taxes. The value of the benefit must be increased to cover the payroll tax
liabilities which can easily become a tedious calculation. This increased value should be shown on the employees form W-2 at the end of the year, because the
employee will be subject to the tax due on the value of the benefit. In order to avoid any last minute surprises, the employee and employer should both be
aware of the tax treatment of personal use of company vehicles far enough in advance so that if the employee needs to have additional income tax
withholding taken out of his or her check, he or she will have enough time to do so.

If you are self-employed, there are some differences on the rules mentioned above. The IRS still requires the substantiation you would have provided to your
employer. But you must report your business and personal mileage on schedule C of your tax return. Then, rather than determining the annual lease value of
the vehicle and including it in your income, you must reduce the business deduction for your vehicle by the personal use percentage.


Policy/Standards:
IRS regulation 26CFR, Section 1.61-21 See paragraphs (d)(7)(vi) and (e)(5)(vi) of this section for use of the automobile lease valuation and vehicle cents-per-mile
valuation special rules for valuing the use or availability of the vehicle in the case of an employer-sponsored vehicle or automobile commuting pool.
IRS Publication 15B 2014 Employer's Guide to Fringe Benefits

Background
Per 26 CFR (1) Section 61(a)(1) provides that, except as otherwise provided in subtitle A of the Internal Revenue Code, gross income includes
compensation for services, (fees, commissions, fringe benefits, and similar items.) Examples of fringe benefits include: an employer-provided
automobile, free or discounted commercial airline flight, an employer-provided vacation, private club membership, etc.

We reviewed IRS Publication 15B 2014 Employer's Guide to Fringe Benefits
We noted the following:
Personal use of a District vehicle encompasses anything that is not business related, including commuting.
Business vs. Personal use of a District Vehicle must be substantiated by a mileage log. If business vs. personal use cannot be determined
it will be assumed by the IRS the vehicle is entirely for personal use. Any use of a company-provided vehicle that is not substantiated as
business use is included in income.
To qualify for the lease value method the employer must provide a bona fide business purpose; require the employee to commute; and
establisha written policy which does not allow for personal use of vehicle. We noted from our discussion with Julie Davidson, Payroll
Manager,employees were encouraged to take the vehicles home originally because the vehicles were considered safer (lower chance of
vandalism) at the employees home versus the District lot. When the District HQ moved and a secure lot was available, the employees
continued to take the vehicles home and the District received the benefit of not paying the drive time required to return vehicles to
south Seattle from their worksites in the north end.

Procedures:
We recquested employee vehicle assignment records from the Fleet Management department and filtered the list to see vehicles assigned to
location -- "home" at end of the day. This would indicate the employee is using a District vehicle for commuting purposes. The District's
corrective action and revisions to its Policy and Procedures for use of District vehicles is further reviewed in our folder Fleet Management at -
Fleet Management.
From a payroll perspective we verified the District has a procedure in place to account for the use of District vehicles and accurately
report the fringe benefit amount to the IRS.

Roxanna Melville, Payroll Analyst prepares an excel tracking sheet of employees who take District vehicles home at the close of each work day. We compared
this list to the information provided by Fleets management and noted several employees recorded mileage for 6 mos of the year and 2 employees with
assigned vehicles reported no mileage for the 2013 school year. See D.5.9 . We noted this in our payroll issue at ISS.17

We noted for 11 of the 14 employees tested the salary threshold met the requirement for use of the commuter rule valuation method. Under this rule, the
value of a vehicle provided for commuting is determined by multiplying each one-way commute (that is, from home to work by $1.50 or $3.00 for each round
trip. The $3.00 per day times the number of days the vehicle is used for commuting is added to taxable wages and the tax is imputed on this amount. This
information is reported on the employee pay stub biannually in July and December.The District reviews vehicle assignments annually. We noted the
Fleets Management Dept did not maintain sufficient documentation which prevented complete and accurate reporting of the fringe benefit
amount and the imputed tax reported to the IRS. See our exception at ISS.17

We recalculated the taxable benefit for selected highly compensated employees at D.5.9 and noted the District underreported the fringe benefit amount for
three employees by $2,414. Per IRS regulations a salary threshold exceeding $115,000 does not quality for the commuter valuation method. We noted in our
review of IRS Publication 15B that highly compensated employees use the lease value rule to calculate the benefit from which tax is imputed. Julie Davidson,
Payroll Manager acknowledged the use of the commuter valuation for three highly compensated employees was an oversight and noted the lease value rule
would be used for calendar 2014 which will be reported to the IRS in 2015.

Based on our testing of the 14 employees using District vehicles for commuter purposes only 3 were complete and accurately reported to the IRS. Of the
remaining 11 employees, the fringe benefit reported to the IRS was undervalued due to incomplete information and 3 employee benefit amounts were
undervalued due to the use of an incorrect valuation method.
Management Letter Recommendation is prepared at D.5.11 .


D.6.PRG - Financial Condition

Procedure Step: 2013 Required Risk - Financial Condition

Purpose/Conclusion:
Purpose:
To evaluate the District financial condition for indications of substantial financial distress.

Conclusion:
We evaluated the District's financial condition for indications of substantial financial distress and determined there is no distress.

Testing Strategy:
Analysis Procedures
The following procedures are required in order to evaluate the Districts financial condition:

Review the three financial condition indicators on the Districts Financial Analysis spreadsheet.
OSPI prepares a financial early warning system for all school districts. We will use this analysis as part of our evaluation of financial
condition. This same analysis will be available under FAP and also will have this data available in a 4 year trend and compared to logical
peer groupings for additional analysis/ discussion with District management. Districts that receive a financial warning are facing potential
financial difficulties. The data from this analysis is from the year ended 8/31 auditors will need to consider the actual position of the
District during the time of field work regardless of the score a District receives..

Determine from District information if there have been increases in non-voted debt (prepare a trend of the last 3 or 4 years if possible),
levy failures, unexpected or unplanned liabilities or contingencies, or other financial issues that might impact financial viability of the
District.

Auditors should consider the following in order to make a final decision regarding whether the District is in financial distress:

Mitigating or extraordinary circumstances that may have contributed to their score.
Enrollment that is declining or much lower than budgeted.
Capital facility needs (whether excess or inadequate).
Levy, union negotiations and other significant uncertainties.
Very low cash balance in the general fund or frequent interfund loans to the general fund in order to meet immediate cash needs.
Use of registered warrants, apportionment advances or budgeted receivables.

Teams will be notified by the School Program Manager if districts in their region received apportionment advances or budgeted receivables.

If the District appears to have financial stress, auditors should follow up by performing the following additional procedures:
Share your analysis with the District and inquire about any mitigating circumstances or additional information necessary for us to
evaluate the Districts financial condition.
Obtain managements plan for addressing its financial condition.
Check the Districts most recent budget status report to see whether the condition has improved, worsened or stayed the same
through the current date.

Reporting
Financial distress may relate to a current financial emergency or the Districts long-term financial sustainability. If the district is in financial
distress, the auditor should discuss the situation with your Audit Manager and the School Program Manager.

If an accountability report is being issued:
If the District has a negative fund balance or if the District exhibits significant declines in fund balance or significant declines in other financial
health measurements (operating margin, fund balance sufficiency, or debt load), or if the District is in binding conditions with OSPI or taken
emergency advances on apportionment, it is expected that in most cases a management letter or a finding will be issued.

If your District has a policy on financial position, auditors should consider whether or not financial position is adequate using that criteria as well
as evaluating their position with our general measurements.

In situations where financial stress indicators exist, but appear to be consistent over time, auditors should consider reporting exit comments to
address the situation.

If a financial report is being issued:
Auditors should consider whether the District is able to consider in operations for one year from fiscal year end. Even if the District will likely be a
going concern for this length of time, auditors may still want to report an emphasis of a matter paragraph in our financial report for
sustainability issues not yet rising to the level of a going concern. See the Going Concern step for details.

Policy/Standards:
WAC 392-121-436
Emergency advance payments School district application.
The board of directors of a school district may apply for any emergency advance on the school district's basic education allocation. The application
shall take the form of a resolution adopted by the board of directors setting forth the following:

(1) The nature of the unforeseen condition requiring the advance;

(2) The amount requested to be advanced;

(3) The net cash and investment balance of the general fund as of the date of the resolution;

(4) A forecast of the general fund receipts, disbursements, and net cash and investment balance for each month remaining in the fiscal year; and

(5) A disclosure of any existing or planned general fund revenue anticipation notes.

(6) A disclosure of any existing or planned general fund loan to or from another fund of the school district.

WAC 392-123-060
Petition to budget receivables collectible in future fiscal periods.
When a school district is unable to prepare a budget or a budget extension in which the estimated revenues for the budgeted fiscal period plus
the estimated fund balance or actual fund balance in case of a budget extension, at the beginning of the budgeted fiscal period less the ending
reserved fund balance for the budgeted fiscal year do not at least equal the estimated expenditures for the budgeted fiscal period, the school
district board of directors may deliver a petition in writing at least twenty days before the budget or budget extension is scheduled for adoption to
the superintendent of public instruction requesting permission to include receivables collectible in future periods beyond the fiscal period being
budgeted in order to balance the budget or budget extension for the fiscal period being budgeted. Said petition shall include a resolution of the
school board requesting permission to budget receivables collectible in future fiscal periods and other such information as the superintendent of
public instruction shall deem as necessary.

If such permission is granted, it shall be in writing, and it shall contain conditions, binding on the district, designed to improve the district's
financial condition.

Analysis Procedures
The following procedures are required in order to evaluate the Districts financial condition:
We reviewed the three financial condition indicators (e.g., fund balance to revenue ratio, expenditure to revenue, and days cash on
hand) on the Districts Financial Analysis spreadsheet at D.6.1. The District was assigned a 2.85 overall financial health score based on the
data as of the end of FY13. This is an indicator that the District will have more ability to adapt to unforeseen budget cuts, revenues
losses, unexpected expenditures, or other extraordinary items that could occur.

We also compared the District to other peers within the same groups. We based our comparison on peer group 37 that Team Performance
Audit determined in 2011 using enrollment, free and reduced lunch eligibility, presence of a high school, and density. See our comparison
at D.6.2. We noted the District is performing at about the same level as other school districts in the same peer group. The District does not
appear to be in financial distress and the ratios do not indicate a financial warning.

We performed a four-year trend of non-voted debt using the District's F-196 Schedule of Long-Term Liabilities (page 19), below, to
determine if there have been increases in non-voted debt. We noted there are no increases in the non-voted debt that might impact the
financial viability of the District.

F-196 Financial Statement FY10 FY11 FY12 FY13
2011/ 2012
$ Change
2011/ 2012
% Change
2012/ 2013
$ Change
2012/ 2013
% Change
Total Non-Voted Notes/Bonds $ 34,225,000 $ 32,925,000 $ 32,030,000 $ 31,045,000 $ (895,000)

-2.72%
$ (985,000)

-3.08%

Measurement of Financial Health
We considered the following that may indicate poor financial health in order to make a final decision on whether the District is in financial distress:

Mitigating or extraordinary circumstances that may have contributed to their score. - There does not appear to be any mitigating or
extraordinary circumstances that may have contributed to the District's score based on review of the Financial Analysis spreadsheet.
There were no major changes in the ratios that would indicate an extraordinary circumstance.
Enrollment that is declining or much lower than budgeted The upcoming years budget, including the number of teachers needed, is
developed based on enrollment projections. Enrollment is a major source of funding. Teacher salaries need to be covered from reserves if
actual enrollment is much lower than budgeted. It is very important that districts carefully monitor their enrollment numbers to enable
them to analyze whether budgeted revenues are in line with expectations. If enrollment projections are not met, districts with low cash
reserves may encounter financial difficulties, since this is a major source of funding.
Capital facility needs (whether excess or inadequate) -The District has a Facilities Master Plan covered through 2020 that identifies facility
requirements based on student enrollment and demographics, projected space requirements, commmunity use, and a facilities inventory.
The District has obtained voter approval for a series of major capital levies including the Building Excellence Levies (BEX) levies and
Buildings, Technologies and Athletics Levies (BTA) to help fund the District's capital facility building and remodeling as necessary based on
student growth and old buildings that need to be remodeled or new schools built. There are no concerns as the District plans ahead and
continues to receive large levy approvals.
Levy, union negotiations and other significant uncertainties - As noted above, the District has received several voter approved levies in
recent years. The District continues to work with unions to negotiate salaries and benefits for employees but there are no major concerns
for significant uncertainties with the unions.
Very low cash balance in the general fund or frequent interfund loans to the general fund in order to meet immediate cash needs We
considered the nature of any reserves or designations of fund balance as well as commitments or contingencies that are not reflected in
designated fund balance and determined this is not a risk for the District.
Use of registered warrants, apportionment advances or budgeted receivables The Districts annual budget appears to be balanced and
the District is meeting the budget within reason. We have not been notified by the School Program Manager about the District receiving
apportionment advances or budgeted receivables.

The District does not appear to have financial stress. Therefore, we did not perform any more additional procedures.

Reporting
We determined the District is not in financial distress and therefore it is not necessary to report a management letter or finding for the
accountability report. In addition, we determined the District is able to operate for at least one year from fiscal year-end and there is no going
concern.

We reported the financial condition to the District Board of Directors, Assistant Superintendent of Business and Finance and the Accounting
Manager via email on May 2, 2014 at D.6.3.

D.7.PRG - Capital Projects Cost Allocation

Procedure Step: Capital Projects Cost Allocation

Purpose/Conclusion:
Purpose:
To gain an understanding of the District's cost allocation controls to ensure District personnel charged in multiple funds are allowable.

Conclusion:
We gained an understanding of the District's cost allocation controls to ensure District personnel charged in multiple funds are allowable. We
found the District does not have sufficient documentation to support splitting the salaries of eligible employees between the General
Fund and the Capital Projects Fund. Also we noted that the District does not keep track of the actual payroll charges for split-funded
employees. See ISS.12

Testing Strategy:

Policy/Standards:

Contacts:
Linda Sebring, Budget Director
Victoria Ouk, Budget and Cost Accounting Analyst

Background/ Prior Audit ML:
In the prior audit the District received a mangement letter for charging salaries to the incorrect fund resulting in ineligible capital
expenditures. The District can charge employee salaries and direct expenditures to the Capital Projects fund if the employee is hired or assigned
to planning or construction management of capital projects. The District may split salaries of employees between the General Fund and the
Capital Projects fund based on percentage of time worked in each category. In nine of the last ten audits, we reported internal control
weaknesses in the Districts accounting for payroll expenditures.

We tested payroll expenditures for employees charged to the Capital Projects fund by reviewing employee job titles to see if they make sense.
We selected those that appear higher risk as we would not expect them to be charged to the Capital Projects fund. We found the District does not
document the reasoning for employees with split salaries charged to the Capital Projects fund and General fund.
In the prior audit we recommended the District:
Maintain documentation for employees that split their salaries between funds.
Perform a year-end reconciliation of estimated versus actual costs charged, or use a different, documented method, such as time sheets,
to determine the amounts to charge the Capital Projects fund.
Ensure salaries charged to the Capital Projects fund are only for eligible purposes.

We will follow-up with the District, below, at "Capital Project Cost Allocation" to determine what the District has done since the prior audit to
ensure employees with split charges between the Capital Projects fund and General fund are documented as to how the charges are split.

In addition, the prior audit found the District charged ineligible costs to the Capital Projects fund including managing the technology line and
website, tracking student laptops, assisting with computer problems, and processing claims for employees who were over/under paid. We will
follow up with this below, at "Capital Projects Fund Ineligible Charges".

Capital Project Cost Allocation:
We met with Linda Sebring, Budget Director and Victoria Ouk, Budget and Cost Accounting Analyst to gain an understanding of the cost allocation
process for employees with split charges between the General fund and Capital Projects fund.

During the budget process before each new school year, Victoria works with the Director of the Capital Project Department, Department of
Technology, HR and Accounting Departments to help determine the percentage of funding for each employee that should be charged to the
Capital Projects fund. The Director of Capital Projects meets with the managers to help determine staff funding and what tasks they perform to
determine the level of funding should be charged to the Capital Projects fund and the rest to the General fund. Victoria stated she maintains a
spreadsheet of the employees with split fund charges that are included in the approved budget.

During the year, 100 percent of the payroll is charged to the Capital Projects fund even for those employees with split charges that should be
allocated to the General fund. At year-end, Kathie Technow, Accounting Manager moves the split funded employees General fund percentage
charges from the Capital Projects fund to the General fund in one large journal entry. Essentially, the General fund is reimbursing the Capital
Projects fund for charges they should have been paying for employees performing General fund tasks.

Because the Director of Capital Projects had just started with the District at the time of our meeting, we were unable to meet with him to discuss
the Capital Projects procedures for documenting percentage of time determined to be worked on in the Capital Projects fund. However, Linda
Sebring and Victoria Ouk confirmed that they do not receive anything from Capital Project department to show reasons of why the percentage of
payroll charges should go to the Capital Projects fund. As noted during planning at B.2.17 there are several employees charged to the Capital
Projects fund from the Accounting department. We inquired with Kathie Technow, Accounting Manager and she also confirmed there is no
documentation maintained for charges to the Capital Projects fund.

Based on the results of procedures performed, we found the District does not have sufficient documentation to support splitting the salaries of
eligible employees between the General Fund and the Capital Projects Fund. Allocations are based on estimates instead of actual charges.
Individual departments calculate an estimated workload of split-funded employees to be charged to the Capital Project fund during the annual
budget process. The Departments communicate the percent allocated to the budget office but do not keep documentation to justify the workload
on capital projects.
We also noted that the District does not keep track of the actual payroll charges for split-funded employees. During the year payroll costs are
charged to the Capital Projects fund. At year end the District reallocates part of the costs to the General fund using an estimated workload
percentage. See ML: Cost Allocation between Capital Projects fund and General fund.
Allocate actual split salaries and benefits from the Capital Projects fund to the General fund monthly rather than once a year.
Keep track of the actual payroll costs of split-funded employees charged to the capital projects.
Maintain documentation for capital projects workload of employees who split their salaries between funds.
Management Letter = The District received a management letter in the prior audit. Although the District has not implemented any of our prior
audit recommendations, we recognize the District has undergone significant turnover in the past year, including a new Budget Director who
started December 2013 and a new Director of Capital Projects that did not start until March 2014.

Cost Allocation Testing
Although, there are inadequate controls for determining cost allocation of employees charged to the Capital Projects fund and ensuring the split
funds are charged to the correct fund timely, we will perform testing of select employees as part of our financial statement audit to ensure the
employees are correctly classified in CPF. We will also determine whether the District's budgeted allocation of Capital Projects fund agree to the
year-end actual charged during our financial statement testing at Capital Projects Fund Expenditures - Payroll and Non-payroll Testing. Based on
testing, we determined the employees tested are allowable to be charged to CPF and the actual amounts charged in the g/l met our expectation
compared to the District's budget prepared at the beginning of year. There were no exceptions.

Capital Projects Fund I neligible Costs Understanding:
As noted in the "Background" section, above, in the prior audit we found the District charged ineligible costs to the Capital Projects fund. This
included managing the technology line and website, tracking student laptops, assisting with computer problems, and processing claims for
employees who were over/under paid. During the financial statement audit we performed sample testing of non-payroll transactions at F.2.3. The
testing included technology purchases and technology professional services. We also scanned the non-payroll data and did not note any vendors
that relate to processing claims for employees who were over/under paid. There we no exceptions in our testing results.

We consider this part of the prior year management letter resolved and will not be included in the current year management letter.

D.8.PRG - Facilities

Procedure Step: Joint Use Agreement with City of Seattle

Purpose/Conclusion:
Purpose: To determine if the Seattle School District is in compliance with the terms of its J oint Use Agreement with the City of Seattle and to
follow-up on prior year issues.
Conclusion:
Due to insufficient documentation and monitoring were unable to verify the District and its fiscal agent are in compliance with the terms of the
joint use agreement. We recommend the District request data from the City of Seattle and perform a reconciliation of Athletic Facility net
collections to cash deposits to ensure fair and equitable use of District facilities per the terms of the J oint Use Agreement. ISS.19

Testing Strategy:

Policy/Standards:

Background:
Forty-seven (47) of Seattles public schools adjoin Parks land or facilities. The School District and the City of Seattle Dept of Parks and Recreation
(DPR) have cooperated in planning and jointly using these separately owned facilities and grounds for the benefit of students and community
members. Per Memorandum of Agreement initiated in 2005, the DPR acts as a fiscal agent to schedule public use of the District's athletic sites
and collect District revenue for use of school facilities in accordance with a fee structure established by the District. The agreement with the City is
intended to be an equitable and fair exchange of resources.

Facility Rentals Accounts ReceivableWe noted in our prior year audit the District relied on City Parks Dept (DPR) to document and quantify how
much revenue the District should receive. Unsupported invoices submitted by Parks were paid by the District and as a result the District did not
receive all fee revenue owed. As follow-up to our report of this control deficiency, Kathy J ohnson obtained the detail of events scheduled by
Parks for FY 2011 and noted a differential of underpaid fees by complex for each quarter. There has been no effort to determine the magnitude
of underpayment over the years the J UA was in effect. Going forward both parties have agreed to greater transparancy and have modified the
agreement to ensure a more equitable exchange of resources.

Revenue collected by DPR for use of District facilities is reported and paid to SPS quarterly. The City DPR now provides an upload of transactions
by complex and by day for each quarter to support the fee collection. I n exchange the District pays the Parks Dept a percentage of revenue
deducted from the gross revenue collected for scheduling services provided by Parks. Under the new agreement the expense paid to the City for
its scheduling service has increased from the prior agreement of $2,500 per quarter or $10,000 per year to 9% of gross revenue. The $2,500 per
quarter fee was originally established in 2005 per a Memorandum of Agreement. See 2005 Parks Fee MOU The revised Agreement was not
signed as of the date of our audit. We noted the J UA is scheduled to be renegotiated in 2015. The current joint use agreement is located at -
2010-2015 JUA and 2010-2015 J UA Appendices

The DPR and SDS have agreed to the following contract amendments executed on .
The amendment memorializes the agreement for DPR to act as fiscal agent and schedule public use of SPS athletic complexes, sports
fields and school fields and collect revenue for rental of these facilities. DPR will remit fees and a full accounting to SPS on a quarterly
basis.
The prior agreement called for DPR to deduct a scheduling fee of $2,500 per quarter from SPS revenue. The amended agreement calls
for SPS to reimburse 9% of total gross fees collected to cover the cost of scheduling service provided by DPR. The deduction calculation
will be shown on the quarterly accounting sent to SPS.
In addition, DPR will deduct the following items from rental revenue: NSF checks, underpayments, and credit card processing fees. DPR
will absorb the following expenses related to cash handling: cash shortages/overages, costs for transmitting revenue to SPS, deposit
reconciliations, and resolution of cash handling problems. Attachment 1 includes a schedule of the fee structure
Upon request, DPR will grant SPS reasonable access to City financial records related to revenue collection on behalf of SPS.
We performed an analysis of rental revenue received from Parks atD.8.8. We obtained the data upload files provided by City of Seattle DPR
of activities and prepared a worksheet of all event bookings and utility charges by facility and by quarter. (Note: we did not attach all data
uploads to our workpaper, only Q4 2013. See work paper at D.8.8 ) We noted the total checks disbursed by Parks acting as Fiscal Agent on
behalf of SPS did not reconcile to accounting support of all events scheduled by DPR by location and by quarter. The data was uploaded from the
City of Seattle database of bookings and utility fees. We also noted the deduction of fees was not evident in the material supplied by Parks. We
verified the charges of $2,500 by quarter is still being used as the revised contract has not been signed. We explained the importance of the
reconciliation to Kathy J ohnson and subsequent to our inquiries she obtained a revenue summary (booking fees & utility fees totaled by quarter
for 2014. The variance of 34,600 may be due to timing issues as we noted disbursements from DPR were not provided quarterly per the contract
terms.

We recommend the District determine the reason for the variance of in school year 2013 bookings. We recommend the District request
appropriate data from the City of Seattle and perform a reconciliation of Athletic Facility net collections to cash deposits to ensure fair and
equitable use of District facilities per the terms of the Joint Use Agreement.


D.8.PRG - Facilities

Procedure Step: Facilities rentals

Purpose/Conclusion:
Purpose: To determine if the Seattle School District has adequate internal controls over faclities rentals.
Conclusion:
We determined the District is in compliance with its own policies and procedures over Facility Rental Services with one exception. The District has
not sufficiently addressed our prior year recommendation for monitoring of delinquent accounts. ISS.15

Testing Strategy:
Purpose: To test controls over Facility rentals and to follow-up on prior year issues.

Policy/Standards:

Key Employees:
Eleanor Lockett, SSD Building Rentals Office
Fred Pamonag, Facilities Rentals Tech
Linda Pei, Accountant
Kathy J ohnson, Facilities Operation Program Manager
Bruce Skowyra, Director of Facilities Operations

Source documents: Superintendant policy 4260
Seattle Parks & Recreation J oint Use Agreement
School Dude database reports
Amendment to J oint Use Agreement

Risks identified: In our prior year audit we identified weaknesses in controls over collection of facility usage fees, lack of sufficient detail and
support for billing and lack of monitoring of delinquent accounts related to facilities revenue.
In addition we noted the District had insufficient staffing to manage Facility rental invoicing, insurance compliance and collection.
Auditor Note:
The District's School Community Use policy 4260SP (Superintendent Procedure) is currently being revised. Our audit addresses the policy in effect
during the audit period and through May 31, 2013. We note the District's long standing mission is to work collaboratively with communities and to
allow free use of District buildings to particular orgainizations such as the PTA or PTSA.
The District intends to be a steward of its facilities, and promote community use for the benefit of youth programs. The District does not perform
projections of rental revenue for use of its athletic fields and buildings. The primary focus is to recover cost for utility and custodial services only.
The District has a separate agreement with the City of Seattle to ensure fair value is received for events scheduled by the City and for which the
public is charged an admission fee. We will review the agreement with the City of Seattle in our folder J oint Use Agreement

Background: The Scheduling for student and community based events is done in the School Dude database system. The Program consists of
three separate databases: Facility Services Direct (FSD); Maintenance Direct (MD); and Preventative Maintenance Direct (PMD). Facility
scheduling, invoicing and collection is tracked in the FSD database. Each school facility (building) has assigned staff to schedule student
based events. The School Dude system access is restricted to school schedulers for approximately three weeks at the beginning of each school
year to reserve and prioritize facility for school's events. There is no charge for facility use to the School unless the event takes place after school
hours in which case custodial time is billed. Such events are billed as a work order in the Maintenance Direct program and invoiced to the School
requesting the service. School Dude is a paperless system so work orders are automatically generated in FSD or MD and transmitted electronically
to the requesting cost center once the event is registered and activated.
In response to our prior year issue the District will better monitor its invoicing activity in the School Dude system by preparing monthly reports to
management of billings and past due invoices. Outstanding invoices over 90 days will be sent to collections.
Procedures:
We reviewed the the reports issued to management for September 2012 through March 2014. Our understanding is that all events are
invoiced however principals have the option to waiver rental fees. The fees waived by the school principals are retained in a separate data
file and delinquent accounts must be cross referenced to the waived events before the receivable can be considered delinquent. Kathy
J ohnson, Facility Rentals Manager admitted the report review process is very time consuming. We will review the reports and accounts
sent to collections to verify that review is performed and non waived accounts are pursued for payment.
Fred Pamonag provided us with a user account for the School Dude system. We performed an advanced search for the period of Sept
2012 through August 2013 of all billable and paid accounts. See Sch Dude AR report Based on our review the total billable
events invoiced from period Sept 2012 through August 2013 was $397,755.09
net of cancelations and voids. Of this amount $114,020.32 is outstanding as of Feb 2014. We reviewed the status of outstanding
receiveables as of April 2014 and noted a balance of of $101,231. (We will use the most current balance in our report of this issue.) The
District did not send any delinquent accounts to collections in 2012. This practice was initiated in November 2013 after our audit
recommendations and accountability report was issued in J une 2013. We recommend more communication between Facility Rental staff
and Central Accounting to monitor delinquent accounts. See AC_E: Facility Rental Delinquent Acct Receivable
Kathy J ohnson acknowledged that in the prior school year the District did not have adequate trained staff to follow-up on billings and
collections. I n response to our prior year recommendation the District has assigned 1 additional FTE to assist with facility rental invoicing.
Linda Pei, Accounting Specialist joined the Facilities Dept in 2014. Per Kathy J ohnson, billings for J anuary 2014 were being processed in
February 2014, indicating the District has reduced the 6 month backlog to one month. Kathy also noted that billable organizations with
delinquent accounts are flagged to disallow further activity until open accounts are paid and current. We verified this by viewing the
organizations flagged as "do not rent" status in the school dude system. Fred Pamonag, provided us with a list of 13 organizations
flagged. These organizations were identified as do not rent due to past unpaid invoices, lack of insurance documentation etc. We noted
at least three organizations with delinquent accounts that were not included in the this exception list and Fred acknowledged the "do not
rent" list should be updated. This list was updated in April 2014 per our audit inquiry. Auditor Note: Although PTA & PTSA's may utilize
school facilities with no rental fee, they still must pay for custodial and utility charges. Those who do not honor this agreement are
flagged as Do Not Rent until unpaid balances are reconcilied. See revised DN Rent list provided per our audit inquiry at D.8.3--DN Rent
tab. D.8.3
We asked Fred to address the issue of insufficient training of staff that was identified as a risk in the prior year audit. School Dude, a
company out of North Carolina offers training options via online help desk and trouble shooting for program users. Fred concurred that
the rollout of the School Dude FSD database in September of 2011 was initially met with resistance by school schedulers but that
feedback is now favorable and it appears that FSD and MD systems are used consistently district wide. In addition the District has
documented procedures for invoicing so that training of employees is consistent and accessible to new employees. See D.8.7
To streamline procedures and minimize labor costs, the District requires all registrants to create a user profile and provide proof of
insurance to be eligible to schedule field events. Eleanor told us the community users register online and provide all insurance information
i.e. name of insurer, type, period of coverage etc. The applicant must enter the dates the insurance is in effect. School Dude system
tracks the insurance expiration dates and will suspend events registered past the expiration date. We reviewed the profile for the
organization "Let's climb with Purpose." There were 0 events scheduled with insurance expiration dates. We then reviewed the profile for
"Watts Basketball." There were 44 events scheduled with expired insurance status. None were paid. Eleanor explained that an event may
be scheduled in the School Dude system but it will not be activated unless all insurance documents are received. An activity will not be
invoiced until it is activated. We verified the Watts Basketball insurance form was received by using the home
page https://schooldude.com => organization => insurance tab. The insurance data on file was updated with coverage dates effective
through 7/26/14 through Essex Ins Co.
We verified billings for custodial and HVAC fees are monitored for use of facilities when school is not in session. Eleanor explained that a
custodian must be on site whenever a building is used on a non school day or after school hours. Eleanor showed us an invoice that she
processed for the organization "Let's Climb with Purpose" The invoice was processed on Feb 5th for an event scheduled on Sat Feb 15,
2014. The permit was issued for use of the W Seattle HS parking lot. We verified the correct amount of $109.4 based on 8 hr permit and
custodial fee of $321 @ $42.8/hr. We verified billings for custodial and HVAC fees are monitored for daily, weekly and monthly use of
facilities when school is not in session. This activity is tracked by Lewis Carlson, Lease Accountant. See PBC worksheet at D.8.4
We verified that PTA and PTSA organizations submit a waiver form for all rent free use of facilities and that the waiver form is authorized
by the Principal of the school hosting the event. Per invoicing procedures, these waiver forms are scanned and included in the School
Dude system by event identification number. We also addressed a citizen concern regarding waiver of fees at H.5.PRG and H.5.2
Based our our auditfollow-up we note thatFacility Rental Services management and staff have responded to our prior year recommendations
by improving documentation of procedures, providing additional training of staff, generating status reports, and establishing controls for liability
and insurance reporting requirements. Based on our audit results the District is in compliance with its policies and procedures with the exception
of monitoring delinquent accounts receiveables. We prepared follow up for prior year recommendation at D.1.1
We noted that the District has not sufficiently addressed our prior year recommendation for monitoring of delinquent accounts and
we recommend further improvement in this area. ISS.15

D.9.PRG - Fleet Management

Procedure Step: Fleet Management Corrective Action of PY issue
Prepared By: TN, 6/10/2014

Purpose/Conclusion:
Purpose: To follow up on prior exceptions related to the District's fleet management activities noted during the 2011 audit and
determine if the District has improved internal controls for fleet management.
Conclusion: Based on our testing, we found that the District's has made some improvements to its internal controls over fleet
management. However, we noted that controls are still not sufficient to prevent misuse of fuel cards; monitor vehicle assignment and
usage and timely recover missed vehicles and equipment. See EX_Fleet Management: The District's procedures over vehicle
assignment and usage lack oversight

Testing Strategy:

Policy/Standards:


Background information:
During the 2011 Audit, we issued a finding to the District noting many issues related to fleet management activities at the District. See the list of
prior year issues below:

List of Prior Year Issues:
Fleet Inventory: During the 2011 Accountability Audit, an exception was filed related to the District's fleet management. One major issue noted was
that the District did not take a physical inventory of its fleet as required by state law and District policy. As a result, the District is unable to ensure
it safeguards public resources. We will be following up to see if the District has since put proper fleet inventory procedures in place. See the
results of our follow up testing hereInventory. We found that the District has improved its inventory procedures since the issue was found during
the 2011 audit, however the current inventory procedure does not timely detect vehicles which have not been inventoried within the last two years
which is a District requirement. As a result, the District's current inventory system causes it to be out of compliance with its own policies.

Fuel Card Usage: During the 2011 audit of fleet management, it was determined that the District lacked oversight to ensure employees are
following fuel card policies and procedures. Specifically:
Accounts payable issues payments for some fuel card invoices without approval by department managers.
Supervisors are not monitoring fuel card purchases for reasonableness.
Employees are not accurately entering the vehicles mileage at the time of fill up, which is required by District policies.
See the results of our follow up testing here Fuel Card Usage
Based on our follow up testing, we found that the District has not implemented adequate controls over fuel card usage. As a result, there is
a more than remote possibility that misuse can occur.

Vehicle Assignment and Usage: In the 2011 audit of fleet management, it was determined that the District lacked internal controls to ensure
accuracy of fleet data and compliance with policies for vehicle assignment and use forms. See the results of our follow up testing here Fleet Data
and Vehicle Usage. Based on our follow up testing, we found that the District's procedures for monitoring vehicle assignment and usage is out-of-
date, inaccurate, incomplete, inefficient. As a result, the District's fleet data information can't be relied on to monitor vehicle assignment and
usage.

Vehicle Purchase: During the 2011 audit of fleet management, it was found that the District's weak internal controls over vehicle purchasing
procedures allowed for the purchase of vehicle outside of the Purchasing department. See the results of our follow up testing here Vehicle
Purchase, Surplus. Based on our testing, we found that the District's procedures for vehicle purchasing does not consists of steps or measures to
ensure that vehicle purchases are always included in its Fixed Assets Database. As a result the Fixed Assets Database is incomplete.
Conclusion:
We found that the District has made some improvements in its physical inventory procedures but the condition of its fleet management
procedures remains mostly unchanged. The District still does not adequately monitor vehicle assignment and usage, fuel card usage, and
procedures related to vehicle purchases. We noted these issues in AC_EX: Fleet Management. The District's does not adequately monitor vehicle
assignment, usage, fuel cards, purchases, and inventory procedures


Procedure Step: Inventory

Purpose/Conclusion:
Purpose: To determine if the District follows its policies for taking vehicle inventory

Conclusion: Based on our test results, we found the District's vehicle inventory procedures aren't adequate to ensure compliance to the District's requirement
of taking physical inventory every two years. The current procedure does not timely identify vehicles with inventory dates older than two years. We also found
that the District does not keep adequate records to show as evidence that a physical inventory of vehicles was completed. We noted the issue in ISS.16 AC_EX:
Fleet Management. The District's does not adequately monitor vehicle assignment, usage, fuel cards, purchases, and inventory procedures

Key People:
Allen Mardock, Supervisor Accounts Payable

Testing Strategy:

Policy/Standards:

Background Information:
During the 2011 Accountability Audit, an exception was filed related to the District's fleet management. One major issue noted was that the District did not
take a physical inventory of its fleet, see overview row here Fleet Management Corrective Action of PY issue. We will be following up to see if the District has
since put proper fleet inventory procedures in place.

Key People:
Allen Mardock, Supervisor Accounts payable, ajmardock@seattleschools.org, (206) 252-0278

Source Documents:
Equipment & Surplus Administrative procedures Equipment & Surplus Procedure

Policy:
Equipment & Surplus Administrative procedures, effective date 12/1/2012. We found the following policy applicable to vehicle inventory:
Inventory Time Schedule: Every district building can expect a physical inventory of district owned equipment once every two years.

Understanding of Inventory Procedures:
We met with Allen Mardock, Supervisor Accounts Payable, to gain an understanding of the Districts procedures for performing vehicle inventory. Allen
explained that normally physical inventory is performed at a site by scanning the bar codes on District equipment, however vehicles cant be scanned this way
and is tracked manually on paper. The physical vehicle inventory check starts with a printed list of all active vehicles in the Districts R-Base Fixed Assets
database. Allen performs a physical check for every vehicle on the list at a given site by looking for the vehicle with the same license plate number as on the
list. If the vehicle is located, it is later noted in R-Base with an L which stands for located. If the vehicle wasnt located at a site, it is notated this with an RL
which indicates that the location must be researched. To research the location, Allen checks to see if the vehicle is at the Districts Auto shop or if it is with a
driver by contacting fleet management to see who is assigned to the vehicle. If the vehicle is with a driver, Allen contacts the driver to arrange for a physical
check when the car is on site. If Allen is informed that the vehicle is parked at a different location than its parking site, he makes a note to check for the vehicle
when inventory is performed at that site.

It takes two years to complete a full inventory cycle for every site in the District. If after performing inventory at all the sites, the vehicle still wasnt located, the
vehicle is marked with the status of M in R-Base to denote that the vehicle is missing. Sometimes a vehicle isnt located after all the sites have been
inventoried because it was moving from site to site. Allen stated that he only declares a vehicle as stolen if it has a status of M for more than six years (over 3
inventory cycles). In this case, he would file a police report, however, he stated that he has never seen a vehicle declared stolen. Accordingly, he would update
R-Base by changing the site field to Inactive Record and modifying the Status, Date Retired fields to reflect that the vehicle is stolen. If the vehicles
original price was greater than $5,000, it would be included in the monthly journal entry to record all retired equipment in account R9300. If the original price
was less than $5,000, it is simply retired and no journal entry is made to record this event. District employees may also report stolen equipment to the Districts
Security department. In this case, the Security department will notify the Fixed Assets team and the vehicle will be updated in R-Base with the police and
security incident number.

Testing:
We obtained a list of all active vehicles in the Districts R-Base Fixed Assets database from Allen Mardock, Accounts Payable Supervisor. We calculated the
number of days that have elapsed from the day the vehicle was lasted physically located (the INVDATE) to our test date of 4/3/2014. We determined whether
more than two years have elapsed. We noted all vehicles with an INVDATE which was over two years ago. We found nine vehicles out of 298 (approximately
3%) which had an expired INVDATE. See our testing here Vehicle Inventory Testing

We discussed our test results with Allen Mardock. He confirmed that he does not routinely monitor the INVDATE to ensure that a physical inventory of the
vehicle occurs inside of the two year time frame. Instead, he waits until the next time he takes vehicle inventory, at which point he places a priority on the
vehicles with older inventory dates. We asked if he keeps the paper list of the inventory when he takes physical inventory, he said no.

Based on our test results, we concluded that the Districts vehicle inventory procedures arent adequate to ensure compliance to the Districts requirement
that physical inventory of equipment take place once every two years. We found that the current procedure does not enable timely identification of vehicles
with expired Inventory dates. We also found that the District does not keep adequate records to show as evidence that a physical inventory of vehicles has
been completed.
Conclusion:
We gained an understanding of the District's procedures for taking vehicle inventory. We noted the following items:
(1) The District's vehicle inventory procedures aren't adequate to ensure compliance with the District's requirement of taking physical inventory every two
years. The current procedure does not timely identify vehicles with invetory dates older than two years. We also found that the District does not keep
adequate records to show as evidence that a physical inventory of vehicles was completed. We noted this issue in AC_EX: Fleet Management. The District's
does not adequately monitor vehicle assignment, usage, fuel cards, purchases, and inventory procedures


Procedure Step: Vehicle Purchase, Surplus

Purpose/Conclusion:
Purpose: To determine if the District follows its procedures for vehicle purchase and surplus

Conclusion: We found the District's vehicle purchasing/accounts payable procedures lack the steps to ensure the proper inclusion of all vehicle purchases and
leases in its Fixed Assets Database. We made a recommendation for this in AC_EX: Fleet Management. The District's does not adequately monitor
vehicle assignment, usage, fuel cards, purchases, and inventory procedures

Key People:
Craig Murphy, Purchasing Manager
Allen Mardock, Accounts Payable Supervisor
Helen Jones, Supervisor Facility Operations Admin

Testing Strategy:

Policy/Standards:

Background:
During the 2011 Accountability Audit, an exception was filed related to the District's fleet management activities. One major issue noted was the Districts
weak internal controls over vehicle usage, including vehicle purchase and surplusing. See Overview row here Fleet Management Corrective Action of PY
issue. We will be following up to determine if the District has improved its internal controls for vehicle purchasing and surplusing.
Key People:
Craig Murphy, Purchasing Manager
Allen Mardock, Accounts Payable Supervisor
Helen Jones, Supervisor Facility Operations Admin

Documents:
Purchase Requisition (paper) form: Requisition form

Purchasing Process
On 3/7/2014, we met with Craig Murphy, Manager of Purchasing, to gain an understanding of the procurement process, particularly vehicle procurements.
Craig stated that the Purchasing department handles all purchases that do not require formal bidding or the RFP bidding. The Purchasing department adheres
to RCW 28A.335.190 and Board policy 6220 which guide the soliction of quotes. Craig stated that the District hasnt made a large investment in its fleet for
many years. He estimated that there have been a handful of vehicle purchases in recent years and that the District has about a dozen or so leased vehicles
(with contracts that are between 1 to 3 years). He explained that the same general procurement process is followed for vehicle purchases and leases.
The process starts with the department or school filling out a general requisition form in the Districts SAP system (20% of requisition forms are still completed
manually when the requestor doesnt have access to SAP). The requestor enters the specifications, quantity, unit price, shipping site/building, fund, cost
center, and commitment item into the requisition form. The SAP system contains a check which requires that the requisition form be signed by authorized
personnel within the department. For paper requisition forms, Craig stated that he references a document called Authority Matrix which lists the ranges and
the individuals whose approvals are required at each range for each department.
For vehicle purchases the District will often purchase through a contract with the State due to convenience and better prices, however the District is not
required to purchase through the State contract.
When leasing a vehicle, the District goes through local dealers because the State does not lease vehicles. Craig stated that District policy requires the
Purchasing department to obtain three quotes for purchases between $40K to $75K. Quotes are obtained via phone, email or fax. Once a vendor is selected,
Craig works out the final pricing and budget requirements with the department before creating a purchase order in the SAP system.
When the purchased item is delivered, it typically goes to the Districts warehouse where the receiving department will enter the delivered item into the SAP
system. For vehicle purchases and leases, receiving is a manual step because the District's Automotive Shop isnt set up in the SAP system (for inventory).
Craig explained this is likely due to the fact that vehicle purchases do not occur on a regular basis and therefore it wasnt worth the investment.
The vehicle is delivered to the Districts Facilities Operations Automotive Shop. An authorized personnel in the Automotive shop will sign for the delivery. The
Auto Shop enters the vehicle information into their system and the School DUDE system to track work orders (for auto servicing and repair work). The Auto
Shop forwards the vehicle title/registration to Helen Jones, Supervisor Facilities Operations Admin to track in the Fleet Data worksheet. A copy of the receipt is
given to the Purchasing department. At the Purchasing department, the receipt is scanned and the original is sent to Accounting where it will be matched up to
the invoice from the vendor.
Craig stated that District policy requires all purchases be made through the Purchasing department. When asked how he detects unauthorized purchases, he
stated that he finds out about unauthorized purchases when the Accounting department receives invoices from vendors which cant be matched up to a
receipt. Craig keeps a spreadsheet that tracks all unauthorized purchases and updates it when he becomes aware of an unauthorized purchase. The
Purchasing Department reports this information to the School Board on a biennial basis.
Craig stated that roughly 100 unauthorized purchases happen every year, amounting to about $100 thousand, which is small percent of the $75 million in
total purchases for the department. We asked if he recalls an instance of a vehicle which was purchased without going through the Purchasing department. He
stated that he couldnt think of any except one incident that happened years ago. He recalled that the purchase was made for an international instructor.

Surplus Sales Process
The sale of a vehicle starts with the Districts Auto Shop. The Shop will inform Allen Mardock, Supervisor Accounts Payable when there is a vehicle that needs
to be sold. The shop will fill out a "Disposed Vehicles" form and send it to Allen in an email. Under RCW 28A.335.180, the District is required to advertise to
public and private schools before selling to the public. To comply with this state law, Allen stated that the District publishes a reoccurring ad in the Seattle
Times each month. If he doesnt get any response, he will auction the vehicle online. Once the sale is final, Alan updates the Vehicle Details in the Fixed Assets
Database by changing the Site field to Inactive record, Status to SA to indicate it was sold, the Sale Amount, Sale Date and Acct. Retired date to be the end
of the current month. If the original price of any equipment sold was over five thousand, it must be included in a monthly journal entry that records a lump
sum of all retired equipment in account B1493. If the original price was less than five thousand, the proceeds of the sale is recorded in the equipment sales
revenue account R9300, taxes in account B2667. Allen notifies Helen Jones in Facilities Operations that the sale was completed by sending her all supporting
document so that she can verify that SSD has been removed from the title. With this information, Helen Jones will update her Fleet Data worksheet.
Testing:
1. Vehicle Purchase Procedures Testing
We obtained a list of all active vehicles during SY2012-2013 from Allen Mardock, Accounts Payable Supervisor. We filtered the list to find all vehicles with a
purchase date during SY2013. We found three vehicles that were purchased during SY2013. All three vehicles were from the same purchase order
document. We tested the transaction by verifying the supporting documents (1) purchase requisition form, (2) purchase order form (3) Signed receiving report
(proof of delivery receipt), (4) Title to vehicle. We then verified if the vehicles were included in the Facility Operations Fleet Data worksheet. See our test
results here Vehicle Purchase Lease Sale Testing. We noted no exceptions.

2. Vehicle Surplus Procedures Testing
We obtained a list of all vehicles that were sold during SY2012-2013 from Allen Mardock, Accounts Payable Supervisor. There were 20 vehicles on this list with
the status of sold. We haphazardly selected five vehicles to verify whether the District is following its procedures for vehicle sales and whether the sale of a
vehicle is updated in the Facilities Operations Fleet Data worksheet. See the results of our testing here Vehicle Purchase Lease Sale Testing. We noted no
exceptions.
3. Testing the Fleet Data work sheet and Fixed Asset Database for completeness:
We wrote down the license plate numbers of 81 District vehicles parked at the John Stanford Center for Educational Excellence (JSCEE). We obtained the
Facilities Operations Fleet Data worksheet from Helen Jones, Supervisor Facility Operations Admin. We obtained a list of all active District vehicles in the R-Base
Fixed Assets Database from Allen Mardock, Accounts Payable Supervisor. We looked for the physical license plate numbers we wrote down in the Fleet Data
worksheet and Fixed Assets Database and noted whether we found the vehicle in the data source or not. See our testing here Test District fleet data for
completeness. Four of the vehicles we jotted down did not appear in the R-Base Fixed Assets Database however these vehicles were found in the Fleet Data
worksheet. The license plate numbers for the four vehicles are 98066C, 98067C, 98068C, and A4300C. We looked in the Facilities Operations vehicle folders
and found the title and registration for all four vehicles with the issue date of 2/2013 and 1/2014. Based on the title documents, we learned that these
are leased vehicles because the "Registered Owner" is Seattle Public Schools however another entity is listed as the "Legal Owner".
We asked Allen Mardock, Accounts Payable Supervisor why these vehicles were not included in the R-Based Fixed Database. Allen stated that the District's
current business practice is to add leased vehicles to the R-Base Fixed Assets Database with the "Original Purchase Price" field set to "0". He said these vehicles
weren't added to the database because the event wasn't communicated to Fixed Assets team.
Allen Mardock says that many times, the proof of delivery receipt ends up on the department manager's desk. The Accounting procedure is to have the
department manager verify the expenditure amount before AP pays the vendor's invoice thus AP doesn't always have the details of the transaction.
Based on our testing, we determined that the District lacks procedures to ensure inclusion of all leased vehicle to its Fixed Assets Database.
Conclusion:
We gained an understanding of the District's procedures for purchasing, surplusing, and tracking its vehicles . We noted the following items:
(1) The District's vehicle purchasing/accounts payable procedures lacks the steps to ensure the proper inclusion of all leased vehicles in its Fixed Assets
Database. We made a recommendation for this in ISS.16 AC_EX: Fleet Management. The District's does not adequately monitor vehicle assignment, usage,
fuel cards, purchases, and inventory procedures



Procedure Step: Fleet Data and Vehicle Usage

Purpose/Conclusion:
Purpose: To determine if the District adequately monitors vehicle assignment and use.

Conclusion: We found the department responsible for fleet management activities, Facility Operations, does not adequately monitor vehicle assignment and
usage. Required forms are missing or not properly filled out all vehicles and drivers. As a result, Fleet Data isn't up-to-date or accurate enough to be relied
on. We noted this issue in ISS.16 AC_EX: Fleet Management. The District's does not adequately monitor vehicle assignment, usage, fuel cards, purchases, and
inventory procedures

Key People:
Helen Jones, Facilities Operations Administrative/Supervisor Facilities Operations Admin
Bruce Skowyra, Facilities Operations/Director of Facilities OperationsLarry Gottas, Maintenance Services/Assistant Manager Maintenance Services

Testing Strategy:

Policy/Standards:

Background:
During the 2011 Accountability Audit, an exception was filed related to the District's fleet management activities. One major issue noted was the
Districts weak internal controls over vehicle assignment and usage Fleet Management Corrective Action of PY issue. We will be following up to see if the
District has improved internal procedures to improve internal controls over vehicle assignment and usage.

Key People:
Bruce Skowyra, Facilities Operations/Director of Facilities Operations
Larry Gottas, Maintenance Services/Assistant Manager Maintenance Services
Roxana Melville, Payroll Accountant

Documents:
District Vehicle Use Standards #F08-07 Vehicle Use Standards
Condition of Use Agreement Form Conditions of Use Agreement
Authorization for Assignment of a District Vehicle Form Vehicle Assignment form
Taking a Vehicle Home #F06-01 Taking a District Vehicle Home #F06-01
Helen Jones' Fleet Data worksheet Facilities Operations FleetData

Policy and Standards:
We reviewed the District Vehicle Use Standards Policy #F08-07 and identified the following key items:
SPS vehicles are to be operated only by authorized employees. You must have a current signed Conditions of Use Agreement form on file (renewed
each September)
You must be in possession of a current drivers license when you operate a SPS vehicle
You cannot drive a SPS vehicle home unless Fleet Management has your Directors approval on file. Per IRS regulation, Sec. 1.61-21, if you drive a vehicle
home you will have $3 per day added to your reported income. This will result in a tax liability which will automatically be deducted from your wages
consistent with IRS rules.

Understanding of Current Conditions:
We met with Helen Jones, Supervisor Facilities Operations Admin, who is responsible for fleet management activities (overseen by Larry Gottas, Assistant
Manager Maintenance Services). Helen stated that the Fleet Coordinator position was eliminated in 2009 and fleet management responsibilities were handed
over to her. Helen stated that she has done her best to incorporate fleet management into her duties, however given the urgency of her other responsibilities,
fleet management is not a priority. Helen stated that each September, she sends out an email to all department managers asking them to complete the
Authorization for Assignment of a District Vehicle form for each one of their vehicles and the Condition of Use Agreement form for each driver assigned to
the vehicle. Helen stated that some departments are more responsive than others and that she tries to send out a reminder email or phone call but that she
doesnt have the time to continually follow up on those that dont comply. When the requested forms are completed and returned, Helen updates her Fleet
Data work sheet. She keeps the original Authorization for Assignment and Condition of Use Agreement forms in a three ring binder in a locked filing
cabinet.

Helen tracks the following information on her Fleet Data worksheet: Vehicle ID#, Cost Center, Make, Model, Year, VIN#, Plate#, Vehicle Parking Site,
Department, Dept Director, Assigned Drivers, Date Assigned, Fuel Type, Fuel Capacity, Purchase Price and other data about the vehicle. We asked Helen how
she keeps Fleet Data up-to-date, Helen stated that she relies on others to let her know when changes are needed. She finds out about a new vehicle purchase
when the Districts Maintenance Auto Shop sends her vehicle registration information and she finds out about a vehicle sale when Allen Mardock, Accounts
Payable Supervisor sends her a copy of the title/vehicle sellers report of sale. Helen doesnt delete a vehicle from the spreadsheet; instead she changes some
fields to Sold, Junk, or other inactive status. After speaking to Allen Mardock about inventory procedures, Allen noted that when he is unable to locate a
vehicle, he will contact Helen to determine who is assigned to the vehicle but that this information is sometimes insufficient. We asked Helen how she is
notified of new driver assignments, she stated that she relies on the department managers to keep her updated when new drivers are added (because she has
no way of knowing otherwise). There is no ongoing monitoring to make sure this information is up-to-date aside from requiring departments to submit fresh
forms each September.

Vehicle Take home (24/7 use) policy
The Authoriztion of Assignment of a District Vehicle form contains a checkbox indicating whether the driver is authorized to take a vehicle home. We spoke to
Bruce Skowyra, Director of Facilities Operations, to gain an understanding about this policy. Bruce stated that there is no District wide policy that guides the
practice of taking vehicles home, instead authorization to take a vehicle home is handled by the Director of the department. His department collects the
Authorization of Assignment of a District Vehicle form on behalf of other departments, but this form is a Facility Operations requirement, there is no District
policy that requires this form. Per IRS regulation, Sec. 1.61-21, if you drive a vehicle home you will have $3 per day added to your reported income. This will
result in a tax liability which will automatically be deducted from your wages consistent with IRS rules. We contacted Roxana Melville, Payroll Accountant, to
gain an understanding of how she identifies employees who receive the 24/7 vehicle use fringe benefit for payroll processing. Roxana stated that she requests
a list of employees identfied as taking a vehicle home from Helen Jones in Facilities Operations. Roxana emails the employees on the list to determine how
many days the employee is taking the vehicle home in order to determine if IRS 1.61-21 applies to them.
We investigated on Take Vehicles home issue at D.5.PRG , see Fringe Benefits Row.

Vehicle servicing/repair
We spoke to Bruce Skowyra, Director of Facilities Operations, to gain an understanding about how vehicle servicing is handled at the District. Bruce stated that
once a vehicle purchase is delivered to the Facilities Operations Auto Shop, the vehicle is entered into the District's School DUDE system to track work
orders. Bruce stated that the District use to have a fleet coordinator position that monitored servicing/repair scheduling for the District but that position was
eliminated in 2009. Since then many of those responsibilities have been decentralized thus vehicle maintenance, repair, servicing is the responsibility of the
department and the drivers assigned to the vehicle. Since the fleet coordinator position has been removed, some administrative fleet management
responsibilities was handed over to his department, Facilities Operations (in large part because the department owns the majority of the vehicles in the
District's fleet). Many of the policies related to fleet management are Facilities Operations policies which have been applied to other departments but these
policies are not actually District policies.
Testing:
1. Test accuracy of vehicle assignment and use forms:
Each September, Facility Operations requests that departments return the Authorization for Assignment of a District Vehicle for each vehicle along
with the Condition of Use Agreement form for each driver permitted to drive the vehicle. Helen Jones, Supervisor Facilities Operations Admin
keeps the returned Authorization for Assignment of a District Vehicle forms in a set of three binders. The Condition of Use Agreement form for
each driver listed in the Assignment of a District Vehicle form is stapled underneath it. We obtained the binder for vehicle mumbers 301-520 to
test for accuracy, we found 55 form sets in this binder. We examined the Authorization for Assignment of a District Vehicle form to see if it clearly
lists all the drivers permitted to drive the vehicle and if it has the department manager's signature of authorization. For the Condition of Use
Agreement form, we tested to see if this form is present for all the drivers listed in the Authorization for Assignment of a District Vehicle form and
to see if it contains important information such as the driver's license number and the department manager's signature of authorization. We also
checked to see if the take home 24/7 use box is clearly marked. We found 13 out of 55 form sets did not list out each driver permitted to drive the
vehicle. This makes it hard to determine if the Condition of Use Agreement is completed and included for all the drivers (completeness), the
Condition of Use Agreement is required to drive a District vehicle. We found 9 out of 55 form sets was missing the Condition of Use Agreement for
drivers or was missing the driver's license number or department manager's signature of authorization. We found 8 out of 55 form sets did not
clearly indicate whether take home 24/7 use is allowed. See our test results here Vehicle forms testing Based on our test results, we determined
that the Facility Operations vehicle assignment and use forms aren't always properly filled out and can't always be relied on to track down vehicle
assignment and usage.

2. Testing accuracy of identification of employees who receive 24/7 vehicle use fringe benefit (per IRS 1.61-21). We filtered the Fleet Data worksheet that
Helen Jones, Supervisor of Facilities Operations Admin provided for all vehicles with the location of Home. We compared this list of employees to the list of
employees that the District's payroll department identified as receiving the 24/7 vehicle use fringe benefit. If the employee on the Fleet Data list is not getting
the fringe benefit payroll tax liability applied to their paycheck, we confirmed with the department manager that IRS 1.61-21 does not apply. See our testing
here Vehicle Take home policy testing Based on our test results, we noted no exceptions. Note that we are not testing the payroll tax liability calculations,
that is being tested under the Accountability/Payroll/Fringe Benefit Use of Vehicle section of the audit, section D.6.8.

Conclusion:
We have gained an understanding of Facilities Operations procedures for tracking vehicle and driver information in hardcoopy forms and in its Fleet Data
worksheet. We noted the following items:
(1) Facility Operations lacks the internal control to ensure that Vehicle Assignment and Condition of Use forms are returned for all drivers and that the
pertinent information is provided. As a result, Fleet Data isn't up-to-date or accurate enough to be relied on. We noted this issue in ISS.16 AC_EX: Fleet
Management. The District's does not adequately monitor vehicle assignment, usage, fuel cards, purchases, and inventory procedures


Procedure Step: Fuel Card Usage

Purpose/Conclusion:
Purpose: To determine if the District has internal controls over the issuance and use of fuel cards/PIN numbers for its vehicles and drivers.

Conclusion: We found the District's does not adequately monitor fuel card usage. Specifically we found:
(1) Accounts payable issue payments for Chevron fuel card invoices without approval by department managers
(2) Some departments are not charged for their fuel expenditures
(3) Some department managers are not monitoring and reconciling their fuel card expenditures for reasonableness
(4) Employees are not submitting the Fuel Mileage Log forms as required by Facilities Operations, the department in charge of fuel card/PIN number issuance
(5) Facility Operations is not filing Fuel Mileage Fuel forms in an organized manner and the filing system cannot be relied on to find information about fuel card
transactions
We noted this issue in ISS.16 AC_EX: Fleet Management. The District's does not adequately monitor vehicle assignment, usage, fuel cards, purchases, and

Key People:
Larry Gottas, Facilities Operations/Assistant Manager Maintenance Services
Bob Westgard, Logistics/Director of Logistics
Gary Deitz, Warehouse/Manager Distribution Services
Larry Dorsey, Safety & Emergency Mgmt/Manager Safety and Emergency
Marlene Fuller, Comptrollers Office/Capital Projects Accountant
Patty Murray, Comptrollers Office/Accounts Payable Specialist

Testing Strategy:

Policy/Standards:

Background Information:
During the 2011 Accountability Audit, an exception was filed related to the District's fleet management activities. One major issue noted was the Districts
weak internal controls over policies related to fuel cards Fleet Management Corrective Action of PY issue. We will be following up to determine if the District
has improve internal controls over fuel card policies.

Key People:
Larry Gottas, Facilities Operations/Assistant Manager Maintenance Services
Bob Westgard, Logistics/Director of Logistics
Gary Deitz, Warehouse/Manager Distribution Services
Larry Dorsey, Safety & Emergency Mgmt/Manager Safety and Emergency
Marlene Fuller, Comptrollers Office/Capital Projects Accountant
Patty Murray, Comptrollers Office/Accounts Payable Specialist

Documents:
Facility Operations-Vehicle Use Standards Vehicle Use Standards
Facility Operations-Condition of Use Agreement Conditions of Use Agreement
Facility Operations-APP Fuel Card and PIN form Facility Ops-Fuel Card and PIN form
Facility Operations-Fuel Mileage Log Form Fuel Mileage Log Form

Policy and Standards:
We noted the following Facility Operations policies related to fuel cards:
District Vehicle Use Standards:
(1)You must use the fuel card provided only for District vehicles and must not share your fuel PIN number with anyone. At each fueling you must record the
vehicle odometer reading both at the pump and in the vehicles logbook.
(2)"Fuel, servicing, and repair expense will be charged to your department."

District Vehicle Conditions of Use Agreement:
(1)I will use the fuel card provided only for this District vehicle and will not share my fuel PIN number with anyone. If I lose or misplace my pin number/fuel
card, I will report it immediately.
(2)At each fueling, I will record the vehicle odometer reading both at the pump and on the mileage form.

Background Information
In speaking with the Districts Accounts Payable staff, we identified the following fuel cards in use at the District:
Associated Petroleum- Facility Operations (Maintenance, Grounds, Custodial, Environmental Services, etc.), Security, Warehouse and many other departments
Chevron-Cleveland High School, Security, Special Education

Other fuel use at the District:
Schools might have employees who pay for fuel upfront and get reimbursed by the District at a later time
Ferrell Gas comes out to bus sites to fill up buses
Petro comes out to sites to fill up fuel holding tanks for diesel buses
*We will not be examining these scenarios because we are focusing on fuel cards.

Associated Petroleum (APP)
Departments under Facility Operations (Maintenance, Grounds, Custodial, etc.) incur the majority of APP fuel expenditures (over 80% for the March 15, 2014
APP statement). We spoke to Larry Gottas, Assistant Manager of Maintenance Services and Helen Jones, Supervisor Facilities Operations Admin to gain an
understanding of policies and procedures related to APP fuel card.

Fuel card/PIN issuance Process
Currently, the Facility Operations department handles certain fleet management activities for the District. This includes procedures controling fuel card
usage. In April 2013, the Facility Operations department switched from PetroCard to Associated Petroleum (APP). With the switch to APP, the department
issued a new form for fuel card and PIN number issuance on Feb 2013, see form here Facility Ops-Fuel Card and PIN form. All drivers of District vehicles were
required to fill out the form in order to get an APP PIN number. The APP fuel card is only given to the main driver assigned to the vehicle (to be placed inside
the vehicle). When the driver signs the form, Helen Jones, Supervisor Facilities Operations Admin, writes in the vehicle number, PIN number, and card number
if the employee is the main driver. We did not see a line on the form where the employees department manager was required to sign/approve, however
Helen Jones stated that she checks the Authorization for Assignment of District Vehicle form for the Department managers authorization . After the form is
signed, Helen stores the hardcopy in a binder. When Helen finds out about a lost card she calls APP to deactivate the lost card. Typically, a lost card is
reported when a driver needs the card to fill up and the card cant be found in the vehicle.

Fuel Card Usage Process
Each vehicle is assigned one fuel card which is kept in the glove compartment of the vehicle or with the keys. A driver is assigned a PIN number which can be
used with any fuel card. The Districts APP fuel cards were set up with limits, cards are set to a per fill limit of 20, 30, 40, or 50 gallons. There is also a per day
limit of 250 gallons. Larry Gottas, Assistant Manager Maintenance Services, stated that the District can adjust to these limits with APP if necessary.In order to
complete a transaction, the driver is required to punch in the odometer reading at the pump, however APP does not validate odometer readings (thus any
number will do so long as a number is entered).

Helen Jones, Supervisor Facilities Operations Admin, stated that that the drivers are required to track their fuel transactions in the Fuel Mileage Log Form, see
form here Fuel Mileage Log Form. The form contains the vehicle number at the top and columns for date, first and last names, and the odometer reading at
each fill up. If filling gas cans or equipment, the values "111" and "222" are to be entered in substitute of the odometer reading. Every driver is expected to
return the Fuel Mileage Log Form two days after the end of the month. We asked if the Fuel Mileage Log Forms are reviewed by the department managers,
Helen said that the forms go straight to her and there isnt a requirement for the department manager to review it. When the form is returned, Helen adds it
to the vehicle folder where she keeps the title and registration for the vehicle. She does not review the Fuel Mileage Log Form for reasonableness nor does she
does track whether each and every driver has returned the form. We asked Helen how the Fuel Mileage Log form is used, she stated that that Larry might refer
to them to reconcile the APP fuel statements.

Payment Process
Marlene Fuller, Capital Projects Accountant, pays the APP bill promptly upon receiving the statement to avoid late payments. After payment, she sends the
statement to Larry Gottas, Assistant Manager Maintenance Services, for reconciliation. After Larry is done reconciling the statement, he returns it to Marlene
for storage.

The Warehouse department is set up in the District's financial system with an open purchase order number with the APP vendor (this allows Accounts Payable
to record expenditures against the departments cost center). Marlene emails Gary Dietz, Manager Distribution Services, a copy of the invoice from APP for
reconciliation. Gary emails Marlene back with his approval to pay. Marlene attaches the email to the bill and records the journal entry to charge the
Warehouse cost center.

Reconciliation Process-Maintenance
Larry Gottas, Assistant Manager Maintenance Services, reconciles the APP statement by going through the statement and looking for unusual activity. The bill
contains a transaction details section that groups the fuel transactions by vehicle. Each transaction line identifies the driver, date, site, gallons purchased, and
total cost. To reconcile, Larry notes the fill up activity for the vehicle/driver, the total amount of gallons pumped, and the total amount of fuel cost. He checks
the information for reasonableness based on his experience and knowledge of his organization and circumstances. For instance a Grounds person will need to
fuel up more often and in smaller quantities for equipment such as lawn mowers. Also, there is more fueling activity during the summer when the District is
actively doing maintenance and repair work. Larry also checks the fuel type summary to see if Superunleaded fuel was purchased, which would be
unexpected. When asked if/how he keeps tracks of fluctuations in fuel costs, he said he performs a crude analysis and is mindful of current fuel prices. Larry
stated that he doesn't rely on the odometer information on the statement to reconcile. He also stated that he does not usually refer to the Fuel Mileage Log
Form to try to reconcile the odometer information on the statement, but that he might refer to it if he suspects there has been unusual activity.

Reconciliation Process-Warehouse
We met with Gary Deitz, Manager Distribution Services, to gain an understanding of the Warehouse department's APP fuel card reconciliation process. Gary
stated that the Warehouse vehicles are assigned a fuel card and corresponding PIN number. Warehouse drivers aren't assigned individual PIN numbers. The
Warehouse department reconciles the APP fuel statement by noting the time, frequency of fueling activity, odometer readings, and gallons purchased for each
vehicle. Gary pulled a random statement from a folder to look at. This statement contained transactions with questionable odometer readings. The
statement had notes next to the bad odometer readings indicating the issue was followed up with the driver (mistake keying in the data at the pump). Gary
stated that the department does not require his drivers to submit the Fuel Mileage Log form. Once the APP statement has been reconciled, Gary sends
Marlene an email to let her know that it's ok to pay the bill. Gary monitors total fuel consumption for his department on an annual basis for budgetary
purposes and says fuel consumption for his department doesn't vary by very much year to year.

Chevron
Understanding of Process
We identified the following departments with Chevron accounts, Cleveland (PO# 7600011646), Special Education (PO# 7600011744), and Security (PO#
7600011341). Patty Murray, Accounts Payable Specialist, stated that she writes the check as soon as she receives the Chevron statement. Patty stated that
she has been paying these accounts for years and checks the bill for reasonableness based on her familiarity with the accounts and knowledge of past
charges. We asked her what is normal, she says she compares it to last month's charges which is stated on the bill. We asked her what amount of increase
would cause her to be concern, she did not provide an answer. We noted that none of the statements we looked at had the department
manager's signature. We asked Patty if the department manager's authorization was required, she stated that there is no requirement for the department
managers to approve the charges with her though she said they would see the charges to their cost centers.

We spoke to a few department managers to determine whether a review or reconciliation was occurring at the departmental level. We contacted Larry
Dorsey, Manager Safety and Emergency of Security. He informed us that the department has two Chevron cards which are mainly used for car washes. Cards
are checked out and returned to Larry promptly. He showed us the drawer where he keeps the receipts for the car washes. The department Chevrons
account has an annual budget of approximately $1,000. We asked him whether he routinely reconciles costs charged to the Chevron account, he said no. He
stated that he is able to go into the Districts financial system and drilldown on the costs but that he does not reconcile every statement. When we brought up
the late fees charged to his Chevron account, Larry had some awareness of it. He said he found out about the late fees coincidentally upon receipt of
misdirected mail from Chevron that ended up in Security. He said he spoke to Lloyd Wallace, who used to be the District's Accounts Payable Supervisor, about
the late fees.

We spoke to Zakkiyah McWilliams, Executive Director of Special Education. Zakkiyah was not aware of the Chevron account and directed us to Jennifer
Anderson, Senior Cost Technician from the Special Education department. Jennifer stated that the account is used for a landscaping program. She stated that
she just started this position in November 2013 and that as far as she knows, there was no one in the department reconciling the Chevron account.

Testing
Associated Petroleum (APP)
1. Odometer policy testing. Facilities Operations require that drivers enter the odometer reading at the pump and submit the Fuel Mileage Log Form for their
vehicle at the end of each month. We obtained the APP statement for the period ending 3/15/2014. We tested the odometer entry requirement by examining
the detailed transaction summary for each vehicle in the statement. We noted the transactions with questionable odometer entries. We considered invalid
odometer entries to be entries where odometer readings decreased, increased significantly (over 500 miles) and odometer entries which were nonsensical
such as 0. We then searched for the Fuel Mileage Log Forms that correspond to the questionable entries to determine if the forms were being submitted as
required. In testing for the Fuel Mileage Log Forms, we found that Facility Operations was not filing the forms in an organized manner which makes it difficult
to determine whether they were not submitted or just weren't filed correctly. Helen Jones explained that she hasn't had the time to file the Fuel Mileage Log
forms into the vehicle folders. We found three cases where there were questionable odometer entries without a corresponding Fuel Mileage Log Form on file
in order to reconcile. Based on our test results, we found that Facility Operations either does not consistently receive or file the Fuel Mileage Log Forms in
an organized manner so that they may be used to reconcile questionable odometer readings. We also determined that Facility Operations does not follow
up on fuel transactions with questionable odometer entries. See our test results here Odometer Policy testing

2. Reconciliation Key Control testing-Facility Operations. In the Facililty Operations District Vehicle Use Standards, it states that departments will be charged
for their fuel expenditures. We examined the APP fuel statement for the period ending 3/15/2014 and noted that the statement was reconciled and signed
off by Larry Gottas, Assistant Manager of Maintenance Services. We asked Larry whether the other departments were reconciling their fuel expenditures, he
said no. We asked him how he reconciles the other department's fuel expenditures, he says that he does a crude check for reasonableness but that he would
not understand other departments' business needs for driving. We asked how the other departments see their fuel expenditures, he stated that currentlly
Facility Operations is being charged for all APP fuel expenditures aside from Warehouse and Security (which both have an open purchase order number with
the APP vendor). He stated that Facilities Operations is currently working with the other departments to create open purchase orders so that the
departments can be charged directly for their fuel expenditures. When this task is completed, a correcting journal entry will be made to transfer the
departments' fuel costs from Facility Operations to the correct department. Based on our testing, we found that Facility Operations is currently not following
its policy of charging the departments for their fuel expenditures.

3. APP Fuel Card/PIN form testing. The Facilities Operations department require APP fuel card forms before issuance of a fuel cards for vehicles or
PIN number for drivers. We examined the APP fuel statement for the period ending 3/15/2014 and noted the transactions with questionable
odometer entries. We judgmentally selected these vehicles/drivers to test for completeness for submission of the APP Fuel Card/PIN form. We
noted no exceptions. See our test results here APP Fuel Form Testing

4. Reconciliation Key Control testing-Warehouse department. We noted that Gary Deitz, Manager Distribution Services stated that his drivers
aren't assigned individual PIN numbers. We asked Gary if he was aware that Facilities Operations require each driver to fill out the APP Fuel
Card/PIN form. He stated that his department was set up with the APP account before Facilities Operations switched over to APP from Petro and
secondly, Facilities Operations policies are not District policies and thus he is not required to comply. We asked Gary how he reconciles the fuel
activity on the statement if the driver is not identified, he stated that he can tell who the driver is based on employees scheduled work time. We
took exception to this as this puts the department at risk of not being able to identify fueling activity for each driver.
Chevron
We obtained all hardcopy Chevron statements from Allen Mardock, Accounts Payable Supervisor for SY2013. We examined the statements to determine
whether there is evidence of a review or reconciliation from the department manager, we noted none of the statements were signed by the department
managers. Through interviews, we confirmed that neither the Security or Special Education departments were reconciling their Chevron statements. Based on
this knowledge, we examined the bills for unusual activities. We found statements for all three departments frequently had late charges, 3 of 7 statements for
Cleveland, 10 of 12 statements for Security, and 5 of 10 for Special Education. In total 18 out of 29 bills (62%) had late charges. We also found one bill for
Special Education which was a significantly higher than their average and assessed that there was a possibility of unusual activity. See our testing here -
Chevron Fuel Card Testing Based on our test results, we found that the departments with Chevron accounts are not reconciling their statements which
allowed frequent and reoccuring unusual activity to continue without being detected timely.

Conclusion:
We gained an understanding of the policies and procedures in place to monitor fuel card usage at the District. We noted the following items:
(1) Facilities Operations does not reconcile fuel transactions that have questionable odometer entries. They do not enforce the requirement of Fuel Mileage
Log Forms and do not file these forms in an organized manner so that they may be used for reconciliation.
(2) Facilities Operations currently does not follow their policy by charging other departments for their fuel expenditures or require the departments to
reconcile their fuel expenditures.
(3) Warehouse department drivers are not assigned individual PIN numbers
(4) Departments with Chevron fuel card accounts do not reconcile their statements which allowed frequent and reoccuring unusual activity to continue
wihtout being detected timely.
We note this issue in ISS.16 AC_EX: Fleet Management. The District's does not adequately monitor vehicle assignment, usage, fuel cards, purchases, and


D.10.PRG - Procurement of Apple Contract

Procedure Step: Procurement of Technology Purchases

Purpose/Conclusion:
Purpose: To determine if the District appropriatly procured contract for technology purchases.

Conclusion:
We determined that the District appropriatly procured contract for technology purchases.

Testing Strategy:

Policy/Standards:

This is an aditional risk that was identified after we planned the audit.
We will perform minimal procedure to mitigate the risk.
If any aditional risk will be noted we will forward those to future audit work file.

Background:

During phone conference with Team School Programs on 2/5/2014 we became aware of the new emerging issue regarding procurement of
technology purchases by School Districts and Educational Service Districts.

From Team School Program handout for the phone conference:

Over the last several years, the State Auditors Office has encountered several sole source purchases of Apple products by school districts
and ESDs. Because there are many types of technology products that could potentially be used by school districts it is very difficult to
justify a technology purchase as sole source. Last year one school district issued a Request for Proposal (RFP) and awarded Apple, Inc.
the contract. Under RCW 39.34.030, a school district may piggyback off another districts contract, if all the piggybacking requirements
are met.

We recommend that the District comply with chapter 39.34 RCW, RCW 28A.335.190, and any other applicable statutes when making
technology purchases.

Seattle School District has been purchasing Apple devises for many years. Over the past several years SSD provided us with the letter from Apple
that stated that SSD can only buy Apple software and hardware from Apple Inc. In the past we agreed that this letter was satisfactory to justify
not issuing RFP process and awarding Apple, Inc. the contract as sole source provider.

Procedures:
We met with Craig Murphy, Purchasing Manager to inform SSD that we no longer can agree with their justification of Apple, I nc. to be a sole
provider of technology purchases.
Craig informed us that SSD use Lenovo and Dell state contracts for Windows OS devices. Apple is the only purchasing channel for education for
devices that support Apple OS and iOS. He stated that the decision to purchase Apple devises is made at the school level not dictated by
administrative office. Therefore he was not sure how else the procurement can be handled.
To identify appropriate strategy for procurement of technology purchase for SSD we met with Ron English, SSD Legal Counsel, Ken Gotsch,
Assistant Superintendent Business and Finance, Kathie Technow, Accounting Manager and Craig Murphy, Purchasing Manager. From SAO - J im
Griggs, Audit Manager, Anastassia Kavanaugh, AAM and Annetter Boulmetis, ASA.
During our meeting we determined that it would not be reasonable or necessary for SSD to issue RFP and award contract for technology
purchases to Apple Inc., or piggyback on existing procurement to make purchases from Apple I nc. Because doing this will restrict the district to
make all purchases of technology from Apple Inc. SSD is not 100% Apple district and does not intend to limit the choices it teaches when it comes
to making technology purchases. We came to a mutual conclusion with SSD management that Apple Inc. still can be treated a sole source to
purchase Apple hardware and software based on the following justification provided by the district:
The two major commercial computer operating systems in the market are Windows and Apple. Our schools have made educational
decisions about the appropriateness of one version of OS over another based on program needs, existing software and equipment, and
local staff expertise on use and support. When purchasing computing equipment, we give schools a choice as to which they feel best
meets these educational needs.
In the mobile OS market there are additional options. The Seattle Public School District Department of Technology Services and
Curriculum and Instruction Department have invested a lot of staff time on the Apple mobile iOS platform to develop systems for setup,
purchasing of applications and support when Apple iOS was the first option to market. At this time we do not have the internal capacity to
add support for additional mobile OS platforms and consequently limit our choices to Apple iOS and full Windows OS on mobile tablets
since we have existing experience and established tools to support them.

See D.10.1 for complete sole source justification documentation.

D.11.PRG - Self-Insurance

Procedure Step: Review Insurance Coverage

Purpose/Conclusion:
Purpose:
To determine if insurance coverage is adequate to safeguard public resources.


Conclusion:
We determined that the district has adequate self-insurance to safeguard public resources. We noted some additional risks that we will consider in
the future audit. See AS4.h

Testing Strategy:
To determine if insurance coverage is adequate, consider the following procedures:
Review Schedule 21 from the entitys annual report for the following risk indicators:
Failure to complete the schedule in instances where the auditor knows or suspects that the entity is self-insuring certain property
or liability risks; or self-insures medical benefits.
New or significant changes to self-insurance programs
Stating that the entity allows other groups to join its program(s).
If this is the case for an entity that is not a risk pool, contact the Risk Pool Specialist for further guidance. This indicates the
program may be operating as a joint program and is subject to increased regulatory requirements.
Failure to obtain an actuarial analysis of program liabilities, or reliance on outdated actuary reports (ie: more than four years old, or
reports that were done prior to significant changes).
Failure to obtain an independent claims audit. This would be a risk indicator whether the entity processes their own claims or whether
claims are processed by a contractor/third party administrator.
Program liabilities substantially in excess of program resources (ie: unfunded liabilities).
Review the Risk Management Note from the draft or prior years Financial Statements for the following risk indicators:
Inconsistency with Schedule 21 or known facts.
Inadequate or confusing disclosure.
Inquire with Risk Management staff to gain an understanding of self-insured risks.
Consider confirming inquiry or Schedule 21 by reviewing significant terms (amount of coverage, deductibles, limits and exclusions) of
selected policies.
Evaluate the entity's insurance coverage (purchased insurance and reported self-insurance) and determine whether it
addresses all significant areas of risk. If not, it would imply unreported and unmanaged self-insurance. Contact the Risk
Pool Specialist if assistance is needed in making this evaluation.
The need for insurance coverage will depend on the scope and extent of entity activities. Common coverage needs include property,
boiler & machinery, vehicle liability and environmental liability. Special insurance policies or specific additional coverage to property
liability may also be necessary for various unique activities (such as operating airports, marinas, terminals, or power plants).

NOTE: Fidelity or Performance bonds (protecting the government from the acts or omissions of its officials and employees) may be
required by statute see the Bonding of Officials and Employees step for details.

Contact the Risk Pool Specialists if assistance is needed in evaluating the adequacy of insurance.

Policy/Standards:
"Property and liability insurance" refers to coverage of damage to property and legal claims against the entity for negligence or strict liability torts
(that is, not intentional crimes). Property and liability risks can be managed either through purchased insurance or self-insurance

Adequate insurance coverage would typically be considered an internal control (safeguarding public resources). Also, RCW 48.62 requires
approval by the State Risk Manager to self-insure, which would imply that the entity would otherwise need adequate purchased
insurance. Entities may be considered to be self-insured due to:
Not purchasing insurance for a certain category of risk
Being exposed to loss from a certain cause due to policy exclusions (ex: natural disasters such as floods or earthquakes)
Being exposed to loss to certain property that is not covered by insurance
In addition to general expectations regarding adequate insurance and requirements for any self-insurance programs, there are also several entity-
specific statutory requirements related to adequate insurance coverage as follows:
ESDs - RCW 28A.310.310
Schools - RCW 28A.400.370
Ports - RCW 53.08.085 and 53.08.145

This is an aditional risk that was identified after we planned the audit.
We will perform minimal procedure to mitigate the risk.
If any aditional risk will be noted we will forward those to future audit work file.
School Districts are not required to submit Schedule 21 as the part of their annual report, so Seattle School District does not prepare one.

The District does not use ESD. SSD does self-insure for General Liability - first million and for Workers Compensation. According to Risk Manager
Richard Staudt SSD did not have any changes in self-insurance programs. SSD does not allow other's to join their self-insurance programs.

General Liability & Property
The Seattle School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors
and omissions; injuries to employees; and natural disasters.
In September 2001, the district joined the Washington Schools Risk Management Pool (Pool). Chapter 48.62 RCW authorizes the
governing body of any one or more governmental entities to form together into or join a pool or organization for the joint purchasing
of insurance, and/or joint self-insuring, and/or joint hiring or contracting for risk management services to the same extent that they
may individually purchase insurance, self-insure, or hire or contract for risk management services. An agreement to form a pooling
arrangement was made pursuant to the provisions of Chapter 39.34 RCW, the Interlocal Cooperation Act. The Pool was formed in
1986 when educational service districts and school districts in the state of Washington joined together by signing an Interlocal
Governmental Agreement to pool their self-insured losses and jointly purchase insurance and administrative services. Over 80
school and educational service districts have joined the Pool.

The Pool allows members to jointly purchase insurance coverage, establish a plan of self-insurance, and provide related services,
such as risk management. The Pool provides the following coverages for its members: property, liability, vehicle, public official
liability, crime, employment practices, machinery breakdown and network security.

Members make an annual contribution to fund the Pool. The Pool acquires reinsurance from unrelated underwriters that are subject
to a per-occurrence self-insured retention of $1 million. Members are responsible for varied deductibles for both liability and property
claims. Insurance carriers cover losses over $1 million to the maximum limits of each policy. Since the Pool is a cooperative program,
there is a joint liability among the participating members.

Members contract to remain in the Pool for a minimum of three years and must give notice two and one half years before terminating
participation. The Interlocal Governmental Agreement is renewed automatically each year after the initial three-year period. Even
after termination, a member is still responsible for contributions to the Pool for any unresolved, unreported, and in-process claims for
the period they were a signatory to the Interlocal Governmental Agreement if the assets of the Pool were exhausted.

The Pool is fully funded by its member participants.
The Pool is governed by a board of directors which is comprised of one designated representative from each participating member.
An executive board is elected at the annual meeting, and is responsible for overseeing the business affairs of the Pool.
The insurance schedule is as follows:
Self Insured Retention
Property $100,000 per occurrence
Earthquake 5% of affected values at each location subject to
$1,000,000 Minimum per occurrence
Flood $250,000 per occurrence
Boiler & Machinery $25,000 per occurrence
Automobile and Bus Physical Damage $5,000 per occurrence
General Liability $1,000,000 per occurrence
Money, Security, Employee Dishonesty $5,000 per occurrence
Employment Practices Liability $1,000,000 per occurrence
Errors and Omissions Liability $1,000,000 per occurrence
Workers Compensation $600,000 per occurrence
Insurance Coverage Limits 2013-2014
General Liability $20,000,000 per occurrence
Sexual Abuse Liability $20,000,000 per occurrence $20,000,000 aggregate
Automobile Liability $20,000,000 per occurrence
Property $500,000,000 per occurrence
Earthquake $25,000,000 Pool wide aggregate
Flood $100,000,000 Pool wide aggregate
Workers Compensation Statutory
Employers Liability $1,000,000 per occurrence
Boiler &Machinery $500,000,000 per occurrence
Commercial Crime Money & Securities $50,000 per occurrence
Commercial CrimeEmployee Dishonesty $1,000,000 per occurrence
Employment Practices Liability $20,000,000 per claim
Errors & Omissions Liability $20,000,000 per occurrence
Workers Compensation
The district self-insures for workers compensation. CorVel Corporation has been processing on-the-job injury claims for SSD starting August 1,
2012.
SSD estimates Work Comp liability based on the prior data and sets aside reserve to pay claims. I n 2013 SSD set aside $2.5 million in Key Bank
for workers comp.
The District did not state that it self-insures for health; however, we found from DES web site that the District was approved to
self-insure for Vision.
See http:/ / des.wa.gov/ SiteCollectionDocuments/ RiskManagement/ Approved%20HW%20Program%20List%2012%202014.p
df

We noted during our review that SSD appears to have sufficient insurance coverage and set aside reserves for property liability and workers
compensation. However, we did not examined Health insurance to determine if any parts of it is self-insurance. We will include this into FAWF to
consider during next year planning.

E.1.PRG - Concluding Single Audit Procedures

Procedure Step: Prior Federal Findings

Purpose/Conclusion:
To complete the Status of Prior Federal Audit Findings schedule for the single audit report.

Testing Strategy:
The following procedures are required to complete the Status of Prior Federal Audit Findings schedule, if applicable:
1. If your follow-up work was documented in conjunction with an audit of a major program, provide a link to this work in the Record of Work
Done below. If your follow-up work pertained to a non-major program, document the results of your follow-up work in Record of Work Done
below.
Major Programs: Prior year conditions that continue to be uncorrected during the current audit may need to be reported again as a finding
in accordance with our materiality thresholds.
Non-major programs: We do not have to re-report internal control weaknesses or noncompliance for non-major programs unless we
become aware of questioned costs exceeding $10,000.
2. Use the template provided in TeamMate or ORCA to draft the schedule, excluding the status and description of corrective action sections
which are prepared by the entity. Request the auditee draft the status of corrective action and description of corrective action schedules.
3. Review the corrective action status and description provided by the auditee and compare it with the results of your follow-up work. I f
information is misleading or inaccurate, request the auditee modify the information. If the auditee declines to modify its information, and you
believe the information materially misrepresents the status of the finding, we can report this in a finding per Circular A-133, Section 510(a)(7).

Policy/Standards:
ARS Manual Part 5, Chapter 5 describes requirements for the Stauts of Prior Federal Audit Findings schedule

1. Results of follow-up procedures performed in conjunction with:
Major Program
CFDA 84.360 High School Graduation Initiative
- See E.2.PRG for work completed. We followed up on the prior year qualified finding by meeting with District personnel and
performing transaction and payroll testing. We found the District put in place three personnel to oversee the federal program and
they now closely monitor charges. The new Program Managers spent much of the year determining charges that were
unallowable and created a year-end journal entry to move the unalloable charges to the general fund for the District to pay. We
determined the District has internal controls in place and are closely monitoring the charges and activities of the program showing
they have significantly improved and took action on our prior finding recommendations. However, during the audit we found one
employee charged that is not allowable to the grant totaling $61,348. The District was aware the employee charges from the
Communities That Care mini-grant portion of funding was not allowable. Instead of reclassifying the charges from the federal
grant to the general fund so that the District was not reimbursed for the unallowable charges, they instead stopped payment from
the grant fund on September 30, 2013. The District now pays for the employee's charges. See ISS.11

Non-major programs
CFDA 84.060- Indian Education Grants to Local Educational Agencies
We obtained the District's grant award notification from Kevin Corrigan, Director of Grants & Strategic Partnerships. From the award notification
we determined the award amount was $97,594 based on a student count of 452 I ndian Students. The rate per student is $215.92
. Kevin also provided us with the draft District procedures for the completion and maintenance of completed 506 forms at ED1-#31996-v1-
seattle_506_procedures_jme_edits (2), a letter from Bernard Garcia of the U.S. Department of Education regarding the Districts suggested
changes at Seattle_Procedures_for_ED_506_forms-Additional_Comments and the determination letter from the Department of Education as a
resolution of the FY12 audit finding regarding the program at Title VII ED Determination Letter. Per Kevin the District is completing the approval
of the procedures now and these should be signed by the superintendent by the end of March 2014.

We met with Min Yee, Cost Analyst; J anine Tillotson, Native American Education I ntervention Coordinator; and Gail Morris, Native American
Education Program Manager to discuss what changes were implemented since the prior audit. The major change is the change of the Program
Manager. The prior Program Manager left employment with the District May 2013. Gail began working as the Program Manager in October 2013,
and J anine has worked on the program since J anuary 2012. J anine stated that the forms are now, per Office of Indian Education's
guidance, kept alphabetically in binders and stored in locking file drawers and that Gail retains possession of the key. Each form is maintained in a
plastic sleeve and are identified by colored stickers of the school years they are eligible to be counted. Additionally, two part-time employees
called the parents to update the forms. Gail also provides training to school employees and has gone to West Seattle High, Highland Park, South
Shore K-8, Chief Sealth High, and Denny as well as conducted professional development with the Executive Directors of the Principals and with
Family Support Workers. She
plans to conduct training at the remaining schools during FY2013 and conduct professional development with the regional principals, the Native
Liaisons for each school, Truancy Officers and Special Ed. In addition the program is hiring a Native American Family Support Worker just for the
Indian Education program and hiring a 0.5 FTE to be a 506 Form recruiter to collect, organize, and monitor 506 Forms. J anine stated they also
crosscheck the forms against a report that lists the Indian students enrolled in the District for the school year.

Gail provided us the eligibility forms supporting the student count. At SSD Indian Education Testing we reviewed the forms provided to determine
if the number of eligible students reported to the Department of Education is accurate. We were provided 435 forms for review; 17 forms were
missing and
our review found that forms for 13 students did not meet eligibility requirements and could not be counted for reimbursement under I ndian
Education Program. This results in questioned costs of $6,693.52, see SA_E: CFDA 84.060 Indian Education Grants to Local Educational Agencies.
In one instance the tribe listed on the form was not Federally or State recognized; in two instances the form was filled out after count period; in
three instances information provided on the form did not agree with the definition of Indian as described on the form.

Exit Item Determination: Although the dollar amount has remained consistent with last year's finding, we determined these are residual effects of
the prior year finding since the SAO single audit report was not issued until May 2013. I n addition the District has implemented procedures to
ensure there are controls in place for forms to be eligible by federal regulations. For these reasons we determined the issue should be an exit item
and not a finding.

2. The Status of Prior Federal Audit Findings schedule has been prepared. A copy has been provided to the District, who has drafted the status of
corrective action and description of corrective action sections. See E.1.1. We used the initial Status of Prior Federal Audit Findings schedule during
our follow-up of the federal grant findings, above.

3. The Status of Prior Federal Findings schedule is complete and accurate: E.1.1


Procedure Step: Subsequent Events

Purpose/Conclusion:
Purpose:
To determine if there are events or transactions that occurred subsequent to the fiscal year-end, but prior to the issuance of the audit report, that
(1) provide additional information about the entitys compliance during the audit period or (2) indicate noncompliance occurring subsequent to the
audit period but before the date of the auditor report.

Conclusion:
We determined there are no events or transactions that occurred subsequent to the fiscal year-end, but prior to the issuance of the audit report,
that (1) provide additional information about the entitys compliance during the audit period or (2) indicate noncompliance occurring subsequent
to the audit period but before the date of the auditor report.

Testing Strategy:
Perform procedures to determine if there are any events that occurred subsequent to the fiscal year-end, but prior to the issuance of the audit
report, that (1) provide additional information about the entitys compliance during the audit period or (2) indicate noncompliance occurring
subsequent to the audit period but before the date of the auditor report.

Suggested procedures:

1. Inquire about any reports issued during the subsequent period by internal auditors, other auditors, and grantors or pass-through agencies that
disclose noncompliance.

2. Review the management representation letter for any subsequent events indicating noncompliance identified by management.

3. Consider whether noncompliance occurring in the subsequent period is of such nature and significance that its disclosure is necessary to
prevent report users from being misled. For example, if a grantor agency stopped funding the program due to entity noncompliance or
mismanagement of grant funding, an explanatory paragraph would be added to the report.

Policy/Standards:
Statement on Auditing Standards No. 117 - Compliance Audits, paragraphs 25-27.

We performed the following procedures to determine if any events occurred subsequent to the fiscal year-end, but prior to the issuance of the
audit report, that (1) provide additional information about the entitys compliance during the audit period or (2) indicate noncompliance occurring
subsequent to the audit period but before the date of the auditor report.

Specifically we:
1. We inquired with Kathie Technow, Accounting Manager, about any reports issued during the subsequent period by internal auditors, other
auditors, and grantors or pass-through agencies that disclose noncompliance. She provided us with a report from the Department of Education on
the High School Graduation Iniative grant follow-up from the prior year single audit finding. See E.1.7 The letter, dated March 21, 2014, states that
ED sustains the audit finding and concurs with the SAO finding. The ED received certification from the District showing all of the costs considered
disallowed were redirected to the General Fund. The only costs that were not moved were the $201,264 related to the Ripple Effect, Inc
charges. The ED program office decided to allow the charges as they were related to the grant, even though the District did not seek pre-
approval for the budget changes. The letter states that in the future ED will not allow such changes and reminds the District to follow 34CFR
80.30 Changes. The ED audit determined the finding to be resolved, subsequent to future audit inquiries and findings.

2. We reviewed the management representation letter at F.4.9 for any subsequent events indicating noncompliance identified by management
and noted none.
3. We considered whether noncompliance occurring in the subsequent period, up to the audit report date, May 21, 2014,is of such nature and
significance that its disclosure is necessary to prevent report users from being misled. We reviewed FAWF items, minutes and follow-up of prior
audit findings and noted no items occurring in the subsequent period.


Procedure Step: SA Summary & Report

Purpose/Conclusion:
Purpose:
To (1) determine if the Single Audit has been properly completed and (2) to document audit results to be included in our report.

Conclusion:
We (1) determined that the Single Audit has been properly completed and (2) we documented audit results to be included in our report.

Testing Strategy:
ARRA alert: Refer to the special ORCA instructions below.

Auditors are required to perform the following procedures to determine whether the Single Audit has been properly completed and to summarize
results to be included in our audit report:

(1) Single Audit Procedures
Check that all Single Audit work is completed.
If there were changes to the Schedule of Expenditures of Federal Awards made after planning the single audit, ensure that the required
percentage of federal expenditures coverage is met.

(2) Single Audit Report
Reference the summary spreadsheet that was completed for each major program. Those spreadsheets will be used to prepare the Independent
Auditor's Report on Compliance with Requirements Applicable to each Major Program and Internal Control over Compliance in Accordance with
OMB Circular A-133 (S-2 Report).

It is critical that the type and level of findings indicated in the major program summary spreadsheets are reflected in the audit report. For
example, if you concluded that a significant deficiency over internal control is a material weakness, you must select this level in
ORCA. Further, if you qualified your opinion on compliance for a major program, our audit report should reflect this decision.

Preparation of the Audit Report:

ARRA Alert: When selecting your major programs from the drop down list in ORCA, you will not see every ARRA program listed. In such
a case, you will need to manually enter an ARRA program and be sure to add the prefix ARRA to the title of the program.

It is important that any major program containing both ARRA and non-ARRA funds with the same CFDA number be listed in the Federal
Summary with an ARRA designation in a separate line. For example, if you audited CFDA 66.468-Drinking Water State Revolving Fund
which included both ARRA funds and non-ARRA funds, you will need to enter the ARRA component of this program in a separate line in
the Federal Summary.

Example: 66.468 Drinking Water State Revolving Fund
66.468 ARRA - Drinking Water State Revolving Fund

Contact the Single Audit Specialist for assistance with any special reporting situations or questions.
Final audit report documents should be kept at AS3: Reports for OS.

Policy/Standards:

SAO Audit Policy 5410 Federal Findings, Questioned Costs, and Management Letters

SAO Audit Policy 5510 Reporting on Single Audits


(1) Single Audit Procedures
We checked that all Single Audit work is complete.
There were no changes to the Schedule of Expenditures of Federal Awards that were made after planning the single audit, and we ensure the
required percentage (50%) of federal expenditures coverage was met.
(2) Single Audit Report
A spreadsheet for each major program was completed, which summarizes the audit results:

CFDA 84.360 - High School Graduation I niative: E.1.10
CFDA 10.553/10.555 - Child Nutrition Cluster: E.1.11
CFDA 84.010/84.389 - Title I: E.1.12
CFDA 84.388 - School Improvement Grant: E.1.13
CFDA 93.600 - HeadStart: E.1.14

We prepared our audit report in accordance with ARS manual protocol.


Procedure Step: Update Single Audit History

Purpose/Conclusion:
To update the single audit history matrix to help plan the next single audit.

Testing Strategy:

Policy/Standards:

A matrix is maintained to help plan our single audits. It identifies the Type A and Type B programs that were audited as major programs, and it
also documents whether there was a finding, management letter, or exit item for each major program. This matrix will be used to help determine
whether an entity qualifies as a low-risk entity and assess risk for federal programs as applicable. See the single audit history matrix at B.3.1.


Procedure Step: Letter of Representation

Purpose/Conclusion:
Purpose:
To confirm the continuing applicability of managements explicit or implicit representations and reduce the possibility of misunderstanding.

Conclusion:

Testing Strategy:

STEP 1:
representations needed from management for all periods covered by our audit report. Auditors should use one of the following templates:
GAAP use for all GAAP presentations (including ESDs and GAAP basis school districts)
BARS Cash Basis use for all governments that are reporting on a BARS Cash Basis or that do not prepare financial statements.
School F196 use for all school districts that report using the F196 on a cash or modified accrual basis.

The template should be modified as needed to reflect the audit scope and situation.


STEP 2:

The entity has used the work of a specialist, such as for determining environmental remediation, pension, OPEB, self-insurance or landfill
obligations.
Short-term debt is being reported as long-term based on managements ability and intention to refinance it.

STEP 3:




Policy/Standards:

STEP 1:
We selected the appropriate representation letter template from the Store - Rep Letter School F196.
STEP 2:
We considered whether any additional representations were needed beyond the standard ones included in the template. We determined that no
additional representations were needed.

STEP 3:
We obtained the representation letter at F.4.9 and reviewed it to check that:
It was dated the same as our report date, May 21, 2014; and
It was signed by appropriate members of management, J ose Banda, Superintendent and Kenneth Gotsch, Assistant Supintendent of
Business and Finance.
We noted no issues to follow-up with the District.


Procedure Step: SA Quality Control Assurance Certification

Purpose/Conclusion:
To review and certify adherence to applicable audit standards and policy with regard to the Single Audit.

Testing Strategy:
Certification should be signed-off before the Single Audit report is issued.


Policy/Standards:

The certification should be signed-off before the Single Audit report is issued.







3160).


9. Sufficient and appropriate audit evidence was obtained and evaluated to ensure that specific audit objectives were achieved (Audit Policy
3210).

10. The audit of federal programs was conducted using all applicable audit steps in TeamMate and Audit Policy 5000 series - Federal Audits.


12. An exit conference was conducted in accordance with Audit Policies 2130 and 2220.












Procedure Step: Corrective Action Plans

Purpose/Conclusion:
This step is applicable if the auditor is reporting any financial statement or federal grant findings.

To ensure the auditee prepares a corrective action plan for each financial or single audit finding in our report.

Testing Strategy:
For each finding included in the audit report (including all federal program findings and any financial audit findings as well), the auditee must
prepare a corrective action plan to be included in our report. This corrective action plan is needed in addition to the auditee's response that is
provided in the actual finding.

For each financial or single audit finding, auditors are required to:
Enter the current year finding reference number(s) and caption(s) in the attached template, provide the auditee with a copy of the
template, and instruct them to fill out the remaining sections.
Send the completed template to O.S. along with your audit report.

Policy/Standards:
ARS Manual Part 5, Chapter 6 provides instructions regarding Corrective Action Plans, which are required for federal audit
findings and for financial audit findings included with the single audit report.

Circular A-133, Section 315.c requires corrective action plans:
Corrective action plan. At the completion of the audit, the auditee shall prepare a corrective action plan to address each audit finding included in
the current year auditor's reports. The corrective action plan shall provide the name(s) of the contact person(s) responsible for corrective action,
the corrective action planned, and the anticipated completion date. If the auditee does not agree with the audit findings or believes corrective
action is not required, then the corrective action plan shall include an explanation and specific reasons.

We completed the following as required for the single audit finding:
We filled out the current year finding reference number (1) and caption for the HSGI audit finding. We provided the District with a copy of the
template and instructed them to fill out the remaining sections on May 2, 2014. We obtained the corrective action plan from Kathie Technow,
Accounting Manager on May 13, 2014 at E.1.15
There were no other findings.


Procedure Step: SA Exit Conference

Purpose/Conclusion:
To communicate the results of our single audit with management and the governing body.

Testing Strategy:
Typically communication of single audit results occurs at the financial statement exit conference, which is documented in a separate
step. Auditors should ensure that single audit results are communicated at this conference and that the conference is held prior to issuance of the
single audit report.

If no exit conference was held or if the report was issued prior to the date of the exit conference, explain the situation in this

If a separate exit conference is held to communicate single audit results, auditors must document invitations, conference date,
attendees and discussion topics (see the financial statement exit conference step for detailed instructions).

Policy/Standards:



Single audit results were communicated with management and those charged with governance at the financial statement exit conference see -
F.4.PRG for details.

Please note, in order to help the District meet the single audit deadline of May 31, 2014 and the fact the District was unable to schedule an exit
conference at an earlier date, we determined to hold a pre-exit conference. We held this meeting with the District's management (noted below)
and then provided the Board with the exit conference document, draft audit report. We met with District management on May 21, 2014 to provide
the results of the financial statement audit. We e-mailed the exit conference document, financial and single exit items and uncorrected
aggregation of misstatements to the Board at the conclusion of the pre-exit with management.


Procedure Step: Data Collection Form

Purpose/Conclusion:
Purpose:
To complete and submit the online data collection form, upload the audit report and corrective action plan .pdf file, and certify completeness.

Conclusion:
We completed and submitted the online data collection form, uploaded the audit report and corrective action plan .pdf file, and certified
completeness.

Testing Strategy:
SINGLE AUDIT DATA COLLECTION FORM (Form SF-SAC)
For audits with fiscal years ending in 2013 or later, you will find a new data collection form and new process for accessing the Federal Audit
Clearinghouse Internet Data Entry System (IDES). Here is a brief summary of the process. It is recommended of first time users of the new
system to review the user manual (see link in step b below).
1) SAO creates a new data collection form on-line at: https://harvester.census.gov/facweb/Default.aspx/ddeindex.html
a) Instructions for the Data Collection Form can be found at: https://harvester.census.gov/facweb/files/2013%20Form%20SF-
SAC%20Instructions.pdf
b) The IDES User Manual, which contains step by step detailed instructions for completing the data collection form can be found
at: https://harvester.census.gov/facides/(S(kpzkt2ymqqw3notobk03bnym))/Files/IDES%202013%20User%20Manual.pdf
c) Another useful resource is the Frequently Asked Questions, which can be found at: https://harvester.census.gov/facweb/FAQs.aspx
2) SAO accesses the IDES system. First-time users of the new system must create a user account. To register, you enter your first and last
name and email address. To complete the registration, you will need to create a password. User accounts are based on the users email and
password (as opposed to a single report ID and shared password required in the previous system). Once registered, the data collection form
can be started.
3) SAO fills out all the information on the form. New this year is the Audit Firm EIN. SAOs EIN is 91-6001098.
4) The Audit Report and the Corrective Action Plan for findings (if necessary) must be sent to Operation Services (OS) to be combined into one
.PDF file. NOTE: Starting i n 2014, all PDFs must be text searchable, unencrypted and unlocked. If you fail to meet these
requirements, the reporti ng package will NOT be accepted.
5) OS will e-mail the audit manager and AIC a single .PDF file that contains both the Audit Report and Corrective Action Plan.
6) SAO will upload the audit report file (.PDF file).
7) SAO audit manager (or team designee) and the auditee contact person will be prompted via an email notification to certify the report
(signature codes are no longer required).
8) The auditee clicks on SUBMIT TO FAC FOR PROCESSING after both parties have certified the report.

Policy/Standards:
Circular A-133, Section .320

(b) Data Collection. (1) The auditee shall submit a data collection form which states whether the audit was completed in accordance with this part
and provides information about the auditee, its Federal programs, and the results of the audit.

(c) Reporting package. The reporting package shall include the:

(1) Financial statements and schedule of expenditures of Federal awards;

(2) Summary schedule of prior audit findings;

(3) Auditor's report(s); and

(4) Corrective action plan.

(d) Submission to clearinghouse. All auditees shall submit to the Federal clearinghouse designated by OMB the data collection form described in
paragraph (b) of this section and one copy of the reporting package described in paragraph (c).

1. We created and filled the District's data collection form on-line on April 29, 2014, except for the Audit Report and Corrective Action Plan. On
May 22, 2014 we added the audit report and corrective action plan .pdf file to the form and certified the DCF.

Date completed: May 22, 2014

E.2.PRG - High School Graduation Initiative - CFDA 84.360

Procedure Step: Compliance Requirements

Purpose/Conclusion:
Purpose:
To determine the compliance requirements that have a direct and material effect for this major program.

Conclusion:

We determined the compliance requirements that have a direct and material effect for this major program.

Testing Strategy:
Identify Direct and Material Compliance Requirements

Identify the compliance areas from the list below that have a direct and material effect on the major program selected for audit and document
these in the attached Major Federal Program worksheet.

------------------------------------------------------------------------
Even though a requirement may apply to the program you are auditing, you should limit your scope to those areas that have a direct and
material effect.
What does "Direct and Material" mean? From a quantitative viewpoint, a compliance requirement is material when activity related to the
requirement exceeds our threshold established in the planning stage, usually 10% of total grant expenditures. However, from a
qualitative viewpoint, a compliance requirement that is less than our 10% threshold is usually considered qualitatively material if it is
specifically listed in Part 4 of the Compliance Supplement (for example, a 3% earmarking requirement). That is, if a federal I nspector
General took the time to list the compliance requirement in Part 4, this indicates the area is material (important) to the federal grantor.

We usually consider whether a requirement has a "direct" effect when evaluating compliance areas beyond the 14 areas listed in the
Compliance Supplement. For example, all grantees are required to comply with the Civil Rights Act and maintain a Drug Free
Workplace. While these areas are important, they do not have a "direct" effect on individual grant programs and the auditor is not
expected to review them for compliance.
If you choose not to audit a certain compliance area, you must document the reason(s) for this decision in the attached worksheet.
Refer to the Policy/Criteria tab for more guidance and examples.
NEW: I f you are auditing any of the following pass-through grants, get the Auditor Guide to Pass-Through Programs in Washington State
from the TeamStore: 10.665, 14.228, 14.255, 16.738, 20.205, 20.219, 66.468, 93.268, 93.712, or 97.036.
ARRA Alert! If the program you are auditing was funded by the American Recovery and Reinvestment Act (ARRA), refer to the 2010
Compliance Supplement. Part 3 of the Supplement highlights new ARRA requirements that apply to most programs for these specific
areas: Activities Allowed, Davis Bacon Act, Procurement (Buy American), Reporting (Section 1512), Subrecipient Monitoring (Central
Contractor Registration), and 3 new Special Tests (Separate accounting of ARRA funds, SEFA presentation of ARRA funds, and Notification
of ARRA awards to subrecipients). Part 4 includes ARRA requirements that are unique to each program. But, not all ARRA programs are
listed in Part 4 of the Supplement - in such a case, consult the grantee's ARRA grant contract for any ARRA-unique requirements.
------------------------------------------------------------------------------

A. Activities Allowed or Unallowed. Audit Objective - To determine whether the grantee spent its federal funds only for activities that are
allowed under the laws, regulations, and terms and conditions of the grant contract.

B. Allowable Costs / Cost Principles. Audit Objective - To determine whether the grantee charged expenditures to its federal grant in
accordance with the cost principles of OMB Circular A-87 (state agencies and local governments) and Circular A-21 (colleges and universities).

C. Cash Management. Audit Objective - To determine whether the grantee is limiting its requests for federal funds to its immediate needs.

Review Part 4 of the Compliance Supplement and the terms of the grant contract to determine how the grantee is to be paid its federal
funding. This area is deemed direct and material in the following situations:

Cash Advance This pertains to grants that allow the grantee to request its funding in advance of expenditure. This is typical of direct
awards from the federal government that disburse funds to the grantee via on-line payment systems. It applies even if the grantee
chooses to wait to request its funding until costs are incurred. Our audit focus is on whether: (1) the grantee is disbursing the grant
funding as soon as possible after it is received, (2) the grantee is limiting its cash advance requests to its immediate needs, and (3) the
grantee is tracking interest earned from cash advances and remitting any interest over $100 back to the grantor.

Cost Reimbursement (costs incurred but not paid before fed funds are received) - this pertains to those contracts or program
regulations that do not specifically require that grantee to disburse its own funds before it requests reimbursement. That is, if the
grantee has the capability or option to request its funding before it has any cash outlays, cash management is direct and material. For
example, if a grantee incurs an expense (e.g., ordering supplies and receiving a vendor invoice), but does not disburse any of its own funds
(paying the invoice) until after it submits a request to the grantor and receives its federal funding, the grantee is essentially receiving a
cash advance. Thus, the grantee could potentially be maintaining an excess cash balance and earning interest.

Cash Management is not direct and material in the following situations:
If the award involves no transfer of cash (e.g., equipment only, supplies only).
Mandated Cost Reimbursement - this pertains to those contracts or program regulations that require the grantee to disburse its own
funds before it requests reimbursement. I n such a case, the grantee does not have an opportunity to keep an excess cash balance nor
earn interest from the payment. In order to support our conclusion that this payment method does not have a direct and material effect
on the Cash Management objectives, the auditor should inspect grantee payment records on a test basis to ensure the costs being
reimbursed were paid by the grantee before it requested the funding. Document this review in the ROWD.
D. Davis-Bacon Act. Audit Objective - To determine whether the grantee informed its construction contractors that federal prevailing wage
requirements apply to construction projects in excess of $2,000 and collected weekly certified payroll reports from the contractor during
construction. I f your grant has multiple construction projects, this area will be material if any project(s) exceeds 10% of the total grant
expenditures. CAUTION - Not all federal programs are subject to the Davis Bacon Act. Review the terms and conditions of the grant/loan
agreement and Part 2 of the Compliance Supplement. ARRA Alert: Section 1606 of ARRA imposed the prevailing wage requirement on all ARRA-
funded projects. Consult with the Single Audit Specialist as needed.

E. Eligibility. Audit Objective - To determine whether the grantee is providing financial assistance and services only to clients that meet the
program's eligibility requirements.

F. Equipment and Real Property Management
For this compliance requirement, "equipment" is tangible personal property having a useful life of more than one year and an acquisition
cost of $5,000 or more per unit. I f the grantee has a fixed asset capitalization policy that is less than $5,000 per unit, use that lower
threshold for this requirement. "Real property" is land, land improvements, structures and appurtenances (accessories) thereto, but not
movable machinery and equipment.

This area covers requirements for equipment usage, recordkeeping, inventories, and disposal. It also covers usage and disposal of real
property. When determining whether this compliance area has a direct and material effect on the program, consider the amount of
equipment and/or real property purchases made in the audit period, and also the amount of any prior period federal equipment/real
property purchased with grant funds that is still being used in the program or that was disposed of in the audit period. For disposal, we
would be most concerned with equipment that has a FMV above $5,000 per unit.

G. Matching, Level of Effort, and Earmarking. Audit Objectives - To determine whether the grantee (1) contributed the proper amount
of non-federal matching funds from an allowable source, (2) met its level of effort spending requirements and did not use federal funds to
supplant existing local resources, and (3) met any special earmarked uses of the funding.

In general, an approved grant budget in a contract does not constitute "earmarking." Grantees must communicate with their grantor agency
when they plan to deviate more than 10% among budgeted line items, but this is not the focus of earmarking. You may find earmarking related
to program administration costs, which is also tied to the grant budget, but these types of earmarks are usually listed in Part 4 of the compliance
supplement. Consult with the Single Audit Specialist as needed.

H. Period of Availability of Federal Funds. Audit Objective - To ensure the grantee did not obligate its grant funds before the grant period
officially starts nor after the grant period ended. Also to ensure outstanding obligations are liquidated within 90 days of the grant end date. This
requirement will apply when a grant agreement/contract starts or ends within the audit period.

I. Procurement and Suspension and Debarment

Procurement. When determining whether this area is direct and material, consider only the procurements that took place (or should have took
place) during the audit period (e.g., seeking quotes, advertising for bids, change orders, renewing a contract that has expired, etc.). In most
cases, you do not need to factor into your analysis contracts that were procured in a prior audit period unless the costs related to the
procurement are being reported on the SEFA for the first time (examples: A grantor that gives retroactive approval to pay for costs incurred in
prior periods; an agency that makes a loan to cover costs of previous periods). However, if you believe reoccurring payments to certain
vendors have never been properly procured in the past, you should examine this arrangement. ARRA Alert - BUY AMERICAN. Section 1605 of
ARRA prohibits the use of ARRA funds for a project for the construction, alteration, maintenance, or repair of a public building or work unless
all of the iron, steel, and manufactured goods used in the project are produced in the United States. ARRA allows federal agencies to waive
these requirements under specified circumstances. Grantees must include this Buy American provision in their contracts for public works that
are being paid with ARRA funds.

Suspension and Debarment. This applies to any vendor contract that exceeds $25,000 and all subrecipient agreements. For audit period
considerations, use the same strategy as indicated in procurement above.

J . Program Income. Audit Objective - To determine whether the grantee is properly accounting for any income earned from grant-related
activities and used it in accordance with grant requirements (deductive, matching, or additive method).

K. Real Property Acquisition and Relocation Assistance. Audit Objective - To determine whether purchases of real property (land
or buildings) and relocation of citizens were made in accordance federal regulations governing this area.

L. Reporting. Audit Objective - To determine whether any financial or programmatic reports submitted by the grantee to the grantor are
accurate and complete. NOTE: Reports that have a "SF" in the title mean "standard form." For example: SF269, SF272, etc. These are reports
that are required for grants awarded directly by a federal agency. I f you are auditing a pass-through grant, reports with a 'SF' in the title will not
apply to a subgrantee - the primary grantee will typically be responsible for these reports. ARRA Alert. Section 1512" of ARRA created a new
reporting requirement for prime recipients and subrecipients of ARRA funds. The first reporting period ended on September 30, 2009 and the
report should have been submitted by October 10, 2009. Audits of this requirement will apply only to Prime Recipients. A prime recipient
is an entity that receives its ARRA funds directly from a federal agency. According to the 2010 Compliance Supplement, we will not
audit Section 1512 Reporting for ARRA grants received as a subrecipient.
FFATA Alert: The Federal Funding Accountability and Transparency Act (FFATA) created a new website for tracking federal grants and contracts
awarded around the nation. While similar to ARRAs Reporting.Gov, information reported under FFATA is displayed at USASpending.gov. This
reporting requirement is applicable to direct (prime) recipients who make new non-ARRA subawards over $25,000 to first-tier
subrecipients on or after October 1, 2010.

M. Subrecipient Monitoring. Audit Objective - To determine whether the pass-through agency properly informed its subrecipients of
pertinent grant requirements, monitored the subrecipient's use of funding, and obtained a copy of the subrecipient's audit reports. NOTE: Refer
to the subrecipient/vendor checklist available on INTRANET/REFERENCE GUIDE/FEDERAL if you are not sure if a lower tier party is a subrecipient
or vendor.

N. Special Tests and Provisions
Review Part 4 of the A-133 Compliance Supplement to determine if there are any special tests and provisions for your program. If the
program is not included in Part 4 of the Compliance Supplement, review the grant agreement/contract to identify any material special
provisions. Limit the number of special provisions to those that (1) can result in material noncompliance and/or known questioned costs
exceeding $10,000, (2) affect a large part of the program (significant dollar amounts), and (3) could cause the granting agency to seek
reimbursement for the part award or reduce future awards.

N1. ARRA Special Tests. The following three special tests and provisions are listed in Part 3 of the 2010 Compliance Supplement and apply
to all programs with expenditures of ARRA awards. These are in addition to any special tests and provisions already listed in Part 4 of the
Compliance Supplement. You will be permitted to document your work on these specials tests in other sections of your audit as needed.
A separate accounting of the receipt, expenditure and reporting of ARRA funds (A-102 Common Rule, Section 20)
Proper presentation of ARRA funds on the SEFA.
Communicating ARRA requirements to subrecipients

Policy/Standards:
Which Compliance Requirements Do I Test?

1. Use the following sources of information to identify the compliance requirements that apply to your grant program.
Obtain a copy of the grant agreement(s) or contract(s) that were in effect during the audit period.
Obtain a report of federal expenditures for the program (sorted by object) and determine the areas in which funds were
spent. Examples: salaries and benefits, materials/supplies, equipment, travel, contracts for goods and services, construction, etc.
NEW: I f you are auditing any of the following pass-through grants, get the Auditor Guide to Pass-Through Programs in Washington
State from the TeamStore: 10.665, 14.228, 14.255, 16.738, 20.205, 20.219, 66.468, 93.268, 93.712, or 97.036.
Review the A-133 Compliance Supplement available on the SAO Intranet under AUDITOR RESOURCES / REFERENCE GUI DE / FEDERAL:
--Part 2 (matrix of programs this will assist you in identifying which of the 14 areas are potentially applicable to your program).
--Part 3 (this is general information on all 14 compliance areas).
--Part 4 (this is program-specific guidance for certain compliance areas like allowable activities, eligibility, matching, reporting, etc.) NOTE:
Part 4 will not address all of the compliance requirements - it is designed to give you specific information for certain areas that are unique
to a federal program. Other areas that are more general in nature (e.g., cash management, Davis Bacon, equipment, etc.) will not be
listed in Part 4, but still could be applicable to your grant.
--Part 7 (this is guidance for programs not included in Part 4 of the supplement).

ARRA Alert! If the program you are auditing was funded by the Recovery Act, refer to the Compliance Supplement, Parts 3 and 4, for
ARRA-specific guidance. If your ARRA program is not listed in the Supplement, consult the grant contract for any ARRA-unique
compliance requirements.
If available, obtain a copy of federal handbook or program guidelines (most federal websites will have this information).
2. Next, of the requirements that apply to your grant, determine those that have a direct and material effect. You can limit your testing to only
those compliance areas that have a direct and material effect on the program. Even though a compliance requirement applies to the Federal
program in general, it may not apply at a particular auditee, either because that auditee did not have activity subject to that type of compliance
requirement or the activity does not have a material effect on a major program.

Examples:

(1) You are auditing a city that received as pass-through grant from a state agency. You look in Part 4 of the Compliance Supplement and
see that a federal Financial Status Report (called the SF269) is listed as being applicable to the program. However, you find that this
Reporting requirement is a responsibility of the state pass-through agency, not your city. Therefore, this compliance area is not
applicable to your audit.

(2) You read the terms and conditions of the grant agreement and see that the Period of Availability of Funding is for 3 years, with a
beginning date that started before your audit period and an ending date that closes after your audit period. While this requirement
applies to the grant, it is not direct and material in your audit period.

(3) You find in the grant agreement that the auditee is required to comply with all state and local laws for Procurement of goods and
services. Your review of the auditees transactions shows only two vendor purchases totaling $5,000. The total grant award was
$200,000. Therefore, procurement is applicable, but it is not material to your audit (i.e., transactions relating to the procurement
requirement were only 2.5% of the total grant when our minimum materiality threshold was established at 10%).

(4) A grantee earned and spent $10,000 of Program Income during the year. This amount is 1% of the total grant. Even though this
amount meets our $10,000 questioned cost threshold, this does not cause Program Income to be a material compliance area because it is
less than 10%. (During your planning, or in the course of the audit, if you become aware of known questioned costs that exceed $10,000
in a compliance requirement that is not otherwise material to the program, we should report this in a finding.)

Sources:
Grant Agreements; Application and Budget
CFDA web site for 84.360
Compliance Supplement to OMB Circular A-133 Part 7
2013 SSD Access Database Grant Expenditures Queries
Background:
High School Graduation I nitiative - CFDA 84.360
PR/Award Number: S360A100166-1
Fund Code: 1K98
Performance Period: October 1, 2010 through September 30, 2015
Budget Period: October 1, 2012 through September 30, 2013
Audit Period: September 1, 2012 through August 31, 2013 - FY2013

Key Staff:
J anet Blanford, Director of College & Career Readiness; jlblanford@seattleschools.org, (206)252-0184
Lisa Sharp, HSGI Program Manager, lmsharp@seattleschools.org, (206)252-0859
Lisa Love, HSGI Program Manager, llove@seattleschools.org, (206)252-0982
Changes in key staff:
In the prior year the Program Manager was Pegi McEvoy, Assistant Superintendent of Operations. Due to the prior audit qualified opinion on the
HSGI grant and the number of unallowable costs found, the District moved in two new HSGI Program Managers. The Program Managers were
already working on the HSGI grant and are familiar with the activities and goals of the federal grant. Although the Program Managers were not
officially titled as the Program Managers until around August 2014, they were already taking over the responsibilities by Lisa Sharp and J anet
Blanford in J une 2014. For the current audit, we will meet with the new Program Managers and if we have any further questions in regards to
controls or compliance testing, we will meet with Pegi as necessary.

Program Objectives:
We reviewed the following for the HSGI grant:
CFDA website
To support effective, sustainable and coordinated dropout prevention and reentry programs in high schools with annual dropout
rates that exceed their State average annual dropout rate. Middle schools that have students who continue on to these high
schools are also supported.
Award project objectives
To implement dropout prevention and reentry projects that undertake activities that are scientifically based to provide support,
enrichment and motivation to students at risk of dropping out or that seeks to reenter school. Such activities should raise
standards and expectation for disadvantaged students traditionally underserved in schools in order to ensure school
completion. To do this, SSD will implement a three-tier model of dropout prevention, truancy intervention and dropout recovery.
FIRST TIER: Seeks to prevent students from dropping out in their first year of high school by expanding successful ninth
grade transition program for vulnerable middle school students.
SECOND TIER: Use HSGI grant funds to employ truancy specialists who will used the Check & Connect model to support
students, monitor their attendance, and intervene early to address unexcused absences. The project will establish teen
truancy boards in each comprehensive school that will engage students in working with their peers whose school
attendance is irregular.
THIRD TIER: To provide support aimed at students that have already dropped out of school. Funds will be used to
increase the capacity of The American Academy, the only state-approved digital dropout recovery program, to serve more
students.

Budget Details:
We reviewed the approved original budget. We noted the budget was approved with the following changes, related to personnel budgets, to the
original submitted budget:
1 FTE Admin. Communities That Care Support Staff reduced to 0.5 FTE in Years 1-5 because size and scope of project does not warrant a
full-time administrative support employee.
"Extra time for interpreters during CTC meetings" reduced to $42,400 in Year 1 with a $3,000 annual increase from Year 1 amount for
Years 2-5. The proposed amount was reduced after calculating the 8000 hours needed for interpretation
"Extra time for translation of CTC materials" reduced to $21,200 in Year 1 with $2,000 annual increase from Year 1 amount for Year 2 -5
with the exception of year 3 (The applicant requested only $10,608 in year 3). The proposed amount was reduced after calculating the
400 hours needed for interpretation.
Budget Period 3 (year three), there were no changes to the award amount.

Expenditure Detail:
SEFA to GL reconciliation:
Per SEFA obtained from District
Federal Program Title CFDA No.
Other Identification Number Expenditures
Per CAATs Database

Fund Contract No. Direct Awards Pass-Through Awards
Total
$2,176,260.46
High School Graduation I nitiative 84.360 1K98-12 S360100166-11 $ 217,287.26 $ 217,287.26
$2,097,418.37
High School Graduation I nitiative 84.360 1K98-13 S360100166-12 $1,958,973.20 $ 1,958,973.20

We compared the SEFA expenditure amounts reported to the District's g/l. We noted the g/l does not include the indirect costs charged to the
grant. We reviewed the indirect costs allocated to the grant and included this in our recalculation above and determined the amount appears
reasonable. The difference is due to end of year timing. There were indirect costs of $81,806 in FY2013.

Expenditures by Object Code:
Object Object Description Amount % of Total
0 Debit Transfers $ 4,045.26 0.19%
2 Certificated Salaries $ 416,501.78 19.86%
3 Classified Salaries $ 563,738.90 26.88%
4 Benefits $ 335,461.93 15.99%
5 Supplies & Materials $ 69,412.57 3.31%
7 Purchased Services $ 684,469.04 32.63%
8 Travel $ 8,150.83 0.39%
9 Capital Purchases $ 15,638.06 0.75%
TOTAL $ 2,097,418.37 100.00%

We ran a query from 2013 SSD CAATs database for all HSGI grant detail expenditures and created a pivot table in Excel to sum the expenditures
by object (type of expenditures). We pasted the table above and noted the majority of the expenditures are salaries and benefits of $1,315,703 or
62.73% and purchased services of $684,469 or 32.63%.

Prior Audit Issues:
Finding for Activities Allowed/Allowable Costs - The District has an internal control deficiency (material weakness) and noncompliance for
Activities Allowed/Allowable Costs which resulted in questioned costs of $499,936. The amount of questioned costs was more than 20
percent of total program expenditures and we therefore issued a qualified opinion for this program. The non-compliance was material to
the program as a whole. We will follow-up on this finding at A-B. Activities Allowed/Allowable Cost

Compliance Requirements Determination:
The A-133 part 2 does not specify the applicable requirements for the HSGI grant. Also, there is no guidance for CFDA 84.36 in part 4 of the A-
133 compliance supplement. We used part 7 at A-133, part 7 Guidance for Auditing Programs Not I ncluded to help determine the applicable
compliance requirements. To determine what compliance requirements are direct and material to the program we used grant agreements and
information from CFDA web-site. We also interviewed key personnel and reviewed grant expenditures.

We summarized our determination of applicable and direct and material compliance requirements at: Major Federal Program - Local Teams


Procedure Step: A-B. Activities Allowed/Allowable Cost

Purpose/Conclusion:
Purpose:
To determine if internal controls provide reasonable assurance that Federal awards are expended only for allowable activities and that the costs of
goods and services charged to Federal awards are allowable and in accordance with the applicable cost principles, and to test compliance with
those requirements.

Conclusion:
We determined internal controls provide reasonable assurance that Federal awards are expended only for allowable activities and that the costs of
goods and services charged to Federal awards are allowable and in accordance with the applicable cost principles. We then tested compliance
with those requirements and determined unallowable costs of $61,640. See SA_F: CFDA 84.360 High School Graduation Initiative Unallowable
Costs

Testing Strategy:
Activities Allowed or Unallowed / Cost Principles

Perform the following steps:r

1. Gather information.
2. Assess inherent risk (IR).
3. Gain an understanding of internal controls.
4. Assess preliminary control risk (CR).
5. Test internal controls.
6. Assess final control risk (CR).
7. Assess the risk of material noncompliance (combined IR and CR).
8. Test for compliance with the requirement.

Step 1: Gather Information

To determine which activities and types of costs are specifically allowed or unallowed, review the following:
Scope of work, terms and conditions, and approved budget of the grant agreement or contract.
Part 4 of the Compliance Supplement that applies to your audit period.
Available program guidelines or handbooks.
Also determine whether the auditee has claimed indirect costs via an indirect cost rate or cost allocation plan.

ARRA Alert
ARRA has established a cross-cutting unallowable activity for all ARRA-funded awards. Pursuant to Section 1604 of the Recovery Act, ARRA funds
may not be used for any casino or other gambling establishment, aquarium, zoo, golf course, or swimming pool. If you are auditing an ARRA-
funded program, include this compliance attribute in your scope.

The 2010 Compliance Supplement, Part 4, includes ARRA requirements that are unique to each program. I f you are auditing an ARRA-funded
program, review Part 4 and include any pertinent allowable cost attributes in your scope. Not all ARRA programs are listed in Part 4 of the
Compliance Supplement - in such a case, review the grantee's ARRA contract for any ARRA-unique requirements over Activities Allowed or
Unallowed.

Step 2: Assess Inherent Risk (IR)

Inherent risk of noncompliance is the susceptibility of a compliance requirement to material noncompliance, before considering internal controls
over compliance.

Consider the following factors to assess whether inherent risk is low or high for this compliance requirement:
Is the compliance requirement new to the agency or has the requirement changed recently?
Is the compliance requirement considered an area of higher risk in the Compliance Supplement or by oversight agencies?
Does the compliance requirement involve a relatively large degree of subjectivity by the agency in interpreting and carrying out the
objectives of the program?
Is there a lack of oversight by the grantor or pass-through agency?
Is the compliance requirement relatively complex or are related activities difficult to audit?
Are multiple locations or departments responsible for administering the requirement?
When assessing the risk of Type A and Type B programs during single audit planning (refer to the risk assessment spreadsheet), did you
find that this compliance requirement is one that is susceptible to fraud, theft of assets, or fraudulent reporting of financial or
programmatic data to the grantor or public?

Note: Assessing inherent risk as high will not automatically result in an audit finding. Instead, you should determine whether the grantee has
implemented internal controls to mitigate the risk(s) when you gain your understanding of internal control.

Step 3: Gain an Understanding of Internal Controls

Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring:
Grant funds are spent for allowable activities, and
Direct and indirect costs charged to the grant comply with the cost principles set forth in OMB Circular A-87 (or Circular A-21 for colleges
and universities).
When identifying key internal controls, consider whether:
Inherent risks identified above are reasonably addressed.
Automated controls affect the manner in which grant-related transactions are initiated, authorized, recorded, processed, and reported.
The key controls you identify should be those that are effective in providing reasonable assurance that material noncompliance will be prevented
or detected and corrected timely. If there is not a key control designed to address the compliance requirement, a significant deficiency likely
exists.

Step 4: Assess Preliminary Control Risk (CR)

Based on your understanding of key internal controls, assess preliminary control risk. This assessment must be either low or high. Control Risk
should be assessed as low when (1) there is only a remote likelihood that noncompliance that is material could occur and not be prevented or
detected on a timely basis or (2) the auditees internal controls are considered sufficient to limit noncompliance to amounts that are less than
material and would not merit the attention of the grantor or those charged with governance.

If you find weaknesses or deficiencies in internal controls, the following chart illustrates the risk assessment decision process. Your risk decision is
based on both the likelihood (green shading) and magnitude (yellow shading) of potential or actual noncompliance.

Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)

finding for a Significant Deficiency if:


Material Weakness
program)

Report a Finding
(Control Risk is HIGH)


Step 5: Test Internal Controls

If preliminary control risk is low, the auditor must test the key internal controls to determine whether they are effective in preventing and
detecting noncompliance with the requirement.

NOTE: I f preliminary control risk is assessed as high, the auditor should not test the controls, but would instead report the issue in a finding as a
significant deficiency or material weakness as appropriate.
Refer to the Single Audit Planning Guide for suggestions and examples of control testing.
Dual purpose testing consider whether the control can be tested in conjunction with a test of compliance to increase audit efficiency. If
dual-purpose testing is performed, you must clearly document the results of control tests and compliance tests.
If a key control is automated, control testing must include testing of both the automated control and related general controls. Auditors
may refer to the appropriate IT Control Testing step available in the Permanent File | F/S I nternal Controls folder for testing strategy
considerations. Auditors should also consider contacting Team Local ISA for assistance.


After testing the key controls, assess final control risk. This assessment must be either low or high. I f you conclude that final control risk is high,
this should be reported in a finding as a significant deficiency or material weakness as appropriate.

Step 7: Assess the Risk of Material Non-Compliance (combined IR and CR)

Assess the risk of material noncompliance for this compliance requirement to help determine the nature and extent of compliance testing
necessary to give an opinion on this program. The risk of material noncompliance is a combined assessment of inherent risk and control risk
based on auditor judgment.

The assessment may be low, moderate, or high. For example, if inherent risk is high and control risk is low, the auditor might assess the risk of
material noncompliance as moderate. This assessment is a matter of professional judgment as to whether the combined assessment is moderate
or if one factor outweighs the other.

Assessing the risk of material noncompliance as high does not result in an audit finding, but the auditor should consider the risk when designing
the nature and extent of compliance testing.

Step 8: Test Compliance

Design the nature and extent of compliance testing based on the risk of material noncompliance.

8(a). Determine the method for how transactions are to be selected for testing. Options include:
Sampling;
Scanning transactions and selecting transactions based on risk (bias is used to pick the items). For example: (a) payroll costs for which
the grantee has not kept proper time and effort records, especially those employees who work on more than one cost objective; (b) a
cost that has been allocated among multiple grants or cost objectives without any reasonable basis or support; (c) costs that require prior
approval of the grantor; or (d) unusual items that seem outside the grants allowable uses of funding;
Stratifying the population based on risk and then sampling or scanning/selecting transactions based on risk from each sub-population;
Testing all significant transactions representing the majority of the grant. This option may be used when only a few very large
transactions make up the majority of grant activity.
If sampling is used, obtain the Single Audit Sampling Template available in the Store. While sampling is most effective for larger populations, the
auditor can sample smaller populations if he/she is unable to pick out only the risky or very large transactions. Samples are designed to be
representative of the population and the results are projected to the population.

If you select transactions using a judgmental selection based on risk, you should be able to explain in the ROWD how the remaining items not
selected for testing are considered low risk for noncompliance and would not result in material noncompliance. This is necessary because the
items tested are not intended to be representative of the population and the results are not projected. Also, consider expanding your testing if
significant exceptions are found.

8(b). Test expenditures for compliance with the following attributes. You can document your testing of transactions using the Excel matrix
attached under the Reference tab or the sampling spreadsheet available in the TeamStore, or a combination of both.

Was the expenditure or cost:

(a) Made for an allowable activity under the grant guidelines? (I nclude ARRA provisions described above if applicable)

(b) Authorized or not prohibited under State or local laws or regulations? (in other words, the grantee may not use its federal funding to
undertake an activity for which it does not have authority under its own state or local laws or which would constitute an illegal purpose.)

(c) Approved by the Federal awarding agency, if required?

(d) Allowable under OMB Circular A-87, Attachment B, items 1-43: http://www.whitehouse.gov/omb/circulars/a087/a87_2004.html. For
example, payroll transactions must be supported by time and effort documentation per A-87, Attachment B, Section 8(h).

(e) Allocable to the program? (i.e., Was the dollar amount charged to the program relative to the benefits received by the program? I s
the federal grantor being charged its fair share of the cost?)

(f) Be necessary and reasonable (i.e., does the nature and amount of the cost exceed that which would be considered prudent? I s the
cost of a type that is ordinary and necessary for the operation of the program?)

(g) Applied uniformly to Federal and non-Federal activities (i.e., is the federal government being charged the same amount as if non-
federal funds were being used to pay the cost)?

(h) Given consistent accounting treatment within and between accounting periods? (Consistency in accounting requires that costs
incurred for the same purpose, in like circumstances, be treated as either direct costs only or indirect costs only with respect to final cost
objectives).

(i) Calculated in conformity with generally accepted accounting principles, or another comprehensive basis of accounting, when required
under the applicable cost principles?

(j) Not included as a cost (or used to meet cost sharing requirements) of other federally-supported activities of the current or a prior
period?

(k) Net of all applicable credits? (i.e., is the cost offset by cash discounts, insurance recoveries, refunds, rebates, trade-ins, adjustments
for checks not cashed, and scrap sales).

(l) Not included as both a direct billing and as a component of indirect costs? (i.e., If a cost is charged directly to a grant, was the cost
properly excluded from indirect cost pools included in the calculation of an indirect cost rate?).

(m) Properly classified? (e.g., some costs may be incorrectly classified as a direct cost instead of being incorporated as part of the
grantee's indirect cost pool).

(n) Supported by appropriate documentation? (e.g., approved purchase orders, receiving reports, vendor invoices, canceled checks, time
and effort records, current cost allocation plans, etc. Documentation may be in an electronic form).

(o) Correctly charged to the proper account code and grant period?

8(c). Cost Allocation Plans / Indirect Cost Rate Proposals

Determine whether indirect costs recovered (reimbursed) for the audit period are material to the program. If so, proceed with the
following steps.

(i) Obtain a copy of the auditee's indirect cost rate proposal or cost allocation plan that was in effect for the period under
audit. Determine whether the plan contains an organizational chart of the auditee. Also determine whether the plan has been certified
by the auditee (per A-87, Attachment E, Section D).

(ii) Test the cost pools which form the basis of the indirect cost rate plan and the resulting charges to Federal awards to ascertain if they
include only allowable costs in accordance with the cost principles. Also determine whether unallowable items and other distorting items
are being excluded from the cost pool such as fixed Assets, payments to subrecipients, entertainment, etc.

(iii) Test the methods of allocating the costs to ascertain if they are in accordance with the provisions of cost principles and produce an
equitable distribution of costs. Appropriate detailed tests may include:
(1) Test statistical data (e.g., square footage, case counts, salaries and wages) to ascertain if the proposed allocation or rate
bases are reasonable, updated as necessary, and do not contain any material omissions.

(2) Review time studies or time and effort reports (where and if used) to ascertain if they are mathematically and statistically
accurate, are implemented as approved, and are based on the actual effort devoted to the various functional and programmatic
activities to which the salary and wage costs are charged.

(3) Review the allocation methodology for consistency and test the appropriateness of methods used to make changes.

(iv) J udgmentally select claims for reimbursement and verify that the rates used are in accordance with the rate agreement, that rates
were applied to the appropriate bases, and that the amounts claimed were the product of applying the rate to the applicable base. For
example, if the grantee used direct salaries and wages as the base for calculating the rate, the grantee should only apply the indirect cost
rate to salaries and wages when it submits it reimbursement claim.

(v) Verify that the costs included in the base(s) are consistent with the costs that were included in the base year (e.g., if the allocation
base is total direct costs, verify that current year direct costs do not include costs items that were treated as indirect costs in the base
year).

Policy/Standards:
INTERNAL CONTROL UNDERSTANDI NG
Your documentation should address the five components of internal control per SAS 78 (control environment, risk assessment, control
activities, information and communication, and monitoring).
Refer to Part 6 of the OMB A-133 Compliance Supplement available on the SAO Intranet under AUDI TOR RESOURCES | REFERENCE
GUI DE | FEDERAL GRANT RESOURCES for suggestions about the types of controls that could be used for certain compliance areas.

-------------------------------
CIRCULAR A-87 COST PRI NCIPLES

http://www.whitehouse.gov/omb/circulars/a087/a87_2004.html

DEFINITIONS

Cost means an amount as determined on a cash, accrual, or other basis of accounting acceptable to the Federal awarding or cognizant agency.

Cost objective means a function, organizational subdivision, contract, grant, or other work unit for which cost data are needed and for which
provision is made to accumulate and measure the cost of processes, projects, jobs and capitalized projects.

Direct costs are those that can be identified specifically with a particular final cost objective (i.e., a particular award, project, service, or other
direct activity of an organization). Examples of Direct Costs: payroll costs of employees who perform work that is directly related to the grant
program; the cost of supplies and materials used for the purpose of the grant; equipment and other approved capital expenditures made for the
grant; or professional services contracted to accomplish specific grant/contract objectives.

Indirect costs are those costs incurred for a common or institution-wide objective that benefits more than one grant program or project. Such
costs are not readily assignable to the cost objective specifically benefited. Examples of Indirect Costs: depreciation and use allowances of non-
federal equipment and buildings; facility operation and maintenance (lights, heat, phone, janitorial, grounds, etc); and general administrative
expenses such as accounting, payroll, legal and data processing expenses.

GENERAL COST GUIDELI NES

What is a Reasonable Cost?

A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances
prevailing at the time the decision was made to incur the cost.

Other factors used in determining whether a cost is reasonable are:

whether the cost is generally considered as ordinary and necessary to the operation of the grantee or the performance of the federal
award/program;

the restraints or requirements imposed by such factors as sound business practices, arms-length bargaining, federal, state and other laws
and regulations, and terms and conditions of other federal awards, or sponsored agreements;

market prices for comparable goods and services; and

the extent to which actions taken with respect to the cost are consistent with institutional policies.

EXAMPLES:

1. A grantee is planning to purchase computers and printers with federal funds. The purchasing agent obtained phone quotes from three
vendors. One vendor has a direct family relationship with the grantees purchasing agent. It so happens that this vendors quote was
20% higher than the other two. The grantee should not contract with this vendor because the price is unreasonable and has a conflict of
interest (regardless of the price).
2. A grantee has been permitted in its grant contract to lease a vehicle so that it can travel within its region to deliver grant-related services
to clients. The grantee has obtained quotes for a standard 4-door sedan and a luxury 4-wheel drive SUV that is twice the cost of the
sedan. Which vehicle should the grantee choose? This is not to say a 4-wheel drive is not necessary or reasonable, but the price may
dictate the type or model of vehicle.

What is an Allocable Cost?

A cost is considered allocable if the goods or services involved are chargeable or assignable to a particular cost objective (i.e., a specific function,
project, sponsored agreement, service, or grant) in accordance with the relative benefits received.

Any cost allocable to a particular federal award, sponsored agreement or cost objective may not be shifted to other federal awards, sponsored
agreements or cost objective to overcome funding deficiencies.

If a grantee intends to recover the portion of its indirect costs (overhead, central administration, etc.) that relates to its grant programs, Circular
A-87 requires the grantee to develop a cost allocation plan and/or indirect cost rate. Requirements pertaining to the three types of cost
allocation plans addressed in the circular are found in attachments C, D and E.

EXAMPLES:

1. An employee works on two different federal grant projects. The time spent on each project varies from day to day. This employee must
keep monthly time and effort records that account for actual time spent on each project. By tracking actual effort, each grant will be
charged its fair share of the costs.
2. A grantee held a training workshop for its employees. Included in the cost of the workshop was room rental, food, and travel. The
workshop included a session that was specific to a federal program and a session that covered general personnel and human
effectiveness training. The grantee should allocate the cost of the training among all programs/divisions that benefited from the
training. Next, it should charge the allocated amount only to those awards that specifically allow for this type of cost.

Applicable Credits

A credit means a receipt or reduction in expenditures that offset or reduce direct or indirect cost items. Examples include:

purchase discounts;
rebates or allowances;
recoveries or indemnities on losses;
insurance refunds; and
adjustments of overpayments or erroneous charges.

When such credits are applicable to allowable costs, they must be credited to the federal award either as a cost reduction or a cash refund. In
some instances, the amounts received from the federal government to finance a grantee's activities or service operations should be treated as
applicable credits.

EXAMPLE:

A grantee paid a vendor for materials it needed for a project. It was determined later that the vendor had over-billed the grantee and
was issuing a refund check. This refund should be netted against the total amount charged to the grant as a cost reduction. If the grant
project had already been closed out, the refund should be remitted to the grantor agency that sponsored the project. Consult with the
grantor agency in such a case.

Consistency

A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been
allocated to the Federal award as an indirect cost.

EXAMPLE:

A grantee has five departments. It allocates the cost of its basic telephone service to each department based on the number of
telephones in each department. Each department should treat the telephone cost consistently for all grants it administers. That is, if a
department has 3 grant programs, that department should treat this telephone cost as either a direct cost or indirect cost for all 3 grants,
but not a mix of each. Next, if treated as a direct cost, a department should only request reimbursement for this type of cost if permitted
under the terms of its grant agreement(s).


Grant Agreement Limitations

To be allowable, the cost being charged must conform to any limitations or exclusions set forth in the terms and conditions of the Federal award,
or other governing regulations as to types or amounts of cost items.
EXAMPLE:

A grantee paid for a television advertisement to promote its new grant-funded health program. However, the approved grant contract limited
the cost of advertising to brochures and radio ads. Therefore, the grantee should not include the cost of the television advertisement in its
request for reimbursement even though advertising is an otherwise allowable cost according to Circular A-87.

Adequate Supporting Documentation

Amounts charged to federal awards must be supported by source documentation, including:

payroll reports
time and attendance records
invoice vouchers from subrecipients
receiving reports
original vendor invoices
cost allocation plans

(Documentation may be in an electronic form, but make sure the integrity of the electronic documentation can be maintained for the
duration of the applicable record retention period).

EXAMPLE:

A grantee made a year-end adjustment to a federal award using a journal voucher entry. The accounting entry must be supported by adequate
documentation that demonstrates both allowability and allocability.

Background
Prior Audit Issues:
Finding for Activities Allowed/Allowable Costs - The District has an internal control deficiency (material weakness) and noncompliance for
Activities Allowed/Allowable Costs which resulted in questioned costs of $499,936. The amount of questioned costs was more than 20
percent of total program expenditures and we therefore issued a qualified opinion for this program. The non-compliance was material to
the program as a whole. We will follow-up on this finding in this section to determine what the District has done to implement
recommendations since the last audit, below.
Changes in key staff:
In the prior year the Program Manager was Pegi McEvoy, Assistant Superintendent of Operations. Due to the prior audit qualified opinion on the
HSGI grant and the number of unallowable costs found, the District moved in two new HSGI Program Managers. The Program Managers were
already working on the HSGI grant and are familiar with the activities and goals of the federal grant. Although the Program Managers were not
officially titled as the Program Managers until around August 2014, they were already taking over the responsibilities by Lisa Sharp and J anet
Blanford in J une 2014. For the current audit, we will meet with the new Program Managers and if we have any further questions in regards to
controls or compliance testing, we will meet with Pegi as necessary.
Inherent Risk of Noncompliance
In accordance with SAS 117, we have considered inherent risk factors that apply to this compliance requirement and assess the inherent risk of
noncompliance at HIGH based on the following:
The High School Graduation Initiative grant was audited in the prior year with a finding. It received a qualified opinion because of
$483,862 in questioned and unallowable costs.
Understanding of Internal Controls
Key Staff:
Lisa Sharp, HSGI Program Manager
Lisa Love, HSGI Program Manager
Payroll Expenditures (62.73% of total grant expenditures)
Based on the prior knowledge of the District we determined that the District has a centralized control for time and effort certifications. We
documented our understanding of controls at Time and Effort Certificationsand payroll expenditure testing at CFDA 84.360 HSGI Time & Effort
Testing
Non-Payroll Expenditures (37.27% of the total grant expenditures)
Vendor invoices are routed to the Program Manager(s) for approval prior to being processed through the District's accounts payable. As noted
above, the Pegi McEvoy was the Program Manager for the 2012-2013 school year until J uly 2013. I n J uly 2013, Lisa Sharp and Lisa Love took
over as the Program Managers.
Most purchases for the HSGI grant are listed in the budget. The budget is based on the expenditure amounts listed in the grant contract, which
are divided into line items by expenditure type; such as personnel, fringe, travel, supplies, contractual and indirect costs. Purchases are initiated in
one of two ways: automated or non-automated requisition. The approved school teacher or principal make the purchase and either the teacher's
principal or Lisa Sharp or Lisa Love, Program Managers approve the purchases through either purchase method. The Program Managers complete
monthly reconciliations to compare to the budget the general ledger.
The Principal or Program Managers sign and approve all purchases before they are made and review budget to actual
expenditures monthly to ensure the expenditures are allowable activities, allowable costs and meet cost principles. For personal
services performed, the Program Manager completes the District's "Personal Services Contract Certification of Services
Rendered". This certification requires the Program Manager to certify that the service was performed and/ or completed, which
then authorizes accounts payable to pay the invoice.
Indirect Costs
The indirect cost rate is 3.68% for FY2013. This is in line with the agreement of indirect cost rates with OSPI. The indirect cost rate against
subawards may be applied to a limited extent. In particular, the indirect cost rate may be applied only against the first $25,000 of each subaward
on a yearly basis, and not against the full amount of each subaward.
KEY CONTROLS
Key Control #1: The Principal or Program Managers sign and approve all purchases before they are made and review budget to actual
expenditures monthly to ensure the expenditures are allowable activities, allowable costs and meet cost principles.
Preliminary Control Risk Assessment
Based on our understanding of key internal controls, we assess preliminary control risk at LOW
Internal Control Testing
Payroll
Payroll internal controls were tested at Time and Effort Certificationsand CFDA 84.360 HSGI Time & Effort Testingwithout exception.
NonPayroll
Key Control #1: The Principal or Program Managers sign and approve all purchases before they are made and review budget to
actual expenditures monthly to ensure the expenditures are allowable activities, allowable costs and meet cost principles.
We met with Lisa Sharp, Program Manager and Lisa Love, Program Manager on J anuary 23, 2014. They provided us with a binder including tabs
for each month. We noted the reconciliation on top with important copies of manual requisitions underneath. Both Lisa's mentioned the District
started making changes to who is allowable and not to the grant for payroll expenditures and also for non-payroll expenditures as soon as the
District received the finding for having inadequate internal controls and noncompliance for activities allowed, allowable costs and cost principles.
They stated from around J anuary 2013 through the end of the year that Pegi McEvoy, former Program Manager, the Accounting Department and
themselves stayed in contact and worked to keep a list of items that were not allowable to the grant. At year-end Lisa Sharp stated the District
made one large journal entry to back out these costs from the grant since they were determined to not be allowable. She did acknowledge that
they continue to every once in a while find a cost and they address the unallowable item as they come now. They also stated that the District
realizes there could still be costs that were not caught in the 2012-2013 school year since there were so many costs found unallowable in the prior
year audit and a full turnover was made in the grant management at the District.
We used sampling of non-payroll transactions to perform testing of controls and compliance. We used CAATS query at SA Non-Payroll Sample
Control Testing/Compliance Resultsto determine there are enough transactions to perform sample testing. We selected 31 transactions for testing
based on a moderate level of assurance needed for testing. We met with J eff J ones/Technical Business Analyst Lead Supervisor to review
approvals for transactions initiated in the B2B procurement system. J eff used the PO number or B2B shopping cart number provided on
supporting documentation for the transactions to lookup the approver in B2B. We confirmed the approver in the B2B system was authorized to
approve transactions related to the HSGI grant. For reimbursements and other transactions not initiated in B2B, we reviewed the supporting
documentation for indication of review by a Principal or Program Manager. Testing was performed at SA Non-Payroll Sample Control
Testing/Compliance Resultswithout exception.
Final Control Risk Assessment
We assess final control risk at LOW.
Risk of Material Noncompliance
We assess the risk of material noncompliance at MODERATE
Compliance Testing
Payroll Testing
Time and Effort Testing:
Time and effort certification testing was performed at: Time and Effort Certificationsand CFDA 84.360 HSGI Time & Effort Testing. Based on
testing, we found not all of the costs are allowable to the grant, and not all time & effort certifications are signed timely. We determined 11 out of
27 single-cost objective semi-annual and seven out of 64 multiple-cost objective monthly certifications were not signed timely. We then
determined the length of time the certifications were signed late to determine the level of issue based on the number of certifications reviewed,
not the number of employees reviewed as there are a number of employees certified by the same certification form. We determined:
9/1/2012-1/31/2013 (Period 1): One certification signed nine months late, one signed between two and three months late, one signed
between one and two months late and two signed within our expectation.
2/1/13-6/30/2013 (Period 2): All certifications were signed within our expectation.
7/1/2013-8/30/2013 (Period 3): One certification was signed between one and two months late and one certification was signed within
our expectation.
Monthly PARs: One certification signed between one and two months late, six certifications signed less than 30 days late and 57 PARs
were signed within our expectation.
Summary of Exception
Semi-Annual Certifications:
Two certifications were signed between 30 and 60 days after the T&E reporting deadline.
One certification was signed between 60 and 90 days after the T&E reporting deadline.
Monthly Certifications:
Six certifications were signed less than 30 days after the T&E reporting deadline.
Exit = Although the time and effort certifications were signed between one and nine months late, the District continues to make significant
improvements in this area since the previous three audits. We do not consider one and three months late material to the grant. In addition, we
did not find any time and effort certifications that were not signed, not turned in or signed after the date of auditor request as had been found in
prior audits. The District is also continually works with SAO on any issues found to work with those supervisors turning in late certifications. For
these reasons, we determined the exception should not be listed as a higher level.
Payroll Activities Allowed/ Allowable Cost Testing:
We included the payroll testing for activities allowed/allowable cost and cost principles to our testing spreadsheet at Single Audit Testing Matrix A
During testing we found one employee charged that is not allowable to the grant totaling $61,348. We determined the employee is a
Family Support Worker who was charged using the Communities That Care mini-grant portion of funding within the HSGI grant. We
determined a Family Support Worker is not a mini-grant and these funds should be paid directly for the mini-grants. The District was aware
of the unallowable cost but did not reimburse the grant from another allowable funding source, such as the general fund. Instead on
September 30, 2013 the District stopped payment and only deducted the August 2013 pay from the HSGI grant fund and no longer pays
for the employee's salary and benefits from the HSGI grant fund. We will include this to any other unallowable costs found during non-
payroll testing. See SA_F: CFDA 84.360 High School Graduation Initiative Unallowable Costs
Finding= We determined the level as a finding as the unallowable costs is more than $10,000. Per federal regulations any unallowable
costs above $10,000 requires a finding reporting level.

NonPayroll Testing
We performed an analysis of non-payroll expenditures by object. We identified share of expenditures by object in total population and
deternimend number of transactions for each object. See table below.
Object Object Description Amount % of Total # of Transactions
5 Supplies & Materials $69,412.57 8.93% 389
7 Purchased Services $684,469.04 88.02% 156
8 Travel $8,150.83 1.05% 43
9 Capital Purchases $15,638.06 2.01% 2
TOTAL $777,670.50 100.00% 590

As the result of our analysis we identified four populations among non-payroll expenditures. We selected two largest populations for further
testing Purchased Services and Supplies and Materials. We will perform further review of Purchased Services and judgmentally select
transactions for testing because this population has only 159 transactions. We will use sampling spreadsheet to test Supplies and Materials
because this population has over 300 transactions that are relativly
Purchased Services:
We determined purchased services make up a majority of the balance, 88 percent. We reviewed the personal service expenditure detail by vendor
and noted three major vendors. We judgementaly selected transaction for two of those vendores for testing (Robert Half Technology and
American Academy) at E.2.2. During our testing we also reviewed contracts with those vendors. We determined the transactions were allowable
and the contracts are valid during testing.
In addition we reviewed the University of Washington and Neighborhood House personal service contracts during testing of the procurement and
suspension/debarment at E.7.PRGand E.7.6. We determined they were both allowable to the grant and approved through the grant application
process. Because we made the determination they are allowable we totaled the FY13 total amount charged to the grant for the University of
Washington, Robert Half Technology, American Academy and Neighborhood House. They total $467,662 or about 68.32% percent of the total
purchased services and 60 percent of all non-payroll transactions.

Supplies and Materials Testing:
We performed sampling of Supplies and Materials at E.2.4. Out of 389 tranactions we randomly selected 36 transactions for testing based on
a very high level of assurance needed from testing. We obtained the invoices, reimbursements, and journal entries from Kenny Ching, Grants
Accountant. We determined a very high level of assurance is needed because the prior year audit found over $400,000 in unallowable costs,
including supplies and materials costs. We performed testing at E.2.2 and recorded our results for the sample at E.2.4.
As a result of our sampling we found one transaction that was unallowable to the grant for $291 for the purchase of furniture. We reviewed the
transactions and noted this was the only furniture purchase with the grant funds. We performed addtional testing to determine whether including
the estimated questioned costs is reasonable since this was the only furniture purchase made. We used the random number generator to select
an addtional 10 transactions to review for supplies and materials to decrease the risk whether estimated questioned costs should be included in
the HSGI finding. We did not find any other known questioned costs during the addtional testing. Therefore, we conclude that since the known
questioned cost was the only furniture purchase, that this was an isolated incident and including the estimated questioned costs does not appear
reasonable. We will not include the estimated questioned costs as part of the issue.

Summary of Testing:
We determined there is $61,640 in known unallowable costs to the grant, including payroll and non-payroll transactions. The unallowable costs
are not material to the grant and we will not qualify our opinion on the grant.
See SA_F: CFDA 84.360 High School Graduation Initiative Unallowable Costs
Finding= We determined the level as a finding as the unallowable costs is more than $10,000. Per federal regulations any unallowable costs above
$10,000 requires a finding reporting level.


Procedure Step: C. Cash Management

Purpose/Conclusion:
Purpose:
To determine if internal controls provide reasonable assurance that (1) the draw down of Federal cash is only for immediate needs and (2) cash is
disbursed in a timely manner and to test compliance with those requirements.

Conclusion:
We determined internal controls provide reasonable assurance that (1) the draw down of Federal cash is only for immediate needs and (2) cash is
disbursed in a timely manner and to test compliance with those requirements without exception.

Testing Strategy:
Cash Management

Perform the following steps:



Review Part 4 of the Compliance Supplement that applies to your audit period, the grant agreement, and/or program regulations to determine the
method of payment for the federal program (i.e., cash advance or cost reimbursement). If a grantee states that it is paid on a "cost
reimbursement" basis, determine whether the grantee is permitted to request its funding from the grantor before it actually disburses its own
cash to pay project/program costs.


over compliance.




Gain an understanding of the grantee's internal controls and identify the key controls over its requests for federal funding as follows.
Cash Advances - our focus is on the controls that ensure (1) the grantee is disbursing the funding as soon as possible after it is received,
(2) the grantee is limiting its cash advance requests to its immediate needs, and (3) the grantee is tracking interest earned from cash
advances and remitting any interest over $100 back to the grantor.
Cost Reimbursement Basis - if the grantee is not required to disburse its own funds before submitting a request for reimbursement, there
is risk that the grantee could receive the federal funds before it actually makes a disbursement and is, in effect, getting a cash advance
and maintaining an excess cash balance and earning interest. Obtain an understanding of how the grantee ensures that it disburses the
grant funds as soon as possible after they are received and is not maintaining an excessive cash balance.
What is a reasonable time period? - Unless otherwise specified in the grant agreement or program regulations, we usually deem 10
business days as a reasonable time period between the date the funds are received and the date they are disbursed.
exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)



Material Weakness
program)

Report a Finding












Design the nature and extent of compliance testing based on the risk of material noncompliance. The extent of our testing must be sufficient to
support our conclusion about whether the grantee has materially complied with the requirement being tested. If the nature of the transactions
or records for this requirement are conducive to sampling, it is recommended the auditor select a sample (the Excel sampling template for the
single audit is located in the TeamStore). Otherwise, perform a judgmental selection based on risk.

Cash Advances

1. Select cash draws occurring during the audit period and verify that the auditee (1) minimized the time elapsing between the drawdown and
disbursement of funds in accordance with program guidelines, (2) limited the amount of its cash request to its immediate needs, and (3)
accounted for and expended program income, rebates, refunds, and other receipts before requesting additional cash draws.

2. Review records to determine if interest was earned by the auditee on federal cash advances. If so, review evidence to ascertain whether the
interest was returned to the granting agency (grantee are permitted to retain up to $100 under the A-102 Common Rule).

Cost Reimbursement Basis

Select reimbursement claims and review the underlying costs that are being claimed. Determine whether the grantee had used its own funds to
pay the expenditure before it requested the federal funding or whether it is holding onto federal funds for an unreasonable amount of time before
it pays the expenditures. Ten business days is usually considered reasonable unless a shorter or longer period is specified in the grant agreement
or regulations. Consult with the SAO single audit specialist if necessary.

Policy/Standards:
Documentation should address the five components of internal control per SAS 78 (control environment, risk assessment, control activities,
information and communication, and monitoring).

Refer to Part 6 of the OMB A-133 Compliance Supplement available on the SAO Intranet under AUDI TOR RESOURCES | REFERENCE GUI DE |
FEDERAL GRANT RESOURCES for suggestions about the types of controls that could be used for certain compliance areas.

noncompliance at LOW based on the following:

The compliance requirement is not new to the District and the requirement has not changed recently.
The compliance requirement is not relatively complex and the related activities are not difficult to audit.
There are not multiple locations or departments responsible for administering the requirement.
The inherent risk is the District's monthly expenditure report submitted to OSPI does not include all activity of the reporting period, are not
supported by appropriate records, and may not be fairly presented.

The District submits reimbursement requests and does not request the 7.5% monthly advance. Due to the centralized process of reimbursement
requests, we will review internal controls at Reimbursement Requests.

Based on our understanding of key internal controls, we assessed preliminary control risk at LOW at Reimbursement Requests
We performed our internal control testing at without exception.
We assessed final control risk at LOW at Reimbursement Requests

We assessed the risk of material noncompliance at LOW at Reimbursement Requests
Compliance Testing
We reviewed two reimbursement requests at Reimbursement Requests without exception.



Procedure Step: G. Supplanting

Purpose/Conclusion:
Purpose:
To determine if internal controls provide reasonable assurance that matching, level of effort, or earmarking requirements are met using only
allowable funds or costs which are properly calculated and valued, and to test compliance with those requirements.

Conclusion:
We determined internal controls provide reasonable assurance that matching, level of effort, or earmarking requirements are met using only
allowable funds or costs which are properly calculated and valued. We then tested compliance with those requirements without exception.

Testing Strategy:
Matching, Level of Effort, and Earmarking




Review Part 4 of the A-133 Compliance Supplement that applies to your audit period, the grant agreement, and any available
program guidelines to determine the specific requirements over matching, level of effort / supplanting, or earmarking. Refer to
the Policy/ Criteria Tab for examples of Supplanting.


over compliance.




Gain an understanding of the grantee's internal controls and identify the key controls to ensure:

(a) the minimum amount of local contributions/ matching funds was provided from an allowable source (Matching),
(b) the specified service level or expenditure levels were maintained (Level of Effort),
(c) local funds were not replaced by federal funds (Supplanting)
(d) the minimum or maximum limits for specified purposes or types of participants were met (Earmarking).

exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)



Material Weakness
program)

Report a Finding













Matching

1. Review records to verify that the required amount of matching or cost sharing contributions was met.

2. Determine whether the type of match being claimed (e.g., local cash expenditure, grantee-donated property, volunteer time, third party
donations, program income, etc.) is allowable according to the grant agreement.

3. Test records to corroborate that the values placed on in-kind contributions are in accordance with the OMB cost principles circulars, the A-102
Common Rule, program regulations, and the terms of the award.

Level of Effort - Maintenance of Effort

1. Identify the required level of effort and perform tests to verify that the level of effort requirement was met.

2. Perform tests to verify that only allowable categories of expenditures or other effort indicators (e.g., hours, number of people served) were
included in the computation and that the categories were consistent from year to year. For example, in some programs, capital expenditures may
not be included in the computation.

3. Perform procedures to verify that the amounts used in the computation were derived from the books and records from which the audited
financial statements were prepared.

4. Perform procedures to verify that non-monetary effort indicators were supported by official records.

Level of Effort - Supplanting

Refer to the Policy/Criteria Tab for examples of Supplanting.

Objective - The federal government wants the grantee to use its federal funds to supplement (enhance) the existing resources for the program
instead of supplanting (replacing) its local funds with the federal grant.

1. Identify the types of services/functions/positions that were charged to the federal grant during the audit period. Next, determine if any of
these services/functions/positions were paid for using local or state funds in the prior year(s). If so, determine if the total level of services (local
and federal) increased in proportion to the level of the Federal contribution. That is, federal funds should supplement the existing local resources
and build upon the current program. The federal funds should not supplant (replace) the existing funds.

Earmarking

1. Identify the applicable percentage or dollar requirements for earmarking

2. Perform procedures to verify that the amounts recorded in the financial records met the requirements (e.g., when a minimum amount is
required to be spent for a specified type of service, perform procedures to verify that the financial records show that at least the minimum
amount for this type of service was charged to the program; or, when the amount spent on a specified type of service may not exceed a
maximum amount, perform procedures to verify that the financial records show no more than this maximum amount for the specified type of
service was charged to the program).

3. When earmarking requirements specify a minimum percentage or amount, select transactions supporting the specified amount or percentage
and perform tests to verify proper classification to meet the minimum percentage or amount.

4. When the earmarking requirements specify a maximum percentage or amount, review the financial records to identify transactions for the
specified activity which were improperly classified in another account (e.g., if only 10 percent may be spent for administrative costs, review
accounts for other than administrative costs to identify administrative costs which were improperly classified elsewhere and cause the maximum
percentage or amount to be exceeded).

5. When earmarking requirements prescribe the minimum number or percentage of specified types of participants that can be
served, select participants that are counted toward meeting the minimum requirement and perform tests to verify that they were properly
classified.

6. When earmarking requirements prescribe the maximum number or percentage of specified types of participants that can be served, select
other participants and perform tests to verify that they were not of the specified type.

Policy/Standards:


WHAT IS SUPPLANTING?
The federal government wants the grantee to use its federal funds to supplement (enhance) the existing resources for the program instead of
supplanting (replacing) its local funds with the federal grant. Basically, federal funds should supplement the existing local resources and build
upon the current program. The federal funds should not supplant (replace) the existing local/state funds. Below are some examples:

COPS grant (CFDA 16.710)
COPS grant funds must be used to hire (on or after the award start date) one or more additional, new career law enforcement officer positions,
beyond the number of officer positions that would be hired or employed by the grantee with local funds in the absence of the grant.

HUD Emergency Shelter Grants (CFDA 14.231)
The Emergency Shelter Grants (ESG) Program is designed to help improve the quality of existing emergency shelters for the homeless, make
available additional emergency shelters, and meet the costs of operating emergency shelters and of providing essential social services to homeless
individuals so that these persons have access not only to safe and sanitary shelters for the homeless but also to the supportive services and other
kinds of assistance they need to improve their situations. Grant amounts may be used to provide essential services to the homeless only if the
service is a new service, or is a quantifiable increase in the level of service above that which the unit of general local government provided with
local funds during the 12 calendar months immediately before it received initial grant amounts.

Title I Schools (CFDA 84.010)
It is presumed that supplanting has occurred is a school district used its Title I grant to provide services that it provided with non-Federal funds in
the prior year. Example: A teacher's sole function at the district is to provide Title I services (a single cost objective). I n years 1 and 2, the
teacher's salary was paid from the following sources: 20% Basic Education; 80% Title I. I n year 3, the teacher's salary was paid 100% with Title
I funds. Supplanting has occurred in year 3 because Title I replaced (supplanted) the non-federal funding that had been used to provide Title I
services. However, this is only one teacher and the auditor should evaluate all services of the program taken as a whole to determine
the aggregate effect.

HUD Supportive Housing Program (CFDA 14.235)
The Supportive Housing Program is designed to promote the development of supportive housing and supportive services, including innovative
approaches to assist homeless persons in the transition from homelessness, and to promote the provision of supportive housing to homeless
persons so they can live as independently as possible. No assistance provided under this program, or any State or local government funds used
to supplement this assistance, may be used to replace State or local funds previously used, or designated for use, to assist homeless persons.

Per review of the CFDA website for CFDA 84.360 High School Graduation I nitiative grant we noted matching, earmarking and maintenance of
effort requirements are not applicable to the program.
The grant agreement indicates that supplanting is not allowable. Supplanting falls under the category of Level of Effort therefore we determined
Level of Effort was applicable. The below documentation relates only to Level of Effort.
noncompliance at LOW due to the following:
The compliance requirement is not considered an area of higher risk in the Compliance Supplement or by oversight agencies.
The inherent risk of supplanting is that the District may use federal funds to replace local funding sources.

Key Personnel:
J enny Cassel, Senior Budget Analyst
Sara Dumlao, Budget & Cost Accounting Analyst (took over duties in J une 2013)

Supplanting:
Each year the school board approves a grants capacity fund (approximately $12-$18 million) in the budget. These funds are for grants that are
approved during the fiscal year. This allows the District to allocate the funds in the grants capacity fund to grants that are awarded throughout
the fiscal year without needing to go back to the school board for a new budget approval.
When a grant application is approved, the District's Grant Compliance Grant Summary Sheet is created by the Grants Compliance Department, a
budget analyst is assigned to the grant, and the accounting department assigns the grant a fund number. The assigned Budget Analyst then
meets with the Grant Manager and reviews the grants approval and grant budget. The Budget Analyst then transfers funds from the grants
capacity fund to the grants fund. This ensures the funds used to fund the grant are not supplemented from any another funding source.
KEY CONTROL:
The Budget Analyst transfers funds from the grant capacity fund to the grant fund. (Supplanting)
Based on our understanding of key internal controls, we assess preliminary control risk at LOW.
Key Control: The Budget Analyst transfers funds from the grant capacity fund to the grant fund.
We met with J enny Cassel, Budget Analyst on March 4, 2013 to discuss the allocation of funds from the grants capacity fund to the assigned grant
fund. J enny provided us an email from Kathy Gallichan, Accounting Analyst II, in the Accounting dept stating the grant had been assigned fund
1K98. J enny then walked us through the grants approval and approved budget. She detailed the meeting notes from her discussions with the
grant manager as they related to the budget generation. J enny provided us the Budget Transfer Reports which detail the transfer from the grants
capacity fund to fund 1K98. The report includes an explanation for each of the budget transfers. We noted the following explanation for a transfer
made on September 9, 2013: "Need to load some funding into 4R05124EZ4 to cover contracts that are currently being set up. Could you
please put $325,000 in 7120?" We noted the report shows $325,000 being transfered from fund 1AA1 and Commitment item 2092 to fund 1K98
and Commitment item 7120.

Based on our review it appears the grant funds were allocated from the grant capacity fund which are not identified in the budget for other
purposes. This ensures the HSGI grant funds are used to supplement (enhance) the existing resources identified in the District's budget and the
District is not supplanting its local funds with the federal grant funds. Additionally, based on our interactions with J enny, we found her to have
the skills, knowledge, time, and ability to perform this job.

This control appears to be in place an operating as intended.
We assess the risk of material noncompliance at LOW

Compliance Testing
Supplanting: Objective - The federal government wants the grantee to use its federal funds to supplement (enhance) the existing resources for
the program instead of supplanting (replacing) its local funds with the federal grant.

1. We selected the same employees that we selected using sampling at E.2.4 and testing at E.2.2 during the activities allowed/allowable cost testing. We met
with Jenny Cassel, Senior Budget Analyst who showed us each selected employee's types of services/functions/positions that were charged as a whole so
we could identify the percentage of pay charged to the federal grant during the audit period for FY02013. We then determined if any of these
services/functions/positions were paid for using local or state funds in the prior year(s). We performed testing at E.2.5 to determine if the total
level of services (local and federal) increased in proportion to the level of the Federal contribution. We determined the federal funds did not
supplant (replace) the existing funds. No exception.


Procedure Step: I. Procurement/Suspension and Debarment

Purpose/Conclusion:
Purpose:
To determine if internal controls provide reasonable assurance that procurement of goods and services are made in compliance with state law and
the Common Rule and that covered transactions are not made with a debarred or suspended party. Also, to test compliance with those
requirements.

Conclusion:
We determined internal controls provide reasonable assurance that procurement of goods and services are made in compliance with state law and
the Common Rule and that covered transactions are not made with a debarred or suspended party. We then tested compliance with those
requirements without exception.

Testing Strategy:
Procurement / Suspension and Debarment



Step 1: Background and gathering information.

State Laws and the Circular A-102 Common Rule
The general rule for federal procurement is that a grantee should first follow any state bid laws that apply to the item/service being procured
(e.g., equipment, public works, architecture/engineering, etc.). I f there are no state laws that pertain to the item/service being procured, the
Circular A-102 Common Rule will apply. The Common Rule requires quotes for purchases up to $100,000 and bids/RFP's for purchases over
$100,000. SAO auditors will use a risk-based approach in selecting procurement transactions. When auditing to the Common Rule,
auditors should use a $3,000 per-purchase floor as an internal measure of materiality when selecting purchases. ($3,000 is defined as the micro-
purchase by the Federal Acquisition Regulations (as of 2008). Purchases made by federal agencies under this amount do not require quotes
this is a guide that we will use for the level at which the federal government would normally expect quotations to be obtained.)

Sole Source of Supply
A grantee can declare that competition is not feasible or cannot be obtained and designate a vendor as the sole source of supply or the only
service provider. The grantee must keep documentation of how it arrived at this decision before the contract was made.

Interlocal Agreements: Transactions between two governments for services are exempt from procurement
When one government uses federal grant funds to pay for professional services provided by another government, it is not expected to obtain
quotes or seek competition because the A-102 Common Rule (section .36) encourages governmental entities to enter into interlocal agreements
to maximize economy and efficiency. It assumes the economic benefit and efficiency has or will be achieved. RCW 39.34.030 sets forth the
standards for interlocal agreements the form of the agreement or contract may vary so long as it contains the necessary information. This
exemption is intended for services provided from one government to another government - it does not exempt purchases made by one of the
participating governments from a third party vendor, such as a purchasing co-op or piggybacking off another government's bid for
equipment/materials.

Purchasing from a State Agency Contract (General Administration)
Some local governments make purchases from contracts that are procured by the WA Dept of General Administration (G.A.) In this situation, the
G.A. performs all the bidding requirements and the participating local governments can rely on the bid process and make purchases from the
contract. The G.A. retains all the bid documentation. If you are auditing at a local government and want to see the bid documentation at the
G.A., contact Marina Yee on Team State Audit to determine if they have already reviewed the contract at G.A.

ARRA Alert - BUY AMERICAN. Section 1605 of ARRA prohibits the use of ARRA funds for a project for the construction, alteration, maintenance,
or repair of a public building or work unless all of the iron, steel, and manufactured goods used in the project are produced in the United
States. ARRA allows federal agencies to waive these requirements under specified circumstances. Grantees must include this Buy American
provision in their contracts for public works that are being paid with ARRA funds.


Inherent risk of noncompliance is the susceptibility of a compliance requirement to material noncompliance, beforeconsidering internal controls
over compliance.





Gain an understanding of the grantee's internal controls and identify the key controls to ensure (1) state laws and the A-102 Common Rule are
followed when procuring goods and services and (2) vendor contracts exceeding $25,000 and all subrecipients are not suspended or debarred
from participating in federal programs. NOTE TO AUDITOR: When identifying internal controls for suspension and debarment, focus on the
auditee's awareness of the requirement and the process it follows to ensure compliance.

exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)



Material Weakness
program)

Report a Finding













Procurement:

1. Select procurement transactions (e.g., purchases of materials and supplies, contracts for professional services, awarding of construction
contracts, etc.) and test to determine whether the entity complied with:

(a) state bid laws that pertain to the goods or service being purchased; or
(b) the Circular A-102 Common Rule when there are no state laws that apply to the goods or services being purchased; and
(c) ARRA - if applicable, did the grantee include in its contracts a provision about the Buy American requirement for public works projects and did
it monitor the contractor's compliance with this requirement.

Suspension and Debarment:

1. Select vendor contracts that exceed $25,000 and some subrecipient agreements (no dollar minimum) and verify the grantee performed one of
the following:
Consulted the "Excluded Parties List System" (EPLS) before the contract was made. The grantee can do this by checking the GSA website
(www.sam.gov) or the hard copy subscription. (the grantee should print out its search results or maintain a log of its search activities
and results); or
Inserted a clause or condition into the contract that states the contractor/subrecipient is not suspended or debarred; or
Received a written suspension and debarment certification from the contractor/subrecipient.
2. The grantee is responsible only for determining the status of the primary contractor or primary subrecipients. Accordingly, the primary
contractor or subrecipients must check the status of any covered transactions they enter into at the next lower level. The grantee must inform
the primary contractor or subrecipient of this responsibility. Ascertain whether the grantee informed the lower tier participant (e.g. primary
contractor or subrecipient) of the requirement to check the suspension and debarment status of any covered transactions they enter into with
subcontractors or subrecipients.

Policy/Standards:


COMPLIANCE

Procurement
States shall use the same State policies and procedures used for procurements from non-Federal funds. Local governments shall follow applicable
state laws and the A-102 Common Rule.

Grantees and subgrantees will maintain records sufficient to detail the significant history of a procurement. These records will include, but are not
necessarily limited to the following: rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the
basis for the contract price.

Circular A-102 Common Rule - Procurement by small purchase procedures. Small purchase procedures are those relatively simple and informal
procurement methods for securing services, supplies, or other property that do not cost more than the simplified acquisition threshold fixed at 41
U.S.C. 403(11) (currently set at $100,000). I f small purchase procedures are used, price or rate quotations shall be obtained from an adequate
number of qualified sources. If the procurement exceeds $100,000, the grantee must advertise for bids or RFP's or be able to support its decision
for procuring the item without competition (e.g., sole source, declaring an emergency, etc.)

Suspension and Debarment
Entities are prohibited from contracting with or making subawards to parties that are suspended or debarred or whose principals are suspended or
debarred. Covered transactions include procurement contracts for goods and services equal to or in excess of $25,000 and all non-procurement
transactions (e.g., awards to subrecipients).

The compliance requirement is not new to the District nor has the requirement changed recently.
The inherent risk is the District is not procuring goods and services in compliance with state law and the common rule and/or is making
transactions with vendors who are suspended or debarred from receiving federal funds.
We determined there are no procurement purchases and only personal service contracts for the grant.

Contract procurement is managed by one group within the District through a centralized process. Our reveiw of internal controls for Personal
Service Contracts Procurement and Suspension/Debarment is documented at Personal Service Contracts
We performed tests of controls at Personal Service Contracts during our review of centralized processes without exception.
We assess the risk of material noncompliance at LOW.
Compliance Testing
Procurement:
We used CAATs expenditure data from the "51 Disadvantaged" program to determine the population of vendors. We then determined the vendors
associated with the selected grants for the HSGI grant by reviewing the fund numbers for each vendor. Once we determined our population of
personal service contract vendors, we stratified the population to address contracts above the per purchase floor of $3,000. There were 49
vendors in the population. We haphazardly selected three contracts to test controls and compliance to the grant. We reviewed the contracts to
verify Kathie Technow had signed each contract in approval and additional approval was sought as needed. We performed our testing at Personal
Service Contracts and at Personal Service Contract - Procurement Testing. We noted no exceptions during testing.
Suspension/ Debarment:
We reviewed the same contracts tested above and noted the District does stamp each contract indicating the SAM website has been verified. The
District also uses a standard contract created by the District Legal Department which includes the verbiage:
"Vendor, by accepting this contract, warrants that it is not presently debarred, suspended, proposed for debarment, declared ineligible, or
voluntarily excluded from covered transactions (defined as not being eligible to receive federal funds) by any local, state or federal
department or agency. Vendor agrees to be bound by the terms of School Board Policy No. 6973, which provides additional requirements
applicable to debarment of contractors from receiving future contracts with SPS."
4. Based on our testing, the District has adequate internal controls over and is in compliance with the requirements for procurement and
suspension and debarment.



Procedure Step: L. Reporting

Purpose/Conclusion:
Purpose:
To determine if internal controls provide reasonable assurance that reports submitted to the Federal awarding agency or pass-through entity
include all activity of the reporting period, are supported by underlying accounting or performance records, and are fairly presented in accordance
with program requirements. Also, to test compliance with those requirements.

Conclusion:
We determined internal controls provide reasonable assurance that reports submitted to the Federal awarding agency or pass-through entity
with program requirements. We then tested compliance with those requirements without exception.

Testing Strategy:
Reporting




Review the following to determine the specific types of reports (financial-related reports or programmatic reports) that must be submitted to the
grantor agency:

(1) Part 4 of the A-133 Compliance Supplement that applies to your audit period,
(2) Grant agreement/contract, and
(3) Any available program guides or handbooks.

NOTE: Reports that have a "SF" in the title mean "standard form." For example: SF269, SF272, etc. These are reports that are required for
grants awarded directly by a federal agency. If you are auditing a pass-through grant, reports with a 'SF' in the title do not apply to a subgrantee
- the primary grantee will typically be responsible for these reports.

ARRA Alert - Section 1512 Reporting. Audits of this requirement will apply only to prime recipients. Determine if your entity is submitting its
data to FederalReporting.gov as a "prime" recipient. A prime recipient is an entity that receives its ARRA funds directly from a federal
agency. According to the Compliance Supplement, we will not audit Section 1512 Reporting for ARRA awards received as a subrecipient. A local
government could be a direct recipient for some ARRA programs and a subrecipient for other ARRA programs. ARRA reporting is performed on a
quarterly basis starting September 30, 2009.

reporting requirement is applicable to direct (prime) recipients who make new non-ARRA subawards over $25,000 to first-tier subrecipients on or
after October 1, 2010. If a subaward consists of both ARRA and non-ARRA funds, then the non-ARRA portion would potentially be reported under
FFATA.

"New" federal grants includes grants with a new Federal Award Identification Number (FAIN) as of October 1, 2010, and does not include
continuing or renewals of grants awarded in prior fiscal years with new obligations beginning October 1, 2010. Consult the SAO Single
Audit Specialist as needed.

If the initial award is below $25,000 but subsequent grant modifications result in a total award equal to or over $25,000, the award will be subject
to the reporting requirements as of the date the award exceeds $25,000.

The FFATA requirement also applies to prime contractors (vendors) that make sub-contracts to lower tier vendors. I f you believe your auditee is
a prime contractor/vendor, consult with the SAO Single Audit Specialist.

What is a first tier subrecipient? First tier subrecipients are those that receive federal awards from direct (prime) recipients. For example, state
agencies are often direct (prime) recipients of grant funds. I f a state agency passes the funding through to a local government, the local
government is the first tier subrecipient. Similarly, some local governments receive federal awards directly from a federal agency. In this case,
the local government is the direct (prime) recipient. Then, if the local government passes funding through to another local government or non-
profit, the receiving local government/non-profit is the first tier subrecipient.

Step 2: Assess I nherent Risk (IR)

over compliance.



Gain an understanding of the grantee's internal controls and identify the key controls to ensure that financial, programmatic, ARRA, and FFATA
reports are accurate, complete and adequately supported by underlying records.

exists.




Likelihood of Magnitude of Potential or Actual Noncompliance
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than remote
possible)



Material Weakness
program)

Report a Finding
(Control Risk is HI GH)




NOTE: If preliminary control risk is assessed as high, the auditor should not test the controls, but would instead report the issue in a finding as a










Select some financial and programmatic reports and test as follows:

Financial Reports

1. Trace the amounts reported to the grantee's accounting records or other appropriate supporting documentation.

2. Test mathematical accuracy of reports and supporting worksheets.

3. Test the selected reports for completeness. Review accounting records and ascertain if all applicable accounts were included in the tested
reports (e.g., program income, expenditure credits, loans, interest earned on Federal funds, and reserve funds).

Program Reports

1. Trace the data reported to the grantee's records and supporting documentation.


3. Verify that the data was accumulated and summarized in accordance with the granting agency's criteria.

4. Test the selected reports for completeness. Review supporting records and ascertain if all applicable data elements were included in the
tested reports.

ARRA Section 1512

Prime Recipients - Determine if your entity is submitting its data to FederalReporting.gov as a "prime" recipient. A prime recipient is an entity that
receives its ARRA funds directly from a federal agency. NEW - According to the Compliance Supplement, we will not audit Section 1512
Reporting for ARRA awards received as a subrecipient. It is possible that an entity will be both a prime recipient and subrecipient.

1. For Prime Recipients:

(a) Determine the data areas that were directly reported to FederalReporting.gov. Examples: ARRA amounts obligated, ARRA amounts
spent, ARRA amounts awarded to subrecipients and contractors, project completion status, etc. NEW - According to the Compliance
Supplement, we will not audit jobs created or jobs retained under ARRA.

(b) Determine if there are any specific instructions given by a federal agency to the prime recipient on how to calculate, compile and
report the data.

2. Select the most recent quarterly report that occurred within your audit period. J udgmentally select data areas from those described in step 1a
above:

(a) Trace the key data elements to records that accumulate and summarize data to verify that the data elements were presented in
accordance with ARRA Section 1512 reporting requirements.

(b) Perform tests of the underlying data to verify that the data were presented in accordance with the required or stated criteria and
methodology, including the accuracy and completeness of the reports.

i.) When intervening computations or calculations are required between the records and the data elements, trace reported data
elements to supporting worksheets or other documentation that link reports to the data.

ii.) Test mathematical accuracy of supporting worksheets.

(c) If the prime recipient passed-through ARRA funding to any subrecipients, ascertain if the prime recipient had a process to monitor the
accuracy of subrecipient reporting, whether or not the reporting has been delegated to the subrecipient.

FFATA (Federal Funding Accountability and Transparency Act)
This reporting requirement is applicable to direct (prime) recipients who make new subawards over $25,000 to first-tier subrecipients on or after
October 1, 2010.
2 CFR part 170 defines subaward as a legal instrument to provide support for the performance of any portion of the substantive project
or program for which a recipient received a grant or cooperative agreement award and that is awarded to an eligible subrecipient. The
term does not include procurement of property and services needed to carry out the project or program.

New federal grants includes grants with a new Federal Award Identification Number (FAIN) as of October 1, 2010, and does not include
continuing or renewals of grants awarded in prior fiscal years with new obligations beginning October 1, 2010. Consult the SAO Single Audit
Coordinator as needed.

Requirement:

Prime grant and cooperative agreement recipients are required to register in the Federal Funding Accountability and Transparency Subaward
Reporting System (FSRS) and report subaward data through FSRS. The recipient must report each obligating action of $25,000 or more in
Federal funds. Data elements to be reported are listed below.


Timing of required reporting:

Grant and cooperative agreement recipients must report information related to a subaward by the end of the month following the month in which
the subaward or obligation of $25,000 or greater was made. Example: If a recipient awards a first-tier subaward on November 1, 2010, the
recipient or contractor must report the first-tier subaward information by December 31, 2010.

Compliance testing of the Transparency Act reporting requirements includes the following key data elements about the first-tier subrecipient or
subcontractor awards:
Subaward Date = Represents the time period (by month and year) for subawards made against the Federal Award Identification
Number (FAIN).

Subawardee DUNS Number = The subawardee organizations 9 digit Data Universal Numbering System (DUNS) number.

Amount of Subaward = The net dollar amount of Federal funds awarded to the subawardee including modifications.

Subaward Obligation/Action Date = Date the subaward agreement was signed.

Date of Report Submission = Date the recipient or contractor entered the action/obligation into FSRS.

Subaward Number = Subaward number or other identifying number assigned by the prime awardee organization to facilitate the
tracking of its subawards.

Suggested Procedures:

1. Determine the population of prime recipient obligations of first-tier subawards for the audit period. Obtain related subaward agreements
and determine if the subaward was subject to reporting under the Transparency Act based on the timeframe and size of the subaward.

2. Select some subawards subject to reporting under the Transparency Act:

a. Using the prime award number, find the award on USASpending.gov; and

b. Review the subaward documents maintained by the prime recipient and the key data elements listed above for compliance testing to the
reported data. Compare to assess if

(1) Applicable subaward awards/actions have been properly reported,

(2) The key data elements (see above) were accurately reported and are supported by the source documentation, and

(3) The action was reported in FSRS no later than the last day of the month following the month in which the award or the
modification was signed.

Policy/Standards:


Overview of reporting:
The following information was obtained related to reporting costs from the grant agreement, grant application, program information available at
ED.gov and CFDA.org, the grant agreement, discussion of compliance requirements with the program manager:
Financial Reports: Not required. A Standard Form 425 Federal Financial Report (FFR) is not required for this grant.
Performance Reports: All recipients are required to submit a final performance report within 90 days after the expiration or termination of
grant support.
The compliance requirement is not considered an area of higher risk in the Compliance Supplement or by oversight agencies.
The compliance requirement is not relatively complex and related activities are not difficult to audit.
No financial reports are required and the required performance reports are clearly identified in the grant agreement.
The inherent risk related to Reporting is that the District could not be submitting the required reports timely, or the reports may not be fairly
presented, (based on accurate data) in accordance with program requirements.
Key Personnel
J oan Dingfield, Health and Safety Data Analyst
Lisa Love, Program Manager
Lisa Sharp, Program
Per discussion with Lisa Love and Lisa Sharp, starting FY2014 they have taken over these duties as J oan no longer works on the grant. However,
we met with J oan since she prepared and submitted the reports in FY2013.
Performance Reporting
The performance report includes current performance and financial expenditure information for the grant. An interim annual performance report, for the
period of October 1 through March 31 of each year, is due by April 15th of each year of the grant. Additionally, an annual performance report, for period
October 1st through September 30th of each grant year is due by December 30th; within 90 days of the budget period ending date of September 30th.
The Department of Education sends reminder emails to the District when the reporting deadline is due to ensure the performance reports are submitted on
time. The email from the grantor includes the template of the required reports as well as the report due date.
Joan Dingfield, Health and Safety Data Analyst, follows the Dept. of Ed's reporting instructions to prepare the performance report. Joan obtains the fiscal year
expenditure detail from Kathy Gallichan, Accounting Analyst II (Kathy prepares the reimbursement requests).
The schools attendance and academic data is stored in the Academic Data Warehouse (ADW). Information available includes: student ID, birthdates,
attendance records starting from when the student started at any school in the District, attendance records, and credit status for high schoolers (among many
other items). Joan obtains the performance measures related data by requesting the data from Robert Half Technology (contracted vendor who maintains the
data) who obtains the data from ADW. The District identifies the performance measures they would report in their grant application and provide this to Robert
Half Technology. They then pull the data from the ADW for each of the performance measures. For example, one of the required performance measures is:
The average daily attendance of students while participating in the project. The queries are written and run by Robert Half Technology and to obtain the
correct results, the contractor runs the queries for each specific type of performance measure to run for the date range needed. This gives the District the most
up to date performance measure information on the grant progress. Each performance measure has its own query written to ensure the consistency of the
data source from year to year with the same criteria. The only items that need changed are the date range. Robert Half Technology created a detailed
instructions on how to re-run the query in the event their contract with the District ends, so the information will be accessible by District employees.
Once the performance report is complete, Joan submits the report to the Program Manager for review and approval prior to submitting the report to the
grantor. The final report is authorized by the Superintendent prior to submitting the report to the grantor.
KEY CONTROLS
Key Control: The Program Manager reviews and approves the completed annual (or interim) performance report prior to submitting the report to the
Dept. of Ed to ensure the report is accurate, complete and adequately supported by underlying records.
Key Control: The Program Manager reviews and approves the completed annual (or interim) performance report prior to
submitting the report to the Dept. of Ed to ensure the report is accurate, complete and adequately supported by underlying
records.
We met with Pegi McEvoy, Assistant Superintendent of Operations (Program Manager in FY2013) on J anuary 23, 2013 to discuss her review
procedures of the District's performance reports. Pegi detailed how she reviewed the report for accuracy. Pegi stated she meets with J oan and
Robert Half Technology to review the performance measures and ensure the questions are answered with the most complete and accurate data.
Pegi detailed that the performance report is required to be signed by the District's Superintendent, prior to submitting the report to the grantor.
As a result, it is the Superintendent's approving signature on the performance reports that the District submits to the grantor, however the report
is not submitted to the Superintendent until she has reviewed and approved the report.
We met with J oan and she detailed how she met with Robert Half Technology several times when the ADW queries were being written to ensure
the data sources are accurate and complete. She stated now that the queries are written and confirmed that the process in FY2013 was much
quicker.
Note for future audits: In addition, we met with Lisa Love and Lisa Sharp, current Program Managers who stated they have taken over all of these
functions and work with Robert Half Technologies. They stated other than this the process has not changed.
Based on our interactions with J oan and Pegi, we found them to have the skills, knowledge, time and ability to perform their jobs. This control
appears to be in place and operating as intended.
Compliance Testing
Program Reports
The grant's budget periods run from October 1st through September 30th each year. Our audit period was for September 1, 2012 through August
31, 2013. As a result, the year two annual report and the year three interim reports were required during our audit period. We selected the year
two annual audit report for testing.
J oan forwarded us the email she obtained from the grantor including the template for the required reports. We noted the due date indicated by
the grantor in the email was November 9, 2012. J oan also provided us a string of emails including the report attachments to the emails that
detailed the required reports were emailed to the grantor (per the grantor's instructions) on November 9, 2012. We noted Pegi McEvoy, Assistant
Superintendent of Operations signed as approved on behalf of the Superintendent.
1. We traced the data reported to the grantee's records and supporting documentation without exception.
2. We tested mathematical accuracy of reports and supporting worksheets without exception.
3. We verified that the data was accumulated and summarized in accordance with the granting agency's criteria without
exception.
4.We tested the selected reports for completeness by reviewing supporting records and ascertained all applicable data elements
are included in the tested reports without exception.
We noted the report was filed on time and had accurate and appropriate information. There were no exceptions noted during our testing.
Based on the results of the procedures performed SSD was in compliance with reporting requirement for HSGI grants program.


Procedure Step: REQUIRED - Program Summary

Purpose/Conclusion:
Purpose:
To summarize the major program audit results.

Conclusion:
We summarized the major program audit results.

Testing Strategy:
Summary of Results

Complete the Major Federal Program worksheet found in the Compliance Requirements step, which will be used to prepare the Independent
OMB Circular A-133 (S-2 report).

NOTE: The worksheet referenced above is a summary of results. In the ROWD for each compliance area that contains an exception, you should
provide your rationale for the level of reporting. For example, if we determine an instance of non-compliance is not material to the program as
a whole, the ROWD should discuss our evaluation of materiality.

Policy/Standards:

We summarized the major program audit results at Major Federal Program - Local Teams.

A. Activities Allowed
We found noncompliance in the internal controls resulting in $61,640 in known unallowable costs charged to the grant. We did not include the
estimated questioned costs assigned by sampling spreadsheet because we determind that one furniture purchase was an isolated incident. The
unallowable costs of $61,640 or are not material to the grant and we will not qualify our opinion on the grant.

Finding= We determined the level as a finding as the unallowable costs is more than $10,000. Per federal regulations any unallowable costs above
$10,000 requires a finding reporting level. See ISS.11

A/ B. Activities Allowed/ Allowable Costs (Time & Effort)
We determined 11 out of 27 single-cost objective semi-annual and seven out of 64 multiple-cost objective monthly certifications were not signed
timely. We then determined the length of time the certifications were signed late to determine the level of issue based on the number of
certifications reviewed, not the number of employees reviewed as there are a number of employees certified by the same certification form. We
determined:
9/1/2012-1/31/2013 (Period 1): One certification signed nine months late, one signed between two and three months late, one signed
between one and two months late and two signed within our expectation.
7/1/2013-8/30/2013 (Period 3): One certification was signed between one and two months late and one certification was signed within
our expectation.
Monthly PARs: One certification signed between one and two months late, six certifications signed less than 30 days late and 57 PARs
were signed within our expectation.
Exit = Although the time and effort certifications were signed between one and three months late, the District continues to make significant
these reasons, we determined the exception should not be listed as a higher level. See ISS.7

E.3.PRG - Child Nutrition Cluster CFDA10.553/10.555

Procedure Step: Overview and Compliance Requirements

Purpose/Conclusion:
Purpose:
To gain an understanding of the Child Nutrition Cluster grabt program and determine applicable compliance requirements.

Conclusion:
We have gained an understanding of the Child Nutrition Cluster and have determined the applicable compliance requirements.

Testing Strategy:
NUTRITION CLUSTER
This section provides (1) an overview of the grant program and (2) an identification of the applicable compliance requirements.
Note 1: No American Recovery and Reinvestment Act (ARRA) funds were awarded for the nutrition cluster. Some districts may have received
funding for equipment, but this is not part of the nutrition cluster.
Note 2: The former CFDA number for Food Commodities (non-cash assistance) was 10.550 and has been deleted by the USDA. Districts
were instructed by the USDA to include the value of food commodities received during the year as a separate line in their SEFA under either
10.555 or 10.559. As a result, this will cause in increase in the total dollar amount combined into the nutrition cluster as it pertains to your audit
planning. However, there are no compliance requirements associated with commodities other than to report them on the SEFA.

OVERVIEW

The Child Nutrition Cluster includes the following programs:

CFDA 10.553 School Breakfast Program (SBP)
CFDA 10.555 National School Lunch Program (NSLP)
CFDA 10.556 Special Milk Program For Children (SMP)
CFDA 10.559 Summer Food Services Program For Children (SFSPC)

The objective of the USDA (U.S. Dept of Agriculture) child nutrition programs is to assist States in administering food services that provide
healthful, nutritious meals to eligible children in public and non-profit private schools, residential child care institutions, and summer recreation
programs.

Local school districts provide prepared meals to children in structured settings. Four types of meal service may be authorized: breakfast, lunch,
supplements (snacks), and supper.

While all children in attendance are entitled to receive these program benefits, children whose households meet stated income eligibility criteria
generally receive their meals (or milk, where applicable) free or at a reduced price. With certain exceptions, children not eligible for free or
reduced price meals or free milk must pay the full prices set by the program operator for these items.

Federal assistance paid to school districts is based on the number of meals served to eligible children. I n addition, USDA donates food
commodities for use in preparing meals to be served under the NSLP, SBP, and SFSPC. To obtain cash and commodity assistance, a school
district must submit monthly claims for reimbursement to OSPI. All meals (and half-pints of milk under SMP) claimed for reimbursement must
meet Federal requirements and be served to eligible children.

The school district's entitlement to reimbursement payments is generally computed by multiplying the number of meals (and/or half-pints of milk
under the SMP) served by a prescribed per-unit payment rate (called a "reimbursement rate"). Different reimbursement rates are prescribed for
different categories and types of service. "Type" refers to the kind of service (breakfast, lunch, milk, etc.), while "category" refers to the
beneficiary's eligibility (free, reduced price, or paid).

COMPLIANCE REQUI REMENTS
Using the Compliance Supplement and guidance from OSPI, we have pre-determined that the following requirements denoted with a "Yes" are
applicable. Use this as a guide to fill out the attached Excel spreadsheet, "Major Federal Program". For some areas, the auditor will need to
determine whether each applicable area has a direct and material effect on the program.
C.S. = Compliance Supplement
SEA = State Education Agency (OSPI)

COMPLIANCE REQUIREMENT
APPLICABLE AT
SCHOOL DISTRICT
LEVEL?

DIRECT AND MATERIAL?
A = Activities Allowed or Unallowed No. This applies to
SEA only.
n/a
B = Cost Principles No. This applies to
SEA only.
n/a
C = Cash Management No cash
advances. Schools
are paid per meal
served.
n/a
D = Davis Bacon Act No per C.S.
E = Eligibility Yes Yes
F = Equipment and Real Property No. Schools do
not purchase
equipment under
this grant
n/a
G1 = Matching No. This applies
to SEA only.
n/a
G2 = Level of Effort / Supplanting No per C.S. n/a
G3 = Earmarking No per C.S. n/a
H = Period of Availability No. This applies to
SEA only.
n/a
I = Procurement / Suspension and
Debarment
Yes Auditor to determine
J = Program Income No. (this is
covered under
School Accounts
below)

n/a
K = Real Property Acquisition and
Relocation Assistance
No per C.S. n/a
L = Reporting Yes Yes
M = Subrecipient Monitoring No. This applies to
SEA only.
n/a
N = Verification Yes Yes
N = School Accounts Yes Yes
N =Accountability for Donated Foods No. This applies to
SEA only.
n/a

Policy/Standards:

Child Nutrition Cluster Overview:
The District's Nutrition Program includes the following programs:
CFDA 10.553 School Breakfast Program (SBP) - amount reported on the SEFA: $1,984,923.81
CFDA 10.555 National School Lunch Program (NSLP) - amount reported on the SEFA: $7,720,860.91 (NSLP- $7274191.23, NSLP Area Eligible Snack-
$141,954.30, NSLP-Non Cash Asst. Food Commodities, $304,715.38)
The District does not participate in the Special Milk Program for Children (SMP) or the Summer Food Service Program for Children (SFSPC). The
District does participate in the Seamless Summer Program, where it acts as a vendor not the program administrator. The City of Seattle holds the
grant for this program in the area.
Key People:
Wendy Weyer, Director of Nutrition Services, weweyer@seattleschools.org, 252-0685
Trish Maples, Nutrition Services Office Specialist, pamaples@seattleschools.org, 252-0604
Jodi Thomas, Nutrition Services Technical Analyst, jlthomas@seattleschools.org, 252-0682
Yolanda Cotton-Betteridge, Nutrition Services Accounting Specialist, yocottonbett@seattleschools.org, 252-0683
Wendy Weyernecessary wording has been in the role of Director of Nutrition Services for the last two years. She is involved in the menu planning
as well as overseeing Federal and State requirements for the program. She reviews and signs invoices as well as watching out for trends and
unusual things within the Nutrition Services department.
Resources:
Compliance Supplement Part 4, Nutrition Cluster section only Compliance Supplement Part 4-Nutrition ClusterSign offs
OSPI Contract Agreement (Annual School Year 2012-2013) Child Nutrition OSPI Application 2012-13
Overview of Nutrition Program
At the Federal level, these programs are administered by the Food and Nutrition Service (FNS) of the US. Department of Agriculture (USDA). FNS
generally administers these programs through grants to State agencies. Each State agency, in turn, enters into agreements with subrecipient
organizations for local level program operation and the delivery of program benefits and services to eligible children. The Nutrition Cluster Grant is
a pass through grant from the Washington state agency, Office of the Superintendent of Public Instruction (OSPI). Every year, the District enters
into a contract agreement with OSPI. A copy of the annual agreement with OSPI for the 2012-2013 school year is located in the file "Child Nutrition
OSPI Application 2012-2013" listed under the Resources section.
The objective of the USDA (U.S. Dept of Agriculture) Child Nutrition Programs is to assist States in administering food services that provide
healthful, nutritious meals to eligible children in public and non-profit private schools, residential child care institutions, and summer recreation
programs.

Local school districts provide prepared meals to children in structured settings. Four types of meal service may be authorized: breakfast, lunch,
supplements (snacks), and supper. While all children in attendance are entitled to receive these program benefits, children whose households meet
stated income eligibility criteria generally receive their meals (or milk, where applicable) free or at a reduced price. With certain exceptions, children
not eligible for free or reduced price meals or free milk must pay the full prices set by the program operator for these items.

Federal assistance paid to school districts is based on the number of meals served to eligible children. In addition, USDA donates food
commodities for use in preparing meals to be served under the NSLP, SBP, and SFSPC. To obtain cash and commodity assistance, a school district
must submit monthly claims for reimbursement to OSPI. All meals (and half-pints of milk under SMP) claimed for reimbursement must meet
Federal requirements and be served to eligible children.
The expenditures reported are a "per meal reimbursement". Each year, reimbursements will vary depending on how many students are actively
using the programs. The school district's entitlement to reimbursement payments is generally computed by multiplying the number of meals
(and/or half-pints of milk under the SMP) served by a prescribed per-unit payment rate (called a "reimbursement rate"). Different reimbursement
rates are prescribed for different categories and types of service. "Type" refers to the kind of service (breakfast, lunch, milk, etc.), while "category"
refers to the beneficiary's eligibility (free, reduced price, or paid).
Program Changes for Fiscal Year 2012-2013
1. Beginning in Fiscal Year 2013, School Food Authorities (SFA) are eligible for a 6 cents increase when they implement the new meal patterns in
accordance with Section 201 of the Healthy, Hunger-Free Kids Act of 2010 (HHFKA). The District completed the application and certification
process through the OSPI to receive this 6 cents increase for Fiscal Year 2013, the application is a onetime process and there is no on-going
monitoring. The 6 cents increase went into effect for the District starting February 2013, this reimbursement rate increase is tracked for school
districts at OSPI level.
2. Starting school year 2013, The Paid Lunch Equity test is required for the Nutrition Cluster at the local level. OSPI performed the paid lunch equity
calculation on behalf of the Districts (for school year 2013 only). Districts which are not in compliance were notified by OSPI via email. The SAO
State Team reviewed and tested OSPI's calculation centrally and determined that the local team may depend on OSPI's Paid Lunch Equity
calculations. Using OSPI's calculations, we will check to see whether the District is in compliance with the Paid Lunch Equity requirement and
whether further testing is required at the local audit team level. Please see the results of our examination in response to this new requirement at-
N4. Special Test - Paid Lunch Equity
3. There is also a change related to the Special Test-Verification (of income for free and reduced lunch applications). For 2013, Districts must
include households which are enrolled in Temporary Relief for Needy Families (TANF) and Basic Foods if they receive zero benefits in their
sampling pool. Please see our testing at N1. Special Test - Verificationwhich addresses this change.
nutrition cluster changes
Compliance Requirements
No American Recovery and Reinvestment Act (ARRA) funds were awarded for the nutrition cluster.
The former CFDA number for Food Commodities (non-cash assistance) was 10.550 and has been deleted by the USDA. Districts were instructed by
the USDA to include the value of food commodities received during the year as a separate line in their SEFA under either 10.555 or 10.559. As a
result, this will cause in increase in the total dollar amount combined into the nutrition cluster as it pertains to our audit planning. However, there
are no compliance requirements associated with commodities other than to report them on the SEFA. The amount of Non-cash Assistance Food
Commodities reported under 10.555 on the SEFA totals $304,715.38.
Using the Compliance Supplement 2013 (Parts 2 & 4), the 2013 Test Strategy and guidance from OSPI, the State Auditor's Office has pre-
determined that the following requirements denoted with a "Yes" are applicable. We will use this as a guide to fill out the attached "Major Federal
Program" excel spreadsheet. See Major Federal Program - Local Teams
Prior Nutrition Services Audit Exceptions
1. SA_V: Child Nutrition Grant Eligibility Determination: Entering information from a students Free and Reduced Priced Meals application into the
Districts PCS software system determines the students meal eligibility. We performed testing to determine if the students status in the system is
accurate based on application information. We tested 30 students and found that one students application information was incorrectly entered,
which lead to the student being placed in the wrong eligibility category.
We will follow up on this exception during testing of Eligibility/Reporting E-L. Eligibility/Reporting
2. SA_EX: Nutrition Cluster Reimbursement Requests: The Districts Nutrition Services Office requests reimbursement of expenses for the Child
Nutrition Cluster Grants from the Office of the Superintendent of Public Instruction (OSPI). However, a secondary review to ensure accuracy and
completeness of these reimbursement requests is not performed before they are sent to OSPI. In order to ensure that reimbursement requests are
accurate and complete, we recommend a second person perform a review of the reimbursement requests. We will follow up on this audit
exception during testing of Eligibility/Reporting.
We will follow up on this exception during testing of Eligibility/Reporting E-L. Eligibility/Reporting


Procedure Step: E-L. Eligibility/Reporting

Purpose/Conclusion:
Purpose: To determine if the District has adequate internal controls over and is in compliance with student eligibility and reporting requirements.

Conclusion: We determined that the District has adequate internal controls over, and is in compliance with student eligibility and reporting
requirements without exception.

Testing Strategy:
ELIGIBILITY and REPORTING
1. Read and gather information.

Step 1: Read and Gather Information
I. Reporting - Reimbursement Claims - Breakfast, Lunch, Milk (10.553. 10.555, 10.556)
To receive reimbursement payments for meals served to eligible persons, a School District must submit a monthly claim for reimbursement to
OSPI. At a minimum, a claim must include the number of reimbursable meals (and milk under the Special Milk Program) served by category and
type during the month covered by the claim. All meals claimed for reimbursement must meet Federal requirements: (1) must be served to
persons eligible for the applicable category and type of service and (2) be supported by accurate meal counts and records.

Districts submit their claims electronically to OSPI each month to receive reimbursement for the School Lunch and Breakfast program. All
amounts claimed must be supported by appropriate documentation, such as a summary report of meals served.

OSPI has issued instructions for claiming meals in Bulletin 068-11.

Following are the new reimbursement rates for meals served in the Child Nutrition Programs effective J uly 1, 2011, per Bulletin 036-11:

School Breakfast and National School Lunch Programs
Free Reduced-Price
Paid

Breakfast $1.51 $1.21 $0.27
Severe Need Breakfast $1.80 $1.50 $0.27
Lunch (less than 60%)
Lunch (60% or more)
$2.77
$2.79
$2.37
$2.39
$0.26
$0.28
Snack $0.76 $0.38 $0.07

Economically Needed Lunch Rate: The Richard B. Russell National School Lunch Act provides two different payment levels for lunches served
under the National School Lunch Program (NSLP). The lower payment level applies to lunches served by local education agencies (LEAs) in which
less than 60 percent of the lunches served in the school lunch program during the second preceding school year were served free or at a reduced
price. The higher payment level applies to lunches served by LEAs in which 60 percent or more of the lunches served during the second
preceding school year were served free or at a reduced-price. The two-cent increase is automatically added to the districts reimbursement rates
when meals are claimed for reimbursement in the Office of Superintendent of Public Instruction (OSPI)s on-line claim system.

Public School Districts - no charge for breakfast: Students eligible for reduced-price breakfast in Washington State do not have to pay for their
breakfast, no matter the grade level.

K-3 reduced price lunches: Students eligible for reduced-price lunch in Washington State, kindergarten through third grade (K3), do not have to
pay for their lunch. Students in preschool and 4th-12th grade can be charged up to 0.40 for reduced price lunch.

NOTE: Even though the student may not be paying for the reduced-price breakfast; and, in the case of Grades K3, will not be paying the co-
payment for lunch, all reduced-price breakfasts and lunches must continue to be reported and claimed in the reduced-price category.

II. Reporting - Simplified Summer Food Program (10.559)
Some districts participate in the Simplified Summer Food Program (note: this is different than the "Seamless Summer Program" - which is actually
part of the National School Lunch program). For this program, the district counts summer meals served on a daily basis using a Daily Meal Count
Form and then prepares a Monthly Meal Count Summary. This will typically be done in J une, J uly and August.
General rules: Children 18 years of age and younger may receive a meal; each child may receive one (1) meal, the entire meal must be eaten at
the Summer Nutrition Site, meals cannot be taken home, parents (adults) cannot eat any portion of the childs meal.

Non-reimbursable meals:
Meals not served as a complete unit.
Meal patterns/types not approved by OSPI .
Meals served at unapproved sites.
Meals consumed off-site.
Second meals in excess of 2% limit.
Meals served to ineligible children (camps).
Meals served in excess of approved CAP.
Meals not served.
Meals served to anyone other than children, including program / non-program adults.
Meals served to infants less than 1 year of age if infant meal pattern not requested/approved by OSPI.
http://www.k12.wa.us/ChildNutrition/programs/SummerPrograms/SimplifiedSummerFood.aspx
http://www.k12.wa.us/ChildNutrition/programs/SummerPrograms/Forms.aspx
III. Eligibility - Breakfast, Lunch, Milk (10.553, 10.555, 10.556)
Eligible persons from households with incomes at or below 130 percent of the Federal poverty level are eligible to receive meals (or milk) free
under the School Nutrition Programs. Persons from households with incomes above 130 percent but at or below 185 percent of the Federal
poverty level are eligible to receive reduced-price meals. Persons from households with incomes exceeding 185 percent of the poverty level pay a
full price set by the SFA for the meals. Under the SMP, children of households whose income is at or below 130 percent of the poverty level are
eligible to receive free milk. There is no provision under the SMP for reduced price benefits.

The 2011-12 eligibility income scale is located in the attached spreadsheet, "FY12 Nutrition Program Eligibility Determination.xls". You can use
this spreadsheet to help calculate the eligibility of students. NOTE: The income scale for FY10 and FY11 is the same for both years.

Migrant Ed Students - students who qualify for eligibility under the Migrant Ed program (CFDA 84.011) are eligible for free meals and do not have
to file an application. All the district must do is substantiate and document that the student is eligible for Migrant Ed services.

Additionally, runaway, homeless and certain foster children are categorically eligible for free meals. Refer to OSPI Bulletin 056-11 for details.
Average Daily Attendance Factor
The Average Daily Attendance Factor (ADAF) shows the percentage of students that would be in school on any given day. This factor is used by a
school district to complete required edit checks to ensure that free, reduced-price, and paid meals claimed for reimbursement do not exceed the
number of students eligible for these meals.

OSPI Child Nutrition Services recommends that sponsors of Child Nutrition Programs in public school districts and private schools develop their
own ADAF, which would more accurately represent their daily attendance. However, a sponsor may decide to use the national ADAF as a
default. The United States Department of Agriculture (USDA) has calculated the attendance factor to be 93.8 percent for school year 2011-12.
IV. Eligibility - Simplified Summer Food Program (10.559)
Participating schools can operate different types of summer sites to serve meals, including: open sites, restricted open sites, special restricted
open sites, closed enrollment sites, day camps, upward bound programs, youth sport programs (low income based), and migrant sites. The
number of children served may vary depending on the type of site. The district must have eligibility and income documentation to support the
type of site being operated.


V. "Provision 1 , 2 and 3" Schools. Exception to the Rule

There are about 14 school districts in Washington that participate under these special rules. I n an effort to reduce paperwork at the local level,
Congress has incorporated three alternative provisions to the normal requirements for annual determinations of eligibility for free and reduced
price school meals and daily meal counts by type (free, reduced price and paid meals) at the point of service.

In PROVISION 1, annual certification of children eligible for free meals may be reduced to once every two consecutive school years. To be eligible
for Provision 1, a school must have 80 percent of children enrolled in the school that are eligible for free and reduced-price meals. Currently, no
districts in Washington participate in provision 1.

PROVISION 2
This Provision reduces application burdens and simplifies meal counting and claiming procedures. It allows schools to establish claiming
percentages and to serve all meals at no charge for a 4 year period.

Schools must serve meals to all participating children at no charge for a period of 4 years. During the first year, or base year, the school makes
eligibility determinations and takes meal counts by type. During the next 3 years, the school makes no new eligibility determinations and counts
only the total number of reimbursable meals served each day. Reimbursement during these years is determined by applying the percentages of
free, reduced price and paid meals served during the corresponding month of the base year to the total meal count for the claiming month. The
base year is included as part of the 4 years.

At the end of each 4 year period, the State agency may approve 4 year extensions if the income level of the schools population remains stable.

Schools electing this alternative must pay the difference between Federal reimbursement and the cost of providing all meals at no charge. The
money to pay for this difference must be from sources other than Federal funds.

PROVISION 3
This Provision reduces application burdens and meal counting and claiming procedures. It allows schools to simply receive the same level of
Federal cash and commodity assistance each year, with some adjustments, for a 4 year period.

Schools must serve meals to all participating children at no charge for a period of 4 years. These schools do not make additional eligibility
determinations. I nstead, they receive the level of Federal cash and commodity support paid to them for the last year in which they made eligibility
determinations and meal counts by type, this is the base year. For each of the 4 years, the level of Federal cash and commodity support is
adjusted to reflect changes in enrollment and inflation. The base year is not included as part of the 4 years.

At the end of each 4 year period, the State agency may approve 4 year extensions if the income level of the schools population remains stable.

Schools electing this alternative must pay the difference between Federal reimbursement and the cost of providing all meals at no charge. The
money to pay for this difference must be from sources other than Federal funds.
----------------------------------------------------------------------------------------


over compliance.



Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring (a) the number of
students claimed as eligible on monthly reimbursement claims is accurate; (b) the number of meals served to students as reported on monthly
reimbursement claims is accurate; and (c) students are eligible for free and reduced price meals (or milk) and are properly identified when being
served.

exists.



Likelihood of
Noncompliance
Less than Material

Material
(Greater than 10% of total federal
expenditures of the program)
Remote

Control deficiency

Control deficiency

More than
remote
(at least
reasonably
possible)

Assess control risk as high and report a finding for a Significant
Deficiency if:

(1) the control deficiency(ies) did, or could, lead to noncompliance between
5%-10% of total grant expenditures; and
(2) the grantor, inspector general, and/or public views the issue as being
important and would expect corrective action to be taken.

(if the deficiency does not meet the criteria for a significant deficiency, assess
control risk as low).

Material Weakness

Report a Finding









1. Breakfast, Lunch, and Milk
Select some monthly reimbursement claims submitted to OSPI for the 2011-12 school year and perform the following:

(a) Trace amounts reported on the form to the district's supporting documentation (meal count reports, etc.). Expand testing if significant
exceptions are noted.

(b) Recompute the total amount claimed for reimbursement for mathematical accuracy. Expand testing if significant exceptions are noted.

(c) ADAF - Multiply the number of students eligible for free lunch for the month by the number of days in the month meals were served. Multiply
this amount by the average daily attendance factor (if the district has not developed its own rate, use the FY12 federal national average of
93.8%). Compare this with the actual meals served. Example: 1,000 students qualify for free lunch at the district. Meals were served for 20
days during the month. 20*1,000*.944=18,760. Compare this with the actual number of meals claimed. I f the actual number of meals claimed
is higher, the district must be able to provide the auditor with documentation to support the higher number. Contact the Single Audit Specialist if
you have an exception in this area.
(d) Select a sample of students served to determine whether (1) the family meets the income eligibility requirements for the category (free or
reduced-price) claimed; (2) has a complete and approved application on file, and (3) the student was enrolled and eligible for assistance for the
time period claimed. You can use the attached Excel worksheet to assist you in testing the income eligibility. Document your sample using the
Single Audit Sampling Excel template available in the TeamStore. If you find exceptions to these compliance attributes, be sure to identify
whether the exception is related to lunch (CFDA 10.555) or breakfast (CFDA 10.553) and whether it is a "free" or "reduced-price" or a count
issue. Further, when calculating questioned costs of meals served to an ineligible free or reduced-price student, you should net the questioned
amount by the "paid" rate (see chart above). That is, even if the student does not qualify for free or reduced price, the district still is reimbursed
a small amount under the paid category.

2. Summer Food Program (if applicable to your district).
J udgmentally select some summer food sites and their monthly reimbursement claims. Trace the number of meals served to children and adults
as reported on the claim to the school's daily count records or other support. Expand testing if significant exceptions are noted.

3. Conclude on District's compliance with requirements for Eligibility and Reporting.

Policy/Standards:


Overview
Eligibility: Any child enrolled in a participating school or summer camp who meets the applicable programs definition of child may receive meals
under the applicable program. In the case of the National School Lunch Program (NSLP), children belonging to households meeting nationwide
income eligibility requirements may receive meals at no charge or at a reduced price. The District participates in the National School Lunch
Program (10.555) and the School Breakfast Program (CFDA 10.553). It does not participate in the Special Milk Program or the Summer Food
Services Program. Households must submit the application for Free or Reduced Lunch at the beginning of every school year. Once the applications
have been entered into the schools PCS system, the system determines their eligibility and a letter is sent home to indicate the students eligibility
category (Free, Reduced, Paid) and the student's keypad number if the student was deemed eligible for Free or Reduced Price lunch status.
Reporting: The Nutrition Cluster Grant is a pass through grant from the Washington state agency, Office of the Superintendent of Public
Instruction (OSPI). The District sends a monthly claim to OSPI for reimbursement. Reimbursements are based solely on number of meals served
(not on a cost reimbursement basis).
This compliance requirement is not new to the entity and has not changed recently.
This compliance is not complex and the related activities are not difficult to audit.
The inherent risk is that students who are not financially eligible to receive free or reduced meals receive the benefit and that the Districts
reimbursement claim submitted to OSPI does not include all activity of the reporting period, is not supported by appropriate records, and may not
be fairly presented.
On 1/24/2012, we met with J odi Thomas, Technical Analyst from the Nutrition Services department to gain an understanding for the
reimbursement claims process.
Eligibility:
Students who are eligible for free or reduced lunch receive letters which indicate their lunch keypad number. In order to receive their price
reduction, they enter their number at the lunch room cash register, which tracks the student's eligibility category (free, reduced). Each morning,
schools import an update from the PCS system that includes information about students and their eligibility status, this will include new students
that have been registered and show any student's whose status has changed. Students are allowed only one meal per meal type (Breakfast,
lunch, and snack); the system will not allow the same student number to be accepted more than once per meal type.
Key Internal Control #1: Students receive a "keypad number" which is used at the school's cash register to indicate the students
eligibility. The PCS system tracks the use of keypad numbers and student's meal eligibility and will not accept the use of the number
more than once per meal.
Reporting:
The District and the schools communicate through the PCS computer software system. At the end of each school day, the schools upload to the
District's PCS system all the activity for the day. The uploads from the school updates the "GL Data Status" screen in the PCS system which
enables J odi to track whether schools have submitted their activity on a daily, weekly, and monthly basis. The GL Data Status allows J odi to detect
schools that failed to upload their activity for the day and contact them as soon as possible to ensure that she has records for all activity before
she fills out the reimbursement claims at the end of the month.
At the end of each month, J odi prints out a "Meal Counts by Eligibility Financial Report" for all schools. The report is a monthly summary with
rows that separate activity by meal types (breakfast, lunch, and snacks) and columns that separate activity by category (free, reduced, and paid).
She manually transfers the numbers from this report into an excel spreadsheet titled OSPI Reimbursements which tracks and sums up the
monthly activity for all schools in the District. The spreadsheets most important purpose is that it adds on activity for interagency sites which do
not have computerized systems. According to J odi, there are 14 interagency sites which do not have computerized cashiering systems. For these
sites, the District requires the sites to send in their daily roster sheets at the end of each month. The monthly activity for these sites must be
calculated manually, J odi attaches a cover worksheet which shows the total monthly activity for each meal category/type. She transfers the
monthly totals for these sites to her spreadsheet.
The spreadsheet includes rows for each school or interagency site and columns that track how many students are eligible for each meal
type/category (free, reduced, and paid), how many students used the discounts during the month, and the percentage of all eligible students who
used benefits during the month. The % number is an edit check that ensures not more than 100% eligible students have claimed discounts for
the month (for each school). Note that the District does not calculate its own Average Daily Attendance Factor (ADAF) or check against the
USDAs ADAF. Instead, it relies on the spreadsheet edit check to ensure that the number of meals claimed isn't more than 100% of the eligibility
rate for each school.
The spreadsheet sums up the grand total for each meal type/category. Once her spreadsheet is completed, she runs the Meal Counts by Eligibility
Financial Report which shows the monthly total for the entire District. She cross checks the totals on the spreadsheet with the "Meal Counts by
Eligibility Report" for the entire District. I f there is a discrepancy, she tries to find the cause of the error. When the numbers match up, she signs
and dates the Meal Counts report.
Key I nternal Control #2: J odi performs a review of supporting documents to verify that she has counted the accurate number of
meals served to students during the month and Wendy reviews for approval for accuracy.
While, the District tracks the number of meals served and number of eligible students, reimbursement rates are tracked at the Office of
Superintendent of Public Instruction (OSPI). The District qualifies for the higher reimbursement rates for meals in accordance with the Richard B.
Russell National School Lunch Act (60% or more of the student body have Free/Reduced status). There are 30 "Area Eligible" snack sites in the
District that have contracts to serve snacks, OSPI authorized these sites and they track these sites in their system. All but 19 schools in the
District qualify for Severe Need and receive the higher reimbursement rates for serving breakfast; this is tracked at the OSPI level. Beginning in
Fiscal Year 2013, School Food Authorities (SFA) are eligible for a 6 cents increase when they implement the new meal patterns in accordance with
Section 201 of the Healthy, Hunger-Free Kids Act of 2010 (HHFKA). The District completed the application and certification process to receive this
6 cents increase for Fiscal Year 2013, the application is a onetime process and there is no on-going monitoring. The 6 cents increase went into
effect for the District starting February 2013; this is also tracked at OSPI level.
To submit a reimbursement request, J odi prints a Monthly Claim Form for Reimbursement from the OSPI website and fills it out manually using
the numbers in her spreadsheet. Jodi fills in the total number of meals served for each category and type. The form does not automatically sum
the grand totals; Jodi must fill in the grand totals. The system will show an error if her total does not sum up correctly. This ensures that the
numbers she entered above were not entered incorrectly. Once she has verified that her numbers sum up correctly, she submits the form. The
Monthly Claim Form is due to the OSPI by the 15
th
of the following month. The OSPI site will then generate a NSLP Claim Recap report. Wendy
Weyer, Director of Nutrition Services will then reviews the Recap report and initializes it to authorize the reimbursement claim. Jodi prints two
hardcopies of the report; she keeps one copy for her documentation. The other copy of the Recap report goes to the Accounting Department. Jodi
puts the fund, account and project codes at the top of the hardcopy before sending it to Accounting. This informs Accounting what amount will be
reimbursed to the District. Jodi keeps a hardcopy of all Meal Counts by Eligibility reports, a copy of the her spreadsheet, the NSLP Claim Recap
report, and Monthly Claim Form in a Meal Count Records binder organized by months.
Key I nternal Control #3: J odi uses her OSPI Reimbursement spreadsheet she has reviewed for accuracy to complete the
reimbursement claim to ensure the correct number of meal activity is claimed for the month and Wendy reviews for approval.
Based on our understanding of key internal controls, we assess preliminary control risk at LOW
Key Internal Control #1: Students receive a "keypad number" which is used at the school's cash register to indicate the students
eligibility. The PCS system tracks the use of keypad numbers and student's meal eligibility and will not accept the use of the number
more than once per meal.
We met with Jodi Thomas, Nutrition Services Technical Analyst to walk through the keypad system. She simulated the functionality of the system
using a keypad connected to the FastTrack lunchroom program (not using live data). Jodi selected a student who is eligible for free lunch with the
PIN number of 31293. In the Pick Meal screen, Jodi selected the meal lunch and entered the PIN into the screen. The first entry was successfully
with the message "Reimbursable Lunch" shown. When Jodi entered in the PIN a second time for the same meal, the message "L.Limit 30.00" was
shown indicating that the entry was unsuccessful. Jodi demonstrated the same test again, choosing the meal breakfast. Once again, the first entry
was successful while the second was not. Jodi commented that the District has been using the system for 20 years and that the company that
implemented the system are installed in many schools across the country. We asked Jodi if the District or schools run any report to detect misuse
or errors with the system, she said no. We asked if she'd heard about problems with the system, she said no. Based on our review of Jodi's
demonstration of the keypad and lunchroom program, we determined that the control is effective for ensuring that students only receive one meal
of each type per day.
Key I nternal Control #2: J odi performs a review of supporting documents to verify that she has counted the accurate number of
meals served to students during the month.
On 1/24/2012, J odi Thomas, Technical Analyst from the Nutrition Services department walked us through her process for gathering all meal
activity for the District. She showed us the November 2012 binder where she keeps the hardcopies of the supporting documents she used to fill
out the monthly reimbursement claim. This includes the monthly Meals Count by Eligibility Reports for the entire District, monthly Meals Count by
Eligibility Reports for each school, the daily roster and monthly totals cover sheet for each interagency site, and a hardcopy of the spreadsheet
that tallies the total for all sites. She pointed out where the numbers from the Meals Count by Eligibility report for each school report got
transferred to the spreadsheet. Then she showed us the Monthly Meal Count by Eligibility Report for the entire District which shows a check mark
by the numbers for free, reduced and paid totals for Breakfast and Lunch and her initials to indicate that she has cross checked her spreadsheet
totals with the report. We reviewed and confirmed that the numbers for free, reduced, and paid for Lunch, Breakfast, and Severe Need Breakfast
from the monthly meal report for the District agrees with the numbers on her spreadsheet. For the interagency site Cascade (which does not have
a computerized system), she showed us the daily hardcopy roster sheets that were sent in and the cover sheet she used to calculate the sites
monthly activity. We reviewed and confirmed that numbers for free, reduced, and paid for Lunch and Breakfast on J odi's spreadsheet agrees with
the numbers on the interagency monthly coversheet.

Key I nternal Control #3: J odi uses her OSPI Reimbursement spreadsheet she has reviewed for accuracy to complete the
reimbursement claim to ensure the correct number of meal activity is claimed for the month.
On 1/24/2012, J odi Thomas, Technical Analyst from the Nutrition Services department walked us through her process for submitting
reimbursement claims. J odi showed us a hardcopy of the OSPI Monthly Claim Form that she fills out, pointing out that the number of free,
reduced, and paid breakfast and lunch meals served agrees with the numbers on the spreadsheet. We reviewed and confirmed that the numbers
on the November 2012 NSLP reimbursement claim agrees with the numbers on J odi's spreadsheet and other supporting documents from
November 2012. During the 2012 audit of this grant, an exception was issued because it wasnt clear that a second person reviewed the
reimbursement claims for accuracy. J odi pointed out that the District has addressed this deficiency. She stated that Wendy Weyer, Director of
Nutrition Services, has always reviewed the reimbursement claims for accuracy however, this activity was never documented. Since the exception
has been issued, Wendy has been initializing the hardcopy of the NSLP Recap report to approve it before it gets sent to the Accounting
department. We confirmed that this control is in place by reviewing a hardcopy of the November 2012 NSLP Claim Recap report with Wendys
initials on it. Based on the evidence that J odi presented us with, we determined that this control appears to be in place and operating as intended.

Compliance Testing
1. Breakfast, Lunch, and Milk Testing (a, b and c)
We selected three reimbursements that were different months reviewed from the prior audit and determined that September and June months
could be higher risk because they are first and last months of the school year and could have the most changes in attendance. We obtained the
reimbursement claims for September 2012, December 2012 and June 2013 and traced the amounts reported to the District's supporting
documentation. We verified that the reimbursement rates the District used were correct according to OSPI Bulletin B037-12 issued on 8/17/2012.
We then recomputed the amount claimed for mathematical accuracy. See testing at 2013 Reimbursement claim testing. We noted no exceptions.

We performed the following test to determine if the number of student meals claimed during the month of December 2012 are less than or equal
to the number of meals we would expect based upon student eligibility and average student attendance. Using the information from the
reimbursement claim report for December 2012, we first determined the maximum possible meals that could be served for the month by
multiplying the number of eligible students times the days that meals were served in the month. (For the month of December 2012, there were 15
days of the month in which meals were served) We then multiplied the maximum possible meals by the national attendance average to determine
the number of meals we would expect to be served during the month. We compared our expectation to the stated actual meals served on the
claim which the District requested reimbursement for.
Category Students eligible Breakfast
Days meals were served in
December
Maximum possible number of
meals that can be served (eligible
students x days)
Average daily attendance (Federal
national average)
Number of meals we expect
served (average x maximum
possible meals served)

Free 17334 15 260,010 93.8% 243,889
Reduced 3587 15 53,805 93.8% 50,469

Category Students eligible Lunch
December
students x days)
national average)

Free 17334 15 260,010 93.8% 243,889
Reduced 3587 15 53,805 93.8% 50,469

Category Students eligible Snacks
December
students x days)
national average)

Free 8794 15 131,910 93.8% 123,732
Reduced 65 15 975 93.8% 915
We noted that the total number of meals served for breakfast, lunch and snacks was less than the number of meals we would expect based upon
student eligibility and average student attendance. This indicates that the District is not claiming a higher amount of free or reduced meals than
they would be allowed for reimbursement. We noted no risk of overstatement of requested reimbursement.
d. We haphazardly selected a sample of students served to determine whether they meet the income eligibility requirement for the category (free
or reduced-price) claimed, have a complete and approved application on file and that the student was enrolled and eligible for assistance for the
time period claimed. See testing at 2013 Eligibility testing . We noted no exceptions. We concluded that the District is in compliance (in a material
aspect) with the requirements for Eligibility and Reporting.
Prior Audit Exceptions
SA_V: Child Nutrition Grant Eligibility Determination: Entering information from a students Free and Reduced Priced Meals application into the
Districts PCS software system determines the students meal eligibility. We performed testing to determine if the students status in the system is
accurate based on application information. We tested 30 students and found that one students application information was incorrectly entered,
which lead to the student being placed in the wrong eligibility category.
Follow up: We performed Eligibility testing for the 2012-2013 Single Audit and didnt not find any applications which was processed incorrectly for
this school year. We determined the exception has been corrected.
SA_EX: Nutrition Cluster Reimbursement Requests: The Districts Nutrition Services Office requests reimbursement of expenses for the Child
Nutrition Cluster Grants from the Office of the Superintendent of Public Instruction (OSPI). However, a secondary review to ensure accuracy and
completeness of these reimbursement requests is not performed before they are sent to OSPI. In order to ensure that reimbursement requests are
accurate and complete, we recommend a second person perform a review of the reimbursement requests.
Follow up: We conducted Reimbursement claim testing for the SA 2012-2013, we noted that the reimbursement claim forms are reviewed and
initialized by Wendy Weyer, Director of Nutrition Services. We determined the exception has been corrected.



Purpose/Conclusion:
Purpose:
To determine if the District has adequate internal controls over and is in compliance with procurement/suspension and debarment requirements.

Conclusion:
We determined that the District has adequate internal controls over, and is in compliance with procurement and
suspension/debarment requirements.

Testing Strategy:
PROCUREMENT / SUSPENSION and DEBARMENT


Procurement applies when the district's purchases of goods and services (e.g., food, dairy, bakery, etc.) were large enough to meet school district
bid law requirements (e.g., greater than $40,000 requires quotes from at least 3 vendors; greater than $75,000 requires formal bidding). Audit
procurement when the amount of purchases are material to the cluster (more than 10%).

Test Suspension and Debarment only if District has a material amount (more than 10%) of contracts for goods and services that exceed $25,000.
USDA procurement rules in addition to the state law:

Contractor Selection -
A State agency, School Food Authority (SFA), institution, or sponsor shall not award a contract to a firm it used to orchestrate the
procurement leading to that contract. Examples of services that would disqualify a firm from receiving the contract include preparing the
specifications, drafting the solicitation, formulating contract terms and conditions, etc. (7 CFR sections 3016.60(b) and 3019.43).

Geographical Preference -
A State or district shall not apply in-State or local geographical preference, whether statutorily or administratively prescribed, in awarding
contracts (7 CFR section 3016.60(c)). However, a district may use a geographical preference for the procurement of unprocessed
agricultural products, both locally grown and locally raised.

Contracts with Food Service Management Companies -

Before awarding a contract to a food service management company, or amending such a contract, a district operating the school lunch or
breakfast program must obtain OSPI review and approval of the contract terms.

Below is a description of the process per OSPI . CNS=OSPI Child Nutrition Services.
1. District completes the state boilerplate requirements for the RFP.
2. District sends the completed RFP document to Child Nutrition Services (CNS) for review and approval.
3. CNS approves RFP requirements. District advertises for proposals once each week for two consecutive weeks.
4. District receives, reviews, and selects vendor proposals.
5. CNS requests and receives vendor pro forma statements and Affidavit of Publication.
6. District contracts with the vendor and sends unsigned copy to CNS for review and approval. CNS reviews agreement against checklist of
USDA requirements.
7. District completes Fact Sheet as a part of the NSLP application on the CNP 2000 database. Fact sheet includes successful vendor
selected, dollar amount of proposals, comments on selection process, original contract signature date, four years of renewals, and fixed
priced meal charge.
8. CNS approves unsigned agreement. District and vendor complete the agreement as evidenced by signature and date.
9. CNS requests and receives signed FSMC agreement.
10. CNS reviews agreement against checklist of USDA requirements.
11. CNS requires each district to fix contract for areas of noncompliance before approval.
12. Districts who fail to comply with minimum USDA requirements may be placed on stop pay meaning CNS will hold up reimbursement of
claims until compliance is met.
Cost Reimbursable Contracts -
"Cost-reimbursable" contracts with vendors awarded by districts operating lunch, milk, or breakfast programs, including contracts with
cost-reimbursable provisions and solicitation documents prepared to obtain offers of such contracts, must include the following provisions:
(a) Billing documents submitted by the contractor will either separately identify allowable and unallowable portions of each cost, or
include only allowable costs and a certification that payment is sought only for such costs.
(b) The contractor must identify the amount of each discount, rebate, and other applicable credit on bills and invoices presented to the
SFA for payment and individually identify the amount as a discount, rebate, or in the case of other applicable credits, the nature of the
credit. If approved by the State agency, the school food authority may permit the contractor to report this information on a less frequent
basis than monthly, but no less frequently than annually.
No cost resulting from a cost-reimbursable contract may be paid from the SFAs nonprofit school food service account if: (a) the
underlying contract does not include the foregoing provisions; or (b) such disbursement would result in the contractor receiving payments
in excess of the contractors actual, net allowable costs.
(This requirement is effective for new contracts with solicitations issued on or after November 30, 2007.)
----------------------------------------------------------------------------------


over compliance.




Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring (1) state laws, USDA
guidelines, and the Common Rule are followed when procuring goods and services and (2) vendor contracts and subrecipient agreements include
a suspension and debarment certification.

exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than remote
possible)


taken.

(if the deficiency does not meet the criteria
for a significant deficiency, assess control
risk as low).

Material Weakness
program)

Report a Finding


Step 5: Test I nternal Controls








Procurement:

1. Select some procurement transactions and test to determine if the school district complied with applicable state and federal laws for
procurement (i.e., purchases greater than $40,000 requires quotes from at least 3 vendors; purchases greater than $75,000 requires formal
bidding; and a sole source of supply designation must be supported by adequate documentation).

2. For contracts with Food Service Management Companies, verify the district obtained approval from OSPI as described above.

3. For cost-reimbursement contracts (as described above), verify the billing documents submitted by the contractor are sufficient to determine
whether (1) the district is paying only for allowable costs and (2) discounts, rebates, and other credits are being offset against the amount billed
the district.

Select some vendor contracts that exceed $25,000 and verify the auditee performed one of the following:
1. Consulted the "Excluded Parties List System" (EPLS) before the contract was made. The auditee can do this by checking the GSA website
(www.sam.gov) or the hard copy subscription. The grantee should print out its search results.

2. Inserted a clause or condition into the contract that states the contractor/subrecipient is not suspended or debarred.

3. Received a written suspension and debarment certification from the contractor/subrecipient.

The grantee is responsible only for determining the status of the primary contractor or primary subrecipients. Accordingly, the primary contractor
or subrecipients must check the status of any covered transactions they enter into at the next lower level. The grantee must inform the primary
contractor or subrecipient of this responsibility. Ascertain whether the grantee informed the lower tier participant (e.g. primary contractor or
subrecipient) of the requirement to check the suspension and debarment status of any covered transactions they enter into with subcontractors or
subrecipients.

Policy/Standards:


noncompliance at HIGH due to the following:
There are multiple departments that are responsible for administering the requirements.
Per our review of the Program 98 - Federal School Food Service activity, total expenditures charged to the food service program for the 2012-
2013 school year amounted to $11,553,959. We noted that $4,993,142 (or 43%) was spent on supplies and materials while $344,437 (or 2.9%)
was spent on purchased services.
Procurement:
We spoke to Wendy Weyer, Nutrition Services Director and Diane Navarro, Contracting Services Manager regarding the process of procuring
goods and services.
For school year 2012-2013, the Nutrition department went through the Districts Contracting Services department for its major contracts (dairy,
bread, and produce). The departments existing contracts expired during school year 2012 requiring that the District to open bidding for new
contracts for school year 2013. I n the spring of 2012, the District conducted an open competitive bid for dairy, bread and produce. The Nutrition
department fills out bid specifications using a boilerplate document from the Contracting Services department. The Contracting Services
department performs the procurement duties for the contracts. Bidding for produce and dairy took place in May 2012 while bidding for bread took
place in J uly 2012. Contracts were awarded to Dairy Fresh, Inc. for dairy, Franz Family Bakeries for bread and Duck Delivery, Inc. for produce.
Key I nternal Control #1: Contract procurement procedures are performed by the Contracting Services Department and all
contracts are selected through an open competitive bid.
According to Wendy, the only other major contract is with Food Services of America which is handled through the Districts membership in the
Puget Sound J oint Purchasing Cooperative (PSJ PC) and King County Directors Association (KCDA). The Cooperative performs bidding services for
the District for food products, disposables and commodities storage. Procurement duties and the purchasing agreement are administered by
KCDA.
We noted the following guideline in SAOs planning guide for bidding and procurement dated March 2014 Since KCDA is audited annually by
our Office, for tests of compliance, local auditors may take credit for that audit work and just confirm the entity has a contract in place with
KCDA. We verified that SAOs South Seattle team performs annual Financial, Single, and Accountability audits of KCDA. To satisfy testing of
piggyback contracts procured via KCDA, we verified that the District is a member of KCDA at www.kcda.org and PSJ PC
at http://www.pugetsoundcoop.org/index.cfm. We also verified that the District has a business reason to procure through KCDA and PSJ PC.
According to Wendy, the District receives better prices by procuring certain goods through KCDA and PSJ PC because they represent many school
districts and procure in bulk quantities.
We spoke to Diane Navarro, Contracting Services Manager, on 2/13/2014 regarding the Contracting Services departments role in the
procurement of Nutrition Services contracts for dairy, bread, and produce. According to Diane, the Suspension and Debarment certification form is
included in the Districts boilerplate contract and the District requires the vendor whom is rewarded the contract to sign the certification during the
contracting stage of the procurement process.
Key I nternal Control #2: The Districts boilerplate contract contains a required certification form that the awarded vendor is
required to sign to certify that they are not suspended or debarred from participating in transactions with the federal
department or agency.
Key I nternal Control #1: Contract procurement procedures are performed by the Contracting Services Department and all
contracts are selected through an open competitive bid.
We met with Diane Navarro, Contracting Services Manager on 2/13/2014 to discuss the bidding process for contracts for the Nutrition Services
department. According to Diane, the Contracting Services departments procurement procedures are conducted in accordance with Board policy
No. 6220 and Superintendent procedures 6220SP.D (which references RCW 28A.335.190). Based on our discussion, Diane appeared very
knowledgeable about the Districts procurement policy and the requirement that contracts over $75,000 are subjected to the competitive bid
requirement. She remarked that the contractors for dairy, bread, and produce were selected through an open competitive bid process. We
reviewed the bidding documents for dairy (awarded to Dairy Fresh Farms, I nc.) and verified that the contract was subjected to a competitive
bidding process. We noted advertisements in the Seattle Daily J ournal dated May 10 and 17, 2012 for a sealed bid opening date of May 31, 2008.
There were also copies of advertisements that ran on the Seattle School District web site. All advertisements indicated that bid documents are
accessible at Builder's Exchange of Washington, I nc. on-line plan center (www.bxwa.com). As noted in the advertisement, the bid was opened at
9:30am on May 31, 2008. There were three bids received by the District from contractors Medosweet Farms, Inc., Liberty Distributing, I nc. and
Dairy Fresh Farms, Inc. Our review of bid documentation showed that Dairy Fresh Farms, I nc. was the lowest responsible bidder. We observed a
signed approval by Deputy Superintendent Robert Boesche on 8/16/2012 as required by procedure 6220SP.D.
Based on our discussion with Diane this control appears to be working as intended.
Key I nternal Control #2: The Districts boilerplate contract contains a required certification form that the awarded vendor is
required to sign to certify that they are not suspended or debarred from participating in transactions with the federal
department or agency.
During discussions with Wendy Weyer, Director of Nutrition Services and Diane Navarro, Contracting Services Manager, both were aware of the
suspension and debarment requirement for primary and any subcontractor or subrecipient vendors. Both stated that contracts include a clause
that vendors are required to sign to certify that they are not suspended or disbarred. According to Wendy, there were no subcontractors or
subrecipients associated with the dairy, bread, or produce contracts. In our review of the dairy contract with Dairy Fresh Farms, Inc., we noted on
page 3 of the contract that the vendor signed the certification form on 5/31/2013. The certification form contains the following language, The
prospective lower tier participant certifies, by submission of this proposal, that neither it nor its principals is presently debarred, suspended,
proposed for debarment, declared ineligible, or voluntarily excluded from participation in this transaction by any Federal department or agency.
This control appears to be in place and working as intended.
We assess the risk of material noncompliance at MODERATE.
Compliance Testing
1. Procurement:
We reviewed the District's contract folders for Duck Delivery and Dairy Fresh Farms, Inc. to determine if the District complied with applicable state
and federal laws for procurement.
Duck Delivery (supplier of fresh produce) - Bid #BO2225: We noted an advertisement in the Daily J ournal of Commerce dated May 10 and
17, 2012 for a sealed bid opening date of May 31, 2012. There were also copies of advertisements that ran on the Seattle School District
web site. All advertisements indicated that bid documents are accessible at Builder's Exchange of Washington, Inc. on-line plan center
(www.bxwa.com). As noted in the advertisement, the bid was opened at 9:30am on May 31, 2008. There were three bids received by the
District from contractors Charlie's Produce, Duck Delivery, and Pacific Coast Fruit Co. Review of documentation showed that Duck Delivery
was the lowest responsible bidder. We observed signed approval by Deputy Superintendent Robert Boesche on 8/16/2012 as required by
procedure. The District complied with required procurement procedures.
2. According to Wendy Weyer, Director of Nutrition Services, the department did not have any contracts with any Food Services Management
companies during the 2012-2013 school year. We confirmed this by searching through vendors names for Program 98 (Nutrition Services) in
the CAATS database 1903_2013_SeattleSD for school year 2013. We noted the following vendors, Chef's Corner Foods, Office Depot,
Servicewear Apparel, Smith & Greene, Tipper Tie, Kaye Smith, Solar Winds, and Tech Depot. Based a rough background search, none of
these vendors appear to be a food services management company.
3.We spoke to Wendy Weyer and the Nutrition Services department did not have cost reimbursable contracts during the 2012-2013 school year.
We verified this through review of the grant contract.
We reviewed the District's contract folders for Duck Delivery and Dairy Fresh Farms, Inc. to determine if the District complied with applicable state
and federal laws for suspension and debarment.
Duck Delivery (supplier of fresh fruit and produce) - We noted on page 3 of the contract a certification form stating that by submission of
the proposal, neither it nor its principals is presently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily
excluded from participation in a transaction by and Federal department or agency. We were provided the signed form dated 5/20/2012.
According to Wendy, there were no subcontractors or subrecipients associated with this contract. We verified this through review of the
CAATS database.
Based on our testing, we determined that the District is in compliance with requirements for procurement and suspension/debarment.


Procedure Step: N1. Special Test - Verification

Purpose/Conclusion:
Purpose: To determine if the District has adequate internal controls over and is in compliance with income verification for free and reduced
meals application requirements.
Conclusion: Based on our testing, we determined that the District has adequate internal controls over, and is in compliance with the verification
of free and reduced meal application requirements.

However, we noted that the department's income verification process does not include a review step before the Verification Summary report is
submitted to OSPI.
SA_EX: Nutrition Cluster Income Verification
In addition, we noted that during the income verification process, the District does not wait until the 10 day advance notice period has passed
before making changes for meal eligibility when there is a reduction or termination in benefits. See exception atSA_V: CFDA 10.553/10.555
Nutrition Cluster Verification Appeals

Testing Strategy:
Verification of Free and Reduced Price Applications


Districts are required to verify the eligibility of households for free and reduced-price meals. Households are selected from a sample of
applications that were approved for free and reduced-price meals. The verification sample size is based on the total number of approved
applications on file on October 1st.
Deadline - Districts must have completed verification by November 15, 2011.
OSPI has issued guidance on the verification process in Bulletin 056-11. http://www.k12.wa.us/BulletinsMemos/bulletins2011.aspx
District's Sample Selection:
There are 3 methods a district can use to select a sample to verify household income:
1.) 3% random sample (described below).
2.) Traditional focused sample (described below).
3.) 3% Focused Sampling. This is required for districts that had a "non-response" rate that exceeds 20% in the prior year (2010-11). The non-
response rate is the rate at which households did not return income information when requested by the district for verification. A list of non-
response rates for 2010-11 is found in OSPI Bulletin 056-11, Attachment 2.
Districts not required to do 3% focused sample can choose from among Random Sampling, Traditional Focused Sampling, or the 3% Focused
method.
Auditor Note: In each of the methods described below, you will see that districts must exclude direct certifications from the pool of applications
to be sampled. This is not to be confused with direct verification. Both the certification and verification matches are performed by DSHS, but
they use different income measures. Direct Certification is used when households apply for meal assistance; Direct Verification reduces the
amount of income documentation that the District has to obtain from the household after it is selected from the sample process.

Determining the correct number of applications in the sampling pool:
Before determining the number of approved free and reduced-price meal applications (pieces of paper) on file as of October 1, 2011, the
district should exclude the following from its sample pool:
Students included in the Department of Social and Health Services (DSHS)/OSPI direct certification list. The eligibility of these
households has already been certified (confirmed) by DSHS.
Students which have been certified as migrant, homeless, or runaway youth by the schools Migrant Coordinator or Homeless Liaison are
also considered directly certified.
Students that are income eligible for Head Start, enrolled in ECEAP, and pre-K Even Start.
Students identified by a list/e-mail from a RCCI, as having spent at least 24 hours in residency.
Students identified by a list/e-mail from a recognized, federally funded, Tribal TANF program, as they are considered directly certified.
Students in households with a meal application on file. All of the students in the household would be considered directly certified if at
least one student from that household is on the direct certification list. Remove the application from the sample pool and label it Directly
Certified."
Students on a previous years application that were carried over for the first 30 operating days of this school year.
3% Focused Sampling:
From the total number of approved applications on file as of October 1 (excluding DSHS direct certifications. migrant, homeless and runaway
youth, etc.), the district must select for verification the lesser of 3% of the total or 3,000. After the sample size is determined, the district must
pick from among the "error prone" applications to verify income information. Error prone applications are those with a monthly income within
$100 of the upper limits for free or reduced meal eligibility (or they can use annual income within $1,200 of the upper limits). I f the number
of error prone applications is less than number in the sample size, the district can select applications randomly.
Random sampling:
From the total number of approved applications on file as of October 1 (excluding DSHS direct certifications. migrant, homeless and runaway
youth, etc.), the district must select for verification the lesser of 3% of the total or 3,000. After the sample size is determined, the district
randomly selects applications for verification. All applications must have an equal chance for selection, including categorical applications (those
families that qualify because of TANF, Food Stamps, or Tribal Assistance).

Traditional Focused sampling:
The District must select a sample that is, at a minimum, the sum of:
(1) From the total number of approved applications on file as of October 1 (excluding DSHS direct certifications. migrant, homeless and runaway
youth, etc.), the district must select for verification the lesser of 1% of the total or 1,000. After the sample size is determined, the district must
pick from among the "error prone" applications to verify income information. Error prone applications are those with a monthly income within
$100 of the upper limits for free or reduced meal eligibility (or they can use annual income within $1,200 of the upper limits).
AND
(2) The district must also select the lesser of 500 or 0.5% (.005) of the total applications that were approved based on categorical eligibility
(those approved for Food Stamp Program, TANF or Tribal Assistance). These applications can be selected using any equitable method that
ensures the same household is not selected each year.

General Requirements of the Verification Process:

1. Households selected for verification, based on income, must be notified of their selection. The household must be informed that the social
security number of each adult household member (21 years of age or older) or an indication that the individual does not possess one, must
accompany the documentation of income received. Verification cannot be considered complete without this information.

New requirement for FY06 and beyond - Before notification is sent to the family, a second person at the district (someone other than the person
who approves the application) must review the applications selected for verification to ensure the application was processed correctly and that the
family was placed in the correct free or reduced-price category. The person can indicate his/her review with either a signature or initials. NOTE:
districts can have this requirement waived by OSPI if they have an automated system and can prove the system ensures applications are
processed correctly. The list of Districts who received the waiver from OSPI and are NOT required to perform the confirmation review is located
on the School Programs page under "References" at:
http://saoapoly002.sao-nt.wa.gov/TeamPortals/sp/References/Nutrition%20cluster%20verification%20-
%20District%20waiver%20list%20for%20second%20party%20confirmations.xls

2. Evidence of income that the household submits may be for any point in time between the month prior to application and the time the
household is required to provide income documentation. New for FY08 audits and beyond: Applicants are not required to submit one full month
of pay stubs if their application was originally approved using less than one month of documentation. For example, if the application was
approved using weekly paystubs, the verification documentation can be based on a weekly paystub. There must be evidence of income from all
household members for whom income is listed on the free and reduced-price income application for the selected household.

3. All verified applications must be readily retrievable by school. All copies of documents submitted by the household in an effort to confirm
eligibility, reproductions of those documents, and/or annotations made by the determining official to indicate which documents were submitted by
the household, and the date of their submission are to be included in the verification file.

4. There should be documentation of any changes made in eligibility, the reasons for the changes, and the effective date of these changes due
to the verification process. When verification results in the reduction or termination of benefits, the actual reduction or termination of benefits
must take place immediately after the 10-day advance notice period. When verification results in higher benefits for the child, the change is
effective immediately and parents should be notified accordingly.

5. I f verification results in changes to the eligibility status of a child in the school selected for verification, the change in eligibility status must be
applied to children in that household who attend other schools within that LEA.

6. All relevant correspondence between the selected households and the LEA must be maintained.

Verification Summary Report:
Effective for FY05 and beyond, districts will need to collect and summarize information about the following:

(a) the number of students approved for benefits on the application (free and reduced price),
(b) the original basis for approval of the application, and
(c) the status of the application after verification.

This procedural change requires every district to electronically submit a summary of its verification findings to the Office of Superintendent of
Public I nstruction (OSPI) Child Nutrition Services (CNS) by March 1, 2012.

To assist districts with this required summary, USDA has developed an electronic Excel form for LEAs to record information, using either the
random or focused methodology, for those students selected for verification.

Valid Documentation of Income:

Districts should obtain the following types of documentation when verifying applications:

1. Food Stamp or TANF households:
Student's name include on the Match for Basic Food/TANF records.
Food Stamp or TANF certification notice showing beginning and ending dates of the certification period.
Letter from food stamp or DSHS office stating the client receives these benefits.
ATP card showing effective dates.
2. NON-Food Stamp or TANF households:

The households must submit the name and SSN for each adult household member (age 21 or over) and current income information such
as: earnings/wages from employment, social security income, pensions, retirement, unemployment compensation, worker's disability
compensation, general welfare assistance, child support/alimony, rental income, etc. The amounts, names of household members, and
dates the income was received must be provided.

3. Direct Verification (DV):

"Direct Verification" is a optional method to "directly" verify free and reduced income applications selected during the verification process using
Medicaid data. DSHS has supplied OSPI with the names and income levels of households approved for Medical Coupons. The list is sent to OSPI
and OSPI staff then download the list into EDS.

The purpose of DV is to save the LEA time during the verification process, make it easier to verify applications with accurate information, and
lower the non-response rate associated with the verification process. Plus, it makes it easier on families if they are directly verified instead of
having to supply the LEA with income documentation, social security numbers, etc. Specifically, if a district finds the students name on the direct
verification listing, it does not have to notify the family at all of their selection to be verified. Plus, if one childs name shows on the direct
verification listing, the rest of the students in the same household are also considered to be directly verified.

It is important to note that this information cannot be used for "Direct Certification", which is used when household apply for assistance.

LEAs using DV must follow the procedures stated below:

1. If a student has been approved by the LEA for free meals and the DV list shows the student to be categorized as free, the LEA has completed
the verification process. The district should indicate on the paper income application form that it has been directly verified (DV).

2. If a student has been approved by the LEA for reduced-price meals and the DV list shows the student to be categorized as reduced, the LEA
has completed the verification process. The district should indicate on the paper application form that it has been directly verified (DV).

3. If a student has been approved by the LEA for free meals, but the DV list shows the student to be reduced, do NOT change the student
to reduced. I n this case, the district must follow the regular verification process by sending a letter to the household asking for income
verification documentation.

4. If a student has been approved by the LEA for reduced-price meals, but the DV list shows the student to be free, do NOT change the student
to free. In this case, the verification process is considered complete and the student is verified for reduced-price meals.

5. If a student has been approved by the LEA for free or reduced-price meals, but the DV list shows the student to be not eligible, do not change
the students status. In this case, the district must follow the regular verification process by sending a letter to the household asking for income
verification documentation.

NOTE: Migrant Ed Students - Beginning in 2004-05, students who qualify for eligibility under the Migrant Ed program (CFDA 84.011) are eligible
for free meals and do not have to file an application. All the district must do is substantiate and document that the student is eligible for Migrant
Ed services.
................................................................................


over compliance.

When assessing the risk of Type A and Type B programs during single audit planning (refer to the risk assessment spreadsheet), did you find that this compliance
requirement is one that is susceptible to fraud, theft of assets, or fraudulent reporting of financial or programmatic data to the grantor or public?



Gain an understanding of the internal control process and identify the key internal controls used by the district to verify applications of students
receiving free and reduced-price meals in accordance with federal requirements (selecting sample size, notifying families, collecting income
information, re-classifying benefits when necessary, reporting results to OSPI).

exists.





Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)


taken.

risk as low).

Material Weakness
program)

Report a Finding














1. Determine whether the district completed its verification process by the November 15, 2011 deadline and that it used a valid sampling method
described above.

2. J udgmentally select students verified by the district and ascertain that:

(a) A second person of the district reviewed the application for accuracy before the district notified the family it was selected for verification;
(b) The eligibility determination/verification made by the district is supported by family income records or via the direct verification process; and
(c) Changes made in eligibility are properly documented and the actual reduction or termination of benefits took place immediately after the 10-
day advance notice period.

3. Determine whether the district filed its Verification Summary Report with OSPI and the data submitted is supported and accurate. (Note: I f a
family does not respond to the district's 2nd verification request before the deadline of Nov 15, then this household should be marked as a "non-
response" on the report even if the family subsequently submits the proper income information.)

4. Conclude on district's compliance with requirements for Verification taken as whole.

Policy/Standards:


This compliance requirement is not new to the agency and the requirement has not changed recently.
This compliance requirement is not complex and the related activities are not difficult to audit.
Only one department is responsible for administering this requirement.
The I nherent Risk is that the District is not performing the required income verification process on a set sample of household applications for free
and reduced meals.
On 1/23/2014, we met with Trish Maples, Nutrition Services Office Specialist from the District's Nutrition Services department to gain an
understanding of the District's income verification process for Free and Reduced Price Meals applications.
Initial Application Entry Process:
At the beginning of each school year, the District requires interested households to fill out and send back hardcopies of the "Application for Free
and Reduced Price Meals" application. The Nutrition Services staff enters data into their PCS system as the applications come in. The critical data
points they enter into the system include total number of household members (including parents and all adults over 21yrs of age), name of each
household member that receives income (earnings, pensions, SSI, etc.), their income amount/frequency and the last four digits of their social
security number. The Nutrition Services staff member then initializes and dates the hardcopy application form to indicate that they have entered
the information into the PCS system.
Basic information about the student such as name and address are entered during the District's enrollment phase and the Nutrition Services staff
does not re-enter this information. Applications that are incomplete are sent back to the household, school, or interagency with a letter that
indicates the missing information. Once the application is entered into the PCS system, the system determines which category the student
qualifies for (free, reduced, or paid). A letter is sent to each student who is registered in the lunch program, informing them of the category they
qualify for (free, reduced, paid). The student's status is valid for the entire school year unless the household reports a change in income which
puts the student in a different category. I n this case, they will need to fill out a new application. The District doesn't monitor household for income
changes.

Direct Certification Process:
For students under the Migrant Ed program (CFDA 84.011), a homeless liaison contacts Trish and informs her of the student with this status. The
Nutrition Service department does not require these students to file an application. In the PCS system, Trish enters any information that is
available for the student and configures the student's status by clicking the "DDRT-Direct Certification" box and changing the corresponding field
to "homeless" in the PCS system. The student is now eligible. Trish saves the correspondence from the homeless liaison and any paperwork
submitted in a hardcopy file for the student.

Eligibility Verification process:
Each year, the District is expected to verify eligibility for a sample of households whom were deemed eligible for free or reduced-price meals after
returning the Free and Reduced Price Meals Application form. The verification sample size is based on the total number of approved applications
on file on October 1
st
(excluding applicants who have homeless or foster child status that qualified through the direct certification method which
exempts them from having to fill out an application). On October 1
st
, Trish runs a Verification Selection Report from the PCS system. The system
calculates the sample size of households that need to be verified based on the total number of households that were on file as of October 1
st
. For
the school year 2012-2013, the District had 4,507 applications on file and was required to verify 136 applications (3% of the total number of
applications). The District was also required to conduct the 3% Focused Sampling method for school year 2013 because the non-response rate for
the prior school year exceeded 20%. In addition to calculating the sample size, the PCS system also generates a list of selected households to
verify based on the criteria for the 3% Focused Sampling method (which places a priority on selecting households that are within $100 of the
upper income limits for the free and reduce-priced categories). The District follows US Department of Agricultures (USDA) guidelines for
determining sample size and sampling method as outlined in Compliance Supplement 2013 - Part 4, USDA, Program 10.553/.555.

Note: For 2013, Districts are required to include households which are enrolled in the Temporary Relief for Needy Family (TANF) and Basic Foods
program if they receive zero benefits in the sampling pool. We confirmed that the Seattle School District included households enrolled in TANF and
Basic Foods whether zero or some benefits in the sampling pool by checking the Verification Summary Report (dated Nov 2012) that the District
submits at the completion of the income verification process. The report listed households on TANF and Basic Foods (denoted by the words "case
number") that were selected for income verification; therefore we determined that the District is in compliance with this new requirement for
SY2013.

The verification process starts with the "pre-verify" step. Each application that has been chosen for testing is reviewed to ensure that the
application was processed correctly and that the family was placed in the correct free or reduced category. The staff member that reviews the
application cannot be the person who initially entered it into the system. During the pre-verify step, a verification tracker cover page is attached to
the original application and the person that performed the review initializes and dates the cover page to indicate that they double-checked the file
to make sure it was processed correctly.

Key internal control #1: A staff member who did not initially input the original application will review the information in the
system to ensure it is accurate and then sign off on the verification tracker cover page.
After the application data is double-checked in the system, Trish sends a letter to the household to inform them that they have been selected for
income verification. The response deadline is indicated on the letter. Trish notes the day the letter was sent on the verification tracker cover page
as well as the deadline date. If there is no response from the household by the deadline, Trish sends another notice on November 5th, requesting
the information and notes the date of the second attempted contact and deadline on the verification tracker cover page. I f a household doesn't
respond to the income document request, Trish declares it as a non-response and changes the student's status to paid in the system. She doesn't
"back fill" the non-responsive household with another household. Students whose category changed to paid due to not responding to the income
documentation request are allowed to re-apply but they will be required to provide proof of income with the application. Letters are sent to the
households selected for verification explaining the review process and indicating the date the requested income documents are due.

As the households return the requested income documents, Trish examines the income documents to determine whether the income document is
acceptable for the type of income indicated on the application (for example pay stubs, letter from employer, SSI eligibility letter, pension award
notice, etc.). Using the income documents provided by the household, Trish calculates the households monthly income based on income
frequency and enters her income calculation into the PCS system, the system then re-determines the eligibility category (free, reduced, paid)
based on the income calculation entered. Trish makes a note on the verification tracker cover page whether there has been a change in eligibility
or no change. If there is a change in the eligibility, the change is applied to all children in the household that attend school in the District. Trish
prepares and sends a letter to the household informing them of the change in eligibility and that they have 10 days to file an appeal. The change
in eligibility status is effective immediately when the school downloads the PCS update in the morning. She adds the income documents provided
to the applicants file for her records. Trish also keeps a hardcopy of all her correspondence to households for her records.

Key internal control #2: Income documents are collected, examined, and reclassified in the PCS system as required by OSPI and
households are informed of the change in eligibility status and have a 10-day period to appeal.
The WA Office of Superintendent of Program Instruction (OSPI) requires that the income verification process be completed by November 15th of
each school year (note that the submission of the results is not the same as the completion due date, the submission due date was February 20,
2013). On November 15
th
, Trish fills out the Verification Summary Report form on the OSPI website. She fills out the form using data from the
PCS system, application forms, and income documents provided by the households. She prints a hardcopy of the Verification Summary Report
form for her own records.

Key internal control #3: Trish Maples, Nutrition Services Office Specialist fills out the Verification Summary Report to report
the completion of the income verification process by the November 15th deadline to OSPI.


Key internal control #1: A staff member who did not initially input the original application will review the information in the
system to ensure it is accurate and then sign on the verification tracker cover page.
During our interview with Trish Maples on 1/23/2014, Trish showed us an application for the current school year 2014 with a verification tracker
cover page. The application contains the date, meal category, and initials of the staff employee that initially entered the students data into the
PCS system. The verification tracker cover page contains the date, meal category, and initials of the staff that double-checked the initial entry to
ensure it was processed correctly. This is the pre-verify step of the Districts verification process. Trish stated that this process was the same for
SY2013. We reviewed the application and tracker cover page for the date, initials, and meal category elements and determined that this control
appears to be in place and operating as intended.

Key internal control #2: Income documents are collected, examined, and reclassified in the PCS system as required by OSPI and
households are informed of the change in eligibility status and have a 10-day period to appeal.
During our interview with Trish Maples on 1/23/2014, Trish showed us an application from SY2014 which was reclassified after income documents
were examined. She pointed to the section on the verification tracker which showed the final meal category classification. The verification tracker
also indicates the reason for the change. The previous and final meal categories are indicated. Trish also showed a copy of the letter that is sent
to the household indicating the change, the reason for the change, and the 10 day appeal window. Trish stated that this process was the same for
SY2013. We reviewed the application and letter shown and determined that this control appears to be in place and operating as intended.

Key internal control #3: Trish Maples, Nutrition Services Office Specialist fills out the Verification Summary Report to report
the completion of the income verification process by the November 15th deadline to OSPI.
We obtained the school year 2012-2013 Verification Summary Report from Trish Maples. The report indicates that the verification process was
completed on November 15, 2012.
In testing the key controls for activities related to this requirement, we noticed that Trish Maples is the only staff involved in assessing household
income and submitting the final Verification Summary report to OSPI. I n reviewing the verification tracker cover pages and Verification Summary
report, we did not find evidence that a second person is reviewing Trish's work. When asked if there was a second person reviewing the accuracy
of the income assessment and meal category changes, she said no. When asked whether a second person reviews the Verification Summary
report before it is submitted to OSPI, she said no. When asked if someone is making sure that the income verification process is completed on
time, she also said no. She commented that Wendy Weyer, Director of Nutrition Services is aware of the deadlines because receives emails from
OSPI regarding deadlines. She added that she been doing these activities for years and that the department has never had a concerns about her
ability to meet the deadlines. On 3/21/2014, we met with Wendy Weyer to discuss the lack of a secondary review for this process; she confirmed
that department currently does not perform a secondary review of the income verification process and report. Though Trish appears
knowledgeable about this process, the lack of a secondary review of the process and Verification Summary report increases the risk that the
District is not accurately assessing household income and meal categories and could potentially miss the OSPI deadlines for process completion
and submittal of report. We noted this issue at SA_V: Nutrition Cluster Verification Free and Reduced Meal applications. See below at conclusion
for exception level justification.

We assess final control risk at LOW
We assess the risk of material noncompliance at LOW
Compliance Testing
1. Determine whether the district completed its verification process by the November 15th deadline and that it used a valid
sampling method described above.
We obtained the Verification Summary Report that was submitted to OSPI and observed that the submittal date on the report was November 15,
2012 which indicates that the process was completed by the November 15th deadline. We also noted that the type of verification stated as being
used was 3% focused which was the valid method for the District. (We verified that the focused method was in fact used by reviewing the
Verification Selection Report).

2. J udgmentally select students verified by the district and ascertain that:
(a) A second person of the district reviewed the application for accuracy before the district notified the family it was selected for verification;
(b) The eligibility determination/verification made by the district is supported by family income records or via the direct verification process; and
(c) Changes made in eligibility are properly documented and the actual reduction or termination of benefits took place immediately after the 10-
day advance notice period.

For SY2013, the District was required to verify income for 136 households based on the prior years nonresponse rate. We used auditor judgment
to randomly select 25 Free and Reduced Price Meals applications. We tested the 25 applications for the attributes listed above. See testing at -
2013 I ncome verification testing. During testing we found that although the District sent the household a notice letter informing them of the
change in meal eligibility accompanied with a notification of their right to a 10-day appeal window, we noted that the District changed the
eligibility status in the system immediately, effectively changing the meal charges to the student before the 10 day notice period is over. The
District did not wait for the 10-day advance notice period to be over before making the change to the student's meal status in the system. See -
SA_V: CFDA 10.553/10.555 Nutrition Cluster Verification Appeals

Verbal = We issued a verbal recommendation because the District is in compliance with the income verification and notification requirements in all
material respects aside from this minor issue. In addition, if the District does receive additional information in regards to the appeal within the 10-
day notice period, the District will change the status if the appeal information changes the status

3. Determine whether the district filed its Verification Summary Report with OSPI and the data submitted is supported and
accurate.
We obtained the Verification Summary Report that was submitted to OSPI and observed that the submittal date on the report was November 15,
2011 which is in compliance with the OSPI deadline. (Note: I f a family does not respond to the district's 2nd verification request before the
deadline of Nov 15, then this household should be marked as a "non-response" on the report even if the family subsequently submits the proper
income information). We reviewed the verification results submitted by the District and noted the households which did not respond to the income
document request were indicated as "Changed to Paid. No verification data received".

4. Conclude on district's compliance with requirements for Verification taken as whole.
Based on our testing, we determined that the District has adequate internal controls over, and is in compliance (materially) with the verification of
free and reduced meal application (household income) requirement. We noted that the department's income verification process does not include
a review step before the Verification Summary report is submitted to OSPI. We made a recommendation that a secondary review of income
verification results and report is performed. This is important as there is a risk of families on reduced lunch could become free lunch, which would
allow the District to receive more funds. See exception at SA_V: Nutrition Cluster Verification Free and Reduced Meal applications.
Verbal = We based our level of exception as a verbal recommendation as the verifications do go to OSPI and are reviewed at that time. In addition,
the District appears to be evaluating on how they could do a sample review of the verifications in response to our recommendation.


Procedure Step: N2. Special Test - School Accounts

Purpose/Conclusion:
Purpose:
To determine if the District has adequate internal controls over and is in compliance with requirements for School Accounts.

Conclusion:
We determined the District has adequate internal controls over and is in compliance with requirements for School Accounts without exception.

Testing Strategy:

SCHOOL FOOD ACCOUNTS




A district is required to account for all revenues and expenditures of its "non-profit" school food service in accordance with State requirements. A
district must operate its food services on a non-profit basis -- all revenue generated by the school food service must be used to operate and
improve its food services.

Federal regulations (7 CFR Sec. 210.14) state: (b) Net cash resources. The school food authority shall limit its net cash resources to an amount
that does not exceed 3 months average expenditures for its nonprofit school food service or such other amount as may be approved by the State
agency

The OSPI School District Accounting Manual provides guidance on how districts should account for food services revenue. Revenue is recorded
under the following codes:

2298 - Food Services (local)
4198 - School Food Service (state)
6198 - School Food Service (federal)
6998 - USDA Commodities
7198 - Food Services (Other Districts)
8198 - Catering

Expenditures of food services are accounted for in Program 98. The Activity codes are:

41 Supervision
This activity is used to record the expenditures for managing, directing, and supervising the food service program.
Services include those of supervisory, secretarial, and other assistants involved in the administration of the food service program. Examples include:
directors, directors
support staff, and dieticians.
42 Food
Include the expenditures for all food (purchased and commodities) used in connection with the regular food services program including expenditures for
processing, freight, delivery, and storage.
44 Operations
Include the direct expenditures for preparing and serving breakfasts and lunches in connection with school activities and the delivering of prepared meals
to schools.
Include services of cooks, cashiers, and kitchen help expenditures, contractual services, supplies and materials (other than food), travel, and capital
outlay. Include
lunchroom aides who assist in food preparation or distribution.

49 Transfers
This activity, under Program 98 School Food Services, is used exclusively for transferring expenditures for banquets, feeding of the elderly, feeding
approved day
care children, and other feeding operations not chargeable to Program 98. Expenditures to be transferred out are accumulated in Activities 41 through 44
along
with other school food services expenditures. Objects of Expenditure can include: Debit Transfer, Credit Transfer, Certificated Salaries, Classified
Salaries, Employee Benefits, Supplies, Purchased Services, Travel, Capital Outlay.

When evaluating the costs (expenditures) in program 98, you can add an amount that is attributed to the district's unrestricted indirect cost rate,
net of food (OSPI activity code 42) and capital outlay (would be coded into Activity 44-Operations).

Example: Total expenditures in program 98 are $300,000, of which food and capital outlay is $100,000. The district's unrestricted indirect cost
rate is 10%. The auditor can add $20,000 ($200,000 * .10) to the district's total "costs" when comparing revenues to expenditures. (Note: this
is for analytical purposes - the district cannot actually claim the indirect cost rate on its monthly reimbursement claims).
---------------------------------------------------------------------------
Audit Objective - Determine whether (1) a separate accounting is made of the school food service; (2) the district's food services is not making an
unreasonable profit; (3) federal reimbursement payments are promptly credited to the school food service account, and (4) transfers in and out of
the school food service account are proper benefit the school food service.


over compliance.




Gain an understanding of the internal control process and identify the key internal controls used by the District to account for its food service
operations in separate accounts, use revenues/income to improve and support food services, and keep any net profit at a reasonable level.

exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than remote
possible)


taken.

risk as low).

Material Weakness
program)

Report a Finding













1. Select some expenditures (food purchases, staff payroll, etc.) made for food service operations and and ascertain that the district is properly
accounting for these costs in Program 98. Test J Vs to ascertain if the transfers into or out of school food service accounts are proper and are
allocable to school food services.
2. Test Federal reimbursement payments received monthly from OSPI to ascertain if they are promptly credited to the food service account.

3. Compare total food services revenues (federal and non-federal) with total expenditures for the year to verify that the district is not making an
unreasonable profit (an amount that exceeds 3 month's average expenditures).

4. Conclude on the District's compliance with requirements for School Food Accounts.

Policy/Standards:


The compliance requirement is not new to the agency and the requirement has not changed recently.
This compliance requirement does not involve any degree of subjectivity or interpretation by District staff.
The compliance requirement is not complex and the activity is not difficult to audit.
The inherent risk is that the District is not accounting for school food services in a separate financial account, that federal reimbursement
payments are credited to the proper food service account and that transfers in and out of the food service account are proper and benefit food
services. There is also an inherent risk that an unreasonable profit is being made.

Key People:
Barry Tsoi, Senior Accounting Supervisor, BTSOI @seattleschools.org, 252-0252
J odi Thomas, Nutrition Services Technical Analyst, jthomas@seattleschools.org, 252-0682
Kenny Ching, Grants Accounting Supervisor,
kwching@seattleschools.org, 206-252-0269
Wendy Weyer, Director-Nutrition Services, weweyer@seattleschools.org, 252-0685
Yolanda Betteridge-Cotton, Nutrition Services Accounting Specialist, yocottonbett@seattleschools.org
We met with Barry Tsoi, Senior Accounting Supervisor, to discuss his process for verifying that federal reimbursement payments received from the
State Office of Superintendent of Public I nstruction (OSPI) are promptly credited to the Nutrition Services accounts. Barry explained that the
Districts Budget Office has set up the fund and cost center in the Districts general ledger/financial SAP accounting system for the Nutrition
Services program. When the Nutrition Services department sends its monthly NSLP reimbursement recap report to the Accounting department,
Barry records a debit to Child Nutrition Services (CNS) AR account 100088 and a credit in the CNS revenue account R6198 (reserved for CFDA
10.553/.555 funds that flow through from the WA State OSPI). Monthly, Barry reviews the 1191 Apportionment report from OSPI which contains a
section that lists grant revenues from OSPI by grant number and revenue account. Based on the OSPI report, Barry records a credit to account
10008 and a debit to account B1240, Cash- Cty Treasurer, to record that the OSPI funds has been directly deposited into the Districts general
fund account (held by King County, the Districts treasurer). By reviewing the monthly OSPI 1191 Apportionment report, Barry ensures federal
reimbursement payments are promptly and completely credited to the Districts Nutrition Services accounts.

Key I nternal Control #1: Barry Tsoi reviews the monthly OSPI 1191 Apportionment report to ensure that federal reimbursement
payments are promptly and completely recorded into the correct Nutrition Services general ledger accounts.

We met with Wendy Weyer, Director of Nutrition Services, to gain an understanding of the Nutrition Services department budgeting process.
Wendy explained that before the start of each school year, the Districts Budget Office sets up cost centers for the Nutrition Services department
with beginning balances based off of the previous years actual numbers. Cost centers that end with C0 are for administrative expenditures
incurred at the District, cost centers that end with D0 are for food expenditures and Government services such as the processing of food
commodities and food permits, and cost centers that end with F0 are for school based expenditures such as labor, maintenance, supplies related
to food services. The Nutrition Services department does have flexibility in establishing what they call open purchase orders. Before the start of
each school year, the department identifies all the vendors it plans to work with and establishes an open purchase order for the vendor. Each
account has a beginning balance of the budgeted amount, as invoices are recorded, it is subtracted from the balance. The Nutrition Services
department runs a SAP report monthly and reviews encumbrances on its cost centers to compare its actual expenditures to its budgeted
expenditures and ensures that expenditures are accurately coded. Expenditures that are miscoded are caught and corrected by this control.
Key I nternal Control #2: Monthly, the Nutrition Services department reviews encumbrances on its accounts to compare its
actual expenditures to its budgeted expenditures and ensures that expenditures are accurate and supported.

On 1/28/2014, we met with Yolanda Betteridge-Cotton, Nutrition Services Accounting Specialist, to gain an understanding of the departments
process for reviewing invoices from food vendors. The department receives invoices from three main vendors, Dairy Fresh, Franz Family Bakeries,
and Duck Delivery. Yolanda walked us through her process with the vendor Dairy Fresh. The schools send the District invoices from Dairy
Fresh on a weekly basis, Yolanda makes sure that the invoices are for allowable expenditures. She verifies the invoices against Dairy Freshs bi-
monthly statements for each school in the District, checking off each line in the statement that is supported by invoices she received from the
school. I f there is a discrepancy, she emails the vendor to get it corrected. She attaches a coversheet with the bi-monthly total for each school
and a grand total for the bi-monthly period. The coversheet is reviewed, initialed, and dated by Wendy Weyer, Director of Nutrition Services.
Yolanda makes a hardcopy for her own records and sends the original to the Districts central Accounts Payable department. On receipt of the
authorized invoices, Alan Mardock form the Districts central Accounts Payable, enters the transaction into the Districts general ledger/financial
accounting system (SAP). Monthly, Yolanda verifies that the expenditures are accurately reflected in the Districts general ledger. In the SAP
system, she keys in the cost center for the Districts Nutrition program (3B) which opens a report of the department's expenditures. She verifies
that the monthly expenditures recorded in the system matches the totals on her coversheet for the month she is checking. Yolanda monitors the
amount of expenditures YTD (referred to as the encumbrances in the system) against the budgeted amount for the food vendor accounts on a
monthly basis and communicates this information during the departments regular meetings.
Key I nternal Control #3: Yolanda Cotton monitors invoices to ensure expenses are for food services prior to submitting them for
payment.


Key I nternal Control #1: Barry Tsoi reviews the monthly OSPI 1191 Apportionment report to ensure that federal reimbursement
payments are promptly and completely recorded in to the correct CNS general ledger accounts.
We asked Barry to demonstrate how he would review the NSLP reimbursement claims and OSPI Apportionment reports to make the appropriate
journal entries. He showed us the journal entry he made to record the May 2013 NSLP claim for $1,143,502.08 (document number 1800023450)
and tied it to the same amount reported on the Apportionment report received on J une 30
th
. He then showed us the journal entry he made to
record the payment received after he reviewed the Apportionment report (document number 1400017312). He was able to demonstrate that the
amount in the Apportionment report matched the debits and credits recorded in the Food Services G/L accounts.

Key I nternal Control #2: Monthly the Nutrition Services department reviews encumbrances on its accounts to compare its actual
expenditures to its budgeted expenditures and ensure that expenditures are accurately coded.
During our discussion with Wendy Weyer, she showed us the SAP report she printed for the month of J anuary 2014 containing all the cost centers
for the Nutrition Services department. We reviewed the report and noted that it included each cost centers budgeted amount, monthly
encumbrances and remaining balances as well as other information. She stated that this report helped her to identify unusual activity, citing an
example of an instance when a school based expenditure which was coded to the wrong cost center. This control appears to be in place and
working as intended.

Key I nternal Control #3: Yolanda Cotton monitors invoices to ensure expenses are for food services prior to submitting them for
payment.
Yolanda walked us through her process of invoice review. She showed us how she verifies the items being charged are related to food services.
We reviewed the school invoices from Dairy Fresh deliveries for the month of February 2014 and noted checkmarks on the invoices as well as the
vendor statements which indicates Yolandas review to make sure that the amounts on the invoices agree to the amounts on the vendor
statements. The process Yolanda demonstrated to us for February 2014 hasnt changed from school year 2013. She appeared knowlegeable about
reconciling the invoices from the schools and statements from vendors. Based upon our review of the invoices/statements and discussion with
Yolanda, we determined that this control appears to be working as intended.



Compliance Testing
1. Select some expenditures (food purchases, staff payroll, etc.) made for food service operations and ascertain that the District
is properly accounting for these costs in Program 98. Test J Vs to ascertain if the transfers into or out of school food service
accounts are proper and are allocable to school food services.
Test Procedure:
We ran a query to identify all expenses for the Nutrition Cluster for 2013 using the CAATS database 1903_2013_SeattleSD. We separated the
expenditures into payroll, debit/credit transfers, and lumped all other expenditures in the "non-payroll" bucket. Then we used the Excel sampling
template for the single audit to determine our sample size for each type of expenditures. We used the random generator in the Excel
sampling template to make our test selection. We requested supporting documents from Kenny Ching, these included journal entry posting
documents, journal entry postings to record warehouse requisitions from the Nutrition Services department, and work order documents.
We tested to determine if the District is properly accounting for these expenditures and are allocable in Program 98 and that the transactions are
food related (payroll, non-payroll and journal entries).
We identified 2,596 transactions related to payroll/benefits. Payroll expenditures made up $6.3 Million (55%) of the $11.5 Million in total
expenditures for Nutrition Services. See our test for payroll expenditures at 2013 Nutrition Services Accounts testing. We noted no
exceptions.
We identified 35,544 expeditures which were "non-payroll" (i.e. Supplies & Materials, Purchased Services, and Capital Purchases). These
made up $5.3Million (46%) of the total expenditures for Nutrition Services. See testing for non-payroll expenditures at 2013 Nutrition
Services Accounts testing. We noted no exceptions.
We identified 1,523 debit/credit transfer transactions. These resulted in a net of approximately $100K into Nutrition Cluster
accounts. See testing for debit and credit transfers at 2013 Nutrition Services Accounts testing. We noted no exceptions.
We also tested to ensure that employees charging payroll to Nutrition Cluster (Program 98) hold job titles that are related to food
services. We identified 316 unique employees who charged Nutrition Services payroll. See testing for Nutrition Services employee job
titles at 2013 Nutrition Services Accounts testing. We noted no exceptions.
School account testing
2. Test Federal reimbursement payments received monthly from OSPI to ascertain if they are promptly credited to the food
service account.
Test Procedure: Using the NSLP reimbursement claims, we determined the amount requested by the District for payment. Then we determined
when the OSPI reimbursements were credited to the food service accounts (revenue accounts R6198, R4198) by using account views we received
from Barry Tsoi, Senior Accounting Supervisor. See testing here OSPI revenue account testing. Based on our testing, we found that the
reimbursements matched the claims and that they were promptly credited to food service accounts.

3. Compare total food services revenues (federal and non-federal) with total expenditures for the year to verify that the district
is not making an unreasonable profit (an amount that exceeds 3 month's average expenditures).
Test Procedure:
We obtained the total revenues for Nutrition Services by running the "Revenues by Fund and Account - drilldown to transaction detail" query in
the CAATS database 1903_2013SeattleSD and summed up the amounts for year 2013.
We got the 2013 total expenses for Nutrition Services by running the "All Expenses by Fund - Drilldown to Detail" query in the CAATS database
1903_2013SeattleSD
We got the Average Monthly Expenditures by dividing the total expenditures by 12
2012-2013 School Year
Nutrition Services Revenues $12,954,079.20
Nutrition Services Expenses $11,553,959.97
Variance $1,400,119.23

Avg Monthly Expenditures $962,830.00
3 Month Avg Monthly Expenditures $2,888,490.00
The excess of food services revenues at the end of the 2012-2013 school year is less than three months of average monthly expenditures. Based
on the criteria stated above, we determined that the District is not making an unreasonable amount of profit. No exception.\

4. We conclude that the District is in compliance with requirements for School Food Accounts.



Purpose/Conclusion:
Purpose:

Conclusion:

Testing Strategy:

Special Notes for Schools:

Questioned Costs - I f you determine that known and likely (estimated) questioned costs exceed $10,000 for a particular compliance requirement,
this should be reported as a finding. If you are questioning costs over $10,000 for a child nutrition program, be sure to include the CFDA number
and program title (e.g., Breakfast -10.553, Lunch-10.555, etc.) and whether the students were receiving free or reduced price meals. Further,
when calculating questioned costs of meals served to an ineligible free or reduced-price student, you should net the questioned amount by the
"paid" rate. That is, even if the student does not qualify for free or reduced-price rates, the district still is reimbursed a small amount under the
"paid" category. This will assist OSPI in collecting the overpayment and returning it to the correct program.

Policy/Standards:

The attached spreadsheet documents the results of our audit of internal controls and compliance for this major program Major Federal Program -
Local Teams.

Exceptions:

N1. Special Test - Verification :
Free and Reduced Meal Applications:
The Districts Nutrition Services department verifies income for a selected number of households that apply for free and reduced meals each year.
The department is required to complete the income verification process by November 15
th
and upload the results to the Superintendent of Public
Instruction(OSPI). They are also required to submit the final Verification Summary report to OSPI in February. We found that the departments
income verification process does not include a step to review the accuracy of income assessment and meal category changes before the results are
uploaded or submitted to OSPI. Also, they were no controls in place to ensure that the report is completed and submitted on time. In order to
ensure that the Verification Summary report contains accurate income assessment and meal category assignments and is submitted on time, we
recommend a second person perform a review of the Verification Summary report before it is submitted to OSPI.
Verbal = We based our level of exception as a verbal recommendation as the verifications do go to OSPI and are reviewed at that time. In addition,
the District appears to be evaluating on how they could do a sample review of the verifications in response to our recommendation. See ISS.10.

Verification Appeals: The Districts Nutrition Services department verifies income for a selected number of households that apply for free and
reduced priced meals each year. If there is a reduction or termination in the household's meal eligibility, the District is required to notify the
household of the change and provide a 10 day advance notice period. Although the District sent the household a notice letter informing them of
the change in meal eligibility accompanied with a notification of their right to a 10-day appeal window, we noted that the District changed the
eligibility status in the system immediately, effectively changing the meal charges to the student before the 10 day notice period is over. The
District did not wait for the 10-day advance notice period to be over before making the change to the student's meal status in the system.

Verbal = We issued a verbal recommendation because the District is in compliance with the income verification and notification requirements in all
material respects aside from this minor issue. In addition, if the District does receive additional information in regards to the appeal within the 10-
day notice period, the District will change the status if the appeal information changes the status. See ISS.14.


Procedure Step: N4. Special Test - Paid Lunch Equity

Purpose/Conclusion:
Purpose:
To determine if the District has adequate internal controls over and is in compliance with the Special Test and Provisions-Paid Lunch Equity
requirement.

Conclusion:
Based on our examination, we determined that the District is in compliance with the Paid Lunch Equity requirement.

Testing Strategy:
Paid Lunch Equity
SSD PLE weighted avg.
The interim rule entitled National School Lunch Program: School Food Service Account Revenue Amendments Related to the Healthy, Hunger-
Free Kids Act of 2010 requires SFAs to ensure sufficient funds are provided to the nonprofit school food service account for meals served to
students not eligible for free or reduced-price meals. An SFA currently charging less for a paid lunch than the difference between the Federal
reimbursement rate for such a lunch and that for a free lunch is required to comply. The difference is known as equity.

SFAs must determine the weighted average price of paid lunch meals. When the weighted average paid lunch price is less than the difference
between the federal reimbursement for free meals and the reimbursement for paid meals (currently $2.51), SFAs must raise the paid lunch price
or add non-federal funds to the school food service account. SFAs with weighted average paid lunch prices less than $2.51 received an email
notice in May 2012 (per Bulletin 021-12). These SFAs must raise paid lunch prices or contribute non-Federal funds to the school food service
account. SFAs must also notify their program specialist once action has been taken.
The calculations performed by the SFA to determine whether its paid lunch price requires adjustment are as follows:
a. Determine the weighted average price of paid lunches. This is determined based on the total number of paid lunches claimed for Federal
reimbursement for the month of October in the previous school year, at each different price charged by the SFA.
b. Calculate the paid lunch equity requirement, which is the difference between the per meal Federal reimbursement for paid and free
lunches received by the SFA in the previous school year.
c. I f the paid lunch equity calculated in step b. is higher than the weighted average price the SFA had been charging, calculated in step a.,
the SFA must increase the average weighted price charged in the previous school year by the sum of 2 percent and the percentage
change in the Consumer Price Index for All Urban Consumers. This is the minimum price the SFA should be currently charging for paid
lunches.

OSPI has a paid equity tool for SFAs to use at: http:/ / www.fns.usda.gov/ cnd/ governance/ Policy-Memos/ 2013/ SP25-
2013a1.xls


over compliance.

Gain an understanding of the internal control process and identify the key internal controls used by the District to correctly calculate its average
paid lunch pricing requirement; correctly apply the calculations to the average paid lunch price; implement the newly calculated paid lunch price;
and, receive the equity contributions from non-Federal sources.
exists.

Likelihood of
Noncompliance
Clearly inconsequential

(Less than 5% of total federal
More than inconsequential, but less
than material

(Between 5%-10% of total federal

Material

Remote
Control deficiency

Control deficiency

Control deficiency

More than
remote
(at least
reasonably
possible)
Control deficiency

Significant Deficiency Finding

Material Weakness Finding





Audit Objectives Determine whether a SFA has correctly calculated its average paid lunch pricing requirement; correctly applied the calculations
to the average paid lunch price; implemented the newly calculated paid lunch price; and, received the equity contributions from non-Federal
sources.
Suggested Audit Procedures
1. Verify the calculations performed by the SFA to determine whether its paid lunch price requires adjustment.
2. Verify that the SFA adjusted its average weighted paid lunch price in accordance with the results of the foregoing calculations, and
are actually charging students the adjusted price.
3. Ascertain if the SFA met the equity requirement by furnishing additional funds from non-Federal sources.
4. I f so, verify that the amount provided was sufficient to cover the difference between the amount calculated by the SFA and the
amount actually charged for paid lunches.
5. Conclude on the District's compliance with requirements for paid lunch equity.

Policy/Standards:

Background Information
Paid lunch equity is new in Special Test and Provisions for the Nutrition Cluster at the local level (as referenced in the 2013 Compliance
Supplement, Part 4 United States Department of Agriculture for CFDA 10.553/.555/.556/.559). Districts are required to perform a calculation
and ensure sufficient funds are provided to its nonprofit school food service accounts from lunches served to students not eligible for free or
reduced price meals. Districts currently charging less for a paid lunch than the difference between the Federal reimbursement rate for such a
lunch and that for a free lunch are required to comply. This difference is known as equity. There are two ways to meet this requirement: (a) by
raising the prices charged for paid lunches; or (b) through contributions from other non-Federal sources. SFAs with an average weighted price at
or above equity (currently $2.51) have already met the requirement.

The calculations to determine whether a Districts paid lunch price requires adjustment are as follows:
a. Determine the weighted average price of paid lunches. This is determined based on the total number of paid lunches claimed for Federal
reimbursement for the month of October in the previous school year, at each different price charged by the SFA (7 CFR section
210.14(e)(1)(i)).
b. Calculate the paid lunch equity requirement, which is the difference between the per meal Federal reimbursement for paid and free lunches
received by the SFA in the previous school year (7 CFR paragraph 210.14(e)(1)(ii)).
c. If the paid lunch equity calculated in step b. is higher than the weighted average price the SFA had been charging, calculated in step a., the
SFA must increase the average weighted price charged in the previous school year by the sum of 2 percent and the percentage change in
the Consumer Price I ndex for All Urban Consumers. This is the minimum price the SFA should be currently charging for paid lunches (7
CFR paragraph 210.14(e)(3))

The Office of Superintendent of Program Instruction (OSPI) performed the paid lunch equity calculation on behalf of all school Districts for FY13
(calculations a & b above). OSPI subsequently notified those Districts not in compliance via email with instruction on how to bring their lunch
prices into compliance with the new federal rules.

The SAO Team School Programs reviewed and tested OSPIs calculation centrally (for controls and compliance over the calculation), see their
testing Record of Work Done (ROWD) at PLE Final write-up, the results of their controls testing at PLE Testing Control Testing and the results of
their compliance testing at Compliance Testing PLE. For Districts that are not in compliance, the local auditor will need to complete the additional
compliance steps listed in the testing strategy to determine if the district either raised its lunch prices or contributed non-federal resources to its
school food account.

We used OSPIs calculations to determine whether the Seattle School District (SSD) is already in compliance with the Paid Lunch Equity
requirement, see OSPI spreadsheet at PLE Tool - Weighted Avg Less Than $2 51. First we checked to see whether the SSD is on OSPIs list of
schools that are not in compliance (on the 2012 Avg Price tab) and verified that the SSD is not on this list. Using the calculator provided in the
OSPI spreadsheet (on the 2012-2013 Calculator tab), we entered in the Agreement Number 17-001 for SSD and verified that the Districts
current weighted average paid lunch price is $2.84 which is above the current Paid Lunch Equity floor of $2.51. Since the SAO Team School
Programs already tested OSPIs calculation (for controls and compliance over the calculation), without exception, we conclude the District is in
compliance with the Paid Lunch Equity requirement and no further testing is necessary at the local team level.

E.4.PRG - Title I - CFDA 84.010/84.389

Procedure Step: Overview and Compliance Requirements
Prepared By: ARC, 2/12/2014

Purpose/Conclusion:
Purpose:

Conclusion:

Testing Strategy:
Title I Cluster - 84.010 / 84.389
This section provides (1) an overview of the grant program and (2) an identification of the applicable compliance requirements.
OVERVIEW
As a result of the American Recovery and Reinvestment Act (ARRA), a significant amount of funding was awarded to districts for their Title I
programs. A new CFDA number (84.389) has been assigned to the Title I-ARRA funds. Beginning with our FY09 audits, a new cluster was
defined by the OMB:
84.010 - regular Title I, Part A
84.389 - ARRA Title I, Part A.
PLEASE NOTE: ARRA funds should have been obligated by September 30, 2012. According to OSPI, because Districts FY end
August 31, they budget accordingly. Therefore, unless you are auditing a cash basis district, there should not be any ARRA
expenditures reported on the FY13 SEFA. If you note ARRA expenditures on a non-cash basis district, please contact the Single
Audit Specialist.

The U.S. Department of Education has provided guidance for ARRA Title I funding in the following guide:
http://www2.ed.gov/policy/gen/leg/recovery/guidance/title-i-rev-201003.pdf
Refer to Section C - Fiscal I ssues
Refer to Section D - Uses of Title I ARRA for School Districts (a.k.a., Local Education Agencies - LEA)
The purpose of the Title I program is to improve the teaching and learning of children in subjects such as reading and math who are at risk of not
meeting challenging academic standards and who reside in areas with high concentrations of children from low-income families.

The Department of Education (ED) provides Title I, Part A funds to the WA Office of Superintendent of Public Instruction (OSPI) through a
statutory formula based primarily on the number of children ages 5 through 17 from low-income families. OSPI then allocates funds to LEAs
(school districts and ESDs). To receive Title I funds, school districts must have on file an approved plan (grant application) that includes
descriptions of the general nature of services to be provided, how program services will be coordinated with the district's regular program of
instruction, additional LEA assessments, if any, used to gauge program outcomes, and strategies to be used to provide professional development.

LEAs allocate Title I funds to eligible school attendance areas based on the number of children from low-income families residing within the
attendance area. A school at or above 40 percent poverty may use its Part A funds, along with other Federal, State, and local funds, to operate a
"schoolwide program" to upgrade the instructional program in the whole school. Otherwise, a school operates a "targeted assistance program" in
which the school identifies students who are failing, or most at risk of failing, to meet the State's challenging performance standards and who
have the greatest need. Many districts have a mix of both schoolwide and targeted assistance programs.

Elementary and Secondary Education Act (ESEA) Flexibility
On September 23, 2011, ED offered each SEA the opportunity to request flexibility on behalf of itself, its LEAs, and its schools with respect to
waivers of specific ESEA requirements, including certain Title I, Part A requirements, in exchange for a comprehensive State-developed plan to
improve educational outcomes for all students, close achievement gaps, increase equity, and improve the quality of instruction. This initiative,
known as ESEA flexibility, includes waivers of a number of Title I , Part A requirements for example, redefining annual measurable objectives,
meeting adequate yearly progress, identifying schools for improvement, corrective action, or restructuring, and providing public school choice and
supplemental educational services. States receiving ESEA flexibility before November 1, 2012, and LEAs in those States, began implementing the
plans contained in their request in the 20122013 school year. Those waivers apply through the end of the 2013-2014 school year. For a list of
the waivers offered, see ESEA Flexibility J une 7, 2012.
See references in this program supplement and also in the ED Cross-Cutting Section.
On J uly 6, 2012, Washington State received approval for its request for ESEA Flexibility. This program has been updated to
reflect the waivers of certain compliance requirements that were approved for FY13.

COMPLIANCE REQUI REMENTS
Using the Compliance Supplement and guidance from OSPI, we have pre-determined that the following requirements denoted with a "Yes" are
applicable. Use this as a guide to fill out the attached Excel spreadsheet, "Major Federal Program". For some areas, the auditor will need to
determine whether each applicable area has a direct and material effect on the program.
C.S. = Compliance Supplement
SEA = State Education Agency (OSPI)
COMPLIANCE
REQUIREMENT

APPLICABLE AT
SCHOOL
DISTRICT LEVEL?

DIRECT AND MATERIAL?
A =Activities Allowed
or Unallowed
Yes Yes
B =Cost Principles Yes Yes
C =Cash Management Yes
Yes; For cash management, the auditor may be able to conclude this requirement is not applicable if he/she
performs testing of cash draws to verify the district is paid on a reimbursement basis. Document this testing
in the ROWD in conjunction with Reporting.
D =Davis Bacon Act No per C.S. n/a
E =Eligibility Yes Yes
F =Equipment and
Real Property
G1 =Matching No per C.S. n/a
G2 =Level of Effort /
Supplanting
Yes Yes
G3 =Earmarking Yes Auditor to determine. A priority or focus school must set aside UP TO 20%.
H =Period of
Availability
Yes Yes
I =Procurement /
Suspension and
Debarment
J =ProgramIncome No per C.S. n/a
K =Real Property
Acquisition and
Relocation Assistance
No per C.S. n/a
L =Reporting Yes Yes
M =Subrecipient
Monitoring
Yes
Auditor to determine. In most cases, this will not be applicable because of the nature of the services;
they are typically vendor relationships.
N1 = Participation of
Private School
Children
Yes
Auditor to determine. The only instance when this will not be direct and material is when there are
no private schools located within district boundaries.
N2 = Schoolwide
Programs
N3 = Comparability Yes Yes
N4 = Charter Schools TBD in WA Not applicable in WA yet
N5 = School
Improvement
(AYP/Data Quality)
No due to waiver n/a
N6 = Highly Qualified
Teachers
Yes Yes
N = ARRA Special
Provisions
Yes
Auditor to determine - SEE NOTE I N OVERVIEW ABOVE. The only instance when this will not
be direct and material is when the district spent zero ARRA funding during the year.


Policy/Standards:

We performed the following to gain a basic understanding of the overall grant, objectives and expenditures in order to identify direct and material
compliance requirements:
We reviewed the testing strategy
We reviewed the CFDA website for the grant
We reviewed the A-133 compliance supplement part 2 and noted this program is included in the matrix. We then reviewed A-133
compliance supplement part 4 - Department of Education for CFDAs 84.010 and 84.389 to determine the applicable and direct/material
We reviewed A-133 compliance supplement part 4 - Department of Education for the cross-cutting section (pgs. 1-41) as Title I is
included as a program that has the same compliance requirements as other education federal grants.
We obtained the original and FY2013 grant agreements from Michael Stone, Title I -LAP Supervisor, to gain an understanding of the
project objectives, period of grant, total amount awarded and to determine applicable and direct/material compliance requirements.
Background:
To help local educational agencies (LEAs) improve teaching and learning in high-poverty schools in particular for children failing, or most at-risk of
failing, to meet challenging State academic achievement standards. The purpose of the Title I Part A program is to improve skills of children in
subjects such as reading and math who are at risk of not meeting challenging academic standards and who reside in areas with high
concentrations of children from low-income families.

The Department of Education (ED) provides Title I, Part A funds to the WA Office of Superintendent of Public Instruction (OSPI) through a
statutory formula based primarily on the number of children ages 5 through 17 from low-income families. OSPI then allocates funds to LEAs
(school districts). To receive Title I funds, school districts must apply for the grant through an application that includes descriptions of the general
nature of services to be provided, how program services will be coordinated with the district's regular program of instruction, additional LEA
assessments, if any, used to gauge program outcomes, and strategies to be used to provide professional development. The District had 33 school
buildings and 22 private schools with Title I funds in school year 2012-2013

LEAs allocate Title I funds to eligible school attendance areas based on the number of children from low-income families residing within the
attendance area. A school at or above 40 percent poverty may use its Part A funds, along with other Federal, State, and local funds, to operate a
"school wide program" to upgrade the instructional program in the whole school. Otherwise, a school operates a "targeted assistance program" in
which the school identifies students who are failing, or most at risk of failing, to meet the State's challenging performance standards and who
have the greatest need. I n school year 2012-2013 Seattle Public School system had 30 schoolwide programs and three targeted assistance
programs.

Prior Audit Title I Issues:
Exit Item: The District did not ensure semi-annual certifications were signed in a timely manner. During test in the prior year audit, a
total of 31 certifications were signed 30 or more days after the Time & Effort reporting period. The District agreed with this
exception. We will follow up with this exception at: Time and Effort Certifications.
Verbal: The District did not maintain sufficient documentation of Private School contacts. In the prior year audit, documentation for the
FY 2012-2013 was reviewed and noted as sufficient indicating correction of the exception. We will follow up on this exception at: N1.
Special Test - Private Schools.

Contracts:
We reviewed the SEFA at SSD_SEFA_FY13-revised and noted the following grant contracts:
CFDA: 84.010
GR0200760: $117,478
GR0201207: $10,971,853
GR0222412: $1,488
GR0222435: $200,741
GR0228801: $144,089
ARRA CFDA: 84.389
GR0240459: ($189)

ARRA Note: For FY 2013, there were no ARRA funds expended or collected. The transactions were related to FY 2012, 2012 YE adjustments and
refunds of ARRA monies in FY 2013. Due to the nature of these transactions, we do not consider ARRA funds applicable to FY 2013 and will not
include ARRA testing in this year's audit.

Expenditures:
We used the SSD Database to run a query of each fund with Title I activity in FY2013. We then compared the G/L amount to the reported SEFA
amount at SEFA to GL Reconciliation. The only variances noted were due to end of year timing and are not considered exceptions.
We then obtained the CAATS data for the grant expenditures and created a pivot table summarizing the expenditures by object. This does not
include indirect costs. We used this table to help determine procurement, suspension & debarment, subrecipient monitoring, equipment, etc. A-
133 compliance requirements that may be direct and material to Title I grant audit.

We documented a summary of the expenditure types:
Expenditure Type Amount % of Total
Payroll $ 8,994,646.02 81.62%
Non-Payroll $ 1,728,921.73 15.69%
Journal Entries $ 296,741.55 2.69%
Total $ 11,020,309.30 100.00%

Compliance Requirement:
To determine the compliance requirements that are direct and material to the Title I cluster, we considered the Catalog of Federal Domestic
Assistance, grant agreement, actual revenues and expenditures of the program and discussions with Michael Stone/Title I -LAP Supervisor. The
Object Description Amount % of Total
Certificated Salaries $ 5,092,440.12 46.21%
Benefits $ 2,117,070.90 19.21%
Classified Salaries $ 1,785,135.00 16.20%
Supplies & Materials $ 976,303.41 8.86%
Purchased Services $ 675,839.60 6.13%
Debit Transfers $ 296,741.55 2.69%
Travel $ 76,778.72 0.70%
Total $ 11,020,309.30 100.00%
compliance requirement worksheet at Major Federal Program - Local Teams identifies the federal compliance requirements that have a direct and
material effect on this major program.

E.4.PRG - Title I - CFDA 84.010/84.389

Procedure Step: A-B-H. Activities Allowed/Allowable Cost/Period of Availabil

Purpose/Conclusion:
Purpose: To determine if the District has adequate internal controls over and is in compliance with the requirements for activities allowed, cost
principles, and period of availability.

Conclusion:
with those requirements and found the transactions tested are allowable to the grant; however, we found not all time and effort certifications
were signed timely. See SA_E: Time & Effort Certifications.

Testing Strategy:
ACTIVITIES ALLOWED, COST PRINCIPLES and PERIOD OF AVAILABILI TY

ARRA Alert 1:
OSPI has issued guidance for ARRA expenditure and revenue codes
at: http://www.k12.wa.us/safs/INS/ACC/1112/1112_SDAM_Complete.pdf#Appendix_F.
Districts have been instructed to code their Title I ARRA expenditures in Program 11. Regular non-ARRA Title I expenditures are coded to
Program 51. Districts must use their ARRA Title I funds for purposes consistent with its regular non-ARRA Title I, Part A requirements. Uses
should be aligned with the core goals of ARRA to save and create jobs, and to advance reforms consistent with the requirements of Title I, Part
A. Districts should be describing how the intend to use ARRA funds in their I-grants application in areas such as "increasing capacity",
"accelerating reform", and "planning for sustainability." Circular A-87 cost principles apply to ARRA funds. Additional ARRA fiscal guidance was
made available by the U.S. Department of Education at http://www2.ed.gov/policy/gen/leg/recovery/guidance/title-i.pdf
ARRA Alert 2. ARRA has established a cross-cutting unallowable activity for all ARRA-funded programs. Pursuant to Section 1604 of ARRA, none of
the funds appropriated or otherwise made available in ARRA may be used by any State or local government, or any private entity, for any casino
or other gambling establishment, aquarium, zoo, golf course, or swimming pool. Contact the Single Audit Specialist if you identify this kind of
situation.
------------------------------------------
LEA means Local Education Agency (i.e., school district).
Title I services are delivered to students under a "targeted assistance program" or a "schoolwide program".

Targeted Assistance Programs:
In a targeted assistance school, funds available under Title I Part A may be used only for programs that are designed to help participating children
meet the State's student performance standards expected of all children. Services are providedonly to children who are identified by the district as
being most in need.

Allowable activities in these schools include, but are not limited to, instructional programs, counseling, mentoring, other pupil services, college and
career awareness and preparation, services to prepare students for the transition from school to work, services to assist preschool children in the
transition to elementary school programs, parental involvement activities, and professionaldevelopment for staff. I f health, nutrition, and other
social services are not otherwise available from other sources to participating children, Part A funds may be used as a last resort to provide such
services. The LEA's plan will provide a description of the general nature of the services to be provided with Part A funds. However, each Title I
school determines the actual program it will provide (Title I, Section 1115 of ESEA (20 USC 6315)).

Time and Effort Documentation
The majority of grant funding is typicallyused for employee payroll costs. Therefore, the district must follow the time and effort requirements
outlined in OMB Circular A-87, Attachment B, Section 8(h) and OSPI Bulletin 051-11. It is recommended that you obtain a copy of this bulletin
from the OSPI website. http://www.k12.wa.us/BulletinsMemos/bulletins2011.aspx. Some districts have opted for a "substitute" time and effort
system(note: OSPI does not approve the substitute system, but the district must submit to OSPI a certified copy). Under a substitute system,
the districtconductsperiodic time studiesand then projects thepayroll cost for the year based on the time study results instead of keeping monthly
time and effort records. Obtain a copy of the district's substitute time system agreement for additional guidance.
In September 2012, the Department of Education (ED) took steps in an attempt to reduce the burden of time and effort reporting as required
under OMB Circular A-87. First, they are permitting the Office of Superintendent of Public I nstruction (OSPI) to implement a substitute time and
effort system for employees whose salaries are supported by multiple cost objectives, but who work on a predetermined schedule (please note
that WA OSPI already had this in place, basically this was done so the rest of the states could catch up; so there is nothing new
for auditors to consider). Second, they provided guidance to clarify the meaning of a single cost objective. The latter has no policy impact
on districts, its merely for the sake of clarification. This published guidance is entitled Granting Administrative Flexibility for Better Measures of
Success. OSPI guidance on the substitute time and effort requirements can be found
at: http:/ / www.k12.wa.us/ SAFS/ TT/ TimeEffort.asp

Schoolwide Programs:
Auditor Note: This information pertains to those situations where the district has officially incorporated all or a portion of a federal grant (e.g.,
Title I, Title II, 21
st
Century, etc.) into a written schoolwide plan.
For eligible school buildings, a district may choose to implement a schoolwide plan for that building. I n doing so, the district may combine Title I
funds with other eligible grant funding to provide services to all children in accordance with a comprehensive schoolwide plan to help the children
meet the State's challenging standards. Under a schoolwide plan, the district no longer has to identify specific eligible children for services
(because all children become eligible). Also, the district has flexibility as to how it expends the grant funds so long as it can show how the costs
are carrying out the objectives of the plan.
Schoolwide Payroll Time and Effort
A school building that participates in a schoolwide program should treat as a Single Cost Objective the portion of an employee's time and effort
supported by combined schoolwide funds as noted below:
(a) An employee whose compensation is funded solely from a Single Cost Objective must furnish semi-annual certifications that he/she has been
engaged solely in activities supported by the applicable source in accordance with OMB Circular A-87, Attachment B paragraph 8.h.3.
(b) An employee paid in part from a Single Cost Objective (the schoolwide plan), and in part with funds from other revenue sources, must
maintain time and effort distribution records in accordance with OMB Circular A-87, Attachment B paragraph 8.h.4. documenting the portion of
time and effort dedicated to:
(1) The Single Cost Objective, and
(2) Each program or other cost objective supported by the other revenue sources.

Schoolwide Non-payroll expenditures
A district has flexibility on how it assigns costs to each federal grant program that is incorporated into the schoolwide plan (see OSPI Bulletin 054-
12 for details). I f the district charges specific non-payroll costs (e.g., supplies, materials, travel) to a program, you can select some of these
expenditures and test them to determine if they were used to carry out the objectives of the schoolwide plan. As an alternative to
chargingindividual transactions to a specific grant,a district ispermitted to allocate its costs to all grants and funding sources included in the
schoolwide program. For example,total schoolwide costs for the year can be allocated to each grant based on revenue (e.g., if Title I contributed
45% of the revenuesfor the schoolwide plan, Title I could be assigned 45% of the total cost). In a case where a district chooses to allocate its
schoolwide costs to grants (asopposed to charging individual transactions), you should determine whether the allocation method is reasonable
and equitable.
Transferability:
In a State that has received ESEA flexibility, an SEA or an LEA may transfer up to 100 percent of the funds available under one or more of the
authorized ESEA programs among those programs and into Title I , Part A. This authority applies to all LEAs notwithstanding the limitations on
such transfers and the restrictions on the use of the transferred funds in Section 6123(b)(1) of the ESEA (20 USC 7305b(b)(1)). Funds transferred
under ESEA flexibility are not subject to any set-aside requirements of the programs into which they are transferred but they are subject to all of
the requirements and limitations of those programs. Moreover, an SEA is not required to notify ED, and its participating LEAs are not required to
notify the SEA, prior to transferring funds (see paragraph 9 on page 2 of ESEA Flexibility). Note, however, that there is a limitation on the amount
of Title II, Part A funds that may be transferred because of that programs equitable services requirement (see section III .G.2, Matching, Level of
Effort, Earmarking Maintenance of Effort, in the program supplement for CFDA 84.367 for details).

See III.G.3.b, Matching, Level of Effort, Earmarking Earmarking, for additional testing related to transferability.
See IV, Other I nformation, for guidance on the treatment of funds transferred under this provision for purposes of Type A program
determination and presentation in the SEFA.

Consolidation of Administrative Funds (Optional):
(It is doubtful that your district has elected this option to consolidate, but you should make an inquiry about it).
GENERALLY - A local educational agency, with the approval of OSPI, may consolidate and use for the administration of one or more programs
under this Act not more than the percentage, established in each program, of the total available for the local educational agency under those
programs. CONDI TIONS- A local educational agency that consolidates administrative funds under this section for any fiscal year shall not use any
other funds under the programs included in the consolidation for administration for that fiscal year.
USES OF ADMINI STRATIVE FUNDS- A local educational agency that consolidates administrative funds under this section may use the consolidated
funds for the administration of the programs and for uses, at the school district and school levels. Examples: coordination, technical assistance,
disseminating information, etc
RECORDS- A local educational agency that consolidates administrative funds under this section shall not be required to keep separate records, by
individual program, to account for costs relating to the administration of the programs included in the consolidation.

Period of Availability:
A district has up to 27 months to obligate its grant funds, starting from J uly 1 of the fiscal year for which the funds were awarded through
September 30 of the second following fiscal year. This maximum period includes a 15-month period of initial availability plus a 12-month period
for carryover.
Example: Title I funds awarded to a district for the 2012-2013 school year became available on J uly 1, 2012 and may be obligated by the district
through September 30, 2014. However, at least 85% of this grant amount must be obligated in the initial 15-month period. For example, if a
district was awarded $100,000 on J uly 1, 2011, it must obligate at least 85% of this amount by September 30, 2013 and is eligible to carryover up
to 15% of its award into the next year which must be fully obligated by September 30, 2014 (or they lose the funding). Districts can request OSPI
to carry over more than 15%, but this has to be approved by OSPI. The amount carried over into the next year is added to the new grant budget
period. Your district should have a letter from OSPI showing its approved carryover amounts.
ARRA period of availability: All ARRA funds received by the district in 2009 and 2010 must be obligated by September 30, 2011, but a district can
request carryover for one additional year. Further,a district can request a waiver to the 15% carryover limit for its ARRA funds. Please contact
the Single Audit Specialist if there are ARRA expenditures reported in FY13 on a non-cash basis SEFA.
Because the period of availability spans over two years, the riskiest area for Title I may be the calculation of the carryover amount because a
district will lose its funding if it spends less than 85% in the first year and does not have approval from OSPI to carryover more than 15% of the
award. That is, a district could attempt to overstate its expenditures in the 1st year to give the appearance of a lower "approvable" carryover
amount into the next year.
---------------------------------------------------------------------------------------------------

over compliance.
Consider the following factors to assess whetherinherent risk is low or highfor this compliance requirement:
Is the compliance requirement considered an area of higher risk in the Compliance Supplement or by oversight agencies? ARRA Alert - if
the requirement contains any ARRA considerations, assess inherent risk as high.

Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring: (a) grant funds are used
for allowable activities; (b) direct and indirect costs charged to the grant comply with the cost principles set forth in OMB Circular A-87; and (c)
federal funds are obligated within the period of availability.
exists.


Likelihood of
Noncompliance


than material


Material

Remote Control deficiency Control deficiency Control deficiency



More than
remote
(at least
reasonably
possible)
Control deficiency




NOTE: If preliminary control risk is assessed as high, the auditor should not test the controls, but would instead report the issue
in a finding as a significant deficiency or material weakness as appropriate.


Auditor Note:Districts that record non-federal costs in a federal program code:
Some districts might record expenditures in a program code (e.g., Program 51-Title I, Program 24Special Ed) that, when aggregated, exceed the
federal grant budget. When selecting transactions to test for Allowable Activities/Cost Principles, the auditor can select any transaction recorded
under the program code because, in essence, the school is indicating that all costs recorded are eligible for reimbursement. I f a selected
transaction is deemed unallowable or questioned by the auditor, the district cannot replace it with other potentially allowable costs. While the
OSPI School Accounting Manual does not specifically prohibit this accounting practice, it is not recommended because it brings up the question of
supplanting. That is, the federal grant will only pay up to a certain amount of costs and the balance in the program account is therefore assumed
to be paid from local funds. Once local funds are established as a resource to help pay for program costs, the school must continue to provide
this same level of local support each year for those grants that have a supplanting provision. I f the grant you are auditing has a supplanting
requirement, refer this potential supplanting issue to that section of the ROWD for further analysis.
1. Review the grant application and identify the time period the funds are available (period of availability) for expenditure and whether there are
any carryover provisions.
2. Design the nature and extent of compliance testing based on the riskof material noncompliance. Determine the method for how transactions
are to be selected for testing. Options include:
Sampling;
3. Test expenditures for compliance with the followingattributes. You can document your testing of transactions using the Excel matrix attached
under the Reference tab or the sampling spreadsheet available in the TeamStore, or a combination of both.
(a) Made for an allowable activity under the grant guidelines?(Include ARRA provisions described above if applicable)



example,payroll transactions must be supported bytime and effort documentation perA-87, Attachment B, Section 8(h).




objectives).


period?

(k) Net of all applicable credits? (i.e., is the cost offset bycash discounts, insurance recoveries, refunds, rebates, trade-ins, adjustments

properly excluded from indirect cost pools included in the calculation ofan indirect cost rate?).



4. Schoolwide plans: A district has flexibility for how it assigns costs to each federal grant program that is incorporated into the schoolwide
plan. If the district charges specific non-payroll costs (e.g., supplies, materials, travel) to a program, you can select some of these expenditures
and test them to determine if they were used to carry out the objectives of the schoolwide plan.This testingis done in conjunction with step 3
above. As an alternative to chargingindividual transactions to a specific grant,a district ispermitted to allocate its costs to all grants and funding
sources included in the schoolwide program. For example,total schoolwide costs for the year can be allocated to each grant based on revenue
(e.g., if Title I contributed 45% of the revenuesfor the schoolwide plan, Title I could be assigned 45% of the total cost).In a case where a district
chooses to allocate its costs to grants (asopposed to charging individual transactions), you should determine whether the allocation method is
reasonable and equitable.

5. Period of Availability:
(a) If your district was approved by OSPI to carryover a portion of its Title I funds to the next budget period, obtain the letter of approval
and review the calculation. Carryover amounts are typically determined in December or J anuary. Because we are testing compliance for
events occurring in the audit period (the calculation of the carryover amount), obtain the district's letter from OSPI approving the carryover
amount for the FY13 school year. The key line item is the amount reported as "total 2011-12 expenditures". Trace this amount back to
the district's final claim for FY12 to ensure it only includes expenditures that were "obligated" on or before August 31, 2012. (Note: OSPI
uses August 31 as the deadline instead of September 30).
(b) If your district spent its full Title I award in FY12 and did not request any funds to be carried over in FY13, scan the supporting
documentation of the district's final claim for FY12 (submitted to OSPI in the fall of 2012) for any large transactions that were not obligated
on or before August 31, 2012. For any such transactions, determine if there is any affect on the amount the district would have been
permitted to carry over. For example, if the district erroneously claimed a cost that was obligated in the subsequent period, the district
theoretically could have been allowed to carryover this amount and spend the funding in the subsequent period, but only for amounts up to
15% of the FY12 award.
(c) Determine whether any transactions you tested in step 3 above (attribute "o") are outside of the grant's beginning or ending period of
availability.
6. Conclude on District's compliance with requirements for Allowable Activities/Cost Principles and Period of Availability.


Policy/Standards:


COMPLIANCE TESTING
Circular A-87 can be found at the following external link: http://www.whitehouse.gov/omb/circulars/a087/a087-all.html#atta


Activities Allowed/Allowable Costs:
noncompliance at HIGH.
The compliance requirement is relatively complex and the related activities are difficult to audit.
The District had audit issues related to Time & Effort in the prior two audit periods.

Period of Availability:
noncompliance at LOW.
The compliance requirement is not new to the District
The compliance requirement is not relatively complex.
The inherent risk is Title I funds are not expended for allowable activities, costs charged to the grant are not in accordance with applicable cost
principles, and charges are not within the period of availability.


Contacts
Michael Stone/ Title I-LAP Supervisor
Grace Ngai/Accountant

Non-Payroll Expenditures
Most purchases for the Title I and SI G grants are planned and listed in the budget. The budget is based on the expenditure amounts listed in the
grant contract, which are divided into line items by expenditure type; such as personnel, supplies for instruction resources (non-capitalized),
purchased services and travel.

Purchases are initiated in one of two ways: automated or non-automated requisition. The approved school teacher, principal or librarian request
the purchase in the B2B system. Once requested, the system sends the request to Michael Stone/Title I -LAP Supervisor for approval. Michael
maintains a spreadsheet of the expenditures to ensure the schools do not go over budget and are within the budgeted allocated dollar amounts.
Michael reviews expenditures to ensure they are being used for the purpose of Title I or SI G and to ensure in Schoolwide Programs (SWP) the
funds are not supplanting local or state funds.

Key Control 1: Michael Stone/ Title I -LAP Supervisor reviews and approves all purchases in the B2B system before they are made
and reviews budget to actual expenditures periodically to ensure the expenditures are allowable activities, allowable costs,
meet cost principles and are spent within the period of availability.

Payroll Expenditures
We determined the District's time and effort certifications are a centralized control based on SAO knowledge of District operations. Due to this we
will document our understanding of controls at: Time and Effort Certifications and payroll expenditure testing at CFDA 84.010/84.389 Title I
Time & Effort Testing.



Testing of controls for time and effort certifications is being performed at: Time and Effort Certifications and CFDA 84.010/84.389 Title I Time
& Effort Testing. There were no exceptions.

Key Control #1: Michael Stone/ Title I -LAP Supervisor signs and approves all purchases before they are made and reviews
budget to actual expenditures periodically to ensure the expenditures are allowable activities, allowable costs, meet cost
principles and are spent within the period of availability.
We met with Michael Stone/Title I-LAP Supervisor on February 12, 2014 to inquire more about the expenditure and budget process. During our
discussion with Michael, we noted he is familiar with A-87 Cost Principles and A-133 compliance requirements.

We used sampling of non-payroll transactions to perform dual purpose testing of controls and compliance. We met with J eff J ones/Technical
Business Analyst Lead Supv. to review approvals for transactions initiated in the B2B procurement system. J eff used the PO number or B2B
shopping cart number provided on supporting documentation for the transactions to lookup the approver in B2B. We confirmed the approver in
the B2B system was authorized to approve transactions related to Title I. For reimbursements and other transactions not initiated in B2B, we
reviewed the supporting documentation for indication of review by Michael Stone. Testing was performed at: Activities Allowed/Allowable Cost
Sample Selections.
Based on our discussions, we determined Michael Stone has the time, knowledge, experience, and commitment to oversee activities
allowed/allowable costs and period of availability for this grant program. Based on our testing, this control appears to be in place and operating as
intended.


We assess the risk of material noncompliance at MODERATE.
Compliance Testing
Payroll:
We ran a CAATS database query at and created a pivot table to show the employee names and year totals. We determined there are enough
employees to use the sampling spreadsheet at E.4.8 to select 22 employees for testing, using a moderate control rate. Testing of time and effort
certifications was performed at: Time and Effort Certifications and CFDA 84.010/84.389 Title I Time & Effort Testing. Please add
exception Based on testing, we found all of the costs are allowable to the grant, however not all time & effort certifications are signed timely. We
determined one out of three single-cost objective semi-annual, nine out of 33 non-FTE, and two out of 10 monthly Personnel Action
Report certifications were not signed timely. We then determined the length of time the certifications were signed late to determinethe level of
issue based on the number of certifications reviewed, not the number of employees reviewed as there are a number of employees certified by the
same certification form. We determined:
9/1/2012-1/31/2013 (Period 1): Two certifications signed less than 30 days late; one signed between one and two months late; one
signed between two and three months late, and; six signed within our expectation.
2/1/13-6/30/2013 (Period 2): One certification signed less than 30 days late; one signed between one and two months late; one signed
between two and three months late, and; four signed within our expectation.
7/1/2013-8/30/2013 (Period 3): One certification signed less than 30 days late and three signed within our expectation.
Monthly PARs: Two certifications signed less than 30 days late and 10 certifications signed within our expectation.

Summary of Exception:
Semi-annual Certifications (Single-Cost and non-FTE)
17 certifications were signed between 30 and 60 days after the T&E reporting period.
12 certifications were signed between 60 and 90 days after the T&E reporting period.
Two certifications were signed over 120 days after the T&E reporting period.
See SA_E: Time & Effort Certifications Exit = Although the time and effort certifications were signed between one and three months late, the
District continues to make significant improvements in this area since the previous three audits. We do not consider one and three months late
material to the grant. In addition, we did not find any time and effort certifications that were not signed, not turned in or signed after the date of
auditor request as had been found in prior audits. The District is also continually works with SAO on any issues found to work with those
supervisors turning in late certifications. For these reasons, we determined the exception should not be listed as a higher level.

Non-Payroll
1. We reviewed the grant application. We noted there are carryover provisions and will take this into account during our testing.
2. We used sampling of non-payroll transactions to perform dual purpose testing of controls and compliance. We documented our sample
selection at: Activities Allowed/Allowable Cost Sample Selections. We obtained supporting documentation for the selected transactions from
Kenny Ching/Accounting Supervisor II.

3. We used the Single Audit Testing Matrix A to test these transactions for compliance. We documented our testing at: Single Audit Testing
Matrix A. We directed questions regarding allowability for selected transations to Michael Stone. Michael provided us with additional supporting
documentation for these transactions. No exceptions noted. Title I - activities allowed

4. Schoolwide plans: A district has flexibility for how it assigns costs to each federal grant program that is incorporated into the schoolwide
plan. The district charges specific non-payroll costs to each program, we selected some of these expenditures and tested them to determine if
they were used to carry out the objectives of the schoolwide plan. This testing was done in conjunction with step 3 above.

5. Period of Availability:
(a) The District was approved by OSPI to carryover a portion of its Title I funds to the next budget period. We obtained documentation of
approval and reviewed the calculation. We noted the FY2012 carryover amount was $1,625,760. We traced this amount back to the
district's final claim for FY12. We noted fund 1C01 had an available balance over $4 million. However, the District is only allowed to carry
forward 15% of its budget. We recalculated the budgeted amount multiplied by 15% and determined the District carryover was
appropriate. No exception.
(c) We determined the transactions stested in step 3 above (attribute "o") were within the grant period. No exception.

6. We determined the District has adequate internal controls over and is in compliance with the requirements for activities allowed, cost principles,
and period of availability, except for the timeliness submittals of time and effort certifications, as identified above.

E.4.PRG - Title I - CFDA 84.010/84.389

Procedure Step: C-L. Cash Management/Reporting

Purpose/Conclusion:
Purpose: To determine if the District has adequate internal controls over and is in compliance with the requirements for cash management and
reporting.

Conclusion:
Based on our testing, we determined that the District has adequate internal controls over and is in compliance with the requirements for cash
management and reporting.

Testing Strategy:
CASH MANAGEMENT AND REPORTING

CASH MANAGEMENT
Districts have the option of having their grant costs paid on a reimbursement basis or receiving a 7.5% monthly advance payment (until 75% of
the total award has been paid). If receiving an advance, a district should be monitoring its cash balance on the monthly reimbursement claims to
ensure it is not retaining an excessive cash balance (grant revenue exceeding the actual costs).
NOTE: According to OSPI, per Bulletin 051-12 (grant payment process) Districts have been offered advance requests in the past and none of the
Districts have requested this option. The system is set to default to reimbursement basis. I f during planning you determine the District opted for
a cash advance, then cash management is applicable. Otherwise, follow the cost reimbursement steps below.
Cost Reimbursement Basis - if the district has selected cost reimbursement as its payment method from OSPI, we can conclude that cash
management is not applicable. However, we must first test and confirm that district has disbursed its own funds before submitting a payment
request to OSPI. This can be done in conjunction with financial reporting below. Document this confirmation by following the cost
reimbursement steps under the Compliance section below.
FINANCIAL REPORTI NG
For most federal programs passed through from OSPI, school districts prepare a monthly expenditure report to receive payment from OSPI for
direct and indirect costs charged to the grant. For most districts, this payment process is done electronically through WSIPC. Because OSPI does
not receive supporting documentation with the payment request, we should test the accuracy of these reports to substantiate the validity of the
charges.
PERFORMANCE REPORTING
Annual Report Card, High School Graduation Rate - (OMB No. 1810-0581) (SEAs/ LEAs)
Key Line Item Beginning with annual report cards providing assessment results for the 20102011 school year, an SEA and its LEAs must report
graduation rate data for all public high schools at the school, LEA, and State levels using the 4-year adjusted cohort rate under 34 CFR section
200.19(b)(1)(i)-(iv)). Additionally, SEAs and LEAs must include the 4-year adjusted cohort graduation rate (which may be combined with an
extended-year adjusted cohort graduation rate or rates) in adequate yearly progress determinations beginning with determinations based on
assessments administered in the 20112012 school year. Graduation rate data must be reported both in the aggregate and disaggregated by
each subgroup described in 34 CFR section 200.13(b)(7)(ii) using a 4-year adjusted cohort graduation rate. To remove a student from the cohort,
a school or LEA must confirm in writing that the student transferred out, emigrated to another country, or is deceased. To confirm that a student
transferred out, the school or LEA 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. A student who is retained in grade, enrolls in a General Educational
Development (GED) program, or leaves school for any other reason may not be counted as having transferred out for the purpose of calculating
graduation rate and must remain in the adjusted cohort (Title I, Sections 1111(b)(2) and (h) of ESEA (20 USC 6311(b)(2) and (h)); 34 CFR
section 200.19(b)).
Note: Some States may have received an extension of the deadlines for using the 4-year adjusted cohort graduation rate in AYP determinations
by 20112012 and for reporting graduation rates by 20102011 as provided for in 34 CFR section 200.19(b)(7). Additionally, in a State that
has received ESEA flexibility that includes a waiver from making AYP determinations, the SEAand its LEAs must continue to
calculate and report on the 4-year adjusted cohort graduation rate.
See bulletin 052-13 for information on the 201213 Adjusted Cohort Graduation Rate Report (P210).
SPECIAL REPORTING - State Per Pupil Expenditure (SPPE) Data
Each year, OSPI must submit its average State Per Pupil Expenditure (SPPE) data to the National Center for Education Statistics. The SPPE data is
used by the Dept of Education to make allocations under several ESEA programs, including Title I, Part A, and Migrant Ed. The data for the SPPE
report is taken from the F196 financial statements prepared by districts. This report is an OSPI requirement, but we need local team input if
warranted. No internal control work is necessary -- skip to the compliance step for this special report.

ARRA REPORTING
FYI - In the 2011, 2012 and 2013 Compliance Supplement, the OMB has stated that ARRA Section 1512 reporting does not apply to ARRA pass-
through awards andthe auditor is not required to audit "jobs created" or "jobs retained." As a result, we will not audit Section 1512 reportsfor Title
I awards made to school districts.
Step 2: Assess I nherent Risk (I R)
over compliance.

Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring: (1)financial,
performance and special reports include all activity of the reporting period, are supported by appropriate records, and fairly presented,
and(2)reimbursement payments are requested only for amounts actually expended, unless the advance payment option has been approved.
exists.


Likelihood of Noncompliance

(Less than 5% of total federal expenditures of the program)
More than inconsequential, but less than material

(Between 5%-10% of total federal expenditures of the program)

Remote
Control deficiency

Control deficiency

More than remote
(at least reasonably possible)
Control deficiency






1. CASH MANAGEMENT.
a) Cash Advances. Districts have the option to receive a 7.5% "cash advance" from OSPI each month. An excess cash balance at or below this
threshold is considered reasonable. I f the District opted for a cash advance, select a block of time (several months) during the school year and
compare the amount the district has been paid by OSPI with the expenditures it has incurred. Determine if the district is maintaining an excess
cash balance that exceeds 7.5% of the total grant award.
b.) Cost Reimbursement. (Test in conjunction with financial reporting below. When appropriate and applicable, take credit here for any testing
that may have already been done to substantiate the SEFA during single audit planning.) Select 2-4 monthly reimbursement claims and verify
that the costs being claimed were incurred before the district submitted its payment request toOSPI . Review the underlying support for the costs
that are being claimed. Determine whether thegranteehad used its own funds to pay the expenditure before it requested the federal funding or
whether it is holding ontofederal funds foran unreasonable amount of timebefore itpays the expenditures. Consultwith theSAO single audit
specialist if necessary.
2. FI NANCIAL REPORTI NG AND CASH MANAGEMENT (REIMBURSEMENT BASIS). Using the same monthly reimbursement requests as above,
perform the following (note: when appropriate and applicable, take credit here for any testing that may have already been done to substantiate
the SEFA during single audit planning):
Trace the amounts reported to district accounting records or other appropriate supporting documentation.
Test mathematical accuracy of reports and supporting worksheets.
Test the selected reports for completeness.
3. PERFORMANCE REPORTING GRADUATION RATES. Determine if the graduation data was reported correctly on the P210. Trace reported
numbers back to source records and recalculate.

NOTE: You must test graduation data even if your district does not spend Title I funds at the high school level.

Each year, districts provide information to OSPI on Form P-210, which includes data on the number of students who dropped out, completed
school via graduation and other means (i.e., an individualized education program or IEP diploma, an adult diploma, or a GED credential),
transferred out of a school, and the reasons why students dropped out. Districts are required to submit student-level data on this form to OSPI in
the fall of each year, reporting the status of grade 912 students in the previous school year. OSPI analyzes the student records for completeness
and asks districts to resubmit data if errors are identified.

The graduation rate for FY13 is based on 2011-12 data due to the timing of when this data is available. The graduation data is reported to OSPI
using the P-210 report (electronically), which is populated by CEDARS. On the P-210 for 2011-12, the district will indicate the status of its
students using specific codes, such as G=graduated, T=transfer, D=dropout, E=Enrolled, etc.

Select a sample of students listed as graduated and trace to the student's transcript to verify this status.
Select a sample of students listed as transferred, dropped out, currently enrolled or promoted to the next level. Determine whether the
status for that student as reported on the P-210 is correct based on age, grade level and district records.
4. SPECIAL REPORTING - State Per Pupil Expenditure (SPPE) Data. In order to obtain assurance as to the accuracy of the data used by OSPI to
prepare the report, please communicate with the SAO School Specialist with regard to any material misstatements found by your team during the
audit of the district's financial statements.

5. Conclude on District's compliance with requirements for Cash Management and Reporting.

Policy/Standards:


Cash Management
The District submits reimbursement requests and does not request the 7.5% monthly advance. Due to the centralized nature of the controls over
financial reporting to OSPI, we will review internal controls for reimbursement requests at Reimbursement Requests.

Reporting
Financial Reporting - Monthly, the District submits OSPI Form 1000E to receive payment from OSPI for direct and indirect costs charged to the
grant. Due to the centralized nature of the controls over financial reporting to OSPI, we will review internal controls for reimbursement requests at
Reimbursement Requests
Performance Reporting - Annual Report Card, High School Graduation Rate - SEAs and LEAs must report graduation rate data for all public high
schools at the school, LEA and state levels using the 4-year cohort rate. This is to be included in the annual report cards providing assessment
results. Performance Reporting requirement was part of AYP Data testing in prior audits. We will review internal controls below.
Special Reporting - State Per Pupil Expenditure (SPPE) Data - Each year, OSPI must submit its average State Per Pupil Expenditure (SPPE) data to
the National Center for Education Statistics. This report is an OSPI requirement, but we need local team input if warranted. We will not perform
internal control work; we will include this in our compliance testing.
Inherent Risk of Noncompliance - Reporting
The Performance Reporting requirement was previously tested as part of the AYP Data Special test and therefore is not and does not
involve a relatively large degree of subjectivity or complexity.
Understanding of Internal Controls - Performance Reporting

Contact:
Steve Wright/ Lead Evaluation Systems Analyst

We met with Sylvia Shiroyama/IT Manager - Intermediate and conference called Steve Wright on 2/24/2014 to gain an understanding of controls
over the P-210 Graduation Rate reporting to OSPI.

Districts are required to submit student-level data on the P-210 form to OSPI in the fall of each year (November 15th), reporting the status of
grade 9-12 students in the previous school year. The District annually provides information to OSPI on Form P-210 which includes the number of
students who completed school by graduation or other means (i.e., GED credential), transferred out and dropped out (including the reasons why
students dropped out).

The District has online instruction manuals available to secondary teachers, administrators, and counselors to provide guidance on how to report
graduation to ensure accurate data is prepared and reported. In addition, the District provides technical phone line support for graduation issues.
At the end of the school year, school officials document any changes in graduation status for each student. Steve Wright/ Lead Evaluation
Systems Analyst compile the graduation data and upload it into OSPI's Comprehensive Education Data Research System (CEDARS) based on the
input from the District's central database. A preliminary report is sent to OSPI after the year-end transition (YET) on 8/31. Between the YET and
the due date of the P-210, OSPI will send the District a "Negative Status Report" that shows all District "dropout" students that are enrolled at
another school. On 10/1 the District pulls an attendance count and makes any needed modifications to student dropout data. The final P-210 is
submitted to OSPI by November 15th. OSPI sends the District reminder emails and monitors to ensure the report is received in a timely manner.

Note: (Per our meeting with Steve Wright) Starting FY 2013 and going forward, OSPI has updated its methodologies for reporting graduation and
enrollment data. Previously the District had not been able to make subsequent changes to previously reported enrollment data. (i.e. if a student
was reported as a dropout in 2012, the District would not be able to make any changes if they were informed the student had transferred to
another district). Now, OSPI is allowing Districts to update this subsequent information in order to improve the accuracy of reported graduation
rates. Steve indicated the District has elected to make these changes. When Steve receives the "Negative Status Reports" he will update not only
students from the current FY, he will update all students on the list. Therefore, the data uploaded into CEDARS will reflect all code changes made
by Steve during the year. Steve indicated reports may not tie directly to what OSPI has reported. We will take this into consideration when
designing and performing our testing.

Key Control: Steve Wright/ Lead Evaluation Systems Analyst compiles the graduation data and uploads it into OSPI's
Comprehensive Education Data Research System (CEDARS) based on the input from the District's central database by November
15th. OSPI sends the District reminder emails and monitors to ensure the report is received in a timely manner.

Preliminary Control Risk Assessment - Performance Reporting
Internal Control Testing - Performance Reporting
Key Control: Steve Wright/ Lead Evaluation Systems Analyst compiles the graduation data and uploads it into OSPI's
Comprehensive Education Data Research System (CEDARS) based on the input from the District's central database by November
15th. OSPI sends the District reminder emails and monitors to ensure the report is received in a timely manner.
On 2/26/2014, we met with Steve Wright to test controls over the P-210. Steve was able to show the 2012-2013 CEDARS data rollup he creates
from eSI S data. He showed us the SQL used to ensure the data is in CEDARS format before submission. Steve was also able to show us the P-210
Withdrawal Status Report downloaded from OSPI indicating students that were reported as drop-out status for the District who were not being
reported as enrolled at another district. Steve was able to show how the IBM SPSS database management system will return error reports as SQL
reports are run if there are errors present. Steve then showed us the CEDARS submission. CEDARS has a six step data submission process that
includes a data integrity checkpoint and a logical threshold check point. If there are errors within the data or the data varies more than the
allowed logical threshold it will be rejected by the system. Steve was able to show us the reminder email sent from OSPI on 11/4/2013 indicating
the 11/24/2013 due date, a link to the OSPI reporting guide and contact information for assistance. Finally, Steve showed us the CEDARS
submission report dated 11/7/2014. The submission was successful and complete.

Based on our interactions and review, we found Steve Wright/Lead Evaluation Systems Analyst to have the skills, knowledge, time and ability to
perform his job. This control appears to be in place and operating as intended.

Final Control Risk Assessment - Performance Reporting
Risk of Material Noncompliance - Reporting
Compliance Testing
1. CASH MANAGEMENT - The District submits reimbursement requests and does not request the 7.5% monthly advance. Due to the centralized
nature of the controls over financial reporting to OSPI, we will review internal controls for reimbursement requests at Reimbursement Requests. We
tested two reimbursements. No exception.
2. FINANCIAL REPORTING - Due to the centralized nature of the controls over financial reporting to OSPI , we will review internal controls for
reimbursement requests at Reimbursement Requests. No exception.
3. PERFORMANCE REPORTING - GRADUATION RATES.
We randomly selected three high schools: Ballard, Franklin and Rainier Beach. We used the "2012-2013 CEDARS Manual: Appendix M - School
Withdrawal Codes" from the OSPI website as reference for appropriate enrollment status codes. We traced reported numbers from the OSPI
Graduation and Dropout Statistic report Appendix D - School Adjusted 4 Year Cohort (obtained from the OSPI website) back to the "CEDARS
SchoolStudent" file uploaded to CEDARS by Steve Wright to submit enrollment and graduation data to OSPI. We noted variances as Steve had
indicated may take place. To validate Steve's indication, we decided to research these variances. We obtained the "CEDARS DistrictStudent" file
which provided student names, dates of birth, expected graduation year, cohort year and other basic student information from Steve. For each
variance, we used this file to trace each student to the respective cohort year and date of birth. All variances were related to students not
included in the 2012-2013 cohort. During our review, we consistently saw students with a graduation code were born in or prior to 1995. This
represents a correct age basis for reporting. We then recalculated the graduation rates determined by OPSI. We documented our testing at: -
Performance Reporting Testing. Based on our testing, we determined the P210 data reported to OSPI is accurate, no exception.
4. SPECIAL REPORTING - State Per Pupil Expenditure (SPPE) Data. In order to obtain assurance as to the accuracy of the data used by OSPI to
prepare the report, please communicate with the SAO School Specialist with regard to any material misstatements found by your team during the
audit of the district's financial statements.
Based on our work of the financial statements audit we determined there were no material misstatements of the district's financial statements for
FY2013 and therefore we do not need to communicate any information to the SAO School Specialist. Pass further review.

E.4.PRG - Title I - CFDA 84.010/84.389

Procedure Step: E. Eligibility

Purpose/Conclusion:
Purpose:

To determine if the District has adequate internal controls over and is in compliance with the requirements for eligibility.

Conclusion:
We determined that the District has adequate internal controls over and is in compliance with the requirements for eligibility.

Testing Strategy:
ELIGIBILITY
This section covers four areas: (1) eligibility of students, (2) eligible school attendance areas, and (3) allocation of funds.
ARRA Caution: School districts receiving ARRA Title I funds (CFDA 84.389) are to use those funds in the same manner as regular non-ARRA Title
I funds. The extra funding will likely permit a district to serve more school buildings than it has in the past. However, the additional schools
being allocated Title I funds must still meet the eligibility criteria shown below.
(a) ELIGIBILI TY OF STUDENTS

Note to Auditor: This area is applicable only to Targeted Assistance programs.

Title I, Part A, funds are to be used to provide services and benefits to eligible children residing or enrolled in eligible school attendance
areas. Once funds are allocated to eligible school attendance areas (see details below), a school operating a targeted assistance program must
use Title I funds only for programs that are designed to meet the needs of children identified by the school as failing, or most at risk of failing, to
meet the State's challenging student performance standards.

From the pool of eligible children, a targeted assistance school selects those children who have the greatest need for special assistance to receive
services (Title I, Section 1115 of ESEA (20 USC 6315)).
Children who are economically disadvantaged, children with disabilities, migrant children, and limited English proficient (LEP) children are eligible
for Part A services on the same basis as other children who are selected for services.
In addition, certain categories of children are considered at risk of failing to meet the State's student performance standards and are thus eligible
for Title I services because of their status.
children who are homeless.
children who participated in a Head Start or Even Start program at any time in the two preceding years.
children who received services under a program for youth who are neglected, delinquent, or at risk of dropping out under Title I, Part D
(or its predecessor authority) at any time in the two preceding years.
children who are in a local institution for neglected or delinquent children or attending a community day program.

(b). ELIGIBLE SCHOOL ATTENDANCE AREAS

Note 1: This area is applicable to both schoolwide programs and targeted assistance programs.
Note 2: A district with a total enrollment of less than 1,000 students or a district with only one school per grade span (e.g., k-5, 6-8, 9-12) is not
required to rank its school attendance areas nor allocate the funds based on poverty counts.
A district must determine which school attendance areas are eligible to participate in Title I, Part A. Typically, the school attendance area will be
designated by school building (for example, Elementary ABC, Elementary XYZ, Middle School, High School). A school attendance area is generally
eligible to participate in Title I if the percentage of children from low-income families is at least as high as the percentage of children from low-
income families in the district as a whole (the district average) or at least 35 percent poverty. A district may also designate and serve a school in
an ineligible attendance area if the percentage of children from low-income families enrolled in that school is equal to or greater than the
percentage of such children in a participating school attendance area.

When determining eligibility, a district must select a poverty measure from among the following data sources:

1. the number of children ages 5-17 in poverty counted in the most recent census;
2. the number of children eligible for free and reduced priced lunches;
3. the number of children in families receiving Temporary Assistance for Needy Families (TANF)
4. the number of children eligible to receive Medicaid assistance; or
5. a composite of these data sources.

The district must use that measure consistently across the district to rank all its school attendance areas according to their percentage of poverty.

A district must serve eligible schools or attendance areas in rank order according to their percentage of poverty. A district must serve those areas
or schools above 75 percent poverty, including any middle or high schools, before it serves any with a poverty percentage below 75
percent. After a district has served all areas and schools with a poverty rate above 75 percent, the district may serve lower-poverty areas and
schools either by continuing with the district-wide ranking or by ranking its schools below 75 percent poverty according to grade-span grouping
(e.g., K-6, 7-9, 10-12). If a district ranks by grade span, the district may use the district-wide poverty average or the poverty average for the
respective grade span grouping.

A district may elect not to serve an eligible area or school that has a higher percentage of children from low-income families if: (1) the school
meets the Title I comparability requirements; (2) the school is receiving supplemental State or local funds (for example, LAP program 55) that are
spent according to the requirements of Title I; and (3) the supplemental State and local funds expended in the area or school equal or exceed the
amount that would be provided under Part A.
Washington State received a waiver to permit their LEAs to serve a Title I eligible high school with a graduation rate below 60% that the SEA has
identified as a priority school even if that school does not rank sufficiently high to be served based on the schools poverty rate.
NOTE: Feeder schools. Some districts might apply the feeder school method in order to make a middle school or high school eligible for
assistance. This is done when the district believes the poverty level is higher than what is indicated by the free and reduced lunch rate for the
school. As a result, the poverty ranking for a middle school or high school can be determined by aggregating the free and reduced lunch counts
of all the elementary schools that feed into the middle school of high school.

(c). ALLOCATI NG FUNDS TO ELIGIBLE SCHOOL ATTENDANCE AREAS AND SCHOOLS

Note 1: This area is applicable to both schoolwide programs and targeted assistance programs.
Note 2: A district with a total enrollment of less than 1,000 students or with only one school per grade span (e.g., k-5, 6-8, 9-12) is not required
to rank its school attendance areas nor allocate the funds based on poverty counts.
Note 3: Due to the waiver noted above, District may serve a Title I eligible high school with a graduation rate below 60% that the SEA has
identified as a priority school, an LEA may allocate funds to that school out of rank order of poverty and based on the needs of the school.
OSPI has issued guidance on the allocation process at:
http://www.k12.wa.us/TitleI/Workshops/RankingandAllocatingFunds-2010.pdf
A District must allocate Title I Part A funds to each participating school attendance area or school, in rank order, on the basis of the total number
of children from low-income families residing in the area or attending the school. In calculating the total number of children from low-income
families, the district must include children from low-income families who reside in a participating area and attend private schools, using the same
poverty data, if available, as the district uses to count public school children.
The school district must show how it will allocate its funding as part of its annual Title I grant application to OSPI. In the application is a
worksheet that contains building names, grade span, building enrollment, building low income count, the dollar amount allocated to each building,
and the PPE (per pupil expenditure) it used to allocate the funds.
If a district serves only areas with a poverty rate greater than 35 percent, it must allocate funds, in rank order, on the basis of the total number of
poor children in each area or school. A district may not allocate a higher amount per poor child (called the PPE -- Per Pupil Expenditure) to areas
or schools with lower percentages of poverty than to areas with higher percentages (see NOTE below for exception). If a district serves areas or
schools below 75 percent poverty by grade span groupings, the district may allocate different amounts per poor child for different grade span
groupings as long as those amounts do not exceed the amount per poor child allocated to any area or school above 75 percent poverty. Amounts
per poor child within grade spans may also vary as long as the district allocates higher amounts per poor child to higher poverty areas/schools
within the grade span than it allocates to lower poverty areas/schools.

NOTE: With the possible exception of a school in corrective action or restructuring, a district may not allocate a higher amount per poor child to
areas or schools with lower percentages of poverty than to areas with higher percentages. Because a district may not reduce the allocation of a
school identified for corrective action or restructuring by more than 15 percent in order to reserve Title I funds for choice-related transportation
and supplemental educational services, the final allocation per poor child of such a school after application of this rule may be higher than a
higher-poverty school."

If a district serves any attendance area with less than a 35 percent poverty rate, it must allocate to all of its participating areas an amount per
poor child that equals at least 125 percent of the districts allocation per poor child. The 125% PPE is automatically calculated in the districts
Title I grant application.

Due to the waiver noted above, Districts may serve a Title I eligible high school with a graduation rate below 60% that the SEA has identified as a
priority school, an LEA may allocate funds to that school out of rank order of poverty and based on the needs of the school.
The district must reserve the amounts generated by poor private school children who reside in participating public school attendance areas to
provide services to eligible private school children (Title I, Section 1113(c) of ESEA (20 USC 6313(c)); 34 CFR sections 200.77 and 200.78).

Allocated vs. Expended. The requirements above identify the amount to be allocated to each attendance area at the beginning of the year. This
will not necessarily correspond with the amounts actually expended at year end. If there is a disparity between allocated and expended, Dept of
ED does allow an exception if the disparity is due to payroll costs. For example, some schools may have brand new low-cost teachers and some
may have experienced high-cost teachers. In this case, we should evaluate the level of service as well. That is, how many Title I staff
(certificated and classified) are assigned to each school? If the numbers are relatively equal, the variance between allocated and expended may
not be an issue, but if the low poverty school has more resources than the high poverty schools, this is an issue.
Other examples of the allocation process can be found in a Dept of Ed guide titled, "Local Educational Agency Identification and Selection of
School Attendance Areas AND SCHOOLS and Allocation of Title I Funds to Those Areas AND Schools." The examples are the end of the
document. This guide can be downloaded at: http://www.ed.gov/programs/titleiparta/wdag.doc

Inherent risk of noncompliance is the susceptibility of a compliance requirement to material noncompliance, beforeconsidering internal
controls over compliance.
Note: Assessing inherent risk as high will not automatically result in an audit finding. I nstead, you should determine whether
the grantee has implemented internal controls to mitigate the risk(s) when you gain your understanding of internal control.


Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring: (1) only
eligible children participate in targeted assistance programs, and (2) funds are allocated to school attendance areas in
accordance with program rules.
The key controls you identify should be those that are effective in providing reasonable assurance that material noncompliance
will be prevented or detected and corrected timely. I f there is not a key control designed to address the compliance
requirement, a significant deficiency likely exists.


Likelihood of
Noncompliance


than material


Material

Remote
Control deficiency

Control deficiency

Control deficiency

More than
remote
(at least
reasonably
possible)
Control deficiency



Note 1: Control deficiencies related to American Recovery and Reinvestment Act (ARRA) funds are deemed important to the federal government
and should be qualitatively material.




The school district must show how it will allocate its funding as part of its annual Title I grant application to OSPI. In the application is a
worksheet that contains building names, grade spans, building enrollment, building low income child count, the dollar amount allocated to each
building, and the PPE (per pupil expenditure) it used to allocate the funds.
Note: Steps 1-3 below do not apply to a district with a total enrollment of less than 1,000 students or with only one school per grade span (e.g.,
k-5, 6-8, 9-12).
1. Review the districts system for ranking it school attendance areas. Determine if (1) the rankings were based on an allowable poverty measure
and are supported by a valid data source and records and (2) the same poverty measure was used consistently to rank all school attendance
areas.

2. Identify the schools or school attendance areas that are participating in Title I and compare to the poverty rankings to determine whether:
All schools/school attendance areas with over 75% poverty (without respect to grade span), including any middle and high schools,
participated in the program (i.e., was allocated its full per-pupil share) before any schools below 75% participated.
The participating schools/school attendance areas are eligible (at least 35% poverty or higher than the district average if this is below
35%) and were correctly selected based upon their poverty ranking.
3. For the amounts allocated to each school/school attendance area:
Determine whether the amount allocated to each participating schools/school attendance areas was done in rank order and based on the
number of children from low-income families who reside in each area or attend each school. (Refer to the guidance in the background
section above that discusses the difference between amounts allocated and amounts expended.) Note: If the district has less than 1,000
students or only one building per grade span, the district does not have to rank its schools or allocate the funds based on low income
counts. Exception: a waiver was approved to permit LEAs to serve a Title I eligible high school with a graduation rate below 60% that the
SEA has identified as a priority school even if that school does not rank sufficiently high to be served based on the schools poverty rate.
Determine whether the district first served all schools above 75% poverty before allocating funds to schools with lower poverty
levels. Next, determine whether per-pupil expenditure (PPE) amounts assigned to the higher poverty areas were greater than or equal to
the PPE amounts assigned to lower poverty areas or schools. When selections are based on grade span grouping (K-5, 6-8, etc), per
pupil amounts should be compared within each grade span. Amounts per poor child within grade spans may also vary as long as the
district allocates higher amounts per poor child to higher poverty areas/schools within the grade span than it allocates to lower poverty
areas/schools.
If the district is serving any attendance areas or schools with a poverty rate below 35 percent, determine whether the district has
allocated to each participating area/school an amount per poor child that equals at least 125 percent of the districts Title I, Part A
allocation per poor child. The 125% PPE is automatically calculated on the grant application.
4. For Targeted Assistance Programs Only - Select a sample of students being served by Title I programs. For the selected students, verify by
reviewing student files and other documentation that the student being served met the eligibility requirements stated above.

5. Conclude on District's compliance with requirements for Eligibility.


Policy/Standards:


This compliance requirement is not new, has not recently changed and does not involve a relatively high degree of subjectivity.
The inherent risk is the District did not properly rank and allocate the eligible schools to participate in Title I, Part A.
(a) ELIGIBILITY OF STUDENTS,
Part eligibility of students compliance requirement is applicable only to Targeted Assistance programs. In FY2013 the District had three targeted
assistance schools: Rainier View Elementary, Viewlands Elementary and Sand Point Elementary. As there were only three targeted assistance
schools in FY2013, we do not consider this direct and material to the overall expenditures if all were not in compliance with the requirements.
Therefore, we will not complete testing of this compliance requirement for FY2013.
(b) ELIGIBLE SCHOOL ATTENDANCE AREAS, and (c). ALLOCATING FUNDS TO ELIGIBLE SCHOOL ATTENDANCE AREAS AND
SCHOOLS
Part (b) eligible school attendance areas compliance requirement is applicable to both schoolwide programs and targeted assistance programs. In
FY2013 the District had 30 schoolwide, 22 private schools and three targeted assistance schools. We determined the targeted assistance schools
are not direct and material to the grant compliance requirement and will not perform further testing.

Part (c) allocating funds to eligible school attendance areas and schools compliance requirement is applicable to both schoolwide programs and
targeted assistance programs. In FY2013 the District had 30 schoolwide, 22 private schools and three targeted assistance schools. We
determined the targeted assistance schools are not direct and material to the grant compliance requirement and will not perform further testing.
Parents of students complete applications for free and reduced lunch and the District's Nutrition Services department reviews them prior to the
beginning of the school year (J anuary 2012 for the 2012-2013 school year). The District uses the number of children eligible for free and reduced
lunches as their poverty measure when determining eligibility for schoolwide programs. The application determinations are input into the eSIS
system. Steven Wright/Research, Evaluation and Assessment Manager extract the free and reduced lunch data from eSIS and inputs into an
Access database to create the poverty levels for each school and identifies the number of students allowed for free and reduced lunch. He then
sends the report to Sim Henderson/Title I-LAP Budget Coordinator who ranks each school in order from highest to lowest poverty level for the Title
I grant. All schools at 75% poverty level or higher must be served and are included in the budget allocation. All schools at poverty level ranging
from 74% to 55% and are elementary schools are included in the Schoolwide Title I Program. District elementary schools with a poverty level of
less than 40% are not considered for Title I and do not receive Title I services (though provisions in Title I do allow a school district to serve
schools with poverty levels below 35% under specified conditions). All schools with a poverty rate above 75% must be served by the District
including any middle or high schools first before it serves any with a poverty percentage below 75%. The District's per pupil allocation is based on
the poverty levels. Sim runs a few scenarios determined by Michael based on expected funding for the following year and the lowest poverty level
served. Michael, Sim and Kevin Corrigan/Grants Manager then meet to discuss which scenario is most appropriate to serve the purpose of Title I.
Sim Henderson/Title I-LAP Budget Coordinator uses Excel formulas to calculate each school' s percentage of children eligibl e for free
and reduced lunch appl ication as the measure of District poverty to determi ne if a school is eligible to participate in Title I Part A funded
activities or services and allocates the funding based on poverty measurement.
Key Control #1: Sim Henderson/ Title I -LAP Budget Coordinator uses Excel formulas to calculate each school's percentage of
children eligible for free and reduced lunch application as the measure of District poverty to determine if a school is eligible to
participate in Title I Part A funded activities or services and allocates the funding based on poverty measurement. (Eligibility A-
B-C)
Sim Henderson/Title I-LAP Budget Coordinator has worked with Title I programs for over 16 years. He provided us with the FY2013 Free and
Reduced Lunch(FRL) report created 1/30/2012, his Excel calculations and a printout of the IGrants submission from the grant application. We
confirmed the Excel formulas were used to calculate the ratios. We noted the formulas were basic addition and division to ensure mathematical
accuracy. We tied Ballard High School totals from the FRL report to Sim's Excel worksheet noting no exception. We then scanned the Excel
worksheet confirming schools were ranked in order of poverty measure. No exception. We tied Sim's calculation for Ballard High School to the
amount reported on IGrants. Ballard High School had a poverty measure of 21.6% based on 351 students in FRL and total enrollment of 1624. On
the IGrants application, Ballard High School is reported as not eligible for Title I funds.
Based on our interactions with Sim Henderson , we found him to have the skills, knowledge, time and ability to perform this jobs. Based on our
review, this control appears to be in place and operating as intended.
Compliance Testing
We documented our testing at: AUDI TOR Copy of FRL counts by school and grade Sem 1 2011-12 (2)
1. Describe eligibility testing Per SAO testing strategy, we reviewed the districts system for ranking its school attendance areas. The District
uses free and reduced lunch participation in schoools to determine poverty level. We determined that:
(1) the rankings were based on an allowable poverty measure and are supported by a valid data source and records, no exception
(2) the same poverty measure was used consistently to rank all school attendance areas, no exception.

2. We identified the schools or school attendance areas that are participating in Title I and compared them to the poverty rankings. We
determined that:
All schools/school attendance areas with over 75% poverty (without respect to grade span), including any middle and high schools,
participated in the program (i.e., was allocated its full per-pupil share) before any schools below 75% participated. No exception.
The participating schools/school attendance areas are eligible (at least 35% poverty or higher than the district average if this is below
35%) and were correctly selected based upon their poverty ranking. No exception.
3. For the amounts allocated to each school/school attendance area:
We determinedr the amount allocated to each participating schools/school attendance areas was done in rank order and based on the
number of children from low-income families who reside in each area or attend each school without exception.
We determined the district first served all schools above 75% poverty before allocating funds to schools with lower poverty levels without
exception. Then we determined whether per-pupil expenditure (PPE) amounts assigned to the higher poverty areas were greater than or
equal to the PPE amounts assigned to lower poverty areas or schools without exception.
We determined the District is not serving any attendance areas or schools with a poverty rate below 35 percent, therefore the 125% is
not applicable. However, the grant application does automatically calculate this amount. No exception.
4. Targeted Assistance programs were not considered direct and material as stated above and was not tested.

5. We determined that the District has adequate internal controls over and is in compliance with the requirements for eligibility.

E.4.PRG - Title I - CFDA 84.010/84.389

Procedure Step: G. Supplanting/Earmarking

Purpose/Conclusion:
Purpose: To determine if the District has adequate internal controls over and is in compliance with the requirements for level of effort and
earmarking.

Conclusion: We determined that the District has adequate internal controls over and is in compliance with the requirements for level of effort
and earmarking.

Testing Strategy:
SUPPLANTING AND EARMARKI NG

This section covers one level of effort (supplanting) requirement
SUPPLANTING
A school district may use program funds only to supplement and, to the extent practical, increase the level of funds that would, in the absence of
the Federal funds, be made available from non-Federal sources for the education of participating students. I n no case may a school use Federal
program funds to supplant (replace) funds from non-Federal sources.
ARRA Alert:
(1) The supplanting requirement was not waived for ARRA funds, and it is possible that we will see supplanting occurring due to the
massive loss of state funding in 2009. However, the documented loss of a non-federal resource is an allowable defense to
supplanting. (see below).
Ed J obs consideration: I f Ed J obs funds are being used in SY 2012-13 to pay staff in positions that would normally be supported with
State or local funds, then those staff, even though supported with Federal Ed J obs funds, should be considered to be supported with State
and local funds. I f, however, Ed J obs funds are being used in SY 2012-13 to pay staff in positions that would normally be supported with
other Federal funds, those staff should be considered to be supported with Federal funds.
In a schoolwide program school, for example, this means that an LEA can satisfy section 1114(a)(2)(B) by including Ed J obs funds in
demonstrating that the school received all of the non-Federal funds it would have received if it were not operating a schoolwide program
if the Ed J obs funds are supporting positions that would normally be paid with State or local funds. On the other hand, if the Ed J obs
funds are supporting positions that would normally be paid with other Federal funds, the LEA would not include those funds in its
demonstration of compliance with section 1114(a)(2)(B). In a targeted assistance school, the analysis of supplanting would occur in SY
2012-13. If an LEA uses Title I, Part A funds in SY 2012-13 to support some of the same staff positions (assuming, of course, the
positions are allowable under Title I, Part A) that the LEA supported with Ed J obs funds in SY 2011-12, a presumption of supplanting (i.e.,
a presumption that the LEA would continue to conduct the activity with non-Federal funds if it had no Title I, Part A funds available) might
arise.
In the following instances, it is presumed that supplanting has occurred:
(a) The State or Local agency used Federal funds (except Bilingual) to provide services that the State or Local agency was required to make
available under other Federal, State or local laws. (See note below, ESEA Flexibility, regarding this presumption and ESEA flexibility).
(b) The State or Local agency used Federal funds to provide services that the State or Local agency provided with non-Federal funds in the prior
year.
(c) The State or Local agency used Title I , Part A or Migrant Education funds to provide services for participating children that the State or Local
agency also provided with non-Federal funds for nonparticipating children.
These presumptions are can be rebutted if the State or Local agency can demonstrate that it would not have provided the services in question
with non-Federal funds had the Federal funds not been available.
Federal sequestration of Title 1 funds may result in significant loss of funding starting J uly 2013. ED stated in a letter dated
6/ 24/ 13 in part:
ED does not believe that using Title I, Part A funds in a subsequent year to replace an LEAs use of local funds to support its Title I
program in the face of sequestration would constitute supplanting. Rather, the local contribution would merely serve to provide the same
or similar level of Title I services pre sequestration that is, the local funds would help implement the LEAs Federal Title I program. To
ensure that a local contribution does not raise the presumption of supplanting, an LEA should document that the local funds are, in fact,
being used to support the Title I program.
NOTE: State LAP funding (program 55) is not considered a local resource and should be excluded from your determinations of supplanting. This
is per Department of Education regulations.
Examples of supplanting:
1. A teacher's sole function at the district is to provide Title I services (a single cost objective). In years 1 and 2, the teacher's salary was
paid from the following sources: 20% Basic Education; 80% Title I. In year 3, the teacher's salary was paid 100% with Title I
funds. Supplanting has occurred in year 3 because Title I replaced (supplanted) the non-federal funding that had been used to provide
Title I services. However, we would need to evaluate all services of the program taken as a whole -- that is, was Title I reduced in other
buildings and/or were state and local funds increased in other Title I service areas so that, in aggregate, no net change was made in
federal and non-federal funding?
2. A district purchased an educational software program with Title I funds. This software program was also purchased with basic
education funds for non-Title I schools and made available for all students. As a result, Title I is providing a service that is also being
provided to non-Title I students. This is considered supplanting.
3. In year 1, a district offers full-day kindergarten for its Title I students using Title I funds. I n year 2, the district decides to make full-
day kindergarten part of its basic education program for all students. As a result, in year 2, Title I is providing a service that is also being
provided with basic education funds to non-Title I students. This is considered supplanting.
4. In year 1 and 2, the district recorded $150,000 in expenditures in its Title I program account (program 51), but its Title I grant
amount was only $100,000. The district explains the excess of $50,000 was paid from local dollars needed to provide Title I services in
addition to grant funding. In year 3, the district no longer pays for Title I services with local funds - all costs are paid from the
grant. This indicates supplanting has taken place in year 3. However, the auditor should consider whether the level and types of Title I
services have also been reduced in year 3 and whether the district had budgetary cuts which necessitated the removal of local funding.
5. Example of an LEA using Title I funds to provide services that the LEA was required to make available under Federal, State, or local
law: The I ndividuals with Disabilities Education Act (I DEA) requires that an LEA serving children with disabilities develop an individualized
education program (IEP) to ensure that a child with a disability receives a free appropriate public education. The IEP functions as a
framework for the services the LEA is required to provide to each child to meet the requirements of IDEA. An LEA may not use Title I
funds to provide services that must be provided under each childs IEP because, in the absence of the Title I funds, it is presumed that
the LEA would use other funds or it would be in violation of the IDEA.
Supplanting in Schoolwide Programs

In a schoolwide program, Title I, Part A funds and other federal education program funds may be used only to supplement the total amount of
funds that would, in the absence of federal funds, be made available from non-federal sources for that school, including funds needed to provide
services that are required by law for children with disabilities and children with limited English proficiency. I t is the districts responsibility to
ensure the schoolwide program school receives all the state and local funds it would receive if it were not a schoolwide program and that state
and local funds are distributed fairly and equitably to all schools in the district, including schoolwide program schools [ESEA 1114(a)(2)(B)].

Title I, Part A and MEP An SEA and LEA may exclude from determinations of compliance with the supplement not supplant requirement
supplemental State or local funds spent in any school attendance area or school for programs that meet the intent and purposes of Title I, Part A
or the MEP, respectively, as identified in Title I of ESEA (Sections 1120A(d) and 1304(c)(2) of ESEA (20 USC 6321(d) and 6394(c)(2)); 34 CFR
sections 200.79 and 200.88).
ESEA Flexibility A State that has received ESEA flexibility may have enacted laws or promulgated regulations, or incorporated
existing laws and regulations, modified as necessary, to meet the principles of ESEA flexibility in its approved request. Because
these State laws and regulations are critical to implementing the SEAs request, ED presumes that State laws or regulations an
SEA has incorporated into its ESEA flexibility request stem from that request and would not have been required, at least in
precisely that form. Thus, an SEA or LEA that uses Federal funds subject to a supplement not supplant requirement to
implement elements of the SEAs flexibility request that is required by State law or regulation would not violate the required by
law presumption of supplanting in paragraph 2.2.a above (see ESEA Flexibility Frequently Asked Questions, Question A-18).
----------------------------------------------------------------------
EARMARKING
Washington State has received ESEA flexibility, therefore, districts have a waiver of the requirement to identify Title I, Part A schools for
improvement, corrective action, or restructuring, and identified schools do not need to take improvement actions required under Section 1116(b)
of the ESEA, including the requirements to provide public school choice and supplemental educational services to eligible students. (See I II.N.5,
Special Tests and Provisions - Identifying Schools and LEAs Needing Improvement.) Accordingly, beginning with the 20122013 school year,
districts are not required by Federal law to use an amount equal to 20 percent of its allocation under subpart 2 of Part A to provide choice-related
transportation or supplemental educational services. Some SEAs receiving ESEA flexibility may continue to require their LEAs to provide one or
both of these services; other LEAs may do so voluntarily. OSPI does not require districts to provide these services; districts may do so voluntarily
as noted above. Moreover, some SEAs receiving ESEA flexibility require their LEAs to set aside a specific amount of funds to provide these
services or to provide interventions in priority or focus schools (See page 1, paragraph 2, and pages 5 and 22 of ESEA Flexibility (J une 7,
2012)). OSPI requires districts that are designated as priority or focus schools to set aside UP TO 20% to support the improvement effort. Priority
schools that are receiving federal School Improvement Grant (SI G) funds for their persistently lowest achieving schools will not be required to set
aside additional funds to support their SI G schools).
For a list of schools designated as priority or focus, go to http://www.k12.wa.us/ESEA/PublicNotice.aspx (FY13 links are at the bottom of the
page)
Transferability (Optional for the district)
Transferability:
In a State that has received ESEA flexibility, an SEA or an LEA may transfer up to 100 percent of the funds available under one or more of the
authorized ESEA programs among those programs and into Title I , Part A. This authority applies to all LEAs notwithstanding the limitations on
such transfers and the restrictions on the use of the transferred funds in Section 6123(b)(1) of the ESEA (20 USC 7305b(b)(1)). Funds transferred
under ESEA flexibility are not subject to any set-aside requirements of the programs into which they are transferred but they are subject to all of
the requirements and limitations of those programs. Moreover, an SEA is not required to notify ED, and its participating LEAs are not required to
notify the SEA, prior to transferring funds (see paragraph 9 on page 2 of ESEA Flexibility). Note, however, that there is a limitation on the amount
of Title II, Part A funds that may be transferred because of that programs equitable services requirement (see section III .G.2, Matching, Level of
Effort, Earmarking Maintenance of Effort, in the program supplement for CFDA 84.367 for details).

---------------------------------------------------------------------------
FYI on MAINTENANCE OF EFFORT
NOTE: This requirement is monitored by OSPI and the audit work is performed during the State of WA Single Audit. The records used to monitor
this requirement come from the district's F196. No work is necessary at the local level. This is FYI only. Maintenance of effort requires that a
school districts expenditures from state and local funds for free public education must be at least 90% of either the total aggregate expenditures
or the per student expenditures for the preceding fiscal year. If a district fails to maintain effort from one year to the next, the Office of
Superintendent of Public Instruction (OSPI) must recover the difference by proportionally reducing the next years district grant allocations for all
covered grant programs.
--------------------------------------------------------------------------------
over compliance.

Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring: (1) it does not use Title
I funding to supplant non-federal funds and (2) it meets the applicable earmarking requirements.
exists.



Likelihood of
Noncompliance

than material


Material

Remote
Control deficiency

Control deficiency

Control deficiency

More than
remote
(at least
reasonably
possible)
Control deficiency




If preliminary control risk islow, the auditor must test the key internal controls to determine whether they are effective in preventing and detecting
noncompliance with the requirement.



1. Supplanting:
(a)(1). For targeted assistance schools - compare the remediation services funded with Title I funds and non-federal funds in the current year to
the level of services in the previous year and determine if services funded with State or local funds in the previous year have been supplanted
with Federal funds in the current year. (See examples above).
(a)(2). For schoolwide buildings - evaluate the level of state and local funds allocated the schoolwide buildings over the past few years to
determine if federal funding has stayed the same or increased but the state and local levels have decreased without explanation. Evaluate the
district's procedure for ensuring state and local funds are distributed fairly and equitably to all schools in the district, including schoolwide program
schools.
(b). Review the nature and type of expenditures tested under the Allowable Cost / Cost Principles section and determine if any were charged to
Title I that should have been funded by a state or local resource.
(c). Make inquiries of Title I staff to determine if any services paid for by Title I funds are also being provided to non-Title I children with non-
federal funds (such as computer software programs that are used by all students).

2. Earmarking - Priority or Focus Schools improvement effort, and transferability (optional). Review documentation that demonstrates the district
has not exceeded the applicable earmarking and transferability requirements. Review results of expenditure testing performed under Allowable
Costs/Cost Principles to ascertain that expenditures were not misclassified by the District to avoid (or not meeting) an earmarking
requirement.

3. Conclude on District's compliance with requirements for Supplanting and Earmarking.

Policy/Standards:


DEFINITIONS
Level of effort includes requirements for (a) a specified level of service to be provided from period to period, (b) a specified level of expendifrom
non-Federal or Federal sources for speciactivities to be maintained from period to period, and (c) Federal funds to suppleand not supplant non-
Federal funding of services.

Supplanting
This compliance requirement is not new to the District and has not recently changed.
Earmarking
The State has received ESEA flexibility and LEAs are no longer required to meet the 20% allocation to provide transportation choice or
supplemental educational services. OSPI does require Districts that are designated as priority or focus schools to set aside up to 20% to
support improvement effort. Schools receiving federal funds for School Improvements Grant (SIG) are not required to set aside these Title
I funds. We documented a list of the Priority and Focus schools for the District at: Priority & Focus Schools.
The inherent risk is the District uses federal program sources to supplant funds from non-federal sources and that the District did not properly set
aside funds per OSPI requirement.


Contacts
Michael Stone/Title I-LAP Supervisor
Sim Henderson/Title I-LAP Budget Coordinator
Kevin Corrigan/Grants Manager

Sim Henderson/Title I-LAP Budget Coordinator, Michael Stone/Title I-LAP Supervisor and Kevin Corrigan/Grants Manager work together to create
the Title I annual budget. Kevin works with the site principals and Budget Analysts to ensure the allocations do not replace the non-federal funding
allocated to the schools. The District uses the Free and Reduced Lunch annual report as a poverty measurement. Schools are ranked and
allocated budget using this poverty measurement. Due to the ESEA Waiver for Washington State, the District is no longer required to meet the
Federal earmarking requirements. OSPI does require Districts that are designated as priority or focus schools to set aside up to 20% to support
improvement effort. Sim Henderson/Title I-LAP Budget Coordinator, Kevin Corrigan/Grants Manager and Michael Stone/Title I-LAP
Supervisor allocate and monitor Title I funding supplements to ensure the allocations supplement and not supplant non-federal funding
and that earmarking requirements are met. The budget and all budget revisions are approved by OSPI. Michael enters all allocations by
school building into the IGrant application and monitors budget to actual activity throughout the year. Once OSPI has approved the budget
allocations the information is entered into the District's financial reporting system by Sim Henderson.
Sim Henderson/Title I-LAP Budget Coordinator, Kevin Corrigan/Grants Manager and Michael Stone/Title I-LAP Supervisor al locate and
monitor Title I funding supplements to ensure the allocations supplement and not supplant non-federal funding and that earmarking
requirements are met. The budget and all budget revisions are approved by OSPI.
Sim Henderson/Title I-LAP Budget Coordinator has worked with Title I programs for over 16 years. We met with Sim Henderson/Title I -LAP
Budget Coordinator on 2/20/2014 and inquired about the process for ensuring the control is in place. Sim showed us the iGrants Manager and
was able to easily work through the grant and locate the budget. He explained he works with and stays in communication with Kevin
Corrigan/Grants Manager and Michael Stone/Title I-LAP Supervisor to ensure the budget allocations and expenditures are correct. Michael Stone
corroborated this statement.
We also met with Michael Stone to review his participation in the budget process. Michael prepares the budget allocations by building using the
OSPI iGrants Manager function. Michael has regular meetings with the School Principals to review budget to actual activity. All budgets are
approved by OSPI before being entered in the District's accounting system (SAP). Sim Henderson corroborated this statement. Michael provided
us with a string of emails beginning October 9, 2012 and ending October 24, 2013 indicating communication with OSPI regarding budget line
items and budget approvals.

Based on our interactions with Sim Henderson and Michael Stone, we found them to have the skills, knowledge, time and ability to perform these
jobs. Based on our review of documentation, this control appears to be in place and operating as intended.

Compliance Testing
1. Supplanting:
(a)(1). For targeted assistance schools - In FY2013 the District had three targeted assistance schools: Rainier View Elementary, Viewlands
Elementary and Sand Point Elementary. As there were only three targeted assistance schools in FY2013, we do not consider this direct and
material to the overall expenditures if all were not in compliance with the requirements. Therefore, we will not complete testing of this compliance
requirement for FY2013.
(a)(2). For schoolwide buildings -
We evaluated the level of state and local funds allocated the schoolwide buildings over the past few years to determine if federal funding
has stayed the same or increased but the state and local levels have decreased without explanation. We obtained the 2010-2012 data
from the prior year audit. Sim Henderson provided us the Funds Avail Report with Heir Key Figure reports for both total funding and
Federal funding. We documented our table below. We compared these figures to test for supplanting, noting no exception.
We evaluated the district's procedure for ensuring state and local funds are distributed fairly and equitably to all schools in the district,
including schoolwide program schools. As part of the eligibility testing, we reviewed the District's poverty level measurement. We
evaluated controls at: E. Eligibility without exception and performed this testing at: Eligibility Testing. We noted no exception.
Year 2013 2012 2011 2010
Federal Funds $ 11,435,149.25 $ 7,087,258.00 $ 5,286,845.69 $ 6,815,387.00
State & Local Funds $ 86,642,749.75 $ 73,856,379.00 $ 63,887,737.14 $ 51,989,231.00
Total Funding $ 98,077,899.00 $ 80,943,637.00 $ 69,174,582.83 $ 58,804,618.00
% Federal 9% 9% 8% 12%
(b). Review the nature and type of expenditures tested under the Allowable Cost / Cost Principles section and determine if any were charged to
Title I that should have been funded by a state or local resource. We used sampling of non-payroll transactions to perform dual purpose testing of
controls and compliance. We documented our sample selection at: Activities Allowed/Allowable Cost Sample Selections and documented testing
at: Single Audit Testing Matrix A. No exception
(c). Make inquiries of Title I staff to determine if any services paid for by Title I funds are also being provided to non-Title I children with non-
federal funds (such as computer software programs that are used by all students). Target audience schools have been deemed not direct or
material. Therefore, programs under review which are receiving Title I funds are Schoolwide Programs. This test is not applicable.
2. Earmarking -
Priority or Focus Schools improvement effort. We reviewed the grant budget from IGrants and noted the District has not exceeded the
applicable earmarking requirements. No exception.
OSPI maximum set aside: $2,216,145 (20% of $11,080,723 budgeted expenditures)
District set aside: $896,430
Review results of expenditure testing performed under Allowable Costs/Cost Principles to ascertain that expenditures were not
misclassified by the District to avoid (or not meeting) an earmarking requirement. We documented our testing at: Single Audit Testing
Matrix A. No exception.
3. We determined that the District has adequate internal controls over and is in compliance with the requirements for level of effort and
earmarking.

E.4.PRG - Title I - CFDA 84.010/84.389


Purpose/Conclusion:
Purpose: To determine if the District has adequate internal controls over and is in compliance with the requirements for procurement and

Conclusion:
Based on our testing, we determine that the District has adequate internal controls over and is in compliance with the requirements for
procurement and suspension and debarment.

Testing Strategy:
PROCUREMENT / SUSPENSION & DEBARMENT
3.Gain an understanding of internal controls.
4.Assess preliminary control risk (CR).
5.Test internal controls.
6.Assess final control risk (CR).
7.Assess the risk of material noncompliance (combined IR and CR).
8.Test for compliance with the requirement.
ARRA Caution: If your audit scope includes CFDA 84.389-ARRA, the "Buy American" requirement will apply to any public works (construction)
contracts. Specifically, if ARRA funds are used for construction projects, any iron, steel, and manufactured goods used in the project must be
produced in the United States and this provision must be communicated by the grantee in its contract with the vendor. Any waivers to Buy
American must be granted by a federal agency.
WHEN IS IT DIRECT AND MATERIAL?
Test Procurement if the amount spent on goods and services subject to competition (quotes, bids, RFPs, etc.) are material to the program you are
auditing. This includes purchases for which there is no formal contract and new contracts executed during the audit period. You may also factor
into your analysis recurring payments under vendor contracts that were procured in a prior audit period for which the risk of noncompliance is
questionable in your opinion. CAUTION - Read the audit approach section below to determine which purchases by schools and ESDs are subject
to procurement/competition.

Test Suspension and Debarment only if (1) the district has individual contracts for goods and services that exceed $25,000 and the combined
amount of these contracts is material to the program, and/or (2) the district has made subawards to subrecipients and the combined amount of
these awards is material to the program.
AUDIT APPROACH
The following is our audit approach for FY2013 for Title I and Special Education grants:
Transactions between two governments for services are exempt from procurement
When a school district or ESD uses federal grant funds to pay for professional services obtained from another ESD, school district, OSPI ,
or other governmental entity, it is not expected to obtain quotes or seek competition because 34 CFR 80.36(b)(5) encourages
governmental entities to enter into interlocal agreements to maximize economy and efficiency. RCW 39.34.030 sets forth the standards
for interlocal agreements the form of the agreement or contract may vary so long as it contains the necessary information. This is
intended for services provided from one government to another government - it does not exempt purchases made by one of the
participating governments from a third party vendor.
Purchases from external vendors - Generally
When a school district uses federal grant funds to pay for furniture, supplies, food, or equipment from a vendor other than an ESD or
school district (the K-12 education system), the quote and bid limits of RCW 28A.335.190 will apply and will be used for audit purposes
(>$40,000=quotes and >$75,000=bids). This includes cooperatives formed to purchase goods from an external vendor.
Books paid from indirect pass-through grants from OSPI or other state agencies are exempt from competition according to RCW
28A.335.190. However, if the books are paid from a direct grant awarded by a federal agency, the school district must obtain quotes or
show that the books/curriculum were available only from a single source of supply.
When a school district uses federal grant funds to pay for professional services from a vendor other than an ESD, school district, or other
governmental entity, the Common Rule (34 CFR 80.36(d)) is applicable. While this CFR requires quotes for purchases from $0 to
$100,000, SAO auditors will use a risk-based approach in selecting procurement transactions. SAO will use a $3,000* per purchase
floor as an internal measure of materiality when selecting purchases.
Because ESDs do not have a state law that defines quote or bid thresholds for their procurements, the Common Rule (34 CFR 80.36(d)) is
applicable when federal funds are used to pay for goods and services. While this CFR requires quotes for purchases from $0 to $100,000,
SAO auditors will use a risk-based approach in selecting procurement transactions. SAO will use a $3,000* per purchase floor as an
internal measure of materiality when selecting purchases.
Vendors named in grant applications - In general, listing a vendor's name in an application for a grant is not necessarily a safe harbor
from having to procure the goods or services using competition. You will find some instances where the district is required to hire a
specific "evaluator" or designate specific "partners" to help carry out the objectives of the grant. Consult with the Single Audit Specialist if
you find a vendor listed in a grant application and are not sure if it is subject to procurement.
No matter the thresholds above, if we believe a procurement transaction involves a conflict of interest, unreasonable pricing, bid
splitting, fraud, or other illegal activity, we should investigate such.
(* $3,000 is defined as the micro-purchase by the Federal Acquisition Regulations (as of 2008). Purchases made by federal agencies
under this amount do not require quotes this is a guide that we will use for the level at which the federal government would normally
expect quotations to be obtained.)
Title I Supplemental Services
Districts have the option to use their Title I, Part A funds to implement Public School Choice (PSC) or Supplemental Education Services
(SES), since both are allowable uses of these funds. Districts that choose to implement SES with their Title I funds would
become responsible for maintaining an approved provider list. OSPI would no longer be required to report the use of funds for
PSC or SES to ED. OSPI will still be required to approve each districts Title I application.
Title II Professional Development
Districts are not expected to use competition when sending an employee to an off-site training class, workshop, or when obtaining college
credit. However, if the district hires a third party vendor to come into the district and provide training to district staff, this is a
professional service that is subject to procurement.
Special Education Services
Districts needing to hire a professional to provide a service called for in a child's IEP (e.g., nursing, physical therapy, speech therapy, etc.)
must use competition in selecting the provider or justify a sole source designation in accordance with the Common Rule.
Special Education Placement
Disbursements to a Non Public Agency http://www.k12.wa.us/SpecialEd/NonPublicAgency.aspx , another school, or an ESD to pay for
a "placement" decision called for in a child's IEP are not subject to competition. A placement decision is made when the district cannot
provide the necessary services/facilities for the child thereby requiring the child to attend another district or NPA.
--------------------------------------------------------------------------------------------------------------
over compliance.

Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring: (1) state laws and the
Common Rule are followed when procuring goods and services and (2) vendors and subrecipients are not suspended or debarred from
participating in federal programs.
exists.


Likelihood of
Noncompliance

than material


Material

Remote
Control deficiency

Control deficiency

Control deficiency

More than
remote
Control deficiency
(at least
reasonably
possible)



Procurement:
READ THE AUDI T APPROACH SECTION ABOVE BEFORE PROCEEDING
1. Select procurement transactions (e.g., purchases of goods, services, construction, etc.) and test to determine if the district complied with the
applicable state laws and/or the Common Rule for procurement:
Furniture, equipment, supplies, food: state law requires quotes from at least 3 vendors for purchases between $40,000-$75,000 and
formal bids for purchases over $75,000. (THIS I S THE STATE LAW FOR SCHOOLS - ESD's MUST FOLLOW THE COMMON RULE BELOW
FOR ALL PURCHASES.)
Construction: state law requires a competitive process for projects over $40,000 and formal bids for projects over $100,000. A small
works roster can be used. The Buy American requirement will apply unless waived by a federal agency.
Professional Services: The Common Rule requires quotes from an "adequate" number of vendors for purchases up to $100,000 and either
a bid or RFP for purchases over $100,000.
Sole Source: If a district claims a vendor is the sole source of supply, it must be able to provide documentation on how it arrived at this
conclusion.
Select vendor contracts that exceed $25,000 and some subrecipient agreements (no dollar minimum) and verify the auditee performed one of the
following:
(www.sam.gov) or the hard copy subscription. The grantee should print out or keep a record of its search results.


contractor or subrecipient of this responsibility. Ascertain whether the grantee informed the lower tier participant (i.e., the primary contractor or
subrecipients.
Conclude on the Districts compliance with Procurement/Suspension and Debarment.

Policy/Standards:




28A.335.190. Per our review of expenditures, Textual Materials (books) made up 49% of the Supplies and Materials purchased. Based on the
RCW, these Textual Materials are exempt from bid compliance. I n order to maintain adequate coverage of non-payroll transactions, we will test
the personal service contracts for procurement, suspension and debarrment.

We determined there are no procurement purchases and only personal service contracts for the grant.

Personal service contracts is managed by one group within the District through a centralized process. Our reveiw of internal controls over
Procurment of personal service contracts and Suspension/Debarment is documented at: Personal Service Contracts.

We performed tests of controls at Personal Service Contracts during our review of centralized processes without exception.
Compliance Testing
Procurement:
We used CAATs expenditure data from the "51 Disadvantaged" program to determine the population of vendors. We then determined the vendors
associated with the selected grants for Title I by reviewing the fund numbers for each vendor. Once we determined our population of personal
service contract vendors, we stratified the population to address contracts above the per purchase floor of $3,000. There were 49 vendors in the
population. We noted one vendor number did not have a vendor name associated with it. This vendor was charged to the Title I grant. We
reviewed the transaction detail and determined a single payment was posted to this vendor on 8/31/2013 for $9,500. Due to the vendor not
having a name associated and the single transaction being posted on the last fiscal day of the year, we determined this transaction to be higher
risk. We will judgmentally select this contract to test. We then haphazardly selected three additional contracts to test controls and compliance. We
reviewed the contracts to verify Kathie Technow had signed each contract in approval and additional approval was sought as needed. We
performed our testing at: Personal Service Contracts and at Personal Service Contract - Procurement Testing. We noted no exceptions during
testing.

Based on our testing, we determine that the District has adequate internal controls over and is in compliance with the requirements for
procurement and suspension and debarment.

Suspension/ Debarment:
We reviewed the same contracts tested above and noted the District does stamp each contract indicating the SAM website has been verified. The
District also uses a standard contract created by the District Legal Department which includes the verbiage:

E.4.PRG - Title I - CFDA 84.010/84.389

Procedure Step: N1. Special Test - Private Schools

Purpose/Conclusion:
Purpose: To determine if the District has adequate internal controls over and is in compliance with the requirements for private schools.

Conclusion:
Based on testing, we determined the District has adequate internal controls over and is in compliance with the requirements for private schools.

Testing Strategy:
SPECIAL TESTS AND PROVISIONS - PARTI CIPATION OF PRIVATE SCHOOL CHILDREN
NOTE: Participation of Private Schools is a general cross-cutting provision that applies to the programs listed below. If you are auditing one or
more of these programs, this area only has to be tested once. Simply cross-reference your testing. This area must be tested if there are any
private schools within district boundaries.
Title I (84.010 and 84.389-ARRA)
Migrant Education (84.011)
Safe and Drug Free Schools (84.186)
21st Century (84.287)
Title V Innovative Education (84.298)
Education Technology (84.318 and 84.386-ARRA)
Title III, Part A English Language Acquisition (84.365)
MSP (84.366)
Title II, Part A Improving Teacher Quality (84.367)
Link to OSPI's webpage for private schools: http://www.k12.wa.us/ESEA/PrivateSchools.aspx
The Process for Identifying Private Schools that Want to Participate
The programs and services of No Child Left Behind legislation are made available to private schools through a local public school district. Only
nonprofit elementary and secondary schools are eligible to participate in federal education programs.
Annually, private schools are required to notify the Office of Superintendent of Public Instruction (OSPI) and local school districts as to their intent
to participate in federal programs through their local school district. The notification is made via the Private Participation in Federal Programs
(Intent to Participate) form in the Educational Data System (EDS) on the OSPI website.
Annually, the school district must determine which private schools have elected to participate. The District will access the EDS system and see the
status of each private school:
The Nonparticipating Schools section shows a list of schools that have chosen not to participate in federal programs.
The Participating Schools section displays a list of participating schools and their federal program selection(s).
The Schools Not Applied section shows a list of schools that have not completed the participation form. The district must attempt to
contact the eligible schools at least twice and document this in the Private School Contact Log. Contact must be in person, by telephone,
e-mail, or fax. The district must receive a response. Leaving a phone message or unanswered e-mails, or faxes will not be considered
adequate attempts to contact. There must be contact information for each non-profit private school that has not applied.
OSPI guidance in Bulletin 087-11, Attachment E states: In a final attempt, please send the private school a registered letter. If
you have not received a response from this attempt, the private school will be considered as NOT PARTICIPATING and will not be
included in the allocation of ESEA services.
The No Child Left Behind legislation has very specific language regarding timely and meaningful consultation between the private school officials
and the local school district. In general, the district shall include private schools, who choose to participate, in the design and development of
programs before decisions are made that affect the opportunity for eligible private school students, teachers, and educational personnel.
Consultation must continue throughout the implementation and assessment of services.
Title I only: Districts must input contact information on attempts for consultation with private schools in OSPI's Education Data System (EDS)
website. Instructions can be found in Bulletin B087-11, Attachment E (http://www.k12.wa.us/BulletinsMemos/bulletins2011.aspx).
When A Private School Chooses to Participate
A school district receiving financial assistance under an applicable program must provide eligible private school children and their teachers or other
educational personnel with equitable services or other benefits under these programs.
TITLE I
Title I, Part A funds must be allocated to each participating public school attendance area on the basis of the total number of children from low-
income families residing in that area. In calculating the total number of children from low-income families, an LEA must include children from low-
income families who attend private schools. An LEA must use the portion of Title I, Part A funds attributable to private school children from low-
income families included in the calculation to provide services to eligible private school children. For example, if $100,000 of Title I, Part A funds
are allocated based on 100 children from low-income families, 25 of whom are private school children, $25,000 of the $100,000 must be
expended to provide equitable services to eligible private school children.
If an LEA reserves funds off the top of its Title I, Part A allocation to provide instructional and related activities for public school students at the
district level, the LEA must also provide from those funds, as applicable, equitable services to eligible private school students. From applicable
funds reserved for parent involvement and professional development, an LEA must ensure that teachers and families of participating private
school children have an equitable opportunity to participate in professional development and parent involvement activities, respectively. The
amount of funds available to provide these services must be proportionate to the number of private school children from low-income families
residing in participating public school attendance areas (Sections 1113(c) and 1120 of ESEA (20 USC 6313 and 6320); 34 CFR sections 200.62
through 200.67 and 200.77 through 200.78).
ALL OTHER PROGRAMS
For all other programs, an SEA, LEA, or any other educational service agency (or consortium of such agencies) receiving financial assistance under
an applicable program must provide eligible private school children and their teachers or other educational personnel with equitable services or
other benefits under the program. Before an agency or consortium makes any decision that affects the opportunity of eligible private school
children, teachers, and other educational personnel to participate, the agency or consortium must engage in timely and meaningful consultation
with private school officials. Expenditures for services and benefits to eligible private school children and their teachers and other educational
personnel must be equal on a per-pupil basis to the expenditures for participating public school children and their teachers and other educational
personnel, taking into account the number and educational needs of the children, teachers and other educational personnel to be served (Sections
5142 and 9501 of ESEA (20 USC 7217a and 7881); 34 CFR sections 299.6 through 299.9).
THE SCHOOL DISTRICT MUST HAVE CONTROL OVER DISBURSEMENTS
The control of funds used to provide equitable services to eligible private school students, teachers and other educational personnel, and families,
and title to materials, equipment, and property purchased with those funds must be in a public agency and the public agency must administer the
funds, materials, equipment, and property. The provision of equitable services must be by employees of a public agency or through a contract by
the public agency with an individual, association, agency, or organization that is independent of any private school or religious organization. The
contract must be under the control of the public agency (Sections 1120(d), 5142(c), and 9501(d) of ESEA (20 USC 6320(d), 7217a(c) and
7881(d); 34 CFR sections 200.67 and 299.9).
Audit Objectives - Determine whether (1) the district has conducted timely consultation with private school officials to determine the type of
educational services to provide to eligible private school children, (2) the planned services were provided, and (3) the required amount was used
for private school children.
over compliance.

Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring that the district identifies
the private schools choosing to participate, consults with those schools, and controls the provision of services and supplies/equipment.
exists.
Likelihood of
Noncompliance

than material


Material

Remote
Control deficiency

Control deficiency

Control deficiency

More than
remote
(at least
reasonably
possible)
Control deficiency






1. Determine whether the district verified through the OSPI electronic reporting system the private schools within its boundaries that chose to
participate in services for the 2012-13 school year and whether the district followed up and documented its efforts to contact the private schools
that had not submitted its decision of whether or not to participate.
Contact log information is input into the electronic system. If no private schools chose to participate - stop here - no further procedures are
necessary.
2. Verify that the district conducted timely consultation with private school officials in making its determinations and set aside the required amount
for private school children.
3. Review program expenditure and other records to verify that educational services that were planned were provided.
4. For Title I, Part A, verify that:
(1) The per pupil allocation (PPA) generated by private school children from low-income families living in participating public school attendance
areas is equal to the PPA generated by public school children from low-income families living in the same attendance areas:
(2) Funds to provide equitable services to private school students were available, as applicable, from funds, if any, reserved off the top of the
LEAs Part A allocation for instructional and related activities at the district level; and
(3) Funds to provide equitable services to teachers and families of participating private school students were available from reservations of funds
for professional development and parent involvement.
5. If the LEA provides services to eligible private school students under an arrangement with a third-party provider, verify that the LEA retains
proper administration and control by having a written contract that:
(1) Describes the services to be provided; and
(2) Provides that the LEA retains ownership of to materials, equipment, and property purchased with Federal funds.
6. For programs other than Title I, Part A, verify that expenditures are equal on a per-pupil basis for public and private school students, teachers
and other educational personnel, taking into consideration their numbers and needs as required by 34 CFR section 299.7.
Conclude on District's compliance with Private Schools.

Policy/Standards:


The compliance requirement is not new and is not relatively complex.
The inherent risk is the District does not conduct timely consultation with private school officials to determine the type of educational services to
provide to eligible private school children and planned services were actually provided to the eligible private school children.
Contacts
Marlene Meyer/Private Schools Federal Program Coordinator
Michael Stone/Title I -LAP Supervisor

OSPI informs private schools in the state when the Private School Participation in Federal Programs" form is due, annually around March. This
means for FY2013, the private school forms would have been due in March 2013. The private schools are responsible for submitting the form
electronically for OSPI to identify the private schools interested to participate in federal programs for each school district. The District accesses
OSPI's Educational Data System (EDS) to determine which private schools chose to participate. For schools that did not apply on the OSPI
website, the District is required to attempt to contact the eligible schools at least twice and document this in the Private School Contact Log. The
contact must be in person, by phone, mail, email or fax. The Title I Private School Coordinator determines which private schools have
elected to participate by verifying the OSPI Educational Data System and contacting the eligible private schools within its
boundaries that did not verify through OSPI at least twice.
Marlene consults with the private school officials to identify school needs. Once needs are determined, Andy Olsen/Consulting Teacher will request
a list of low income students with their addresses. Students must be located within the service of a Title I public school in order to be eligible for
funding at the private school. Andy verifies student eligibility using the Districts "address lookup" tool to determine eligibility and per pupil
allocation based on the assigned Title I public school per pupil basis. This spreadsheet is provided to Michael Stone/ Title I-LAP Supervisor.
Michael Stone/ Title I-LAP Supervisor allocates the budget and monitors expenditures to ensure the required amount of Title I
funding is used for private school children residing within District boundaries. Michael creates the budget for each private school
by allocating the amount based on the school's poverty level and ensures the amount is equal on a per pupil basis for public and
private school students. During the school year the Michael monitors services provided so that the required amount of funding is used for
private school children. Most services are for tutoring students, in which the District uses the professional services contracts to state which
school(s), hours and costs are allowed to be charged. Michael prepares a spreadsheet and tracks the warrant payments to tutors and remaining
balances available to the tutor after each warrant is paid. The contract language contains a threshold amount that the total contract payments
cannot exceed.
KEY CONTROLS
Key Control #1: The Title I Private School Coordinator determines which private schools have elected to participate by verifying the
OSPI Educational Data System and contacting the eligible private schools within its boundaries that did not verify through OSPI at least
twice.
Key Control #2: Michael Stone/Title I -LAP Supervisor consults with the private school officials to identify school needs, allocates the
budget and monitors expenditures to ensure the required amount of Title I funding is used for private school children residing within
District boundaries.
Key Control #1: The Title I Private School Coordinator determines which private schools have elected to participate by verifying
the OSPI Educational Data System and contacting the eligible private schools within its boundaries that did not verify through
OSPI at least twice.
Marlene provided us with the 2012-2013 Contact Log from I Grants as well as copies of certified letters sent to schools that had not
responded. There were a total of 64 schools in the population. We randomly selected five private schools to test controls: Seattle Waldorf,
Perkins School, MMSC Day School, First Place and Assumption St. Bridget. We reviewed documentation of contact for each school noting each
school had been contacted at least twice. No exception.
Based on our interactions, we determined Marlene has the time, knowledge, experience, and commitment to oversee private school participation
requirements for this grant program. Based on our review, we determined this control appears to be in place and operating as intended.
Key Control #2: Michael Stone/ Title I -LAP Supervisor allocates the budget and monitors expenditures to ensure the required
amount of Title I funding is used for private school children residing within District boundaries.
We met with Michael on 3/5/2014. Michael showed us how he reviews the spreadsheet from Andy and uses it to allocate funding to each private
school based on the per pupil allocation assigned. Michael walked us through use of the "Address Lookup" tool on the District website. He showed
us how Andy will use this information to determine the per pupil allocation amount by looking up the per pupil allocation of the public school
service area the student resides in. Michael indicated he will use these per pupil amounts to allocate funding to private school students. Michael
provided us with the 2012-2013 Private School Allocation Addresses file. Michael selected one of the students from the file and showed us how
the students address will show the assigned school on the website. The student attended St. Therese and was within the boundary of Madrona K-
8. We verified the student was assigned Madrona as the boundary school on Andy's spreadsheet. We then verified the $530 per pupil allocation
tied to the per pupil allocation on the I Grants budget. We noted no exceptions during our review.
Based on our interactions, we determined Michael has the time, knowledge, experience, and commitment to oversee private school participation
requirements for this grant program. Based on our review, we determined this control appears to be in place and operating as intended.
Compliance Testing
1. We obtained a copy of the 2012-2013 Contact Log from I Grants as well as copies of certified letters sent to schools that had not responded.
There were 64 schools in the population. We randomly selected five private schools to test controls: Seattle Waldorf, Perkins School, MMSC Day
School, First Place and Assumption St. Bridget. We reviewed the documentation of contact for each school noting each school had been contacted
at least twice. No exception.
2. We used the IGrants budget provided by Michael Stone to determine the number of Private Schools participating in Title I. There were 20
schools identified. We randomly selected three schools to verify that the District conducted timely consultation with private school officials in
making its determinations and set aside the required amount for private school children. We reviewed the "District Affirmation of Consultation
with Private School Officials" form used to document timely consultation with private schools participating in Title I. We noted the following:
School Date Signed School Official
School Official
Title
Christ the King 5/9/2012 Anne E. Brand Principal
Seattle Hebrew 6/5/2012 Katie May Principal
St. George 5/17/2012 Monica Wingard
Principal
Based on our review, the District conducted timely consultation with private school officials. No exception.
3. We reviewed program expenditures and other records to verify that educational services that were planned were provided. Of the 20 schools
participating in Title I as identified in #2 above, we haphazardly selected five schools and compared the total budgeted per pupil allocation for
each school to the actual expenditures in accounting records. Due to the grant period ending September 30th, the availability to carryover funds
to the next fiscal year and the fact that budgeted numbers are estimations; we would expect variances in budget to actual expenditures. We
documented our review below:
School Budgeted Amount
Actual
Expenditures
Variance
Percentage
Variance
Christ the King $ 3,230.00 $ 2,850.11 $ 379.89 11.76%
Seattle Hebrew $ 7,380.00 $ 6,352.80 $ 1,027.20 13.92%
St. George $ 34,700.00 $ 31,175.75 $ 3,524.25 10.16%
St. Joseph $ 8,080.00 $ 7,623.50 $ 456.50 5.65%
St. Paul $ 20,800.00 $ 18,901.00 $ 1,899.00 9.13%
Total of Selection $ 74,190.00 $ 66,903.16 $ 7,286.84 9.82%
We inquired with Marlene as the types of programs provided to these schools. Private schools are provided mainly with tutoring in either math or
reading. We reviewed the expenditure types in the accounting records and noted expenditures met our expectations for charges for tutoring
services. Based on our review, we determine the educational services planned were provided within reason. No exception.
4. We verified that:
(1) The per pupil allocation (PPA) generated by private school children from low-income families living in participating public school
attendance areas is equal to the PPA generated by public school children from low-income families living in the same attendance areas.
In order to verify that the Address Tool of the District website was providing correct feedback, we entered in two known addresses (one
inside the service area and one outside of the service area). The address outside of the District returned an error and the address inside
the service area returned schools within the neighborhood of the known address. We obtained the "Private School Allocation Addresses" file
from Michael Stone. There were 133 students in the population. We randomly selected 15 students performed the following:
Verified the assigned school in the allocation file matched the school assignment per the Address Tool on the District website.
Verified the per pupil allocation in the allocation file matched the per pupil allocation on I Grants for the related public school.
Testing was performed at: Private Schools Testing. We noted no exceptions during testing.
(2) Funds to provide equitable services to private school students were available, as applicable, from funds, if any, reserved off the top of
the LEAs Part A allocation for instructional and related activities at the district level.
We reviewed the budget in IGrants and noted the District allocated $175,113 for private schools. The total needed based on the per pupil
allocation of students served was $166,390. Based on our review, funds were available to provide equitable services to private school
students. No exception.
(3) Funds to provide equitable services to teachers and families of participating private school students were available from reservations of
funds for professional development and parent involvement. We reviewed the budget in IGrants and determined the District set aside
$1,419 for Parent Involvement of the $110,807 total Parent Involvement. We recalculated the set aside and noted it was calculated on a
per pupil basis for total students served. The distribution for private schools was equitable to public schools. There was no set aside this
year for professional development. We determined funds to provide services to teachers and families were equitable. No exception.
5. We performed testing for services provided to eligible private school students under an arrangement with a third-party provider at: Personal
Service Contracts. We verified that the District retains proper administration and control by having a written contract that:
(1) Describes the services to be provided; and
(2) Provides that the LEA retains ownership of to materials, equipment, and property purchased with Federal funds.
We obtained a copy of the District's standard template for personal service contracts from Allen Mardock/Supervisor Accounts Payable. The
contract contains a section to describe the services provided under the contract. The is also verbiage regarding use of District property and
maintained ownership by the District. Based on our review, no exception.
6. Based on testing, we determined the District has adequate internal controls over and is in compliance with the requirements for private schools.

E.4.PRG - Title I - CFDA 84.010/84.389

Procedure Step: N2. Special Test - Schoolwide Programs

Purpose/Conclusion:
Purpose: To determine if the District has adequate internal controls over and is in compliance with the requirements for schoolwide programs.

Conclusion: We determined that the District has adequate internal controls over and is in compliance with the requirements for schoolwide
programs.

Testing Strategy:
SPECIAL TESTS AND PROVISIONS - SCHOOLWI DE PROGRAMS

NOTE: This is a general cross-cutting provision that applies to the federal programs listed below. If you are auditing one or more of these
programs, this compliance area only has to be tested once. Simply cross-reference your testing.

You should audit Schoolwide Programs if the amount expended in the schoolwide program(s) for the grant you are auditing is more than 10% of
the grant total.

Example 1: You selected Title I as a major program. The district had two schoolwide programs and allocated 20% of its Title I funding to
the schoolwide programs. You will need to audit compliance with schoolwide requirements for that district.
Example 2: You selected Safe and Drug Free as a major program, but not Title I. The district had one schoolwide program, and
incorporated Title I and Safe and Drug Free grant funds into the schoolwide plan. If the amount of Safe and Drug Free funding allocated
to the schoolwide programs is less than 10% of the total Safe and Drug Free grant, you do not have to audit this area.

Example 3: You selected Title I and Safe and Drug Free as major programs. The district had two schoolwide programs, and incorporated
Title I and Safe and Drug Free grant funds into the schoolwide plan. The amount of Safe and Drug Free funding allocated to the
schoolwide programs is less than 10% of the total Safe and Drug Free grant, but the amount of Title I funds allocated to the schoolwide
program is 20% of the total Title I grant. You will need to audit this area.
ARRA alert: Districts are permitted to use their ARRA funds for schoolwide programs so long as they separately account for their use.
Washington has received ESEA flexibility, the SEA was granted a waiver to allow a Title I, Part A school with less than 40 percent low-income
children to operate a schoolwide program if (a) the SEA identified the school as a priority school or a focus school and (b) the LEA is implementing
interventions consistent with the turnaround principles or interventions that are based on the needs of the students in the school and designed to
enhance the entire educational program in the school (see paragraph 5 on page 1 of ESEA Flexibility)].

Refer to OSPI Bulletin 054-12 at http://www.k12.wa.us/bulletinsmemos/bulletins2012.aspxfor fulldetails about which programs can be combined
into a schoolwide program. Most Department of Education grants can be combined into a schoolwide program, such as (per compliance supp):
Title I, Part A (84.010 and 84.389-ARRA)
Migrant Education (84.011 Title I, Part C) - restrictions apply, see bulletin referenced above.
Special Ed Cluster (84.027/173 and 84.391/392-ARRA)
Vocational Ed (84.048)
Safe and Drug Free Schools (84.186)
Even Start (84.213) Note: congress no longer funds this program but remaining carryover may be used.
21st Century (84.287)
Title V, Part A Innovative Education (84.298)
Title II, Part D - Education Technology - Enhancing Education Through Technology (84.318 and 84.386-ARRA)
Title III, Part A English Language Acquisition (84.365)
Title II, Part A Improving Teacher Quality (84.367)
Ed J obs (84.410)
Mathmatics and Science Partnership (84.366)
School Improvement Grants (84.377 and 84.388 ARRA)
Note: Any grants that are not awarded by the Dept of Education (e.g., Head Start, Medicaid, School Lunch) cannot be combined into a schoolwide
program.

State Funds:
State basic education allocation and state levy equalization revenue (local effort assistance) may be included in schoolwide plans. In addition,
Section 515 of Chapter 518 of the 2005 Washington State Sessions Laws encourages school districts to coordinate the use of state Learning
Assistance Program (LAP) revenue with other federal, state and local resources, as long as services are provided to LAP eligible students.

Other state funds, such as state transitional bilingual, highly capable student programs, Early Childhood Education and Assistance (ECEAP), and
state special education may not be combined in a schoolwide program.

Local Funds:
Local levy revenue may be combined in schoolwide programs. If local levy dollars are combined in a schoolwide program, the expenditures should
be assigned to Program 01 Basic Education.

Purpose of Schoolwide Programs:
Schoolwide programs are authorized under the Elementary and Secondary Education Act (ESEA) as an alternative means to better serve all
children in a school by intentionally coordinating instructional programs and combining financial resources, rather than operating categorical
programs as separate services.
Schoolwide program schools have great latitude in determining how to spend their Title I, Part A funds. Schoolwide programs are not required to
identify particular children as eligible for services, show that Title I, Part A funds are paying for supplemental services that would otherwise not be
provided, or separately track federal dollars.
Guidance from OSPI on Schoolwide Plans can be found at: http://www.k12.wa.us/TitleI/TitleI/SchoolwideModel.aspx
NEW: Use I ndistar to Merge Schoolwide & Student and School Success Action Plans
Integration of Schoolwide Plans into Indistar
I ndi star i s a web- based system i mpl emented by a state educati on agency, di stri ct, or charter school
organi zati on f or use wi th di stri ct and/ or school i mprovement teams to i nf orm, coach, sustai n, track, and report
i mprovement ac- ti vi ti es.
OSPI Title I Schoolwide Plan Requirements:
Schools will:
Upload their current Schoolwide Plan to the Title I SWP Misc. Docs folder on their I ndistar dashboard.
Craft an action plan (in SMART Goal format) for a minimum of one of the corresponding indicators for Components 4,6,7,8,& 9.
Ensure supporting documentation for all 10 components is uploaded to the corresponding folder in Indistar.
Complete the Title I Schoolwide Plan Required Components Checklist of Evidence/ Actions webform
Submit Checklist webform on: Feb. 28
th
& May 30
th

Here are some of the FAQs:
What would our "current schoolwide plan" be if last year we used the crosswalk document to add indicators for each of
the Title I Components? Two years back we had our own SIP Templates with the 10 components but last year we used
Indistar as both the Schoolwide Plan and the School I mprovement Plan.
Beginning with the 2012-13 school year, there is no crosswalk document posted within Indistar that will integrate your action plan
principles and the 10 components of the Title I, Part A schoolwide plan. We recommend that you click on the Docs & Links tab on your
Indistar dashboard, and take advantage of the guidance and tech support documentation available there to merge these two important
planning tools.
Is it mandatory to merge our Title I, Part A schoolwide plan with the action plan we created in Indistar?
Yes. Mandatory for every school building that meets these two conditions:
o Operating a Title I, Part A schoolwide program
o Identified as Priority, Focus or Emerging in the states Annual Measurable Objectives (AMO) accountability
system.
Definitions, and Calculations Used to Identify Reward, Priority, Focus and Emerging Schools (PDF)
Audit Objectives:
To determine whether (1) the schools operating schoolwide programs were eligible to do so; and (2) the schoolwide programs were based on a
comprehensive plan that included the required elements.

A school participating under Title I, Part A may use its Title I, Part A funds, along with funds provided from the above-identified programs and
other Federal education funds, to upgrade the school's entire educational program in a school wide program.

Eligibility of a School:
To qualify for fiscal year 2003 and subsequent years, at least 40 percent of the children enrolled in the school or residing in the school attendance
area for the initial year of the school wide program must be from low-income families. The LEA is required to maintain records to demonstrate
compliance with this requirement. (Historical Note: The poverty level in prior years was 50%). However, with the waiver, a Title I, Part A school
with less than 40% low-income children may operate a schoolwide program if (a) the school was identified as a priority or focus school and (b)
the district is implementing interventions consistent with the turnaround principles or interventions that are based on the needs of the students in
the school and designed to enhance the entire educational program in the school.

Plan Components:
To operate a schoolwide program, a school must develop a comprehensive plan to upgrade its total instructional program. To operate a
schoolwide program, a school must include the following three core elements:

(1) Comprehensive needs assessment of the entire school (34 CFR 200.26(a)).

(2) Comprehensive plan based on data from the needs assessment (34 CFR 200.26(b)).

(3) Annual evaluation of, and results achieved by, the schoolwide program and revision of the schoolwide plan based on that evaluation (34 CFR
200.26(c)).

A schoolwide plan must include the following components:

(1) Schoolwide reform strategies (34 CFR 200.28(a)).

(2) Instruction by highly qualified professional staff (34 CFR 200.28(b)).

(3) Strategies to increase parentalinvolvement (34 CFR 200.28(c)).

(4) Additional support to students experiencing difficulty (34 CFR 200.28(d)).

(5) Transition plans for assisting preschool children in the successful transition to the schoolwide program (34 CFR 200.28(e)).
Consolidation of Federal Funds
According to the Elementary and Secondary Education Act, Section 1114(b):
(A) IN GENERAL- Any eligible school that desires to operate a schoolwide program shall first develop (or amend a plan for such a program
that was in existence on the day before the date of enactment of the No Child Left Behind Act of 2001), in consultation with the local
educational agency and its school support team or other technical assistance provider under section 1117, a comprehensive plan for
reforming the total instructional program in the school that
(i) describes how the school will implement the components described in paragraph (1);
(ii) describes how the school will use resources under this part and from other sources to implement those components;
A district should be able to readily identify thegrants and other funding sources (state or local) that are being allocated for use in its schoolwide
plans and how it intends to use these funds to carry out the objectives of the plan. Otherwise, the district would not be able to comply with
thetime and effort requirements for employees working in schoolwide programs or show that it is not supplanting non-federal resources.
Migrant education. Before the school chooses to consolidate in its schoolwide program funds received under part C of Title I of the ESEA, the
school must -- (i) Use these funds, in consultation with parents of migratory children or organizations representing those parents, or both, first to
meet the unique educational needs of migratory students that result from the effects of their migratory lifestyle, and those other needs that are
necessary to permit these students to participate effectively in school, and (ii) document that these needs have been met.

Indian education. The school may consolidate funds received under subpart 1 of part A of Title VII of the ESEA if the parent committee
established by the LEA under section 7114(c)(4) of the ESEA approves the inclusion of these funds.

Special education. The school may consolidate funds received under part B of the IDEA. However, the amount of funds consolidated may not
exceed the amount received by the LEA under part B of IDEA for that fiscal year, divided by the number of children with disabilities in the
jurisdiction of the LEA, and multiplied by the number of children with disabilities participating in the schoolwide program. The school may also
consolidate funds received under section 8003(d) of the ESEA (Impact Aid) for children with disabilities in a schoolwide program. A school that
consolidates funds under part B of IDEA or section 8003(d) of the ESEA may use those funds for any activities under its schoolwide program plan
but must comply with all other requirements of part B of IDEA, to the same extent it would if it did not consolidate funds under part B of IDEA or
section 8003(d) of the ESEA in the schoolwide program.
-------------------------------------------------------------------------------------------------------

over compliance.

Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring the district's schoolwide
plans incorporate allowable funding sources, are eligible (40% poverty, unless opting to use waiver in a priority or focus school), and contain the
required components.
exists.


Likelihood of
Noncompliance

than material


Material

Remote
Control deficiency

Control deficiency

Control deficiency

More than
remote
(at least
reasonably
possible)
Control deficiency







1. For schools operating a schoolwide program, review records and determine if the schools met the poverty eligibility requirements (40%, unless
opting to use waiver in a priority or focus school). As noted above, districts may use Indistar to document their schoolwide plans.

2. Determine whether the plans meet the following requirements:
a.) Review the schoolwide plan(s) and ascertain if it included the required components described above.
b.) Determine whether the district identified, as part of its planning process, the federal grants and other state and local resources that
were to be used to carry out the plan.
c.) Review the types of grants (e.g., Title I, Title II, etc.) that are being used in the schoolwide plan to ensure only allowable grants are
included.
3. Review documentation to support:
Consultation with parents including, when Migrant Ed funds are included, the parents of migratory children or organizations representing
those parents; and, when Title IX, Part A, Subpart 1 (I ndian Education) funds are included, approval by the I ndian parent advisory
committee.
If Migrant Ed funds are combined in the schoolwide program, determine that services addressing the identified needs of migratory
children were met before Migrant Ed funds were consolidated.
If Special Ed funds are used, the amount of I DEA Part B funds may not exceed the amount received under CFDA 84.027 by the District for
the fiscal year divided by the number of children with disabilities in the jurisdiction of the District multiplied by the number of children with
disabilities participating in the schoolwide program.
4. Conclude on District's compliance with requirements for Schoolwide Programs.

Policy/Standards:


The compliance requirement is not new, has not recently changed and is not relatively complex.
The inherent risk is the schools operating schoolwide programs are not eligible and the schoolwide programs are not based on a comprehensive
plan that included the required elements.
The SWP plan procedures are set by OSPI. See http://www.k12.wa.us/TitleI/TitleI/SchoolwideModel.aspx
Most schools on the schoolwide program (SWP) are continuous from previous years. Each year the Title I grant is updated with the new list of
approved schoolwide plans. It takes approximately one year for a new school to be approved to become a SWP. The District created a Schoolwide
Plan Template document for new schools applying for the SWP to help ensure the plan is completed with all information necessary to be
approved. The planning process begins with the required comprehensive needs assessment. The needs assessment is critical in developing a
schoolwide program, as it reveals the priority areas on which the program will focus.
Each school uses the Title I Schoolwide Model Planning Component Checklist to prepare the Comprehensive Plan. The SWP plans are prepared by
the school Principal, Assistant Principal and other site staff. The completed school SWP plans are submitted to Michael Stone, Title I/LAP
Supervisor who reviews and approves the plan to ensure they incorporate allowable funding sources and contain the required components. Each
school SWP plan contains a table of which federal, state and/or local funds in addition to the Title I funds that will be used to carry out the plan.
The Title I/LAP Supervisor works with the school Principal and Assistant Principal to clarify and edit areas to ensure the plan meets the
requirements before approval. The approved SWP plans are uploaded on the District SharePoint site where throughout the year the Principal or
Assistant Principal can update the plan with milestones met or changed. This usually occurs after each semester. The annual SWP plans are due
to OSPI by J uly 1. The District refers to the plans as the Continuous School Improvement Plan, or CSIP.
Sim Henderson/ Title I -LAP Budget Coordinator uses the Free & Reduced School Lunch report to rank schools based on poverty
level. Michael Stone, Title I/ LAP Supervisor uses this ranking to determine if each school meets SWP requirements. Due to the
ESEA waiver granted to Washington: each school must be above 40% poverty level or be identified as a priority or focus school
and is implementing interventions consistent with turnaround principles to be eligible for SWP.
KEY CONTROLS
Key Control #1: Sim Henderson/Title I -LAP Budget Coordinator uses the Free & Reduced School Lunch report to rank schools based on
poverty level used to determine if each school meets SWP requirements.
Key Control #2: Michael Stone, Title I/LAP Supervisor reviews and approves each school's comprehensive schoolwide program plans to
ensure they incorporate allowable funding sources and contain the required components.
Key Control #1: Sim Henderson/ Title I -LAP Budget Coordinator uses the Free & Reduced School Lunch report to rank schools
based on poverty level used to determine if each school meets SWP requirements.
Please clarifySchools receiving Title I funds under a schoolwide program must meet poverty levels as indicated in the eligibility compliance
requirement of Schoolwide programs. Therefore, we tested internal controls over ranking school by poverty level at: E. Eligibility. Based on our
review, this control appears to be in place and working as intended. To verify that the ranking was used to determine which schools qualified as
schoolwide programs, we obtained a copy of the budget from the Title I IGrants application. This was provided by Michael Stone/Title I/LAP
Supervisor. We reviewed the budget to ensure all SWP schools were above the 35% threshold or were identified as priority or focus schools. We
noted all schools served by Title I were above a 55% poverty level.
Based on our interactions and review, we determined Sim has the time, knowledge, experience, and commitment to oversee schoolwide program
requirements for this grant program. This control appears to be in place and operating as intended.
Key Control #2: Michael Stone, Title I/ LAP Supervisor reviews and approves each school's comprehensive schoolwide program
plans to ensure they incorporate allowable funding sources and contain the required components.
We met with Michael Stone, Title I/LAP Supervisor on 2/28/2014. Michael showed us an example of a schoolwide program plan. We asked Michael
to show us the Bailey Gatzert Elementary SWP plan from the District's SharePoint folder and walked us through how he uses the Component
Checklist to ensure each component is included in the SWP plan. During our discussion, he demonstrated his knowledge of the core plan elements
and additional elements on the checklist by reciting them without the checklist in his view. This shows his familiarity with the federal compliance
requirements for the SWP plan. We reviewed the Bailey Gatzert Elementary SWP plan and verified all required and additional components are
included in the SWP plan without exception.
Based on our discussion, we determined Michael has the time, knowledge, experience, and commitment to oversee schoolwide program
requirements for this grant program. This control appears to be in place and operating as intended.
Compliance Testing
Of the 30 schoolwide plans, we randomly selected five to test compliance. The schools selected were: Bailey Gatzert Elementary, Beacon Hill
International School, Wing Luke Elementary, South Lake High School, and Madrona K-8 School. We performed the following:
1. We reviewed records for the five schools above and determined that the schools met the poverty eligibility requirements (40%, unless opting to
use waiver in a priority or focus school). No exception.

2. Determine whether the plans meet the following requirements:
A school must include the following three core elements:

(1) Comprehensive needs assessment of the entire school (34 CFR 200.26(a)).
(2) Comprehensive plan based on data from the needs assessment (34 CFR 200.26(b)).
(3) Annual evaluation of, and results achieved by, the schoolwide program and revision of the schoolwide plan based on that
evaluation (34 CFR 200.26(c)).
A schoolwide plan must include the following components:
(1) Schoolwide reform strategies (34 CFR 200.28(a)).
(2) Instruction by highly qualified professional staff (34 CFR 200.28(b)).
(3) Strategies to increase parental involvement (34 CFR 200.28(c)).
(4) Additional support to students experiencing difficulty (34 CFR 200.28(d)).
(5) Transition plans for assisting preschool children in the successful transition to the schoolwide program (34 CFR 200.28(e)).
a.) We reviewed the schoolwide plans for the five schools selected, above, and determined each plan included the required components. No
exception.
b.) We determined that the district identified, as part of its planning process, the federal grants and other state and local resources that were to
be used to carry out the plan. No exception.
c.) We reviewed the types of grants (e.g., Title I, Title II, etc.) that are being used in the schoolwide plan to ensure only allowable grants are
included. No exception.
3. We reviewed Note 3 of the SEFA at: SSD_SEFA_FY13-revisedto determine whether federal grants being used in the schoolwide plan are only
allowable grants. We noted the District included Title I (CFDA 84.010), ARRA - School Improvement Grant (CFDA 84.388) and Learn and Serve
America Innovative Community-Based Service-Learning Programs (CFDA 94.018) in its Schoolwide Programs notes disclosure. We performed a
CAATS database search for Title I, Migrant Ed and Special Ed funds within the same school, for each of the selected schools, and found none. We
determined Migrant Ed and Special Ed were not combined in the Title I schoolwide program. No exception.
4. We determined that the District has adequate internal controls over and is in compliance with the requirements for schoolwide programs.

E.4.PRG - Title I - CFDA 84.010/84.389

Procedure Step: N3. Special Test - Comparability

Purpose/Conclusion:
Purpose:
To determine if the District has adequate internal controls over and is in compliance with the requirements for comparability.

Conclusion:
We determined that the District has adequate internal controls over and is in compliance with the requirements for comparability.

Testing Strategy:
SPECIAL TESTS AND PROVISIONS - COMPARABILITY

NOTE: Comparability is a general cross-cutting provision that applies to both Title I (84.010 and 84.389-ARRA) and Migrant Ed (84.011). If you
are auditing both programs, this area only has to be tested once - cross reference your testing to the other program.
ARRA Alert - the comparability requirement is a measurement of how state and local funds are being spent in Title I schools and non-Title
I schools. TheU.S. Department of Education has ruled that State Fiscal Stabilization Funds (SFSF), CFDA 84.394,can be treated as "state
and local" funds when making comparability calculations so long as the district elected to treat its SFSF as an I mpact Aid payment (all
schools in Washington have made this election).
Ed J obs consideration: When determining whether its Title I schools meet the comparability requirement, an LEA with staff who are
supported with Ed J obs funds should assess how each position would be funded were Ed J obs funds not available. School staff paid with
Ed J obs funds who are in positions that would ordinarily be supported with State or local funds and would ordinarily be included in
comparability determinations should continue to be included in those determinations. On the other hand, school staff paid with Ed J obs
funds who are in positions that would otherwise be supported with other Federal funds, with the exception of the Impact Aid funds, would
continue to be excluded from comparability determinations.
Overview:
The No Child Left Behind Act of 2001 requires a school district which receives Title I, Part A funds to use state and local funds to provide services
in Title I, Part A schools that are at least comparable to the services provided in schools that are not receiving Title I, Part A funds. If the district
serves all of its schools with Title I, Part A funds, it must use state and local funds to provide services that are substantially comparable in each
Title I, Part A school.
OSPI instructions on comparability requirements can be found in Bulletin B051-12 at
http://www.k12.wa.us/bulletinsmemos/bulletins2012.aspx. See attachment A for instructions (guidelines on comparability). District comparability
reports are submitted to the Office of Superintendent of Public Instruction (OSPI)via iGrants Form Package 361. The report submitted in FY12 was
due on October31, 2012.
Page 1, Grade Span Summaryis required for all districts, regardless of size or number of buildings. This page accounts for all buildings in
the district based on 2012-13 building information. I f the district has only one building per grade span, page 1 on iGrants Form Package
361 is the only page required. Additionally, if no building in a grade span receives Title I, Part A funds, page 1 is the only page required
for that grade span.
Page 2, Detail Section School Datais required for each grade span reported on page 1 where there is more than one building and at
least one of the buildings receives Title I, Part A funds. Generally, one page should be completed for each applicable grade span.
However, large districts canbreak a grade span into large and small schools.
Alternative 1
Under the statute, the district is considered to have met the comparability requirement if the district files a written assurance that it has
established and provides documentation that it has implemented the following items:
A district-wide salary schedule.
A policy to ensure equivalence among schools in teachers, administrators, and other staff.
A policy to ensure equivalence among schools in the provision of curriculum materials and instructional supplies [ESEA Section
1120A(c)(2)(A)].
Alternative 2
OSPI has determined comparability may be demonstrated either as student/instructional staff ratios or student/instructional staff salary ratios. A
separate iGrants page must be completed for each grade span for which comparability is required.
The district may determine comparability on a district-wide basis or on a grade span basis. There is no limitation on the number of grade spans
that may be used but they should match the basic organization of schools in the district. For example, if the district is divided into elementary,
middle, and high schools, it would have three grade spans. All districts with more than one building per grade span must have a comparability
report on file.
If there is a significant difference in the enrollments of the schools within a grade span, the district may divide grade spans into a large school
group and a small school group. For example, if the largest school in the grade span has an enrollment that is twice that of the smallest school in
the grade span, two groups would be appropriate. This will only be appropriate for larger school districts.
Exemptions
A district may exclude schools with 100 or fewer students from comparability determinations by grade span but they should be included and listed
on page 1, Grade Span Summary.
Documentation
Alternative 1: I f the district files a written assurance that it has established and implemented a district-wide salary schedule and has policies to
ensure equivalence among schools in staffing and in the provision of materials and supplies,it must keep records to document that the salary
schedule and policies were implemented and evidence that equivalence was achieved among schools in staffing, materials, and supplies.
Alternative 2: I f the district established and implemented measures for determining compliance with comparability using student/instructional staff
ratios, it must maintain source documentation to support the calculations and to demonstrate that any needed adjustments to staff assignments
were made.

over compliance.
Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring compliance with
comparability requirements:
Automated controls affect the manner inwhichgrant-related transactions are initiated, authorized, recorded, processed, and reported.
exists.


Likelihood of
Noncompliance
than material
Material
Remote
Control deficiency
Control deficiency
Control deficiency
More than
remote
(at least
reasonably
possible)
Control deficiency


1. Review the District's comparability information it submitted toI-grants. I fthedistrict followed Alternative 1, review thedistrict-wide policies and
the district'sevidence showing how equivalenceamong schools was achieved. I f the district followed Alternative 2,trace the comparability data it
submitted to I-grantstosupporting records.

2. Conclude on district's compliance with requirements for Comparability.

Policy/Standards:


The compliance requirement is not new to the District and has not recently changed.

The inherent risk is the District receives Title I, Part A funds and does not use state and local funds to provide services in Title I , Part A schools
that are at least comparable to the services provided in schools that are not receiving Title I, Part A funds.


Contacts

The FTE are budgeted and allocated at Title I schools during the budget process so that Title I services (student/instructional staff ratios) are
designed and planned to be comparable to the Non-Title I schools. All District staffing is input in the SAP system and student enrollment is input in
the electronic student information services (eSIS) system. Sim Henderson/Title I-LAP Budget Coordinator monitors the progress of the
development of the report throughout the year. J eff J ones/Technical Business Analyst Lead Supv. compiles the report and sends it to Sim. Sim
uses OSPI's Comparability bulletin report as a guide to complete the District's comparability report. He then performs an analysis for determining
compliance with comparability using student-to-instructional staff ratios. He uses this analysis to demonstrate any needed adjustments to staff
assignments so that the comparability requirement is met annually. He maintains all source documentation to support the calculations. The report
is due October 31st of each year. OSPI emails reminders for the due date. Sim Henderson/Title I-LAP Budget Coordinator, reviews
enrollment ratio reports and compares the Title I funded-FTE ratio allocation to non-Title I FTE ratio all ocations to ensure Title I
participating schools provide services that, taken as a whole, are at least comparable to services that non-participating schools provide.

Key Control #1: Sim Henderson/ Title I -LAP Budget Coordinator, reviews enrollment ratio reports and compares the Title I
funded-FTE ratio allocation to non-Title I FTE ratio allocations to ensure Title I participating schools provide services that, taken
as a whole, are at least comparable to services that non-participating schools provide.
We met with Sim Henderson/Title I-LAP Budget Coordinator, on 2/21/2014. He showed us with the comparability report for 2013 submitted on
10/30/2012 in I Grants. He also was able to show us the Access file used to calculate the comparability ratios prior to submission to
OSPI. We recalculated the ratio for West Seattle Elementary to confirm the formula used in Access was dividing the number of students by
teachers & support staff to provide the FTE ratio. OSPI monitors the submission of this report. Sim was able to show us where OSPI had made
edits to the report in I Grants on 10/31/2012. He provided us with the 2012-2013 comparability report. The report is based on data collection
dated as of 11/1/2011. We noted the reporting includes a grade span comparison as required by OSPI (K-5; K-8; 6-8; 6-12; 9-12). Sim
demonstrated his knowledge of job codes and how the District's comparability ratio was calculated for West Seattle Elementary. The ratio was
18.68. We traced this number to OSPI's report and noted the ratio agreed to the District's records without exception.

Sim was also able to provide us with an email from J ulie Chace/OSPI Special Programs, Title I/LAP sent 10/8/2012 indicating the comparability
bulletin was posted to the OSPI website and reminding Districts of the October 31st due date.

Based on our review, we determined Sim has the time, knowledge, experience, and commitment to oversee comparability requirements for this
grant program. This control appears to be in place and operating as intended.
Compliance Testing
1. We reviewed the District's comparability information it submitted to I-Grants. The District follows Alternative 2, therefore, we traced the
comparability data it submitted to I-Grants to the Access file created by Sim to calculate the ratio prior to submission. We used excel to
recalcuate the ratio for all schools. We then traced the data from Sim's ratios to the report created by J eff J ones from eSIS. We noted no
variances in data or calculation. New Note No exception.

We determined that the District has adequate internal controls over and is in compliance with the requirements for comparability.

E.4.PRG - Title I - CFDA 84.010/84.389

Procedure Step: N6. Special Test - Highly Qualified

Purpose/Conclusion:
Purpose: To determine if the District has adequate internal controls over and is in compliance with the requirements for highly qualified.

Conclusion:
Based on our testing we conclude on District's compliance with requirements for Highly Qualified Teachers and Paraeducators except for
notification of parents of children taught by teachers not meeting HQT Status. See audit issue at:SA_E: Title I : HQT Status - Notification to
Parents.

Testing Strategy:
SPECIAL TESTS AND PROVISIONS - Highly Qualified Teachers and Paraeducators


Local Educational Agency (LEA) means school district.
Audit Objectives: To determine whether:
(1) the district submitted accurate Highly Qualified Teacher (HQT) reporting information to OSPI;
(2) all teachers and para-educators are highly qualified;
(3) the district communicated to parents instances where Title I teachers who were not highly qualified taught in a Title I classroom.
Link to OSPI guidance on highly qualified teacher information:
http://www.k12.wa.us/TitleIIA/HighlyQualifiedTeachers.aspx
Refer to the policy/ criteria tab for a chart on HQT requirements.
Teachers:
Highly qualified teacher requirements apply to all teachers who provide instruction in the core academic subjects. Core academic subjects, as
defined by ESEA, are:
Mathematics
Science
History
Geography
Civics/Government
Economics
Foreign Language (Designated World Languages)
Reading
English/Language Arts
Music (general, choral, instrumental)
Visual Arts
Dance
Theatre
Elementary Curriculum
All teachers must hold at least a bachelors degree and full state certification, and are required to demonstrate their subject area knowledge in the
core academic subject areas in which they teach. Elementary teachers demonstrate their subject area knowledge as it relates to the elementary
curriculum as a whole, whereas middle and high school teachers demonstrate their knowledge of each core academic subject area they are
assigned to teach.
Special education teachers are required to meet the ESEA HQT requirements and meet the IDEA HQT requirements. Meeting the ESEA HQT
requirements is dependent on the individual teachers teaching assignment.
ALL teachers who do not meet highly qualified must have a completed "I ndividual Teacher Plan for Achieving Highly Qualified Teacher Status" and
be able to show progress towards meeting highly qualified.
CHANGE TO THE RULES I N FY09: High Objective Uniform State Standard of Evaluation (HOUSSE).
NCLB law allows each state to use a HOUSSE to evaluate a teachers subject area knowledge. The HOUSSE, which takes several criteria into
consideration, is a state-defined process for teachers to use instead of the statutory pathways as stated in NCLB. Prior to November 2008,
Washington State had two HOUSSE options available for Washington teachers:
(1) the Points-Based HOUSSE, a one-time permanent process for each core academic subject area, and
(2) the annual HOUSSE Plan of Assistance.
Based on guidance from the U.S. Department of Education, Washingtons annual HOUSSE Plan of Assistance is no longer validbeginning with the
200809 school year. As as result, a teacher whose HQT status was based on this option must be reported as not meeting HQT
requirements. See reporting requirements below.
Para-Educators (also called para-professionals):
An LEA must ensure that each paraeducator who is hired by the LEA after J anuary 8, 2002 and who works in a program supported with Title I,
Part A funds meets specific qualification requirements. Paraeducators who work in a program supported with Title I, Part A funds and who were
hired by an LEA prior to J anuary 8, 2002, must have met these requirements by the end of the 2005-2006 school year.
The term "para-educator" or "para-professional" means an individual who provides instructional support; it does not include individuals who have
only non-instructional duties (such as providing technical support for computers, providing personal care services, or performing clerical duties). A
paraeducator works in a program supported with Title I funds if the paraeducator is paid with Title I funds in a Title I targeted assistance school
or any paraeducator in a schoolwide program school.
A paraeducator must hold a high-school diploma or its recognized equivalent and meet one of the following requirements:
(1) Have completed at least two years of study at an institution of higher education.
(2) Have obtained an associate's or higher degree.
(3) Have met a rigorous standard of quality, and can demonstrate through a formal State or local academic assessment knowledge of, and the
ability to assist in instructing, reading/language arts, writing, and mathematics, or reading readiness, writing readiness, and mathematics
readiness.
A paraeducator who is proficient in English and a language other than English and acts as a translator or who has duties that consist solely of
conducting parental involvement activities need only have a high-school diploma or its recognized equivalent.
Ramifications for not meeting HQT status
School districts have a responsibility to support and monitor teacher progress toward meeting the goal of satisfying the federal requirements of a
highly qualified teacher. They are required to:
Have a highly qualified teacher plan and monitor progress to ensure all teachers meet the HQT requirement.
Ensure yearly progress in the numbers of teachers meeting HQT requirements.
Collect and report annual HQT data to the Title II Part A office at OSPI.
Maintain HQT records at either the school or district level.
Title I of No Child Left Behind places emphasis on the parents right to know about the professional qualifications of their childs classroom
teachers. This disclosure applies to all teachers working in schools that receive Title I Part A funds. At the beginning of the school year, a district
receiving Title I Part A funds must notify parents of children enrolled in schools receiving Title I Part A funds that they can request the following
information regarding instructional staff who work with their children:

Whether or not the childs teacher has met state certification for the grades and subjects s/he is teaching.
Whether or not the teacher is working with an emergency or conditional certificate where state certification criteria has been waived.
The baccalaureate degree major of the teacher and any other graduate certification or degree held, including field of discipline of the certificate
or degree.
If the child receives instructional services from a paraeducator, the paraeducator's qualifications.
In addition, each Title I school (any school receiving Title I funds) is required to notify parents individually when for four or more consecutive
weeks their child has been taught by a teacher who does not meet the HQT requirements set by No Child Left Behind.
Reporting
OSPI requires districts to report their HQT information to monitor compliance with these regulations in spring/early summer each year. An online
data collection tool is used to allow districts to submit the necessary data elements electronically through a system called Education Data System
(EDS).
The following data will be requested for the HQT and Paraeducator Data Collection Reporting:
Section I: Teacher Data
1. The total number of teachers who teach core academic classes.
2. The total number of core academic classes taught by teachers.
3. The number of teachers who DO NOT MEET the highly qualified requirements. (Auditor: be alert to the disallowance of the HOUSSE Plan
of Assistance as a way of meeting HQT described above.)
4. The number of core academic classes taught by teachers who DO NOT MEET the highly qualified requirements.
5. The number of core academic teachers who hold an emergency certificate.
6. The number of core academic teachers who hold a conditional certificate.
Section II: Teachers not meeting HQT Requirements
If at least one class is taught by a teacher not meeting HQT requirements, the following information is requested:
1. The teachers name, certificate number, school name, teaching assignment, program (i.e., general education, special education,
alternative education, bilingual education, juvenile institution), and core academic subject area in which the teacher does not meet highly
qualified requirements.
2. The number of core academic subject area classes taught by the teacher in the core academic subject area in which the teacher does not
meet the HQT requirement.
3. The total number of classes taught by all teachers in the core academic subject area or areas in which one or more teachers have been
reported as not meeting HQT requirements.
4. Action plan for teacher to become highly qualified. The district must enter specific information on how and when the teacher will meet
HQT.
Section III: Title I Paraeducator Data
Data reporting for paraeducators is by district level in the following areas:
1. The total number of paraeducators in the district required to meet the Title I requirements due to funding by Title I or employed in a Title
I schoolwide program and who assist with instruction in reading, writing, and mathematics.
2. Of the total number of paraeducators required to meet the Title I requirements, the number of paraeducators who actually do.
...................................................................................................
over compliance.

Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring teachers and
paraeducators are meeting the NCLB "highly qualified" standards and the district is reporting accurate HQT data to OSPI.
exists.

Likelihood of
Noncompliance

than material


Material

Remote
Control deficiency

Control deficiency

Control deficiency

More than
remote
(at least
reasonably
possible)
Control deficiency







1. Reporting.
(a). Identify the names of teachers and paraeducators whose payroll costs were charged to Title I in FY13. Of these, select some teachers and
paraeducators and review the district's documentation of how the teacher/paraeducator met the HQT requirements. (Auditor: be alert to
the disallowance of the HOUSSE Plan of Assistance as a way of meeting HQT described above.)
(b). Review the HQT report submitted to OSPI in 2013 described above.
As a "completeness test", determine that all teachers and para-educators whose salaries are charged to Title I (program 51) are properly
included in the report.
Compare the information reported to OSPI with district records to ensure the information being reported is accurate for the following:
Number of teachers who do not meet HQT requirements
Total number of paraeducators that are required to meet HQT in Title I, and how many in fact do meet the requirement.
(c). If applicable, calculate the amount of payroll costs (salary, wages and benefits) charged to Title I in FY12 for any teachers or paraeducators
who do not meet the HQT requirements. I f this amount is more than $10,000, contact the SAO Single Audit Specialist for instructions.
2. Notification to Parents. Determine if the district notified the parents of Title I children of the following:
(a). At the beginning of the school year, a district receiving Title I Part A funds must notify parents of children enrolled in schools receiving Title I
Part A funds that they can request the following information regarding instructional staff who work with their children:

Whether or not the childs teacher has met state certification for the grades and subjects s/he is teaching.
Whether or not the teacher is working with an emergency or conditional certificate where state certification criteria has been waived.
The baccalaureate degree major of the teacher and any other graduate certification or degree held, including field of discipline of the certificate
or degree.
If the child receives instructional services from a paraeducator, the paraeducators qualifications.
(b). If applicable, each Title I school (any school receiving Title I funds) is required to notify parents individually when for four or more
consecutive weeks their child has been taught by a teacher who does not meet the HQT requirements set by No Child Left Behind.

3. Conclude on District's compliance with requirements for Highly Qualified Teachers and Paraeducators.

Policy/Standards:
SEE THE HI GHLY QUALIFIED TEACHER (HQT) RESOURCE MANUAL (NOVEMBER 2013), PAGE 10, AT THE FOLLOWI NG LI NK FOR THE HQT
REQUIREMENTS
http://www.k12.wa.us/TitleIIA/pubdocs/HQT-Resource-Manual.pdf

Excerpts from OSPI HQT guide dated March 2010 (the current year version is under revision by OSPI):

Highl y Qualified Teacher (HQT) Requirements
Elementary and Secondary Education Act (ESEA)
The ESEA definition of a highly qualified teacher (HQT) is one who meets the following three criteria:

1. Holds at least a bachelors degree.

2. Holds full state certification.

3. Demonstrates subject matter knowledge and teaching skill in each core academic subject assigned to teach.

Pathways to Demonstrate Subject Matter Knowledge
Elementary Teachers
(Applies to Grades
K5/6. Teachers meet HQ through one pathway.)
Teachers New to the Teaching Profession
(Less than 180 days of teaching experience)
Teachers NOT New to the
Teaching Profession
(180 days or more of teaching
experience)

1. State Test*: WEST-E Elementary Education

2. State Test*: WEST-E Early Childhood Education, Grades K3

1. State Test*: WEST-E Elementary Education

2. State Test*: WEST-E Early Childhood Education,
Grades K3

3. Points-Based HOUSSE**

Secondary Teachers
(Applies to middle and high school teachers. Teachers meet
HQ through one pathway for each subject area assigned to
teach.)

1. State Test*: WEST-E Subject Area
Tests

2. Washington Subject Area
Endorsement

3. Academic Major

4. Graduate Degree

5. Coursework equivalent to a major
(45 quarter credits or 30 semester
credits)

State Test*: WEST-E Subject Area
Tests

Washington Subject Area
Endorsement

Academic Major

Graduate Degree

National Board Certification

Coursework equivalent to a major
(45 quarter credits or 30 semester
credits)

Points-Based HOUSSE**

* The vendor for Washington States subject area teststhe WEST-Echanged with the 200809 school year. WEST-E information may be found at
www.pesb.wa.gov/assessment/west-e/west-e.asp.
** High Objective Uniform State Standard of Evaluation.

Special Education Teachers
Highly Qualified Teacher (HQT) Requirements
Individuals with Disabilities Education Improvement Act (IDEA 2004)
The IDEA definition of a highly qualified teacher is one who meets all the following criteria:

1. Holds at least a bachelors degree.

2. Holds full state special education certification/licensureWashington special education endorsement or a Washington unendorsed certificate.

3. Meets ESEA highly qualified teacher requirements when teaching core academic subject areasbased on the teachers teaching assignment.

Teaching Assignments
Teaching Assignment HQT Requirements
Teaches exclusively to students who
are assessed against Washingtons
alternate achievement standards
WAAS Portfolio
(Students eligible for the WAAS are
generally described as meeting the
definition for most severely
cognitively disabled.)
All new* or veteran (not new)** special education teachers who teach exclusively students who are assessed against
the WAAS must meet ESEA HQT requirements at the highest level the students are assessed.
Elementary and secondary teachers should follow ESEA criteria for new and not new teachers to the teaching
profession to meet highly qualified teacher (HQT) requirements.
Teaches two or more core academic
subjects
(Applies to secondary middle and
high school teachers.)
Teachers, new* and not new* to the teaching profession, who teach two or more subject areas must demonstrate
subject matter knowledge in each core academic subject they teach.
New* special education teachers as of July 2005 who meet the special education standards and meet ESEA HQT
requirements in one core academic subject areamathematics, or language arts, or sciencehave two years from
their date of employment to meet ESEA HQT requirements in the remaining core academic subjects. A HOUSSE
procedure may be used to meet highly qualified for the remaining core academic subject areas.
Secondary teachers should follow ESEA criteria for new and not new to the teaching profession to meet highly
qualified teacher (HQT) requirements. Teachers not new to the teaching profession are eligible to meet HQT through
a multiple-subjects Points-Based HOUSSE after meeting HQT in one subject area.
Provides consultative services
Special education teachers with a teaching assignment in a consultative role are not required to meet ESEA HQT
requirements. A consultative role is defined as not providing direct instruction to students. Other examples include:

Providing adjustments to the learning environment, modifications of instructional methods

Designing, monitoring, supervising and evaluating specially designed instruction

Developing students individual education programs (IEPs)

* Newteachers who have less than 180 days teaching experience.
** Not New/Veteranteachers who have 180 days or more teaching experience

The District may not be ensuring teachers and paraeducators are meeting the NCLB "highly qualified" standards and correctly reporting highly
qualified teacher data to OSPI.
Contacts
Amy Valenti/Human Resources Manager (Retired March 30, 2013, working as part-time hourly employee to assist Laurel)
Laurel Moody/Supervisor Human Resources

Highl y Qualified Teachers Reporting to OSPI
Beginning in FY2012, OSPI implemented a statewide database tool for all districts to use to update the teachers and paraprofessional highly
qualified status in the same database. The idea is that eventually when a teacher or paraprofessional transfers to another school or district that the
system will automatically recognize this and the data will be transferred to the new school. With the statewide database, OSPI only requires
districts to submit HQT data once a year due at the end of April. The OSPI HQT Data Tool automatically downloads all teachers and
paraprofessionals in all District schools from CEDARS to the data tool. Amy then logs-in to the data tool and reviews all necessary information for
each teacher and paraprofessional. This includes whether the teacher is qualified due to HOUSSE, State Test or Endorsement. Amy will verify
that the teacher has adequate credentials for each core subject taught. For teachers which do not meet HQT status, Amy ensures the Individual
Teacher Plan to Achieve Highly Qualified Status is completed before the OSPI due date. She obtains and maintains a hardcopy file of each Title I
teacher and paraprofessionals certifications, diplomas, and any action plans to verify they meet HQT status. Amy knows the due date for the HQT
report due date and indicated the District takes a proactive approach to ensuring the reporting to OSPI is timely. Amy Valenti/Human Resources
Manager uses the OSPI Highly Qualified Teacher Data Tool to determine HQT status, verifies their HQT status using District personnel
files and submits both HQT annual report for District Title I teachers and paraprofessional s.

Notification to Parents
Michael Stone/Title I-LAP Supervisor reviews the HQT status list of Title I teachers and paraprofessionals and determines teachers that do not
meet HQT status. He prepares signs and sends the Notification to Parents letter to the teacher's school. The Title I school with teachers that do
not meet HQT status send the notification letter out to the parents of children enrolled in the particular teachers class. In FY2012 there was one
Title I teacher that did not meet HQT status. Michael Stone/Title I-LAP Supervi sor prepares the Notification to Parent letter, and the Title I
school with unqualified HQT status teachers sends out the letters to the parents of children enroll ed in the teacher cl ass for the year.
Key Control #1: Amy Valenti/Human Resources Manager uses the OSPI Highl y Qualified Teacher Data Tool to determine HQT status,
verifies thei r HQT status using Distri ct personnel files and submits both HQT annual reports for Distri ct Title I teachers and
paraprofessionals.
We met with Amy Valenti/Human Resources Manager on March 17, 2014. She showed us how she verifies each teacher in the OSPI HQT Data
Tool. We had Amy search for J ennifer Haynes, a Title I teacher. Amy was able to show us J ennifer was qualified by Endorsement. We reviewed
the personnel file for J ennifer and noted she has a Masters in Teaching from the University of Washington and has a valid WA State teaching
certificate. We obtained a copy of the FY 2013 eCertification HQT Building Report submitted to OSPI. The report was time-stamped 7/3/2013
1:39:24 PM indicating the report was properly submitted to OSPI.

Based on our discussion, we determined Amy has the time, knowledge, experience, and commitment to oversee highly qualified teacher status
requirements for this grant program. Based on our review, this control appears to be in place and operating as intended.

Key Control #2: Michael Stone/Title I-LAP Supervisor prepares the Notificati on to Parent letter, and the Title I school with unqualified
HQT status teachers sends out the letters to the parents of children enroll ed in the teacher's class for the semester.
We met with Michael Stone/Title I-LAP Supervisor on March 13, 2014. He showed us how he reviews the OSPI database to ensure all District
teachers not meeting HQT requirements are identified for preparing the notification letters. Michael provided us the template he uses for preparing
the notification to parents for the teachers that do not meet HQT status. He stated he sends the letters to the appropriate school and it is their
responsibility to determine the students in the teacher's class and notify them. He stated the notification letters are included in the student
welcome packets. Michael provided us with the notification to parents letter sent October, 2012 that is provided in the welcome packet. We noted
the letter is signed by Dan Dizon/ Director of Operations Human Resources and contains a form at the bottom for parents to request specific
information about their child's teacher or paraprofessional from the District.
Based on our discussion, we determined Michael has the time, knowledge, experience, and commitment to oversee highly qualified teacher status
requirements for this grant program. Based on our review of the letter and reports provided by Michael, this control appears to be in place and
operating as intended.

Compliance Testing
1. Reporting.
(a). We identified the names of teachers and paraeducators whose payroll costs were charged to Title I in FY13 by using CAATs data at Highly
Qualified Testing. test selection There were 154 teachers and paraeducators charged to the Title I grant. We decided to test 10% of the
population. We randomly selected 16 teachers and paraeducators and reviewed the district's documentation of how the teacher/paraeducator
met the HQT requirements. We obtained the personnel files from Laurel Moody/Supervisor Human Resources. We reviewed the files for the
following criteria:
Compliance Requirements:
Teachers:
Must hold all three requirements:
a) hold bachelor's degree
b) full state certification
c) demonstrates subject matter knowledge and teaching skill in each core academic subject assigned to teach. (e.g., state test: West -E
Elementary Education or Points-Based HOUSSE.
Paraprofessional:
Must hold a high school diploma or its recognized equivalent and meet one of the following requirements:
a) completed 2 yrs. of study at an institution of higher education
b) obtained AA or higher
c) demonstrate knowledge through state or local academic assessment knowledge of subject area
We performed our testing at: Highly Qualified Testing. During our review, we noted no exceptions.
(Auditor: be alert to the disallowance of the HOUSSE Plan of Assistance as a way of meeting HQT described above.)
(b). Review the HQT report submitted to OSPI in 2013 described above.
As a "completeness test", we scanned the list of teachers from our CAATs database compared to the HQTBuilding Report and determined
that all teachers and para-educators whose salaries are charged to Title I (program 51) are properly included in the report. No exception.
We compared the information reported to OSPI with Amy's SAP report to ensure the information being reported is accurate for the
following:
Number of teachers who do not meet HQT requirements: We noted there were 74 teachers not meeting HQT requirement throughout the
District. There were eight teachers from Title I school that were not highly qualified.
Total number of paraeducators that are required to meet HQT in Title I, and how many in fact do meet the requirement: We noted there
were 274 paraprofessionals from the SAP report. The eCertification HQT Para Educator Report had four paraeducators reported for Target
Assistance schools and 270 reported for Schoolwide programs. All paraeducators were reported as meeting HQT status.
No exception noted during our review.
(c). Based on our testing above, we determined eight teachers from Title I schools did not meet HQT status. We reviewed the Title I salaries and
wages for 2013 and noted none of the eight teachers listed as not HQT were charged to the grant. Pass further review.

During our review of reporting we noted the HQT Status Report was not submitted to OSPI until 7/3/2013. We inquired with Amy Valenti as to the
due date of the report. Amy indicated the report is due at the end of April; however the District has received an extension for filing. We obtained
the email string between the District and OSPI regarding the extension of reporting from Laurel Moody/Supervisor Human Resources. The email
indicated the District was granted an extension of reporting until 6/28/2013. However, the report was not submitted until 7/3/2013. Based on our
review, the District did not submit the report in a timely manner. See the audit issue at: SA_E: Title I : HQT Status - Notification to Parents. See
#3 item, below for exception level justification.
2. Notification to Parents.
(a). We obtained a copy of the letter sent to parents in October of 2012. We noted the letter was signed by Dan Dizon/Director of Operations
Human Resources and the letter indicated the requirements of Highly Qualified teachers and paraeducators. The letter included a form for parents
to request the information regarding their child's teacher or paraeducator. Based on our review of the letter, no exception.
(b). We met with Michael Stone/Title I-LAP Supervisor on 3/17/2014 to acquire the notification letter for the classes taught by teachers not
meeting HQT requirements. Based on our understanding documented above, the HR department provides Michael with the list of teachers who do
not meet HQT status and work in Title I schools. Because the HQT status reports were not submitted until 7/3/2013 at 1:39:24 PM, Michael did
not have access to the HQT status of teachers for the 2012-2013 school year. Michael pulled up his files and showed us his letter from the 2011-
2012 school year. He indicated he did not send any letters during the 2012-2013 school year. We determined the District did not comply with
notifying parents individually when for four or more consecutive weeks their child had been taught by a teacher not meeting HQT requirements set
by No Child Left Behind. We documented the audit issue at: Ex: Title I : HQT Status - Notification to Parents See #3 item, below for exception
level justification.

3. Based on our testing we conclude on District's compliance with requirements for Highly Qualified Teachers and Paraeducators except for
notification of parents of children taught by teachers not meeting HQT Status.
We found the District did not submit the HQT status report to OSPI in a timely manner. The Highly Qualified Teacher status report is submitted to
OSPI once each year by April 30th. Although the District obtained an extension from OSPI to submit by J une 28, 2013, they did not submit the
HQT status report until J uly 3, 2013. SeeEx: Title I : HQT Status - Notification to Parents exception justification
Exit= We will report this as an exit item since this is the first year the District has had trouble submitting the HQT report on time and there are no
questioned costs. In addition, the District agrees with the exception states they will ensure the report is not late again in order for letters to be
sent to parents that state who is highly qualified.

E.4.PRG - Title I - CFDA 84.010/84.389


Purpose/Conclusion:
Purpose:

Conclusion:

Testing Strategy:

Special Notes for Schools:

Questioned Costs
If you determine that known and likely (estimated) questioned costs exceed $10,000 for a particular compliance requirement, this should be
reported as a finding. I f you are questioning any direct costs (e.g., salaries and benefits due to a lack of time and effort records), the
Department of Education also recommends that we add on the associated amount of indirect costs related to the direct charge. For example, if
you question $10,000 in payroll costs, and the school charged indirect costs at 5%, we should question a total of $10,500 because the school
district would not be entitled to the indirect amount ($500) that is associated with the unallowable payroll charge.

Clusters: If you are questioning costs in a cluster of programs, be sure to designate which costs are attributed to each CFDA
number within the cluster.

Policy/Standards:

We completed the Major Federal Program - Local Teams worksheet found in the Compliance Requirements step, which will be used to prepare the
Independent Auditor's Report on Compliance with Requirements Applicable to each Major Program and Internal Control over Compliance in
Accordance with OMB Circular A-133 (S-2 report).

Special Test Highly Qualified
The District did not submit the HQT status report to OSPI in a timely manner. The Highly Qualified Teacher status report is submitted to OSPI
once each year by April 30th. Although the District obtained an extension from OSPI to submit by J une 28, 2013, they did not submit the HQT
status report until J uly 3, 2013.
Based on requirements set by No Child Left Behind, Title I schools are required to notify parents if their child has been taught by a teacher not
meeting HQT requirements for four of more consecutive weeks. Because the HQT status reports were late, the District did not send any letters to
parents during the 2012-2013 school year.
Exit= We will report this as an exit item since this is the first year the District has had trouble submitting the HQT report on time and there are no
questioned costs. In addition, the District agrees with the exception states they will ensure the report is not late again in order for letters to be
sent to parents that state who is highly qualified. HQT exception See ISS.9

A-B. Cost Principles (Time & Effort only)
The time & effort certifications are not all signed timely. We found:
9/1/2012-1/31/2013 (Period 1): Two certifications signed less than 30 days late; one signed between one and two months late;
one signed between two and three months late, and; six signed within our expectation.
2/1/13-6/30/2013 (Period 2): One certification signed less than 30 days late; one signed between one and two months late; one
signed between two and three months late, and; four signed within our expectation.

these reasons, we determined the exception should not be listed as a higher level. See ISS.7

E.5.PRG - School Improvement Grants - CFDA 84.388


Purpose/Conclusion:
Purpose:

Conclusion:

Testing Strategy:


------------------------------------------------------------------------
material effect.

------------------------------------------------------------------------------




















or vendor.


N1. ARRA Special Tests. The following three special tests and provisions are listed in Part 3 of the 2010 Compliance Supplement and apply to
all programs with expenditures of ARRA awards. These are in addition to any special tests and provisions already listed in Part 4 of the

Policy/Standards:



Examples:





We performed the following to gain a basic understanding of the overall grant, objectives and expenditures in order to identify direct and material
compliance requirements:
We reviewed the testing strategy
We reviewed the CFDA website for the grant
We reviewed the A-133 compliance supplement part 2 and noted this program is included in the matrix. We then reviewed A-133
compliance supplement part 4 - Department of Education for CFDAs 84.377 and 84.388.
We obtained the original grant agreement from Michael Stone/Title I -LAP Supervisor to gain an understanding of the project objectives,
period of grant, total amount awarded and to determine applicable and direct/material compliance requirements.
Program Objectives:
To support competitive sub grants to local educational agencies (LEAs) that demonstrate the greatest need for the funds and the strongest
commitment to use the funds to provide adequate resources in order to raise substantially the achievement of students in their lowest-performing
schools.

In general, SEAs must give priority to LEAs with Title I -eligible schools ranked in the bottom five percent of such schools, based on student
achievement and lack of progress in improving student achievement, as well as secondary schools with a graduation rate below 60 percent over a
number of years. LEAs seeking funding to serve such schools must implement one of four school intervention models: turnaround model, restart
model, school closure, or transformation model.
There are only three schools approved for the grant in the District: Cleveland High School, Hawthorne Elementary and West Seattle Elementary.
The grant is to transform these schools using the transformational model so that the schools move from Tier I to higher tiers, meaning the
students are achieving higher grades and graduating.

Prior Audit Title I Issues:
Exit Item: The District did not ensure semi-annual certifications were signed in a timely manner. During test in the prior year audit, a
total of 31 certifications were signed 30 or more days after the Time & Effort reporting period. The District agreed with this
exception. We will follow up with this exception at: Time and Effort Certifications.
Verbal: The CFDA 84.388 ARRA - School Improvement Grant was not included as a schoolwide program in the notes to the SEFA, Note
4. The schools in the grant operate as schoolwide programs as verified through review of the school plans. The District agreed with this
exception and corrected the SEFA. We will perform follow up with this exception at: Schedule of Expenditures of Federal Awards Based on
our review of SEFA planning we determined the District corrected the SEFA in the current year and included the School Improvement
Grant in note 4 to the SEFA.
Contracts:
We reviewed the SEFA at SSD_SEFA_FY13-revised and noted the following grant contracts:
GR0225317: $1,601,754.47
Expenditures:
We used the SSD Database to run a query of School I mprovements Grant activity in FY2013. We then compared the G/L amount to the reported
SEFA amount at SEFA to GL Reconciliation. The only variances noted were due to end of year timing and are not considered exceptions.
We then obtained the CAATS data for the grant expenditures and created a pivot table summarizing the expenditures by object. This does not
include indirect costs. We used this table to help determine procurement, suspension & debarment, subrecipient monitoring, equipment, etc. A-
133 compliance requirements that may be direct and material to the Schools Improvement Grant audit.

Object Description Amount % of Total
Certificated Salaries $ 837,178.24 54.24%
Benefits $ 263,338.31 17.06%
Classified Salaries $ 240,121.53 15.56%
Supplies & Materials $ 141,493.72 9.17%
Purchased Services $ 36,871.63 2.39%
Travel $ 24,558.75 1.59%
Total $ 1,543,562.18 100.00%

We documented a summary of expenditure:
Expenditure Type Amount % of Total
Payroll $ 1,340,638.08 86.85%
Non-Payroll $ 202,924.10 13.15%
Total $ 1,543,562.18 100.00%
Compliance Requirement:
To determine the compliance requirements that are direct and material to the CFDA 84.388 we considered the Catalog of Federal Domestic
Assistance, grant agreement, actual revenues and expenditures of the program, and discussions with Michael Stone/Title I -LAP Supervisor. The
compliance requirement worksheet at Major Federal Program - Local Teams identifies the federal compliance requirements that have a direct and
material effect on this major program.



Purpose/Conclusion:
Purpose:
those requirements.

Conclusion:
were signed timely. See SA_E: Time & Effort Certifications

Testing Strategy:





ARRA Alert

Unallowed.


over compliance.




and universities).
exists.




Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)



Material Weakness
program)

Report a Finding













Sampling;











objectives).


period?







following steps.







year).

Policy/Standards:

-------------------------------


DEFINITIONS









award/program;




EXAMPLES:






EXAMPLES:


Applicable Credits


purchase discounts;

applicable credits.

EXAMPLE:



Consistency


EXAMPLE:




EXAMPLE:




payroll reports
receiving reports


EXAMPLE:


Activities Allowed/ Allowable Costs:
noncompliance at HIGH.
The compliance requirement is relatively complex and related activities are difficult to audit.
The District had an audit issue related to time and effort certifications.
The inherent risk is Federal funds are not expended for allowable activities, costs charged to the grant are not in accordance with applicable cost
principles.
Contacts
Michael Stone/ Title I-LAP Supervisor
Grace Ngai/ Accountant

Most purchases for the Title I and SI G grants are planned and listed in the budget. The budget is based on the expenditure amounts listed in the
grant contract, which are divided into line items by expenditure type; such as personnel, supplies for instruction resources (non-capitalized),
purchased services and travel.

Purchases are initiated in one of two ways: automated or non-automated requisition. The approved school teacher, principal or librarian requests
the purchase in the B2B system. Once requested, the system sends the request to Michael Stone/Title I -LAP Supervisor for approval. Michael
maintains a spreadsheet of the expenditures to ensure the schools do not go over budget and are within the budgeted allocated dollar amounts.
Michael reviews expenditures to ensure they are being used for the purpose of Title I or SI G and to ensure in Schoolwide Programs (SWP) the
funds are not supplanting local or state funds.

Key Control 1: Michael Stone/ Title I -LAP Supervisor reviews and approves all purchases in the B2B system before they are made
and reviews budget to actual expenditures periodically to ensure the expenditures are allowable activities, allowable costs,
meet cost principles and are spent within the period of availability.

Payroll Expenditures
will document our understanding of controls at: Time and Effort Certifications and payroll expenditure testing at: CFDA 84.388 SI G Time & Effort
Testing.
Testing of controls for time and effort certifications is being performed at: Time and Effort Certifications and CFDA 84.388 SI G Time & Effort
Testing. There were no exceptions.

Key Control #1: Michael Stone/ Title I -LAP Supervisor signs and approves all purchases before they are made and reviews
budget to actual expenditures periodically to ensure the expenditures are allowable activities, allowable costs, meet cost
principles and are spent within the period of availability.
We met with Michael Stone/Title I-LAP Supervisor on February 12, 2014 to inquire more about the expenditure and budget process. During our
discussion with Michael, we noted he is familiar with A-87 Cost Principles and A-133 compliance requirements.

We used sampling of non-payroll transactions selected at E.5.3 to perform dual purpose testing of controls and compliance. We met with J eff
J ones/Technical Business Analyst Lead Supv. to review approvals for transactions initiated in the B2B procurement system. J eff used the PO
number or B2B shopping cart number provided on supporting documentation for the transactions to lookup the approver in B2B. We confirmed
the approver in the B2B system was authorized to approve transactions related to SIG. For reimbursements and other transactions not initiated in
B2B, we reviewed the supporting documentation for indication of review by Michael Stone. Testing was performed at: Activities
Allowed/Allowable Cost Sample Selections

Based on our discussions, we determined Michael Stone has the time, knowledge, experience, and commitment to oversee activities
allowed/allowable costs and period of availability for this grant program. Based on our testing, this control appears to be in place and operating as
intended.

Compliance Testing
Payroll:
We ran CAATS database query at E.5.3 and created a pivot table to show the employee names and total by year. We determined there are
enough employees to use the sampling spreadsheet at E.5.3 to select 23 employees for testing, using a moderate control rate. Testing of time
and effort certifications was performed at: Time and Effort Certifications and. Based on testing, we found all of the costs are allowable to the
grant, however not all time & effort certifications are signed timely. We determined 30 out of 42 non-FTE certifications were not signed timely. We
then determined the length of time the certifications were signed late to determine the level of issue based on the number of certifications
reviewed, not the number of employees reviewed as there are a number of employees certified by the same certification form. We determined:
9/1/2012-1/31/2013 (Period 1): Two certifications signed less than 30 days late and two signed within our expectation.
2/1/13-6/30/2013 (Period 2): Two certifications signed between one and two months late and two signed within our expectation.
7/1/2013-8/30/2013 (Period 3): Three certifications signed less than 30 days late.
Summary of Exit I tem
Five certifications were signed less than 30 days after the T&E reporting deadline.
See SA_E: Time & Effort Certifications Exit = Although the time and effort certifications were signed between one and three months late, the
District continues to make significant improvements in this area since the previous three audits. We do not consider one and three months late
material to the grant. In addition, we did not find any time and effort certifications that were not signed, not turned in or signed after the date of
auditor request as had been found in prior audits. The District is also continually works with SAO on any issues found to work with those
supervisors turning in late certifications. For these reasons, we determined the exception should not be listed as a higher level.

Non-Payroll:
We used sampling of non-payroll transactions to perform dual purpose testing of controls and compliance. The sampling is documented at: -
Activities Allowed/Allowable Cost Sample Selections. We obtained supporting documentation for the selected transactions from Kenny
Ching/Accounting Supervisor II. We used the Single Audit Testing Matrix A to test these transactions for compliance. We documented our testing
at: Single Audit Testing Matrix A. We directed questions regarding allowability for selected transactions to Michael Stone. Michael provided us
with additional supporting documentation for these transactions. Based on our testing, we determined non payroll expenditures are in compliance
with compliance requirements. No exception.



Purpose/Conclusion:
Purpose: To determine if the District has adequate internal controls over and is in compliance with the requirements for cash management.
Conclusion: Based on our testing, we determined that the District has adequate internal controls over and is in compliance with the
requirements for cash management.

Testing Strategy:
Cash Management






over compliance.




exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)



Material Weakness
program)

Report a Finding













Cash Advances





Policy/Standards:


There are not multiple locations or departments responsible for administering the requirement.
The District submits reimbursement requests and does not request the 7.5% monthly advance. Due to the centralized process of reimbursement
requests, we will review internal controls at Reimbursement Requests.

Based on our understanding of key internal controls, we assessed preliminary control risk at LOW at Reimbursement Requests
We performed our internal control testing at Reimbursement Requests without exception.
We assessed final control risk at LOW at Reimbursement Requests
We assessed the risk of material noncompliance at LOW at Reimbursement Requests
Compliance Testing
We reviewed two reimbursement requests at Reimbursement Requests without exception.


Procedure Step: G. Supplement Not Supplant

Purpose/Conclusion:
Purpose:

Conclusion:
Based on our testing, we determined that internal controls provide reasonable assurance supplement not supplant requirements are met using
only allowable funds or costs which are properly calculated and valued, and we tested compliance with those requirements, noting no exception.

Testing Strategy:






over compliance.






exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)



Material Weakness
program)

Report a Finding














Matching













Earmarking





classified.


Policy/Standards:







Supplanting
The inherent risk is the District uses federal program sources to supplant funds from non-federal sources.
Contacts
Michael Stone/Title I-LAP Supervisor
Kevin Corrigan/Grants Manager

The School Improvement Grant (SIG) serves three schools in the District: Hawthorne Elementary, West Seattle Elementary and Cleveland High
School. Sim Henderson/Title I-LAP Budget Coordinator, Michael Stone/Title I-LAP Supervisor and Kevin Corrigan/Grants Manager work together
to create the SIG annual budget. Kevin works with the site principals and Budget Analysts to ensure the allocations do not replace the non-federal
funding allocated to the schools. The three schools involved are also served by Title I funds as part of schoolwide programs. We tested
Schoolwide Programs at: N2. Special Test - Schoolwide Programs. Sim Henderson/Title I-LAP Budget Coordinator, Kevin Corrigan/Grants
Manager and Michael Stone/Title I-LAP Supervisor allocate and monitor Title I funding supplements to ensure the allocations
supplement and not supplant non-federal funding and that earmarking requi rements are met. The budget and all budget revisions are
approved by OSPI. Michael enters all allocations by school building into the IGrant application and monitors budget to actual activity throughout
the year. Once OSPI has approved the budget allocations the information is entered into the District's financial reporting system by Sim
Henderson.
Sim Henderson/Title I-LAP Budget Coordinator, Kevin Corrigan/Grants Manager and Michael Stone/Title I-LAP Supervisor al locate and
monitor Title I funding supplements to ensure the allocations supplement and not supplant non-federal funding and that earmarking
requirements are met.The budget and all budget revisions are approved by OSPI.
Sim Henderson/Title I-LAP Budget Coordinator has worked with Title I programs for over 16 years. We met with Sim Henderson/Title I-LAP
Budget Coordinator on 2/20/2014 and inquired about the process for ensuring the control is in place. Sim showed us the iGrants Manager and
was able to easily work through the grant and locate the budget. He explained he works with and stays in communication with Kevin
Corrigan/Grants Manager and Michael Stone/Title I-LAP Supervisor to ensure the budget allocations and expenditures are correct. Michael Stone
corroborated this statement.

We also met with Michael Stone to review his participation in the budget process. Michael prepares the budget allocations by building using the
OSPI iGrants Manager function. Michael has regular meetings with the School Principals to review budget to actual activity. All budgets are
approved by OSPI before being entered in the District's accounting system (SAP). Sim Henderson corroborated this statement. Michael provided
us with a string of emails beginning October 2, 2012 and ending March 8, 2013 indicating communication with OSPI regarding budget line items
and budget approvals.

Based on our interactions with Sim Henderson and Michael Stone, we found them to have the skills, knowledge, time and ability to perform these
jobs. Based on our review of documentation, this control appears to be in place and operating as intended.
Compliance Testing
1. We reviewed grant expenditures from our CAATs database and identified the types of services/functions/positions that were charged to the
federal grant during the audit period. We documented our breakdown of expenditure types at: Compliance Requirements. Next, we compared
the federal expenditures for the FY2012 and FY2013 and noted expenditures deceased by 9.18% in FY2013. This comparison is documented in
the tables below. We determined none of these services/functions/positions were paid for using local or state funds in the prior year. Because
the Federal funding has been used consistently, we determined the District is supplementing and not supplanting State and Local funding. No
exception.

FY 2012 from Prior Year Audit FY 2013
EXPENDITURES BY CATEGORY EXPENDITURES BY CATEGORY
Object # Object Description Amount % of Total Object Description Amount % of Total
2 Certificated Salaries $ 880,132.11 52.23% Certificated Salaries $ 837,178.24 54.24%
3 Classified Salaries $ 325,616.90 19.32% Benefits $ 263,338.31 17.06%
4 Benefits $ 327,964.88 19.46% Classified Salaries $ 240,121.53 15.56%
5 Supplies & Materials $ 65,518.33 3.89% Supplies & Materials $ 141,493.72 9.17%
7 Purchased Services $ 59,012.35 3.50% Purchased Services $ 36,871.63 2.39%
8 Travel $ 27,012.32 1.60% Travel $ 24,558.75 1.59%
TOTAL $1,685,256.89 100.00% Total $ 1,543,562.18 100.00%

2. Based on our testing, we determined that internal controls provide reasonable assurance supplement not supplant requirements are met using
only allowable funds or costs which are properly calculated and valued, and we tested compliance with those requirements, noting no exception.




Purpose/Conclusion:
Purpose:

Conclusion:
Based on testing, we determined that internal controls provide reasonable assurance that reports submitted to the Federal awarding agency or
pass-through entity include all activity of the reporting period, are supported by underlying accounting or performance records, and are fairly
presented in accordance with program requirements. Also, we tested compliance with those requirements. No exception.

Testing Strategy:
Reporting




grantor agency:




FFATA.






over compliance.




exists.




Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than remote
possible)



Material Weakness
program)

Report a Finding















Financial Reports




Program Reports




tested reports.

ARRA Section 1512




report the data.

above:






October 1, 2010.


Requirement:





Number (FAIN).














Policy/Standards:


Reporting
Financial Reporting
As noted in the A-133 Compliance Supplement Part 4(ED), Financial Reporting is a general cross-cutting provision that applies to the 11 programs
listed in the A-133 Compliance Supplement, Part 4 (ED), page 1-2, and as noted in the testing strategy, above. If auditing one or more of these
programs, this area only has to be tested once, and testing can be cross referenced to where the work is completed. We completed testing
at Reimbursement Requests in which there were no exceptions.

ARRA Reporting
In the 2013 A-133 Compliance Supplement, the OMB has stated that ARRA Section 1512 reporting does not apply to ARRA pass-through
awards. The School Improvement Grant is a pass-through grant from OSPI. As a result, we will not audit Section 1512 reports for Title I awards
made to school districts. Pass further review.


Procedure Step: N1. Special Tests and Provisions - Schoolwide Programs

Purpose/Conclusion:
Purpose: To determine if the District has adequate internal controls over and is in compliance with the requirements for schoolwide programs.

Conclusion: Based on testing, we determined that the District has adequate internal controls over and is in compliance with the requirements
for schoolwide programs.

Testing Strategy:
Special Tests and Provisions




Review Part 4 of the A-133 Compliance Supplement that applies to your audit period to determine if there are any special tests and provisions for
the program.

If the program is not included in Part 4 of the Compliance Supplement, review the grant agreement/contract to identify any material special


over compliance.




Gain an understanding of the grantee's internal controls and identify the key controls to ensure compliance with the Special Provisions contained
in part 4 of the Compliance Supplement and/or the grant agreement.


exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)



Material Weakness
program)

Report a Finding













1. Consult Part 4 of Compliance Supplement for suggested procedures. If no procedures are available for your program, design a test of
compliance sufficient to verify that the auditee has materially complied with the special test or provision.

Policy/Standards:


As noted in the A-133 Compliance Supplement Part 4(ED), Schoolwide Programs is a general cross-cutting provision that applies to the 11
programs listed in the A-133 Compliance Supplement, Part 4 (ED), page 1-2. I f auditing one or more of these programs, this area only has to be
tested once, and testing can be cross referenced to where the work is completed. We completed this testing during Title I work at N2. Special
Test - Schoolwide Programs in which there were no exceptions.


Procedure Step: N2. ARRA Special Tests

Purpose/Conclusion:
Purpose:
To determine if internal controls provide reasonable assurance of compliance with special provisions, and to test compliance with those
requirements.
Conclusion:
Based on our testing, we determined that internal controls provide reasonable assurance of compliance with special provisions, and we tested
compliance with those requirements. No exception noted.

Testing Strategy:
Special Tests and Provisions - American Recovery and Reinvestment Act (ARRA)



Step 1: Background and Gathering Information

The following three special tests and provisions are listed in Part 3 of the Compliance Supplement and apply to all programs with expenditures of
ARRA awards. These are in addition to any special tests and provisions already listed in Part 4 of the Compliance Supplement.
An accounting system that separately tracks the receipt, expenditure and reporting of ARRA funds (A-102 Common Rule, Section 20).
Communicating ARRA requirements to subrecipients.
You can test and document these 3 ARRA special requirements in other sections of your audit. For example, you can document internal controls
and compliance for:

Special provision #1 as part of your Activities Allowed/Cost Principles (A-B)
Special provision #2 as part of your SEFA review during planning
Special provision #3 as part of subrecipient monitoring section (M)

CAUTION - I f you choose to document your understanding of internal controls, testing of internal controls, and compliance in another section of
your audit, be sure to properly cross reference this testing.

Below is the official ARRA requirement:

Title 2, Code of Federal Regulations, Section 176.210:

(a) To maximize the transparency and accountability of funds authorized under the American Recovery and Reinvestment Act of 2009 (Pub. L. 1115)
(Recovery Act) as required by Congress and in accordance with 2 CFR 215.21 Uniform Administrative Requirements for Grants and Agreements and
OMB Circular A102 Common Rules provisions, recipients agree to maintain records that identify adequately the source and application of
Recovery Act funds.

(b) For recipients covered by the Single Audit Act Amendments of 1996 and OMB Circular A133, Audits of States, Local Governments, and Non-Profit
Organizations, recipients agree to separately identify the expenditures for Federal awards under the Recovery Act on the Schedule of
Expenditures of Federal Awards (SEFA) and the Data Collection Form (SFSAC) required by OMB Circular A133.... This shall be
accomplished by identifying expenditures for Federal awards made under the Recovery Act separately on the SEFA, and as separate
rows under Item 9 of Part III on the SFSAC by CFDA number, and inclusion of the prefix ARRA- in identifying the name of the
Federal program on the SEFA and as the first characters in Item 9d of Part III on the SFSAC.

(c) Recipients agree to separately identify to each subrecipient, and document at the time of subaward and at the time of disbursement
of funds, the Federal award number, CFDA number, and amount of Recovery Act funds. When a recipient awards Recovery Act funds
for an existing program, the information furnished to subrecipients shall distinguish the subawards of incremental Recovery Act funds
from regular subawards under the existing program.

(d) Recipients agree to require their subrecipients to include on their SEFA information to specifically identify Recovery Act funding
similar to the requirements for the recipient SEFA described above. This information is needed to allow the recipient to properly monitor
subrecipient expenditure of ARRA funds as well as oversight by the Federal awarding agencies, Offices of Inspector General and the Government
Accountability Office.

SPECIAL PROVISION #1. Separate Accountability for ARRA Funding

The Circular A-102 Grants Management Common Rule, Section 20, states:

...(b) The financial management systems of other grantees and subgrantees must meet the following standards:

(1) Financial reporting. Accurate, current and complete disclosure of the financial results of financially assisted activities must be made in
accordance with the financial reporting requirements of the grant or subgrant.

(2) Accounting records. Grantees and subgrantees must maintain records, which adequately identify the source and application of funds
provided for financially-assisted activities. These records must contain information pertaining to grant or subgrant awards and
authorizations, obligations, unobligated balances, assets, liabilities, outlays or expenditures, and income.

Audit Objective - Determine whether accounting records for ARRA funds provide for the separate identification and accounting required for ARRA
awards and activity. NOTE: It is acceptable for a grantee to use a subsidiary system of tracking and monitoring its ARRA funding in order to meet
this requirement. Also, local governments should be recording their ARRA revenue under BARS revenue code 339.

SPECIAL PROVISION #2 - Presentation on the Schedule of Expenditures of Federal Awards and Data Collection Form

Compliance Requirement - Recipients of ARRA funds must agree to separately identify the expenditures for Federal awards under the Recovery
Act on the Schedule of Expenditures of Federal Awards (SEFA)

Audit Objective - Determine whether the entity met the requirements for reporting expenditures of ARRA awards on the SEFA and that reported
amounts are supported by the accounting records and fairly presented in accordance with ARRA and program requirements.

SPECIAL PROVISION #3 - Communicating Requirements to Subrecipients

Recipients of ARRA funds must agree to:

(1) separately identify and communicate to each subrecipient, and document at the time of the subaward and disbursement of funds, the Federal
award number, CFDA number, and the amount of ARRA funds; and

(2) require their subrecipients to provide similar identification of ARRA awards in their SEFA and Data Collection Form (special test #2 above)
Audit Objective - I f subawards of ARRA funds were made, determine whether the entity met the requirements for separately identifying to each
subrecipient, and documenting at the time of the subaward and disbursement of funds, the Federal award number, CFDA number, and the
amount of ARRA funds; and required their subrecipients to provide appropriate identification in their SEFA and SF-SAC.

.................................................................................


over compliance.




Gain an understanding of the

exists.




Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)



Material Weakness
program)

Report a Finding














Suggested Audit Procedure Provision #1 - Ascertain if expenditures of ARRA awards are tracked and accounted for separately from expenditures
of non-ARRA awards.

Suggested Audit Procedure Provision #2 - Perform tests to verify that the SEFA properly identifies and reports expenditures of ARRA awards and
reported expenditures are supported by accounting records.

Suggested Audit Procedure Provision #3 - Test a sample of subawards and verify that the entity separately identified to each subrecipient, and
documented at the time of the subaward and disbursement of funds, the Federal award number, CFDA number, and the amount of ARRA funds;
and required their subrecipients to provide appropriate identification in their SEFA and Data Collection Form.

Policy/Standards:


The following three special tests and provisions are listed in Part 3 of the Compliance Supplement and apply to all programs with expenditures of
ARRA awards.
An accounting system that separately tracks the receipt, expenditure and reporting of ARRA funds (A-102 Common Rule, Section 20).
ARRA Special Tests:
The compliance requirement is not relatively complex.
This compliance requirement is not new to the District.
The inherent risk is ARRA funds are not tracked separately and are not properly presented on the SEFA.

Testing
Testing and documentation of controls and compliance for these three ARRA special requirements were performed in other sections of the audit.

1. Special provision #1 as part of Activities Allowed/Cost Principles (A-B). For internal control and compliance testing see A-B. Activities
Allowed/ Allowable Cost. During our review we determined accounting records for ARRA funds provide for the separate identification
and accounting required for ARRA awards and activity. No issues noted.

2. Special provision #2 as part of the SEFA review during planning. See Schedule of Expenditures of Federal Awards and SSD_SEFA_FY13-
revised. Based on review, we determined the District met the requirements for reporting expenditures of the ARRA -School Improvement
Grants, Recovery Act award on the SEFA and that reported amounts are supported by the accounting records and fairly presented in
accordance with ARRA and program requirements. No issues noted.

3. Special provision #3 Subrecipient Monitoring. The District does not have subrecipients for this grant. We determined this through
review of the grant agreement, discussions with Michael Stone/Title I -LAP Supervisor and review of the expenditure detail. Therefore,
Special provision #3 Subrecipient Monitoring is not applicable or direct and material to the grant. Pass further review.



Purpose/Conclusion:
Purpose:

Conclusion:

Testing Strategy:
Summary of Results



Policy/Standards:

We completed the Major Federal Program - Local Teams worksheet found in the Compliance Requirements step, which will be used to prepare the
Independent Auditor's Report on Compliance with Requirements Applicable to each Major Program and Internal Control over Compliance in
Accordance with OMB Circular A-133 (S-2 report).



E.6.PRG - HeadStart - CFDA 93.600

Prepared By: HCP, 2/4/2014

Purpose/Conclusion:
Purpose:
Conclusion:

Testing Strategy:


------------------------------------------------------------------------
material effect.

------------------------------------------------------------------------------




















or vendor.


N1. ARRA Special Tests. The following three special tests and provisions are listed in Part 3 of the 2010 Compliance Supplement and apply to
all programs with expenditures of ARRA awards. These are in addition to any special tests and provisions already listed in Part 4 of the

Policy/Standards:



Examples:





Background:
The objectives of the Head Start and Early Head Start (collectively referred to as Head Start) programs are to promote school readiness by
enhancing childrens cognitive social and emotional development. Head Start and Early Head Start together serve pregnant women and children
(birth to 5) and their families, who are under the poverty line or are eligible for public assistance, including federally recognized I ndian tribes,
Alaska Natives, migrant and seasonal farm workers, homeless children or children in foster care, and children with disabilities.
Overview:
By using SAO's SSD Database, Query Name, "Expense_HeadStart" we were able to query total expenditures by object code for program 61- Head
Start totaling $3,828,826.56, which varies by the expenditures reported on the SEFA by $143,453.64. We reviewed the workpaper "SEFA to GL
Reconciliation" at SEFA to GL Reconciliation and determined the difference is due to indirect costs and timing differences.
Prior Year Issues:
The grant had an exit item relating to time and effort documentation. "Ten time and effort records were signed between one and two months after
the end of the reporting period. Six time and effort records were missing the date of the direct supervisor's signature. We are unable to determine
if the time and effort records were signed and approved timely. Two time and effort records were signed after we requested them for audit."
Follow-up on this exit item is at A-B. Activities Allowed/Allowable Cost
Federal Compliance Requirements not direct and material:
Based on our review of the A-133 2010 Compliance Supplement, grant documentation, our understanding of the program (which we gained by
reading the grant agreement), scanning the CFDA description for this grant, after considering how grant funds were spent, and through inquiry of
District personnel working with the program, we determined which compliance requirements have a direct and material effect on the
program. Our determination of the compliance requirements that are direct and material to the grant is documented at Major Federal Program -
Local Teams.



Purpose/Conclusion:
Purpose:
those requirements.

Conclusion:
were signed timely. SeeSA_E: Time & Effort Certifications

Testing Strategy:





ARRA Alert

Unallowed.


over compliance.




and universities).
exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)



Material Weakness
program)

Report a Finding













Sampling;











objectives).


period?







following steps.







year).

Policy/Standards:

-------------------------------


DEFINITIONS










award/program;




EXAMPLES:






EXAMPLES:


Applicable Credits


purchase discounts;

applicable credits.

EXAMPLE:


Consistency


EXAMPLE:




EXAMPLE:




payroll reports
receiving reports


EXAMPLE:


noncompliance at HIGH due to:
There are multiple locations or department responsible for administering the requirement.
The grant has not been audited in three years.


Key Employees:
Laura Garcia, Program Manager
Pam Goldfine, Operations Coordinator

Most purchases for the Head Start program are planned for, and scheduled in the budget. The budget is based on the expenditure amounts listed
in the grant contract, which are divided into line items by type of expenditure. As this is the case, most costs are known and standardized, and
that staff believe to be allowable. For costs that staff are not sure of the allowability, Pam Goldfine, Operations Coordinator and Laura Garcia,
Program Manager will either consult with the District's grant accountants who will perform research, the Regional Administrator for the Head Start
program, Circular A-87, or will refer to the fiscal assistant on the Head Start program website. Both Pam and Laura have received training for the
fiscal administration of the Head Start program.

Non-Payroll
Purchases are initiated by requisition in one of two ways, by automated or non-automated requisition. Through either method, Laura approves all
purchases before they are made. Expenditures for individual items of equipment over $25,000 must first get approved from regional
administrator for the Head Start program.

In addition, Pam Goldfine reviews each invoice to check for allowable cost and activities and every month she reconciles between actual
expenditures and budgeted. Every two weeks, meetings are held with Laura, Marlene Fuller, Accounting Accountant and Pam to discuss variances
and projected expenses in future.

Payroll
will document our understanding of controls at Time and Effort Certifications and payroll expenditure testing at CFDA 84.93.600 HeadStart Time &
Effort Testing.

Summary of Key Controls:
Non-Payroll Expenditures, only:
1. The Program Manager approves all purchases before they are made. (Allowable Costs)
2. The Operations Coordinator reviews each invoice to check for allowable cost and activities and every month she reconciles between actual
expenditures and budgeted. (Activities Allowed/Allowable Costs)

Payroll is a centralized process; internal control testing is at Time and Effort Certifications. There were no exceptions.

Non-payroll: We used sampling of non-payroll transactions to perform dual purpose testing of controls and compliance with a moderate assurance
needed for testing. We met with J eff J ones/Technical Business Analyst Lead Supervisor to review approvals for transactions initiated in the B2B
procurement system. J eff used the PO number or B2B shopping cart number provided on supporting documentation for the transactions to
lookup the approver in B2B. We confirmed the approver in the B2B system was authorized to approve transactions related to
HeadStart. For reimbursements and other transactions not initiated in B2B, we reviewed the supporting documentation for indication of review by
Pam Goldfine or Laura Garcia. Testing was performed at Single Audit Testing Matrix A
Based on our discussions, we determined Pam Goldfine and Laura Garcia have the time, knowledge, experience, and commitment to
oversee activities allowed/allowable costs and period of availability for this grant program. Based on our testing, this control appears to be in place
and operating as intended.


Compliance Testing
Payroll
Payroll is a centralized process; compliance testing is at CFDA 84.93.600 HeadStart Time & Effort Testing We determined our population via
haphazard selection. We did not use sampling as our total population of 142 employees was less than the minimum amount necessary (200) to
use the sampling spreadsheet. We randomly selected 15 employees whose earnings were greater than $10,000. We determined the remaining
population not selected for testing was low risk as our selected population encompassed all levels of earnings and job titles. Based on testing at-
CFDA 84.93.600 HeadStart Time & Effort Testing we determined the employees are allowable to the grant, however we found not all time and
efforts were signed timely. We determined 15 out of 28 single-cost objective semi-annual and seven out of 19 non-FTE certifications were not
signed timely. All monthly PARs were signed timely. We then determined the length of time the certifications were signed late to determine the
level of issue based on the number of certifications reviewed, not the number of employees reviewed as there are a number of employees
certified by the same certification form. We determined:
9/1/2012-1/31/2013 (Period 1): One certification signed three months late and one signed less than 30 days late.
2/1/13-6/30/2013 (Period 2): One certification signed three months late after the District's deadline.
7/1/2013-8/30/2013 (Period 3): One certification was signed within our expectation.
Monthly PARs: All 12 monthly PARs were signed within our expectation.
Summary of Exception

One certification was signed less than 30 days after the T&E reporting deadline.
Two certifications were signed between 90 and 120 days after the T&E reporting deadline.See SA_E: Time & Effort Certifications

Non-Payroll
We performed dual-purpose testing of internal controls and compliance at Single Audit Testing Matrix A. We selected our transaction sample at
random using the sampling spreadsheet at SA Sampling. We reviewed each transaction and determined if they complied with Activities Allowed
requirements and A-87 Cost Principles. Based on testing there were no exceptions.



Purpose/Conclusion:
Purpose:
To determine if internal controls provide reasonable assurance that (1) the draw down of Federal cash is only for immediate needs and (2) cash is
disbursed in a timely manner and to test compliance with those requirements.

Conclusion:
We determined internal controls provide reasonable assurance that (1) the draw down of Federal cash is only for immediate needs and (2) cash is
disbursed in a timely manner. We tested compliance for these requirements without exception.

Testing Strategy:
Cash Management






over compliance.




exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)



Material Weakness
program)

Report a Finding













Cash Advances





Policy/Standards:


noncompliance at LOW due to:
The compliance requirement is not new to the agency and the requirement has not changed recently
The compliance requirement is not considered an area of higher risk in the Compliance Supplement or by the oversight agency
The compliance requirement does not involve a relatively large degree of subjectivity by the agency in interpreting and carrying out the
objectives of the program
The compliance requirement is not relatively complex and the related activities are not difficult to audit
The inherent risk is the District requested reimbursement from the grantor for expenditures that were not paid with District funds prior to the
reimbursement request.
In obtaining our understanding of internal controls over compliance, we considered the five components of internal contro per SAS 78 (control
Cash Management is a centralized process; understanding of interal controls is at Reimbursement Requests
Cash Management is a centralized process; testing of interal controls is at Reimbursement Requests

Compliance Testing
Cash Management is a centralized process; compliance testing is at Reimbursement Requests where we tested two reimbursements. There were
no exceptions to testing.


Procedure Step: E. Eligibility

Purpose/Conclusion:
Purpose:
To determine if internal controls provide reasonable assurance that only eligible individuals and organizations receive assistance under Federal
award programs, that subawards are made only to eligible subrecipients, and that amounts provided to or on behalf of eligibles were calculated in
accordance with pogram requirements. Also, to test compliance with those requirements.
Conclusion:
We determined internal controls provide reasonable assurance that only eligible individuals and organizations receive assistance under Federal
award programs, and that amounts provided to or on behalf of eligibles were calculated in accordance with pogram requirements. We also tested
compliance with those requirements without exception.

Testing Strategy:
Eligibility




Determine whether there are any specific eligibility requirements in order for individuals to receive financial assistance or services under the
program. If the grantee makes awards to subrecipients, determine if there are eligibility requirements the subrecipient must meet to receive
the funding. Review the following:
Part 4 of the A-133 Compliance Supplement that applies to your audit period
the grant agreement or contract, and
any available program guidelines or handbooks.


over compliance.




Gain an understanding of the grantee's internal controls and identify the key controls to ensure (1) recipients receiving services/benefits are
eligible for such assistance, (2) amounts paid to the recipient have been properly calculated in accordance with program guidelines, (3)
services/benefits are discontinued after recipients are deemed ineligible and (4) subawards were made only to eligible subrecipients.


exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than remote
possible)



Material Weakness
program)

Report a Finding












support our conclusion about whether the grantee has materially complied with the requirement being tested.

If feasible, it is recommended that you select a sample when testing compliance with eligibility requirements so that you can project your results
to the population. The Excel sampling spreadsheet for the single audit is available in the TeamStore.

1. Select individuals receiving services/benefits and perform tests to verify the following compliance attributes.

a) The individual was determined to be eligible in accordance with the compliance requirements of the program, including obtaining any
required documentation or verifications. (Note that some programs have both initial and continuing eligibility requirements and the
auditor should design and perform appropriate tests for both.)
b) Benefits paid to or on behalf of the individuals were calculated correctly and in compliance with the requirements of the program.
c) Benefits were discontinued when the period of eligibility expired.

2. In some programs, the auditee is required to use a quality control process to obtain assurances about eligibility. I f applicable, review the
quality control process and perform tests to ascertain if it is operating to effectively meet the objectives of the process and in compliance with
applicable program requirements.

3. Eligibility of Subrecipients - If the determination of eligibility is based upon an approved application or plan, obtain a copy of this document
and identify the applicable eligibility requirements. J udgmentally select awards to subrecipients and perform procedures to verify that the
subrecipients were eligible and amounts awarded were within funding limits.

Policy/Standards:


The compliance requirement is not considered an area of higher risk in the Compliance Supplement or by oversight agencies
The compliance requirement does not involve a large degree of subjectivity by the agency in interpreting and carrying out the objectives
of the program

The inherent risk is the District is not meeting eligibility requirements.

Key Employees:
J erry Sera, Supervisor Enrollment Family & Community Services

Families wanting to participate in the Head Start program submit an application package to the District. The cover page of the application packet
provides instructions to the family for how to apply for the program. The steps outlined include completion of the application form, attachment of
proof of the child's birth date (birth certificate, passport or permanent resident card), attachment of proof of the family's income for the last
calendar year or most recent 12 months (completed and signed income tax form for the past year, W2 form for the past year, employer letter
stating total gross earnings for the past 12 months, TANF/Working Connections award/change letter and self-declaration statements (acceptable
under certain conditions).

Completed application packages are mailed to the District. The cover letter states Head Start will process the application and contact the family
regarding their eligibility for the program. Once the application package is received the secretary will check to ensure the family's address is within
the District's and Head Start's boundaries. The secretary will then print out a map and give to Nancy Sobrado, Office Specialist III (data entry) to
enter into the Child Plus system. A letter is sent to the family at this point if the application package is incomplete. The Family Service Provider
then scores the application package using an Eligibility and Selection Criteria form. The form lists the date; the child's last name, first name, date
of birth; eligibility age; verification on file of income, age and immunizations; letter requesting income; proof of age letter, full class letter; eligible
letter; and too high income letter. The child is determined eligible if they are 3 or 4 years old by August 31st of the school year (i.e. August 31,
2012 for FY2013). The form lists all eligibility criteria with maximum points possible for each and additional selection criteria with maximum points
possible for each criteria.

Eligibility criteria includes categorically/income eligible based on age, categorically/income eligible special needs based on age, over income special
needs based on age and over income based on age. The additional selection criteria include single parent/guardian care; CPS referral; homeless;
non or limited English speaking child; death of parent/guardian; domestic violence; divorce, fire, incarceration, major illness (adult); parents with
diagnosed disabilities; child drug or alcohol affected behavior; serious health problem (child); and parent absent due to military service. The Policy
Council approves the selection criteria annually. After the application package is scored the Family Service Provider determines if the child will be
accepted in the program. If accepted, the Family Service Provider signs off on the familys file via the eligibility form and send it to J erry Sera who
then reviews the file, confirms eligibility and then provides a final sign off on the application package by signing the eligibility form. The
application package is then returned to the Family Service Provider to enroll the child in the program.

Key Control
1: J erry Sera, Supervisor Enrollment Family & Community Services reviews the application package and signs the eligibility form ensuring eligibility
requirements are met.

Key Control #1: J erry Sera, Supervisor Enrollment Family & Community Services reviews the application package and signs the
eligibility form ensuring eligibility requirements are met.

We performed dual-purpose testing for internal controls and compliance at Head Start Eligibility Testing. We used sampling to determine our
population at SA Sampling. We reviewed each filed to determine if the eligibility forms were reviewed and signed by J erry Sera. No exceptions
noted.
Based on our interactions with J erry Sera, we found him to have the skills, knowledge, time and ability to perform this job. Based on our review,
this control appears to be in place and operating as intended.
Compliance Testing
We performed dual-purpose testing of internal controls and compliance at Head Start Eligibility Testing. We used sampling to determine our
population at SA Sampling. We reviewed the selected student files to determine if the student was between 3-4 years old, the family's income was
verified and that the eligibility form was reviewed and signed by J erry Sera. No exceptions noted.
There were no benefits paid to the eligible participants, nor benefits discontinued since no benefits were paid.


Procedure Step: G. Matching/Earmarking

Purpose/Conclusion:
Purpose:
Conclusion:
We determined internal controls provide reasonable assurance that matching and earmarking requirements are met using only allowable funds or
costs which are properly calculated and valued. We tested compliance with those requirements without exception.

Testing Strategy:







over compliance.







exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)



Material Weakness
program)

Report a Finding













Matching













Earmarking





classified.


Policy/Standards:










The inherent risk is the District is not contributing to the 20% matching requirement with local funds and administrative costs charged to the
grant exceed 15% of the total program cost. Further over-income eligible children enrolled in the program are not under 10% of total enrollment
and children with disabilities enrolled in the program are under the 10% of total funded enrollment.


Key Employees:
Kenny Ching, Grants Accounting Manager
J erry Sera, Supervisor Enrollment Family & Community Services

Matching
According to Laura Garcia, Program Manager and Kenny Ching, Grants Accounting Manager, the District ensures that federal funds are matched
with non-federal funds during the budgeting process. The District budgets for the contributions they will receive from transportation, special
educators, volunteer labor, and from the YMCA/YWCA (in-kind contributions). The Transportation Department provides Kenny Ching
documentation as to the number, routes, and cost of the buses used to transport the Head Start students. The charges are based on actual costs
paid to the chartered bus company to drive the routes.
Volunteer labor in-kind contributions are based on estimated volunteer hours multiplied by a standard rate of $20.45/hr for program workers or
$28.48/hr for policy council meeting workers. This rate is reviewed annually and may be adjusted. Activities performed by volunteers include the
following: classroom assistance, field trip assistance, center meetings, policy meetings, office work, and telephone services. Throughout the year,
volunteers provide timesheets for evidence of their work. Kathy Gallichan, Accounting Analyst compiles the timesheets into a summary of the
volunteer hours provided, multiplies them by the hourly rate, and records the contribution. The timesheets must be signed by the volunteers and
are reviewed and signed by the supervisor.
YMCA provides an in-kind contribution based on their expenses for their part of the Head Start programs less the costs billed to the District. A bill
is sent quarterly to the District detailing the expenses incurred by the YMCA as well as the portion of those expenses that were billed to the
District. The remainder of the YMCA's expenses are recorded as an in-kind contribution.
Kenny Ching reviews the SF-425 and supporting documentation to ensure the matching percentage is met and signs the report as the Certifying
Official. This ensures that the District will contribute at least 20% in allowable activities and costs to meet the matching requirement.
Earmarking:
Administrative Earmark
The SF-425 reports, compiled by Kathy Gallichan, include the reporting of total administrative expenses and the calculation of their percentage of
total costs. The District tracks administrative costs through the Cost Center code structure it uses to report expenditures in the general
ledger. Administrative costs are the sum of cost centers 5706123DV3 and 57W6123DV3 and the indirect cost allocation amount (indirect cost rate
multiplied by the total program costs). After the SF-425 report is prepared by Kathy Gallichan, Kenny reviews the report to ensure that the
administrative costs do not exceed 15% of the total costs of the program. According to Kenny Ching, if the total administrative costs exceed
15%, grants accounting will contact Laura Garcia to resolve the issue.

Targeted Earmark (income & disabilities eligible)
Monthly J erry Sera,
Laura Garcia analyzes and reviews the monthly reports received from J erry Serra and Sarah Luce to determine if student over-income eligibility is
fewer than 10% and children with disabilities is over the 10% of total funded enrollment.
Summary of Key Controls:
1: Kenny Ching reviews the SF-425 and supporting documentation to ensure the matching percentage is met and signs the report as the
Certifying Official. This ensures that the District will contribute at least 20% in allowable activities and costs to meet the matching
requirement. (Matching)
2: After the SF-425 report is prepared by Kathy Gallichan, Kenny reviews the report to ensure that the administrative costs do not exceed 15% of
the total costs of the program. (Earmarking - Administrative)
3: Laura Garcia analyzes and reviews the monthly reports received from J erry Serra and Sarah Luce to determine if enrollment is above minimum
funded requirement of 446 students and children with disabilities is over the 10% of total funded enrollment. (Earmarking - Targeted)
Key Control #1: Kenny Ching reviews the SF-425 and supporting documentation to ensure the matching percentage is met and
signs the report as the Certifying Official. This ensures that the District will contribute at least 20% in allowable activities and
costs to meet the matching requirement. (Matching)
We reviewed the SF-425 report submitted on 1/29/2014 to ensure the District contributed at least 20% in allowable activities/costs to meet the
matching requirements. We saw the supporting documentation attached to the SF-425 that listed each type of matching fund and the amount
contributed. We recalculated the total amount of matching funds and saw that the amount agreed to the supporting documentation. We also
recalculated the required amount of SSD share and saw the amount agreed to the SF-425 report. We noted the District spent $54,031 in excess of
the 20% requirement. We also noted Kenny Ching signed off on the SF-425 report indicating his review and approval.

Key Control #2: After the SF-425 report is prepared by Kathy Gallichan, Kenny reviews the report to ensure that the
administrative costs do not exceed 15% of the total costs of the program. (Earmarking - Administrative)
We reviewed the SF-425 report submitted on 1/29/2014 to ensure administrative costs did not exceed 15% of the total costs of the program. We
saw the supporting documentation attached to the SF-425 that listed the direct administrative costs charged to the grant were $413,320.34. We
also saw that the direct costs charged to the grant for Nov 2012- Aug 2013 were $3,013,057.48 and Sep-Oct 2013 were $672,215.84. We
recalculated the indirect expense by multiplying each direct cost amount by 3.77%, which agreed to the SF-425 report. We then recalculated the
administrative cost percentage by adding the administrative costs and indirect expense amounts and dividing the total amount by the grant's total
expenditures. The result was 11.55%, which is less than the 15% cap. We also noted that Kenny Ching signed off on the SF-425 report indicating
his review and approval.

Key Control #3: Laura Garcia analyzes and reviews the monthly reports received from J erry Serra and Sarah Luce to determine if
enrollment is above minimum funded requirement of 446 students and children with disabilities is over the 10% of total funded
enrollment. (Earmarking - Targeted)
We reviewed the Management Report- Disabilities and Seattle Public Schools Head Start- Management Report dated 6/10/2013. We noted the
report listed each student, whether they were diagnosed, number of parent conferences, LEA signed I ndividual Education Plan, specific disability
and status of concerns. The footer of the report shows the total number of children on the report, funded enrollment amount, percentage with
diagnosed disabilities, number of children on the report with diagnosed disabilities, number of children on the report with reported concerns,
number of parent conferences, number of LEA signed Individual Education Plans, specific disability counts and concern status counts. The report
stated there were 446 students enrolled, 49 with diagnosed disabilities resulting in 11% of students enrolled with disabilities, which is greater than
the 10% requirement. We also reviewed the Management Report- Eligibility I ncome Report dated 6/28/2013. We noted the report listed each
participant school, the amount of students in each income group (0-100%, 101-130% and over income); TANF, SSI, WIC and income amount
ranges. We saw that the total amount of students enrolled in the 0-100% was 271, 16 students in the 101-130% range, 21 were enrolled in the
over income range. We recalculated the percentage of students in Head Start that were over income and saw that it resulted in 8.6%, which is
less than the 10% cap.

Based on our interactions with Kenny Ching, Kathy Gallichan and Laura Garcia, we found them to have the skills, knowledge, time and ability to
perform their jobs. Based on our review, these controls appear to be in place and operating as intended.

Compliance Testing
We reviewed all SF-425s for the grant period and all Disability and Eligibility Income reports for the school period (Sep 2012-J un 2013) to
determine if matching and earmarking requirements were met at Head Start Matching- Earmarking Testing. No exceptions noted.


Procedure Step: H. Period of Availability

Purpose/Conclusion:
Purpose:
To determine if internal controls provide reasonable assurance that Federal funds are used only during the authorized period of availability, and to
test compliance with those requirements.
Conclusion:
We determined internal controls provide reasonable assurance that Federal funds are used only during the authorized period of availability, and
then tested compliance with those requirements without exception.

Testing Strategy:
Period of Availability of Funding




Review the grant award notice to determine the period that grant funds are available for expenditure (the official starting and ending dates) and
whether there are any provisions for carryover of funds to the following year.

The definition of "obligation' can vary by grant, but in general this means an event where the grant funds have been committed to be spent. For
example: a purchase order for material and supplies, a signed contract for a vendor services, worked performed by employees that is related to
the grant, etc.

Be aware that treatment of carry-over (unspent) funds by grantors will vary. Some grantors will give the grantee more time to spend the funds
thereby extending the period of availability. On the other hand, some grantors will combine the unspent amount with a new grant award and
define a new period of availability.


over compliance.

When assessing the risk of Type A and Type B programs during single audit planning (refer to the risk assessment spreadsheet), did you find that this compliance
requirement is one that is susceptible to fraud, theft of assets, or fraudulent reporting of financial or programmatic data to the grantor or public?



Gain an understanding of the grantee's internal controls and identify the key controls to ensure costs are (1) obligated within the period of
availability and (2) properly liquidated (paid) on or before 90 days of the grant closing date.

Examples of controls: keeping a calendar of POA dates; sending messages/reports to departments with POA dates and status updates; reminders
to staff about submitting final claims, computer system edits that would reject claims outside of the POA, etc.


exists.




Likelihood of
Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than
remote
possible)



Material Weakness
program)

Report a Finding













1. (a). Review transactions that occurred before the official starting date of the grant period to determine if the grantor had authorization to
charge the pre-award cost. (b) For grants that are continuing from one year to the next, be alert to costs charged to current grant that may
have actually been obligated in a prior period.

2. Review transactions charged to the grant after the period of availability and verify that (1) the underlying obligation occurred within the period
of availability and (2) the liquidation (payment) of the obligation was made within the allowable time period (usually 90 days after the period of
availability ends).

3. If there are adjustments (e.g., year-end journal entries) made to the federal grant, select 1 or 2 and verify that these adjustments were for
transactions that occurred during the period of availability.

Policy/Standards:


noncompliance atLOW due to:

The inherent risk is the District is expending funds outside of the period of availability and payments are made after 90 days when the grant
period ends.

Key Employee
Pam Goldfine, Operations Coordinator
William Moore, Senior Cost Technican
William Moore creates a monthly budget report in excel. The spreadsheet lists expenses by budget code and line item, separating full-time
employees' salaries & benefits, non full-time employees' salaraies & benefits and operational expenses. The spreadsheet shows the original
budget per line item, the amount expensed per line item per month, total spent per line item, balance remaining per line item, percentage
remaining per line item, any outstanding items, and percentage remaining including the outstanding items. The spreadsheet also has totals of
original budget, expenses per month, total spent, balance, percentage remaining, outstanding and percentage remaining including outstanding
items. The budget report is maintained in a binder and William includes printouts from the system of all expenditures for that month supporting
the budget report.
Pam Goldfine reviews the budget report weekly and updates Laura Garcia, Program Manager, monthly. William and Pam utilize the budget report
to create a simplified budget report that is presented to the Policy Council monthly.
Additionally, Kenny Ching provides a Head Start Budget Report monthly, and William will reconcile this report to the budget report he created. At
year end, Kenny Ching reviews expenditures for remaining budget and allowability per the grant, informing the program manager of what funds
need to be spent by the end of the grant's budget year. This ensures that federal funds are obligated by the end of the grant year. I f an
expenditure is questionable or the grant lacks the funds available to pay for the expenditure, Kenny will contact Laura Garcia and inform her of
the issue.
At year end William's budget report spreadsheet will include all months within the grant period, to include a column for post-October which
includes expenditures obligated during the grant period but have not been paid prior to the end of the grant period. Per the grant contract,
grantees have 90 days following the close of the grant to pay any outstanding expenditures.
Summary of Key Control:
1: William Moore maintains a monthly budget versus actual expenditures report, ensuring grant expenditures are spent by the end of the grant's
budget year.

We reviewed the budget report spreadsheet dated J uly 25, 2013. We noted the amounts for the original budget, amended budget, November,
December, J anuary, February, March, April, May, J une and J uly were present. We also noted that total salary & operational expenses were
reported as $2,851,726 with $1,161,214 remaining in the budget, or 63% remaining to be spent. We recalculated the total expenses to
$2,851,728, which is a $2 difference than reported, which we determined is immaterial and pass further review. We also recalculated the balance
remaining, without exception. We tied all the J uly expense amounts to the supporting documentation included with the J uly budget report
spreadsheet, which included expense printouts from the system for each type of expense.

Compliance Testing
We determined the greatest risk regarding Period of Availability involved the period between Sep-Nov 2012, which is the difference between when
the fiscal year started and the grant period started. Part of our sample of transactions for Activities Allowed/Allowable Costs testing occured
during this time period, see Single Audit Testing Matrix A. No exceptions noted.



Purpose/Conclusion:
Purpose:

Conclusion:
We determined internal controls provide reasonable assurance that reports submitted to the Federal awarding agency include all activity of the
reporting period, are supported by underlying accounting or performance records, and are fairly presented in accordance with program
requirements. We also tested compliance with those requirements.

Testing Strategy:
Reporting




grantor agency:




FFATA.






over compliance.




exists.




Noncompliance
Less than Material

Material
program)
Remote

Control deficiency

Control deficiency

More than remote
possible)



Material Weakness
program)

Report a Finding















Financial Reports




Program Reports




tested reports.

ARRA Section 1512




report the data.

above:






October 1, 2010.


Requirement:





Number (FAIN).














Policy/Standards:


The inherent risk is the District is not submitting the SF-425 reports to the grantor for all activity occurring during the reporting period and the
amounts are not supported by the underlying accounting records.

Key Employees
Kathy Gallichan, Grants Accounting Analyst
SF-425, Federal Financial Report: Kathy Gallichan prepares the SF-425 Federal Financial Report by compiling all expenditures in the Head Start
fund derived from reimbursements submitted during the period. Matching (District portion) expenses are calculated by adding the amount
allocated to volunteer hours, invoices from the YMCA, City of Seattle, custodians, lunchroom staff, staff support, call center, transportation
costs and other associated costs. I ndirect costs are then calculated as a percentage of direct costs, based on the percentage outlined in the
annual contract (FY13-3.77%). From this expenditure data, matching percentages are calculated and reviewed. The SF-425 report is submitted
semi-annually and a final report is submitted at the end of the grant period. During the grant period three reports were submitted to the awarding
agency.
Kenny Ching reviews the SF-425 by comparing the report to financial system reports. These comparisons are intended to ensure that the
information in the report is a complete and accurate listing of all program expenses. Kenny then signs the report indicating his review and
approval.

Summary of Key Control:
1: Kenny Ching signs the SF-425 report indicating his review and approval.

We reviewed the semi-annual SF-425 report submitted on 5/25/2013. The Head Start grant submits SF-425 reports semi-annually and a final
report at the end of the grant period. We noted the report included the grant period of 11/1/2012 to 10/31/2013, the amount of Federal funds
authorized of $3,315,190.00, amount? the amount of Federal funds expended of $1,960,365.51, the District's share of $490,091.38, the amount
the District expended of $161,883.23, and
indirect expenses of $71,220.76. We also noted Kenny Ching's signature indicating he reviewed and approved the report.
Based on our interactions with Kenny Ching, we found him to have the skills, knowledge, time and ability to perform his job. Based on our review,
this control appears to be in place and operating as intended.

Compliance Testing
We selected all reports submitted for the grant period to determine if all reporting requirements were met. We performed testing at Head Start
Reporting Testing. No exceptions noted.



Purpose/Conclusion:
Purpose:

Conclusion:

Testing Strategy:
Summary of Results



Policy/Standards:

We summarized the major program audit results at Major Federal Program - Local Teams.

All monthly PARs were signed within our expectation.
these reasons, we determined the exception should not be listed as a higher level. See ISS.7.

E.7.PRG - Centralized Internal Controls

Procedure Step: Time and Effort Certifications

Purpose/Conclusion:
Purpose:
To determine if the District has adequate internal controls over and is in compliance with the requirements for time and effort certifications.

Conclusion:
We determined the District has adequate internal controls over and is in compliance with the requirements for time and effort certifications.
However, not all time and effort certifications were signed timely. See SA_E: Time & Effort Certifications. I n addition we found unallowable costs
to the High School Graduation Initiative grant of $61,348. See SA_F: CFDA 84.360 High School Graduation I nitiative Unallowable Costs

Testing Strategy:
ACTIVITIES ALLOWED, COST PRI NCIPLES and PERIOD OF AVAILABI LI TY
(TIME & EFFORT CERTI FICATIONS)

Time and effort documentation
The majority of grant funding is typically used for employee payroll costs. Therefore, the district must follow the time and effort requirements outlined in OMB
Circular A-87, Attachment B, Section 8(h) and also OSPI Bulletin 051-11. It is recommended that you obtain a copy of this bulletin fromthe OSPI
website. http://www.k12.wa.us/BulletinsMemos/bulletins2011.aspx . Some districts have obtained approval for a "substitute" time and effort system. Under a
substitute system, the district conducts periodic time studies and then projects the payroll cost for the year based on the time study results instead of keeping
monthly time and effort records. Obtain a copy of the district's substitute time systemagreement for additional guidance.

Schoolwide Payroll Time and Effort
A school building that participates in a schoolwide programshould treat as a Single Cost Objective the portion of an employee's time and effort supported by
combined schoolwide funds as noted below:
(a) An employee whose compensation is funded solely froma Single Cost Objective must furnish semi-annual certifications that he/she has been engaged solely
in activities supported by the applicable source in accordance with OMB Circular A-87, Attachment B paragraph 8.h.3.
(b) An employee paid in part froma Single Cost Objective (the schoolwide plan), and in part with funds fromother revenue sources, must maintain time and
effort distribution records in accordance with OMB Circular A-87, Attachment B paragraph 8.h.4. documenting the portion of time and effort dedicated to:
(1) The Single Cost Objective, and
(2) Each programor other cost objective supported by the other revenue sources.

Policy/Standards:

Background
We determined the District's time and effort certifications are a centralized control based on SAO knowledge of District operations. We will meet
with applicable District staff to gain an understanding, confirm and test the internal controls as a whole. For each applicable single audit grant, we
will perform testing in this section, but in separate spreadsheets. Therefore, all single audits with the direct and material compliance requirement
for activities allowed/allowable costs will hyperlink their work to this section and their respective testing spreadsheet. Any concerns identified will
be documented in this step and also to the respective grant in the activities allowed/allowable costs section. The grants identified with activities
allowed/allowable costs as direct and material are:
CFDA 84.010/84.389 Title I
CFDA 84.388 School Improvement Grant
CFDA 93.600 HeadStart

Activities Allowed/ Allowable Costs (Time & Effort only)
noncompliance at HIGH due to the following:
The compliance requirement is relatively complex and the related activities are difficult to audit.
The District has multiple locations and departments responsible for administering the requirement.
The District received multiple findings for time & effort certifications in prior audits.
Contacts
Grace Ngai/Accounting Analyst III - gngai@seattleschools.org, (206)252-0254
Kelly Knight, Accounting Analyst II - krknight@seattleschools.org

Payroll Expenditures (Time & Effort Certifications)
In accordance with OMB Circular A-87 and OMB Circular A-21, J .10, an employee whose compensation is funded solely from a Single Cost
Objective must complete certifications no less frequently than every six months (semi-annual) to show that he/she has been engaged solely in
activities supported by the applicable source. The County made a strategic management decision to collect three single cost objective time and
effort certifications because the school class days run 10 months out of the year. The District recognized that after J une each year that there is a
fair amount of turnover in staff and principals. The work calendar for most District staff is also a 10 month work calendar. For these reasons, they
made the decision to split the reporting periods into three periods: Period 1 - September through J anuary; Period 2 - February through J une, and;
Period 3 - J uly and August.
An employee paid in part from (the schoolwide plan), and in part with funds from other revenue sources, must maintain time and effort
distribution records documenting the portion of time and effort dedicated to: (1) The Single Cost Objective, and (2) each program or other cost
objective supported by the other revenue sources. Employees who are partially funded must complete monthly Personnel Activity Reports (PARs)
to show where the funding should be charged for the month. The monthly PARs are only required to be signed by the employee, but the District
has chosen to require the employee's supervisor or manager to also review that the employee charging to the grant is accurate.

Grace Ngai, Accounting Analyst coordinates the time and effort (T&E) certification process. The District uses a paperless, electronic process for
approval of time and effort certifications. Monthly, Grace uploads the Federal Program Time and Effort report from the District's G/L and uploads
to the Access database. The report captures all employees who have been partially and fully funded from the federal program(s), payroll
distribution and dollar amounts.The data is reconciled to the aggregate payroll posting and fiscal data which Grants Accounting uses to bill federal
awards. This data is used to populate the various time and effort certifications (semi-annual, monthly personnel activity reports).

Monthly, Grace Ngai/ Accountant generates an Excel workbook of time and effort certifications, emails certifications to
supervisors for approval and collects all Monthly Personnel Activity Reports (PARs) for employees who work on multiple cost
objectives; Kelly Knight/ Accountant collects all semi-annual single-cost objective certifications. The employees and supervisors
receive their time and effort certifications as an electronic Excel workbook via their District email accounts. The PARs are signed digitally signed by
the employee and the semi-annual certifications are digitally signed by the supervisor. Each workbook contains instructions for the employees and
supervisors for their review of the contents, how to complete the Excel "Signature Set-up", and signing their digital signatures on the workbook.
The Excel document becomes a read-only document and further modification is disallowed once the digital signature is complete. Any attempts to
edit the document invalidate the digital signature. Since the send and receipt functions of the T&E certification is via each employee's district
email account, the authenticity and integrity of the content on the certification is confirmed by their personal email account signature. The
certification is dated automatically by the Excel program when it is digitally signed. The monthly PARs are emailed by the employee to
the Supervisor/Principal to review and approve as an added control by the District. This is not a federal requirement to have the semi-annual
certifications to be reviewed and approved by a Supervisor/Principal. The Supervisor/Principal reviews and forwards the email to Grace Ngai,
Accounting Analyst stating the certification has been reviewed and verified the payroll expenditures charged are for the grant(s) stated. Grace
receives and reviews all monthly PARs and Kelly Knight receives all semi-annual certifications.

Prior Audit Exeption
We noted the prior audit exit item related to time and effort certifications:
Semi-Annual Certifications: We found 50 certifications signed between 30-60 days late, 58 certifications signed between 60-90 days late,
12 certifications signed between 90-120 days late and 2 certifications signed more than 120 days late.

Monthly PAR Certifications: We found 20 certifications signed between 30-60 days late, 6 certifications signed between 60-90 days late, 6

Although the time and effort certifications were signed between one and three months late, the District has made significant improvements
in this area since the previous audit. We do not consider one and three months late material to the grant. In the prior audits, we noted the
District did not sign the time and effort certifications until after we selected those programs for audit.

Follow-up to exit item: Grace stated she and Kelly continue to work on making sure a higher percentage of time and effort certifications are
received timely. The District has elevated the responsibility and accountability of the certifications being returned to the Accounting Department
timely by holding the principals and supervisors 100 percent responsible for them to be returned timely. Monthly, Grace sends the principals and
supervisors a list of their staff required to comple a PAR for the month, any delinquent notices for outstanding and late PARs. If Grace finds a staff
member's certification is consistently returned late then a delinquency report is sent to the Exectutive Directors. The District has provided time
and effort certification training to staff and expect them to all be fully trained on how to complete the monthly certifications through e-filing and
e-signature on the Excel time and effort certification forms. The District is also investigating the possibility of using other available digital
cartificate methods to make the certifications easier to complete and sign.

We will verify the certifications are signed timely during our compliance testing, below.

KEY CONTROLS
Key Control #1: Monthly, Grace Ngai/Accountant generates an Excel workbook of time and effort certifications, emails certifications to
supervisors for approval and collects all Monthly Personnel Activity Reports (PARs) for employees who work on multiple cost objectives;
Kelly Knight/Accountant collects all semi-annual single-cost objective certifications.
Key Control #2: The employee and direct supervisor or principal reviews, approves and signs the time and effort documentation for all
employees within their department charging payroll expenses to the grant.

Based on our understanding of key internal controls for activities allowed/allowable (time & effort only), we assess preliminary control risk at
LOW.

Key Control #1: Monthly, Grace Ngai/ Accountant generates an Excel workbook of time and effort certifications, emails
certifications to supervisors for approval and collects all Monthly Personnel Activity Reports (PARs) for employees who work on
multiple cost objectives; Kelly Knight/ Accountant collects all semi-annual single-cost objective certifications.
We obtained and reviewed the October 2012, December 2012 and J une 2013 time and effort Excel workbooks that Grace Ngai, Accountant,
generates. The workbook includes when the monthly PARs were sent out to the principals, managers, supervisors, management and directors, the
received date and whether notices were sent out if the PAR certification was not received on time. There are columns to show the date an email
was sent to the employee and whether the certification was received and date received. Grace also showed us several emails to staff sent when
the certifications are not received. The emails contain highlights in large, bold letters and some highlighted to show who is late and if reminders
have been sent out already and still not received.

Grace also maintains a detailed written document of the time and effort certification reporting process. We met with Kelly Knight, Accountant who
corroborated that Grace uses this document to make sure the time and effort certification process is followed. Kelly also verified that Grace follows
up with emails to managers and supervisors that have not returned their monthly PAR certifications on time. Kelly stated she and Grace stay in
communication to ensure all time and effort certifications are returned to the Accounting Department signed timely.

Based on our interactions with Grace Ngai and Kelly Knight, we found all to have the skills, knowledge, time and ability to perform their jobs. This
control appears to be in place and operating as intended.

Key Control #2: The employee and/ or direct supervisor or principal reviews, approves and signs the time and effort
documentation for all employees within their department charging payroll expenses to the grant.
We performed the following dual purpose-testing for the grants to determine whether the internal control is in place.

CFDA 84.010/84.389 Title I - We ran a CAATS database query at Time & Effort Sample Selection and created a pivot table to show the
employee names and year totals. We determined there are enough employees to use the sampling spreadsheet at Time & Effort Sample
Selection to select 22 employees for testing, using a moderate control rate. We ensured the direct supervisor or principal reviews and
approves the semi-annual certifications and the employee signs as approved the monthly PARs. We performed testing at CFDA
84.010/84.389 Title I Time & Effort Testing. We determined the employees signed the monthly PAR forms and the direct supervisor of
employees emailed the certifications as approval; and the direct supervisors of semi-annual certifications signed as review and approval of
the employees pay for Title. There were no exceptions.

CFDA 84.388 School Improvement Grant - We ran CAATS database query at SIG Time & Effort Sample Selection and created a pivot table
to show the employee names and total by year. We determined there are enough employees to use the sampling spreadsheet at SIG
Time & Effort Sample Selection to select 23 employees for testing, using a moderate control rate. We ensured the direct supervisor or
principal reviews and approves the semi-annual certifications and the empoyee signs as approved the monthly PARs. We performed
testing at - CFDA 84.388 SIG Time & Effort Testing. We determined the employees signed the monthly PAR forms and the
direct supervisor of employees emailed the certifications as approval; and the direct supervisors of semi-annual certifications signed as
review and approval of the employees pay for Title. There were no exceptions.

CFDA 84.360 High School Graduation Initiative - We ran CAATS database query at CFDA 84.360 HSGI Time & Effort Testing and created a
pivot table to show the employee names and total by year. We noted 120 employees which is below our number of 300 to use
the sampling spreadsheet. We selected 18 employees for review based on auditor knowledge of the grant having a qualified opinion in
the prior audit, including questioned costs for payroll. We selected employees with highest pay, making sure we did not select those
audited in the prior audit that were not part of the exception. We performed control testing at CFDA 84.360 HSGI Time &
Effort Testing to ensure the time & effort certifications were signed appropriately. We determined the employees signed the monthly
PAR forms and the direct supervisor of employees emailed the certifications as approval; and the direct supervisors of semi-annual
certifications signed as review and approval of the employees pay for Title. There were no exceptions.

CFDA 93.600 HeadStart - We ran a CAATS database query at CFDA 84.93.600 HeadStart Time & Effort Testing and created a pivot table
to show the employee names and total by year. We determined there are 142 employees charged to the grant, which is less than the
number used for sampling. Therefore, we used judgmental selection of employees to select for testing. We randomly selected 15
employees whose earnings were greater than $10,000. We determined the remaining population not selected for testing was low risk as
our selected population encompassed all levels of earnings and job titles. We performed testing at CFDA 84.93.600 HeadStart
Time & Effort Testing. We determined the direct supervisors of semi-annual certifications signed as review and approval of the
employees pay for HeadStart. There were no exceptions.

We assess final control risk for activities allowed/allowable costs at LOW.

We assess the risk of material noncompliance for activities allowed/allowable costs at MODERATE.

Compliance Testing
We designed the nature and extent of compliance testing based on the risk of material noncompliance. We reviewed the testing strategy and
selected transactions for review based on the risk for each single audit.

We selected transactions for testing during the control testing, above, as we performed dual purpose testing. We noted the employees selected
include single-cost objective semi-annual certifications, non-FTE semi-annual certifications, and multiple-cost objective monthly certifications
(Personnel Activity Reports, PARs). For semi-annual certifications, the District chooses to complete three certifications instead of two; Period 1
from 9/1/2011 - 1/31/2012, Period 2 from 2/1/2012 - 6/30/2012 and Period 3 from 7/1/2012 through 8/31/2012. The periods are split by the first
and second half of the school year and the third represents the activity during the summer months when school is not in session. We obtained the
time & effort certifications and reviewed them to make sure 1) they are signed by the employee for monthly Personnel Activity Reports or the
principal/supervisor for semi-annual certifications , then 2) were signed timely.

Timely Certification Expectation- For each grant tested below we used the same expectations to determine whether the certifications were
signed timely. We would expect period 1 to be signed no later than March 15, 2013; period 2 no later than J uly 30, 2013, and; period 3 no later
than October 23, 2013. For monthly PARs, we would expect each to be signed no later than one month after the prior month PAR.

We performed testing at:
CFDA 84.010/84.389 Title I - CFDA 84.010/84.389 Title I Time & Effort Testing Based on testing, we found all of the costs are allowable to
the grant, however not all time & effort certifications are signed timely. We determined one out of three single-cost objective semi-
annual, nine out of 33 non-FTE, and two out of 10 monthly Personnel Action Report certifications were not signed timely. We then
determined the length of time the certifications were signed late to determine the level of issue based on the number of certifications
reviewed, not the number of employees reviewed as there are a number of employees certified by the same certification form. We
determined:
9/1/2012-1/31/2013 (Period 1): Two certifications signed less than 30 days late; one signed between one and two months late;
one signed between two and three months late, and; six signed within our expectation.
2/1/13-6/30/2013 (Period 2): One certification signed less than 30 days late; one signed between one and two months late; one
signed between two and three months late, and; four signed within our expectation.

CFDA 84.388 School Improvement Grant - CFDA 84.388 SIG Time & Effort Testing Based on testing, we found all of the costs are allowable
to the grant, however not all time & effort certifications are signed timely. We determined 30 out of 42 non-FTE certifications were not
signed timely. We then determined the length of time the certifications were signed late to determine the level of issue based on the
number of certifications reviewed, not the number of employees reviewed as there are a number of employees certified by the same
certification form. We determined:

CFDA 84.360 High School Graduation Initiative - CFDA 84.360 HSGI Time & Effort Testing Based on testing, we found all of the costs are
allowable to the grant, however not all time & effort certifications are signed timely. We determined 11 out of 27 single-cost objective
semi-annual and seven out of 64 multiple-cost objective monthly certifications were not signed timely. We then determined the length of
time the certifications were signed late to determine the level of issue based on the number of certifications reviewed, not the number of
employees reviewed as there are a number of employees certified by the same certification form. We determined:
9/1/2012-1/31/2013 (Period 1): One certification signed nine months late, one signed between two and three months late, one
signed between one and two months late and two signed within our expectation.
7/1/2013-8/30/2013 (Period 3): One certification was signed between one and two months late and one certification was signed
within our expectation.
Monthly PARs: One certification signed between one and two months late, six certifications signed less than 30 days late and 57
PARs were signed within our expectation.

In addition, during testing we found one employee charged that is not allowable to the grant totaling $61,348. We documented additional
information about this in the grant record of work done at A-B. Activities Allowed/Allowable Cost and SA_F: CFDA 84.360 High School
Graduation I nitiative Unallowable Costs

CFDA 93.600 Head Start - CFDA 84.93.600 HeadStart Time & Effort Testing Based on testing, we found all of the costs are allowable to the
grant, however not all time & effort certifications are signed timely. We determined 15 out of 28 single-cost objective semi-annual
and seven out of 19 non-FTE certifications were not signed timely. All monthly PARs were signed timely. We then determined the length
of time the certifications were signed late to determine the level of issue based on the number of certifications reviewed, not the number
of employees reviewed as there are a number of employees certified by the same certification form. We determined:
Monthly PARs: All 12 monthly PARs were signed within our expectation.

We documented our exception over time and effort requirements at SA_E: Time & Effort Certifications.

Summary of Exit I tem:
We reviewed 131 time and effort (T&E) certifications and determined the following for these grants:

CFDA 84.010/ 84.389 Title I
Semi-Annual Certifications (Single-Cost Objective FTE and non-FTE):
Four certifications were signed less than 30 days after the T&E reporting deadline.
Two certifications were signed less than 30 days after the T&E reporting deadline.
CFDA 84.388 School I mprovement Grant
Five certifications were signed less than 30 days after the T&E reporting deadline.
Six certifications were signed less than 30 days after the T&E reporting deadline.

CFDA 93.600 Head Start
One certification was signed less than 30 days after the T&E reporting deadline.
Exit = Although the time and effort certifications were signed between one and nine months late, the District continues to make significant


Procedure Step: Reimbursement Requests

Purpose/Conclusion:
Purpose:
To determine if the District has adequate internal controls over and is in compliance with the requirements for cash management.

Conclusion:
We determined that the District has adequate internal controls over and is in compliance with the requirements for cash management.

Testing Strategy:

Policy/Standards:

Background
We determined the District's cash management (reimbursement requests) is a centralized control based on SAO knowledge of District
operations. We will meet with applicable District staff to gain an understanding, confirm and test the internal controls as a whole. For each
applicable single audit grant, we will perform testing in this section. Therefore, all single audits with the direct and material compliance
requirement for cash management will hyperlink their work to this section and the testing spreadsheet. Any concerns identified will be
documented in this step and also to the respective grant in the cash management section. The grants identified with cash management as direct
and material are:
CFDA 84.010/84.389 Title I
CFDA 84.388 ARRA - School Improvement Grant
CFDA 93.600 HeadStart
Inherent Ri sk of Noncompliance --Reporting
We noted in the prior year audit that the District had adequate internal controls in cash management and reporting and there were no
issues.
The compliance requirement is not complex and related activities are not difficult to audit.
Contacts
Kenny Ching/Grants Accounting Manager
Kathy Gallichan/Accounting Analyst

Financial Reporting

We met with Kenny Ching/Grants Accounting Manager on 2/11/2014 to gain an understanding of internal controls over financial reporting.

Monthly, an Accounting Analyst, currently Kathy Gallichan/Accounting Analyst, downloads an expenditure worksheet from the general ledger
for the Dept. of Ed (ED), Dept. of Heath(DOH) grants and OSPI pass-through grants. Data is entered into the Excel "Grant Report -St-Act" report
to be submitted to OSPI. This worksheet contains the expenditures by fund, line item, activity and program. Formulas are built into the Excel
worksheet to calculate any expenditure line item that is over budget. This calculation takes place in a column called "Adjustments". Once
completed, the report is submitted to Kenny for approval.

Kenny Ching/Grants Accounting Manager compares the data entered into the Excel worksheet to the total actual expenditures on the ZFUND
control report (i.e. "Funds Available Report with Hier Key Figure"). Kenny reviews the financial information in the expenditure report to ensure that
the information is accurate and adequately supported by underlying records prior to being electronically transmitted to OSPI for
payment. Any amounts in the "Adjustments" column are compared to the EDS system to ensure the expenditure report has the most up-to-date
budget figures. If there have been no additional budget updates, Kenny researches the expenditure further to ensure the item is in the correct
account coding. If the expenditure is correctly coded and there is no budget, the expenditure is properly adjusted out of the reimbursement. Kenny
ensures the Excel invoice worksheet containing each OSPI grant rolls-up correctly from their individual expenditure reports before signing for
approval. Monthly, Kenny Ching/Grants Accounting Supervisor reviews and approves the reimbursement requests before they are
submitted to OSPI or DOH to ensure they are complete, accurate and based on actual grant expenditures. Kenny signs off on the packet
containing the expenditure report for each grant and supporting schedules, then transmits the expenditure report to OSPI.

KEY CONTROLS
Key Control #1: Monthly, Kenny Ching/Grants Accounting Supervisor reviews and approves the reimbursement requests before they are
submitted to OSPI, ED or DOH to ensure they are complete, accurate and based on actual grant expenditures.
Key Control #1: Monthly, Kenny Ching/Grants Accounting Supervisor reviews and approved the reimbursement requests before they are
submitted to OSPI or DOH to ensure they are complete, accurate and based on actual grant expenditures. This is indicated with a signature on
the packet.

To test controls we haphazardly selected two reimbursements submitted to OSPI (February 2013 and J uly 2013), two submitted to ED (J anuary
2013 and March 2013) and two reimbursement requests for DOH (December 2012 and May 2013) to review for Kenny's signature on the
reimbursement packet. We noted each packet contained signatures from Kenny as well as tickmarks and initials on each Grant Expenditure
Report indicating he had reviewed the packets.

CFDA 84.010/84.389 Title I and
OSPI:
February 2013: Submitted 3/19/2013, signed by Kenny 3/18/2013
J uly 2013: Submitted 8/19/2013, signed by Kenny 8/8/2013 & 8/9/2013

CFDA 93.600 HeadStart Control Testing:
DOH:
December 2012: Submitted 1/16/2013, signed by Kenny 1/15/2013
May 2013: Submitted 8/8/2013, signed by Kenny 8/8/2013 (Note: May and J une submitted together)
CFDA 84.360 High School Graduation Initiative Control Testing:
ED:
J anuary 2013: Submitted 2/14/2013, signed by Kenny 2/14/2013
March 2013: Submitted 4/5/2013, signed by Kenny 4/5/2013

Each sheet was date stamped by the printer indicating the sheets had been printed prior to submission to OSPI or DOH. During our review we
noted various check marks, totals circled and additional notations indicating the review had taken plance. We noted no exception.

Based on our interactions with Kenny Ching, we found him to have the skills, knowledge, time and ability to perform his job. Based on our testing,
this control appears to be in place and working as intended.
Final Control Ri sk Assessment
Compliance Testing
1. CASH MANAGEMENT - Cost Reimbursement
Testing for this section is performed in conjunction with the Financial Reporting as listed below.

2. FINANCIAL REPORTING
We haphazardly selected to review two reimbursements submitted to OSPI (February 2013 and J uly 2013) to cover review of CFDA
84.010/84.389 Title I and CFDA 84.388 ARRA - School Improvement Grant; two submitted to ED (J anuary 2013 and March 2013) to cover review
of CFDA 93.600 HeadStart; and two reimbursement requests for DOH (December 2012 and May 2013) to cover review of CFDA 84.360 High
School Graduation Initiative. We performed the following for each reimbursement request:
1. We traced the amounts reported to the grantee's accounting records or other appropriate supporting documentation. We obtained the
reimbursements packets for OSPI from Kenny and for DOH and ED from Kathy. For the ED March reimbursement we noted a variance of
approximately $61,000. For the DOH December reimbursement there was a variance of approximately $33,000. In order to better
understand these large variances, we met with Kathy on 2/19/2014. Kathy provided us with her line item detail reports "ED MAR 2013
DownLoad 04-02-13" and "dshs 13 04 DEC 2012 1B60, 1K96 Download 7407P 01-15-13" showing the detailed download from the
Districts expenditure system. We scanned these reports and compared them to our queries. Beause the District had incurred more costs
than it has requested for reimbursement, we did not identify any additional risk and will not consider these variances as exceptions.
2. We tested mathematical accuracy of reports and supporting worksheets by recalculating the totals, noting no exceptions.
3. We tested the selected reports for completeness. We then reviewed accounting records and ascertained all applicable accounts were
included in the tested reports (e.g., program income, expenditure credits, loans, interest earned on Federal funds, and reserve funds). We
used the CAATs "Seattle SD_Expenses_Detail" query by fund as accounting records. We noted no exceptions.

Our testing is documented at: Cash Management.Financial Reporting Testing. Based on review, no exception.


Procedure Step: Personal Service Contracts

Purpose/Conclusion:
Purpose: To determine if the District has adequate internal controls over and is in compliance with the requirements for procurement and

Conclusion: We determined that the District has adequate internal controls over and is in compliance with the requirements for procurement and

Testing Strategy:
PROCUREMENT / SUSPENSION & DEBARMENT
3.Gain an understanding of internal controls.
4.Assess preliminary control risk (CR).
5.Test internal controls.
6.Assess final control risk (CR).
7.Assess the risk of material noncompliance (combined IR and CR).
8.Test for compliance with the requirement.

ARRA Caution: If your audit scope includes CFDA 84.389-ARRA, the "Buy American" requirement will apply to any public works (construction)
contracts. Specifically, if ARRA funds are used for construction projects, any iron, steel, and manufactured goods used in the project must be
produced in the United States and this provision must be communicated by the grantee in its contract with the vendor. Any waivers to Buy
American must be granted by a federal agency.
WHEN IS IT DIRECT AND MATERIAL?
Test Procurement if the amount spent on goods and services subject to competition (quotes, bids, RFPs, etc.) are material to the program you are
auditing. This includes purchases for which there is no formal contract and new contracts executed during the audit period. You may also factor
into your analysis recurring payments under vendor contracts that were procured in a prior audit period for which the risk of noncompliance is
questionable in your opinion. CAUTION - Read the audit approach section below to determine which purchases by schools and ESDs are subject
to procurement/competition.

Test Suspension and Debarment only if (1) the district has individual contracts for goods and services that exceed $25,000 and the combined
amount of these contracts is material to the program, and/or (2) the district has made subawards to subrecipients and the combined amount of
these awards is material to the program.
AUDIT APPROACH
The following is our audit approach for FY2013 for Title I and Special Education grants:
Transactions between two governments for services are exempt from procurement
When a school district or ESD uses federal grant funds to pay for professional services obtained from another ESD, school district, OSPI ,
or other governmental entity, it is not expected to obtain quotes or seek competition because 34 CFR 80.36(b)(5) encourages
governmental entities to enter into interlocal agreements to maximize economy and efficiency. RCW 39.34.030 sets forth the standards
for interlocal agreements the form of the agreement or contract may vary so long as it contains the necessary information. This is
intended for services provided from one government to another government - it does not exempt purchases made by one of the
participating governments from a third party vendor.
Purchases from external vendors - Generally
When a school district uses federal grant funds to pay for furniture, supplies, food, or equipment from a vendor other than an ESD or
school district (the K-12 education system), the quote and bid limits of RCW 28A.335.190 will apply and will be used for audit purposes
(>$40,000=quotes and >$75,000=bids). This includes cooperatives formed to purchase goods from an external vendor.
28A.335.190. However, if the books are paid from a direct grant awarded by a federal agency, the school district must obtain quotes or
show that the books/curriculum were available only from a single source of supply.
When a school district uses federal grant funds to pay for professional services from a vendor other than an ESD, school district, or other
governmental entity, the Common Rule (34 CFR 80.36(d)) is applicable. While this CFR requires quotes for purchases from $0 to
$100,000, SAO auditors will use a risk-based approach in selecting procurement transactions. SAO will use a $3,000* per purchase
floor as an internal measure of materiality when selecting purchases.
Because ESDs do not have a state law that defines quote or bid thresholds for their procurements, the Common Rule (34 CFR 80.36(d)) is
applicable when federal funds are used to pay for goods and services. While this CFR requires quotes for purchases from $0 to $100,000,
SAO auditors will use a risk-based approach in selecting procurement transactions. SAO will use a $3,000* per purchase floor as an
internal measure of materiality when selecting purchases.
Vendors named in grant applications - In general, listing a vendor's name in an application for a grant is not necessarily a safe harbor
from having to procure the goods or services using competition. You will find some instances where the district is required to hire a
specific "evaluator" or designate specific "partners" to help carry out the objectives of the grant. Consult with the Single Audit Specialist if
you find a vendor listed in a grant application and are not sure if it is subject to procurement.
No matter the thresholds above, if we believe a procurement transaction involves a conflict of interest, unreasonable pricing, bid
splitting, fraud, or other illegal activity, we should investigate such.
(* $3,000 is defined as the micro-purchase by the Federal Acquisition Regulations (as of 2008). Purchases made by federal agencies
under this amount do not require quotes this is a guide that we will use for the level at which the federal government would normally
expect quotations to be obtained.)
Title I Supplemental Services
Districts have the option to use their Title I, Part A funds to implement Public School Choice (PSC) or Supplemental Education Services
(SES), since both are allowable uses of these funds. Districts that choose to implement SES with their Title I funds would
become responsible for maintaining an approved provider list. OSPI would no longer be required to report the use of funds for
PSC or SES to ED. OSPI will still be required to approve each districts Title I application.
Title II Professional Development
Districts are not expected to use competition when sending an employee to an off-site training class, workshop, or when obtaining college
credit. However, if the district hires a third party vendor to come into the district and provide training to district staff, this is a
professional service that is subject to procurement.
Special Education Services
Districts needing to hire a professional to provide a service called for in a child's IEP (e.g., nursing, physical therapy, speech therapy, etc.)
must use competition in selecting the provider or justify a sole source designation in accordance with the Common Rule.
Special Education Placement
Disbursements to a Non Public Agency http://www.k12.wa.us/SpecialEd/NonPublicAgency.aspx , another school, or an ESD to pay for
a "placement" decision called for in a child's IEP are not subject to competition. A placement decision is made when the district cannot
provide the necessary services/facilities for the child thereby requiring the child to attend another district or NPA.
--------------------------------------------------------------------------------------------------------------
over compliance.

Gain an understanding of the internal control process and identify the key internal controls that are effective in ensuring: (1) state laws and the
Common Rule are followed when procuring goods and services and (2) vendors and subrecipients are not suspended or debarred from
participating in federal programs.
exists.


Likelihood of
Noncompliance

than material


Material

Remote
Control deficiency

Control deficiency

Control deficiency

More than
remote
(at least
reasonably
possible)
Control deficiency







Procurement:
READ THE AUDI T APPROACH SECTION ABOVE BEFORE PROCEEDING
1. Select procurement transactions (e.g., purchases of goods, services, construction, etc.) and test to determine if the district complied with the
applicable state laws and/or the Common Rule for procurement:
Furniture, equipment, supplies, food: state law requires quotes from at least 3 vendors for purchases between $40,000-$75,000 and
formal bids for purchases over $75,000. (THIS I S THE STATE LAW FOR SCHOOLS - ESD's MUST FOLLOW THE COMMON RULE BELOW
FOR ALL PURCHASES.)
Construction: state law requires a competitive process for projects over $40,000 and formal bids for projects over $100,000. A small
works roster can be used. The Buy American requirement will apply unless waived by a federal agency.
conclusion.
Select vendor contracts that exceed $25,000 and some subrecipient agreements (no dollar minimum) and verify the auditee performed one of the
following:


contractor or subrecipient of this responsibility. Ascertain whether the grantee informed the lower tier participant (i.e., the primary contractor or
subrecipients.
Conclude on the Districts compliance with Procurement/Suspension and Debarment.

Policy/Standards:

Background
We determined the District's procurement; suspension/debarment processes related to personal service contracts are centralized based on SAO
knowledge of District operations. We will meet with applicable District staff to gain an understanding, confirm and test the internal controls as a
whole. For each applicable single audit grant, we will perform testing in this section. Therefore, all single audits with the direct and material
compliance requirement for procurement, suspension and debarment related to personal service contracts will hyperlink their work to this section
and the testing spreadsheet. Any concerns identified will be documented in this step and also to the respective grant in the procurement,
suspension, debarment section. The grants identified with personal service contracts as direct and material are:
CFDA 84.010/84.389 Title I

Contacts:
Allan Mardock/Accounts Payable Supervisor
Marie Guzzardo/Accts Payable Acctg Specialist

Note to reviewer: Houng Nguyen/ Accounting Specialist I I I performed these duties until August of 2013. She has retired from
the District. A temp was utilized from August 2013 - November 2013. Allan Mardock performed these duties from November
2013 - February 2014 when Marie took over this role. Marie has been working for the District in purchasing for years and has
added these duties to her workload.

We met with Allan Mardock and Marie Guzzardo on 3/12/2014 to discuss processes and controls regarding procurement, suspension and
debarment of personal service contracts.

Personal Services Procurement:
Personal service contracts are initiated by the schools or program manager. The initiators download a blank contract and checklist from the
District intranet. Initiators are required to provide the Accounting department with the contract, completed checklist and all documentation
required by the checklist.
To ensure compliance with federal (and the Districts) procurement requirements, the District requires a "SPS Documentation of Competition OR
Sole Source J ustification Form for Personal Services Contracts (PSC's)" to be completed on PSC over $25,000. A template of this document can be
obtained from the District's intranet. The form has two sections.
Section A is to be completed documenting the competition obtained for the contract. This section requests information related to informal
and formal competition documentation, and requires an authorizing signature at the bottom.
Section B is documentation for sole source justification. Section B includes instructions and guidance for sole source justification, in
addition to the template of required information.
Section C is to document required approvals. When sole source is selected and documented, the initiator must sign certifying they have
investigated the purchase and found that the reasons justify it as a sole source to the best of their knowledge. Additional signatures are
required from the Program Manager or Director, the Legal Dept., the Accounting Dept., the Asst. Supt. Op or TL, the Asst. Supt. Business
and Finance, Superintendent, and Board Action, depending on the amount of the contract.
PSC's are processed through the District's Accounting dept. Once the contract and the "SPS Documentation of Competition OR Sole Source
J ustification Form for Personal Services Contracts (PSC's)" has been prepared by the initiating department, it is submitted to Houng Nguyen,
Accounting Specialist I II for review. Houng reviews the contract and supporting documentation to ensure the required information is included in
the contract packet. Once the packet is complete, it is submitted to Kathie Technow/Accounting Services Manager, for review. To ensure
compliance with procurement requirements, Kathie reviews the contract, the "SPS Documentation of Competition OR Sole Source J ustification
Form for Personal Services Contracts (PSC's)", and supporting documentation including RFQs and bit advertisement and/or sole source
documentation when applicable. Kathy then signs off as the authorized signer for the Accounting Dept. For contracts over $75,000, after Kathie's
approval she routes the contract packet including supporting documentation to the Assistant Superintendent for Business and Finance (either
Kenneth Gotsch or Duggan Harmon). Contracts over $100,000 require additional approval from J ose Banda/Superintendent.
Suspension & Debarment:
The District uses verbiage and a clause in their personal services contracts whereby the contractor attests they are not suspended or
debarred. The contract boilerplate states:
applicable to debarment of contractors from receiving future contracts with SPS"
Huong Nguyen/Accounting Specialist III reviews the System for Award Management (SAM) website to ensure the vendors/contractors are not
suspended or debarred. She places a stamp on each contract that reads "EPLS" to denote she checked the contractor status on the SAM
website. Each contract reviewer initials the contract to indicate review and accounting of encumbered funds. Their initials also verify that all
appropriate approvals have been obtained and that all pertinent information in the contract is recorded.

Based on our interactions with Allan and Marie, we found them both to have the skills, knowledge, time and ability to perform the job.

Key Controls:
Key Control 1: (Procurement) Kathie Technow, Accounting Services Manager, reviews the contract, the "SPS Documentation of
Competition OR Sole Source J ustification Form for PSCs" (if needed), and supporting documentation and signs off as the authorized signer
for the Accounting Dept. to indicate her review and approval.
Key Control 2: (S&D) Huong Nguyen reviews the SAM website to ensure the vendor/contractors are not suspended or debarred and
stamps the contract with "EPLS" to indicate her review and approval.
To increase audit efficiency, we performed dual purpose testing of controls and compliance.
Key Control 1: (Procurement) Kathie Technow, Accounting Services Manager, reviews the contract, the "SPS Documentation of
Competition OR Sole Source J ustification Form for PSCs" (if needed), and supporting documentation and signs off as the
authorized signer for the Accounting Dept. to indicate her review and approval.

We used CAATs expenditure data from the "51 Disadvantaged" program to determine the population of vendors. We then determined the
vendors associated with the selected grants, Title I or High School Graduation I nitiative, by reviewing the fund numbers for each
vendor. Once we determined our population of personal service contract vendors, we stratified the population to address contracts above the per
purchase floor of $3,000. There were 49 vendors in the population. We noted one vendor number did not have a vendor name associated with
it. This vendor was charged to the Title I grant. We reviewed the transaction detail and determined a single payment was posted to this vendor
on 8/31/2013 for $9,500. Due to the vendor not having a name associated and the single transaction being posted on the last fiscal day of the
year, we determined this transaction to be higher risk. We will judgmentally select this contract to test. We then haphazardly selected six
additional contracts (three from each grant) to test controls and compliance. We reviewed the contracts to verify Kathie Technow had signed
each contract in approval and additional approval was sought as needed. We performed our testing at: Personal Service Contract - Procurement
Testing. Based on our testing, this control appears in place and working as intended.

Key Control 2: (Suspension & Debarment) Huong Nguyen reviews the SAM website to ensure the vendor/ contractors are not
suspended or debarred and stamps the contract with "EPLS" to indicate her review and approval.
We used the same CAATs query as Key Control #1, above, to determine our population of personal service vendors for the Title I and High School
Graduation I nitiative grants. We then stratified the population to show all vendors with expenditures over $25,000. There were 9 vendors over
$25,000 associated with both grants. We decided to perform dual testing to maintain audit efficiency. We selected two contracts to test:
University of Washington and The BERC Group, I nc. We tested to ensure the contracts had a stamp indicating the SAM website was checked.
Both contracts had been stamped with EPLS. Based on our testing, this control appears to be in place and working as intended.
Compliance Testing
Procurement:

1. We used dual-purpose testing to determine if the District complied with the applicable state laws and/or the Common Rule for procurement:
conclusion.
We obtained the contracts from Allan Mardock/Supervisor Accounts Payable. We performed our testing for the above attributes at: Personal
Service Contract - Procurement Testing. We noted no exceptions during testing.
We used the vendor population above to stratify for contracts above the $25,000 threshold. There were nine personal service contract vendors
with expenditures over $25,000 for the FY 2013 related to Title I and High School Graduation Initiative grants. We performed dual purpose
testing of controls and compliance. We selected two personal service contracts (University of Washington and The BERC Group, Inc.) that exceed
$25,000 to verify the auditee performed one of the following:
We reviewed the contracts and noted the District does stamp each contract indicating the SAM website has been verified. The District also uses a
standard contract created by the District Legal Department which includes the verbiage:

We saw both contracts contained this verbiage. We noted no exception. During our procurement testing at Personal Service Contract - Procurement
Testing, we noted all personal service contracts used the same template contract with the suspension/debarment verbiage indicating the District
does use the standard contract.


F.1.PRG - County Treasurer Reconciliation

Procedure Step: County Treasurer Reconciliation
Prepared By: JM1, 2/18/2014

Purpose/Conclusion:
Purpose:
To reconcile reported cash, revenues, expenditures, interfund and debt balances to the County Treasurer statements.
Conclusion:
We have reconciled reported cash, revenues, expenditures, interfund and debt balances to the County Treasurer statements and have identified
the following additional risks for further testing:
Cash and cash equivalents may be understated due to recognizing the incorrect fair market value on for the impaired investments. We
will review this further under Misstated Reconciling Items.
Deferred Revenue and Fund Balance may be incorrect, as the recognition of the unrealized losses were not properly reported. We will
review this further under Misstated Reconciling Items.
Transfers in the Capital Projects Fund did not reconcile to within our reasonable range. We will review this further under Additional Risks
- Non-compliance with Financial Effect.

Testing Strategy:
To reconcile reported cash, revenues, expenditures, interfund and debt balances to the County Treasurer, auditors are required to perform the
following procedures:

Step 1: Obtain / input F197 and F196 data
Spreadsheets with pre-filled F197 and F196 data will be available on the Schools Team page shortly after F196 statements are posted by OSPI in
December.

Team Local I SA centrally downloads F196 data into a database from all F196 statements posted to OSPIs site and obtains an F197
database from OSPI (which is obtained by OSPI directly from Counties). Using these databases, an automated process generates pre-
filled reconciliation spreadsheets for all schools. Auditors may assume that pre-filled data is correct (based on the source, F196 process
and tests performed on 2009 data). However, if the District is using different figures for either the F196 or County Treasurer amount in
their own reconciliation, the auditor should double-check these figures. Contact Peg Bodin with questions on this process or for the status
of data.

For audits begun prior to availability of pre-filled spreadsheets, auditors can add the School F196 Reconciliation to Treasurer spreadsheet from
the SAOStore and manually input F197 (County Treasurer), current year F196 and prior year F196 balances.

Step 2: I nput Reconciling Items
Input reconciling item figures from the Districts August reconciliation to the County Treasurer.

We would expect that all reconciling items necessary for our test will already be identified by the District on their August
reconciliation. The District should be using the same F196 and F197 figures as we do and perform the reconciliation using the template
provided in Chapter V of the Administrative Budgeting and Financial Reporting (ABFR) Manual published by OSPI. The OPSI template
includes a reconciliation of cash, revenue, expenditure and warrants outstanding to the County Treasurer. A link to this manual is on the
Schools Team page.

During input, auditors should be alert for red flags, such as unusual or unexpectedly high reconciling items.

It is not necessary to test or confirm reconciling items to source documentation. I f the auditor identifies risks or concerns related to
reconciling items, this should be identified as an Additional Risk and tested in a separate step.

Step 3: Determine Reasonable Range
Formulate a range (amount or percentage) of expected variance between reported amounts and the reconciled amount. This range is not a
materiality determination this is an expectation of the approximate amount of valid reconciling items that, for efficiency purposes, the auditor
did not determine.

It is reasonable to expect a small variance due to potential reconciling items that the auditor decided not to identify.

However, we would expect that the District has already performed a reconciliation (based on the one given in the ABFR manual) that
would reconcile exactly to the County Treasurer. To the extent the District has done so, we should be able to also do so without any
unexplained variances. To the extent the District has not performed a reconciliation or has was unable to reconcile differences, the
auditor should consider whether the variance on the Districts reconciliation represents likely misstatement or the Districts failure to
evaluate certain potential reconciling items.

Step 4: Evaluate Unexplained Variances compared to the Reasonable Range
Compare variances to the reasonable range. Any variance outside the expected range is a likely misstatement that is then compared to the
materiality floor for aggregation purposes.

Auditors should consider variances between funds as well as total variances for all funds. I f it appears that balances or activity has been
shifted between funds, the auditor should consider identifying this as an Additional Risk and performing follow-up testing in a separate
step.

For variances outside the expected range that are above the floor, suggested follow up procedures are as follows:
1. Finish agreeing the F196 to the general ledger in the Review Statements, Notes & Schedules step.
2. Check the F196 and F197 figures we are using against the figures the District is using in their reconciliation. I f different, follow-up to
determine the correct figure.
3. Compare our reconciling items to the Districts reconciliation. To the extent the District is performing a reconciliation in accordance with
the ABFR manual, we should compare our reconciling items to theirs.
4. If there is a difference between reconciling items that the District is using and reconciling items that we are using in our reconciliation,
confirm which figure is correct by reviewing supporting documentation or performing accounting research. I f this work is significant, the
auditor should identify reconciling items as an Additional Risk and perform this confirmation work in a separate step.
5. If the District has not performed a reconciliation or both the District and the auditor conclude there is a non-trivial unexplained variance,
auditors may either consider to be likely misstatements (and add to the aggregation of misstatements if more than trivial) or perform
additional procedures to search for reconciling items. Potential reconciling items are described on the spreadsheet auditors may either
follow-up on these themselves or request that the District do this additional work.

Policy/Standards:
The ABFR Manual, Chapter V describes the requirement to perform reconciliations:
"The county treasurer for each county in Washington State is designated as ex officio treasurer of the school districts located in his/her county. As
ex officio treasurer, the county is required to submit to each school district a monthly report of the state of the finances. This report is to be
submitted not later than the seventh business day of the following month.

Each school district shall reconcile its (a) ending net cash and investments, (b) revenues, and (c) expenditures reported by its county treasurer
with the district records for all funds. OSPI encourages monthly reconciliation of the district accounts with a simulation of closing using the fund
balance budget status report (Form F-198). The educational service districts must enter the monthly data into the F-197 CASH program."

Understanding, Input and Expectations:
We obtained the F197 County Treasurer statements for each month and input relevant figures into the F197 (CT) tab of the attached
spreadsheet. We also obtained the F196 financial statements for the current and prior year and input relevant figures into the F196 (FS) and Prior
Year F196 tabs of the attached spreadsheet, respectively.

Based on auditor judgment and considering both the nature of the Districts transactions and the planned level of work to identify potential
reconciling items, we set the following expectations:
We expect to be able to reconcile reported cash & cash equivalents, investments and warrants outstanding to within 1%.
We expect to be able to reconcile reported Revenue Anticipation Notes, Matured Bonds Payable and Bonds Outstanding to
within 1%.
We expect to be able to reconcile reported revenues and other financing sources to within 1%. The expected range represents an
estimated reasonable allowance for the following potential reconciling items that we did not include in our reconciliation: timing on
transfers in on prior and subsequent years.
We expect to be able to reconcile reported expenditures and other financing uses to within 1%. The expected range represents
an estimated reasonable allowance for the following potential reconciling items that we did not include in our reconciliation: timing on
transfers out on prior and subsequent years.
We expect to be able to reconcile reported Interfund Loans and Transfers Out to within$1,000.

Reconciliation Results:
We summarized our reconciliation results at 1903_Seattle Public Schools No. 001_2012-2013_F197CoTreasValidation. We reconciled cash,
revenues, expenditures and debt balances to within our reasonable range. We identified the following additional risks:
Cash and Cash Equivalents may be understated as the District appears to use fair market value from prior years. We will review this
further under Additional Risks - Misstated Reconciling I tems. (Misstated Reconciling Items) hyperlink
Deferred Revenue and Fund Balance may be misstated as the District appears not to record unrealized losses on the impaired
investments. We will review this further under Additional Risks - Misstated Reconciling Items.
Transfers may be misstated as we could not determine the difference between expected and actual amounts for the Capital Projects
Fund. We will review this further under Additional Risks - Non-compliance With Financial Effect at Non-compliance with Financial Effect.

F.2.PRG - Additional Risks

Procedure Step: Misstated Reconciling Items

Purpose/Conclusion:
Purpose:
To determine if reconciling items for cash and cash equivalents and deferred revenue between reported amounts and amounts per the County
Treasurer are valid.

Conclusion:
We have determined reconciling items for cash and cash equivalents and deferred revenue between reported amounts per the County Treasurer
are not valid. Please see our recommendation at The District did not properly account for unrealized losses on impaired investments..

Testing Strategy:
The following is a list of considerations for testing the risk of misstated reconciling items (other than accruals). Results from planning
procedures (inherent and control risk assessments) are the basis for the auditors design of substantive tests.

General:
Supporting Documentation - Ask District for supporting documentation from their year-end reconciliation to County Treasurer
statements and review this support for validity.
We would expect that the District performs a monthly reconciliation of the County Treasurer statements to the F196 using the template
provided in the ABFR Manual, chapter F-197, Section 4 (see www.k12.wa.us/safs/INS/ABF/0809/hb.asp). Since our reconciliation is
parallel to the ABFR manual template, we would therefore expect that all reconciling items have already been identified and supported.
County Treasurer errors - For County Treasurer errors, review documentation evidencing the correct classification or amount and trace
to a subsequent County Treasurer statement that shows the error corrected.
If the County Treasurer is in error, we would expect the District to be able to prove the error and insist that the County as their
treasurer and fiscal agent correct their records (rather than just ignoring the error and letting it persist).
Accounting Principles - When the District is accounting for a transaction (or type of transaction) differently than the County Treasurer,
research the correct accounting in the ABFR manual, Accounting Manual for School Districts or by contacting Rick Bonner for assistance.
Cash & Cash Equivalents:
Deposits in transit For deposits made directly to the County Treasurer, review source receipting documentation and trace to
subsequent validated deposit slips and/or County Treasurer statements.
Authorized balance of revolving funds Check against authorizing resolutions.
See the Petty Cash / Imprest Fund folder in the Accountability cabinet for detailed testing strategies for imprest funds.

Warrants Outstanding:
Warrants ordered but pending at the County at FYE Review documentation of the warrant order.
Interfund Loan Payable / Receivable:
Interfund Loans authorized by District but not made by County as of FYE Review documentation of the interfund loan
authorization (usually a resolution) and trace to subsequent County Treasurer statement to ensure it was eventually accomplished.
Revenues and Expenditures:
Revenue and expenditure related to receipt and use of USDA Commodities trace to source documents evidencing receipt and
use of commodities. Auditor should consider also tying these records to reported inventory and expenditures reported on the SEFA for
USDA commodities.
State Matching Funds for CPF trace to the State Matching Funds confirmation or correspondence sent to the District.
Registered Warrants trace to authorization (resolution) and official documentation from the County.
Transfers between funds by warrant review documentation of the transfer authorization (usually a resolution) and trace to the
vendor payment that has the District as the payee.
Interfund reimbursements by warrant review supporting documentation for the original expenditure and subsequent
reimbursement.
Capital Leases review lease documentation and the Districts calculation of the lease liability.
Refunds of Deposits, Refunds of Revenue or Refunds of Expenditures review expenditure or J V support to confirm the nature
of the transaction.
Increase / Decrease of I mprest Cash Trace to authorizing resolution and review the most recent imprest fund reconciliation to
ensure that the District is reconciling their imprest fund to the new authorized balance to ensure that funds were actually transferred and
the authorized appropriately adjusted.
Transfers Out:
Transfers authorized by District but not made by County as of FYE Review documentation of the transfer authorization (usually
a resolution) and trace to subsequent County Treasurer statement to ensure it was eventually accomplished.
Interfund expenditures accomplished by transfer review supporting documentation for the transaction to ensure correct
classification as an expenditure rather than a transfer.
Transfers between funds accomplished by warrant review the warrant and warrant supporting documentation to ensure correct
classification as a transfer rather than an expenditure.
Interfund reimbursement accomplished by transfer review support for the original expenditure and subsequent reimbursement
to ensure that no part of the reimbursement should be classified as a transfer.

Policy/Standards:

Results:
During our review of the County Reconciliation at County Treasurer Reconciliation, we identified the following additional risks related
to misstated reconciling items:
Cash and Cash Equivalents - The adjustment to fair market value for the impaired investments may be incorrect as the District
recognized unrealized loss using the amount determined from prior years.
Deferred Revenue and Fund Balance - The District did not defer the unrealized loss of the impaired investments.

Cash and Cash Equivalents and Deferred Revenue and Fund Balance
All Funds - Deferred Revenue, $139,599,630
All Funds - Fund Balance, $142,829,834
All Funds - Cash and Cash Equivalents, $197,870,006

The District appears to adjust impair investments to fair market value using prior year figures, instead of using the fair market
value at year-end. We obtained the King County Treasurer Detailed Monthly Reports from Barry Tsoi, Senior Accounting
Supervisor, and the August 2013 King County Investment Pool Newsletter from the County's website. We confirmed the
impaired investments balances and calculated the fair
market value of the impaired investments at year-end at Misstated Reconciling Items - Cash and Cash Equivalents. We determined
the District decreased the cash and cash equivalents balance by more than the actual unrealized loss determined by the Pool
totaling $2,530,345 for all funds. Please see our recommendation at E-FS: The District did not properly account for unrealized
losses on impaired investments.. The noted understatement is below our materiality threshold of $35.4 million, but is above
our floor of $71,000. We will include it in our aggregation of misstatements to determine whether the error is material is in
aggregation with other errors. In addition to adjusting cash and cash equivalents by more than the actual unrealized loss, the
District did not properly recognize the unrealized loss by recording the unrealized loss in deferred revenue. Please see the
details under the Deferred Revenue and Fund Balance section below for the effect on the financial statements.

As noted above, the District did not recognize the unrealized loss of the impaired investments on the financial
statements. Instead, the District only booked one side of the entry. We used the calculations above to determine the effect
on the financial statements at . We determined total deferred revenue is overstated by $1,125,565, resulting in the
understatement of total fund balance by $3,655,900. The noted misstatements are below our materiality threshold of $35.4
million, but are above our floor. We will include them in our aggregation of misstatements worksheet to determine whether
they are material in the aggregate. Please see our recommendation at

Exit Item Reasoning: We determined the level to be an exit item as the misstatement remains uncorrected. The District does not
appear to understand why the entry is one sided and disagree that they incorrectly stated the items since they used a process
they feel is conservative in approach.


Procedure Step: Non-compliance with Financial Effect

Purpose/Conclusion:
Purpose:
To determine whether transfers between funds are allowable.

Conclusion:
We determined transfers between funds are allowable without exception.

Testing Strategy:
The testing strategy will depend on the compliance requirement(s) identified in planning as a risk. The following represent considerations
for common risks of noncompliance with a financial statement effect.
Exceeding statutory authority obtain the entitys legal opinion or rational for their actions and contact the subject matter specialist for this
entity type for assistance with evaluation.
Non-compliance with apportionment reporting leading to questioned costs see steps in the Accountability | Entity Specific Areas |
School District Enrollment, School District Staff Mix and School District - Transportation folders for procedures to consider.
Noncompliance with grant or entitlement requirements leading to questioned costs see the Single Audit cabinet for example
procedures related to different grant or entitlement requirements.
Unallowable use of bond or special levy proceeds scan bond or levy expenditures and compare to bond issuance documents or voter-
approved levy description.
Unallowable use of trust provisions or donations see steps in the Accountability | Policy 4110 Use of Restricted Funds | Donations folder
for procedures to consider.
Unallowable transfers between funds obtain supporting documentation for each transfer and compare to requirements described in
Chapter 3, page 34 of the Accounting Manual for School Districts.
Noncompliance with debt requirements consider the following procedures:
Determine whether the District had the legal authority to issue debt (or authority for the purpose or manner in which debt was issued).
Verify that issued debt was authorized by resolution or ordinance approved by the School Board in open public meeting.
Review compliance with debt covenants (ex: sinking fund or reserve requirements or debt ratio requirements). If District is in default, this
fact should be disclosed.
Confirm whether continuing disclosure requirements are being met on publicly-offered debt. See the Continuing Disclosure
Requirements step in the Accountability cabinet for details.
Obtain information as to the existence of any guarantees or commitments related to the issuance of debt of other organizations.
If the District does not spend all funds from a bond issue, they may be required to submit information related to arbitrage to the federal
government. If compliance with federal arbitrage rules is in doubt, verify whether the entity ensured that it was in compliance (ex: by
consulting with IRS or hiring an expert) and the amount of the arbitrage rebate liability if the entity is not in compliance.

Non-compliance with investment or deposit requirements see steps in the Accountability and Legal Compliance | Policy 4110
Investments and Deposits folder for procedures to consider.
For misstatements related to misclassification of expenditures or other balances, see the Misclassified Revenues, Expenditures, Assets or Liabilities
step for testing strategy considerations.
For misstatements related to invalid payments, see the Invalid Payments step for testing strategy considerations.

Policy/Standards:

Background:
We identified controls over manual journal entries as a risk for noncompliance with financial effect in the planning section at FS Audit
Plan. The District's controls over journal entries appear to have been strengthened over the years, but we perceive weaknesses in
internal controls over journal entries, making them a possible way to introduce unsupported, fraudulent, misclassified balances into
the general ledger. This could allow for recording of intentional or unintentional errors without another person detecting and
correcting the errors. In our judgment, journal entries may be used to deliberately transfer Capital Projects Fund expenditures to the
General Fund by the use of interfund transactions (all interfund transactions are introduced via journal entry), or the journal entries
may be used to post General Fund activities to the Capital Projects Fund expenditure accounts. The Capital Projects Fund transferred
approximately $10.3 million to the General Fund and the Debt Service Fund in FY13.
Relevant Balances:
We determined that the following balance containing manual journal entries, and thus a higher risk of errors.
Balance Amount
Transfers In- General Fund $ 8,233,744
Transfers In- Debt Service Fund $ 2,036,112
Transfers Out- Capital Projects Fund $ 10,269,856
We also determined that the following accounts are high-risk of containing journal entries that are incorrectly classified resulting in
an unallowable transaction (i.e. transactions are general fund in nature but coded to Capital Projects fund by manual journal entry).
Balance Amount
Capital Projects Fund- Buildings $ 29,963,128
Capital Projects Fund- Equipment $ 11,656,053
Capital Projects Fund- Energy $ 7,075,353
We determined the balances susceptible to errors introduced via journal entry are transfers in and transfers out and expenditures
recorded via journal entries in the Capital Projects Fund.

We determined that the total transfers in equal the total transfers out and are the same transactions. We reviewed the transactions
that comprise the transfers in the database and noted 19 transactions totaling $10,269,856. We selected the 18 transactions greater
than $100,000 for testing at Non-compliance with Financial Effect. We noted no exception.

We also determined that the following accounts are high-risk of containing journal entries that are incorrectly classified, resulting in
an unallowable transaction (i.e. transactions are related to the General Fund in nature but coded to Capital Projects Fund by manual
journal entry).

Balance Amount
Capital Projects Fund- Buildings $ 29,963,128
Capital Projects Fund- Equipment $ 11,656,053
Capital Projects Fund- Energy $ 7,075,353
Procedures/Results:
We reviewed the testing strategy for unallowable transfer between funds. We obtained supporting documentation for each transfer
to determine whether the entry is adequately supported, an allowable purpose, and made in accordance with the School Districts
Accounting Manual.

Transfer In/Out Journal Entry
We obtained the journal entries Grace Ngai, Capital Projects Fund Accountant, to obtain the general ledger composition of the
transfers in order to determine if they were accurate and allowable. Grace provided the journal entry for each transfer. We tied the
journal entries from the general ledger to the financial statement, noting no exception.

From the listing, we selected the transfer balances from the general ledger and requested the supporting documentation from Grace.
We tested all transactions over $100,000 to determine if they are allowable, reasonable, and made in accordance with the School
Districts Accounting Manual. We gained an understanding of the substance of these entries in order to determine if they were
legitimate, for an allowable purpose, and made in accordance with the School Districts Accounting Manual. We reviewed transfer
entries for allowability at Non-compliance with Financial Effect. We specifically looked at the purpose of the entries to determine if the
funds that the District transferred out of the capital projects fund were for a general fund purpose or for the purpose of debt service.
We did not note any exceptions in our testing.

Non-payroll-related Capital Expenditure Accounts Journal Entry
We obtained a complete listing of the Capital Projects expenditures from the general ledger from the database. We sorted the listing
to include non-payroll related journal entries and obtained a population of 3,059 transactions totaling $10,353,498. We reviewed the
transactions and noted 27 transactions made up over $6 million or 60 percent of the population. We judgmentally selected these for
testing and reviewed the journal entries to determine if transactions were properly classified atNon-compliance with Financial Effect. We
specifically looked at the purpose of the entries to determine if the coding of the expenditures were allowable, supported and made
in accordance with the School Districts Accounting Manual and RCW 28A.320.330. Based on our work, we determined the
expenditures were properly coded, supported and made in accordance with the School Districts Accounting Manual.


Procedure Step: Misclassified Expenditures

Purpose/Conclusion:
Purpose:
To determine if Capital Projects Fund expenditures are correctly classified on the financial statements.

Conclusion:
We determined Capital Projects Fund expenditures are correctly classified on the financial statements. However, we noted the District does not
maintain documentation of activities performed to justify FTE payroll charges for split-funded personnel. We consider this an accountability issue
as we are not questioning any costs and determined the personnel tested are allowable. See ISS.12 and D.7.PRG

Testing Strategy:
See the Unallowable Shifting of Restricted Funds for additional testing strategy considerations to address the risk of intentional misclassification.
The following is a list of considerations for testing the risk of incorrect classification. Results from planning procedures (inherent and control
risk assessments) are the basis for the auditors design of substantive tests.
Misclassified Revenues
For revenues received by the County Treasurer, trace revenues to Schedule A of the August County Treasurer statement.
For grant revenues received from OSPI , trace revenues to the applicable OSPI report (1197, 1191F, 1191SAF, 1191SNF, 1191FSF or
1191RNF). See the OSPI Confirmation workpaper in the Store for details.
For locally receipted revenues, either sample or scan & select transactions to test for correct classification.
Search for manual journal entries that reclassify revenue and test selected journal entries based on risk.
Misclassified Expenditures
Review the top vendors paid by fund or line item (preferably as a multi-year trend) and evaluate whether the vendor meets expectations
in relation to the definition of the fund or account. Test transactions for each unexpected vendor based on risk.
Scan totals charged to the fund or account by employee (preferably as a multi-year trend) and evaluate whether the allocation of
employees time to that opinion unit meets expectations based on job titles, organization charts, observation or the phone list. Follow up
on unexpected allocations by review of timesheets or employee interviews.
Sample or scan & select transactions to test for correct classification. When testing payroll expenditures, the test should verify both the
correct allocation of direct charges and that leave and benefit costs are allocated in the same proportion as direct charges.
Search for manual journal entries that reclassify expenditure and test selected journal entries based on risk.
Misclassified Assets or Liabilities
Sample or scan & select transactions to test for correct classification.
Search for manual journal entries that reclassify assets or liabilities and test selected journal entries based on risk.

Policy/Standards:
See the Accounting Manual for School Districts for definitions and criteria related to classification of activity in a fund or
account.

Background:
During financial statement planning at Planning Analytical Procedureswe noted that in past audits we reported instances where the District coded
salaries to the incorrect fund. We performed analytical procedures for balances at Analytical Procedures - Balance SheetandAnalytical Procedures -
Statement of Revenues, Expenditures, and Changes in Fund Balance and noted unusual fluctuations in the Capital Projects Fund balances for
capital outlay and in the General
Fund's capital outlay. Our risk is the District is continuing to record non-capital fund expenditures in the capital fund.
We performed additional analytical procedures for Capital Projects Fund payroll expenditures during planning at Analytical Procedures - Capital
Payrolland highlighted the employees that appear risky for misclassification based on the job title.
Capital Projects Fund - Payroll-related Expenditures
We gained an understanding of CPF payroll budget funding and personnel split-funded between the CPF and general fund at D.7.PRG. Based on
our understanding we determined there are no controls or documentation to support split-funded employees or employees transferred during the
year for special CPF projects. See D.7.PRGBased on our understanding of cost allocation, during the accountability audit, we determined the
District does not maintain documentation of the reasoning for charging split-funded personnel. See ISS.12. Although there are no controls in place
to determine the charges for split-funded personnel, we will go ahead and perform testing of payroll expenditures to ensure those charged are
classified correctly to the CPF.
CPF Payroll Testing:
We selected CPF charged personnel for testing during planning at B.2.17. We performed testing at F.2.3and determined whether the employees
tested are classified correctly to CPF. We reviewed the reasoning for the allocation to the CPF to determine whether the initial allocation is
allowable pursuant to state law and the District's Accounting Manual. We used the CAATS data query used to identify CPF funded personnel to
determine the selected personnel's actual pay. We then recalculated any difference between the original budgeted amount per employee to the
actual charged to CPF per the G/L. For any differences we met with Victoria Ouk, Budget and Cost Allocation Analyst to verify any pay rate
increases and/or FTE changes through review of the District's SAP system and she provided us with FY2013 budgeted FTE and expected dollar
amounts charged to CPF for capital and technology personnel. For other personnel in other departments, she showed us the FTE allocated in the
SAP system.
Based on testing we determined the employee's tested are classified correctly to CPF. No exceptions. However, as noted above, there is no
documentation to justify the split-funded personnel. We will not question these costs as we determined all personnel tested would have some
portion of their time charged to CPF based on auditor knowledge of job functions in the District and review of the District's Accounting Manual.
See ISS.12
Management Letter = The District received a management letter in the prior audit. Although the District has not implemented any of our prior
audit recommendations, we recognize the District has undergone significant turnover in the past year, including a new Budget Director who
started December 2013 and a new Director of Capital Projects that did not start until March 2014.
Capital Projects Fund - Non-payroll-related Expenditures
We obtained the transactions for the non-payroll expenditures in the Capital Projects Fund from the database using query at F.2.3and filtered the
population to include objects (5, 7, 8 and 9), which excludes payroll. We then further analyzed the data and filtered out any journal entry
transactions (DocType J A, J B, J C, J E, J G and J W). We determined the total populations are enough to perform sample testing. We used the
sample testing spreadsheet atF.2.3 to determine our sample size with a moderate assurance.
We filtered the transactions from high to low and noted two significant transactions over the tolerable misstatement rate of 3.75% ($1,195,503)
of the total population's dollar value of $31,880,069. We selected to separate these from the sampling population and test on their own. We then
randomly selected to review 89 transactions for testing at F.2.3. We obtained the invoices and supporting documentation from Allen Mardock,
Accounts Payable. Based on testing, there were no exceptions.
J ournal Entry Testing
For the transactions recorded via journal entry, we tested non-payroll related expenditures journal entries atF.2.PRG "Non-Compliance with
Financial Effect" without exception.

F.3.PRG - Review Presentation & Disclosure

Procedure Step: Related Party Transactions

Purpose/Conclusion:
Purpose:
To identify related party transactions and evaluate whether such transactions were properly reported and disclosed.

Conclusion:
We identified related party transactions and determined that the transactions were not properly reported and disclosed in the notes which is a
departure from GAAP, see I SS.5.

Testing Strategy:
The following three steps are required to determine whether related party transactions are properly disclosed:

(1) Identification of Related Parties
NOTE: during planning the list of related parties in the permanent file should have been updated. Also, auditors should be alert during the course
of the audit for potential indications of related parties and update the permanent file as necessary for any new information discovered. If this has
happened, no additional procedures would normally be necessary at this point to identify related parties.

(2) Controls over Related Party Transactions
Obtain an understanding of controls management has established to identify and account for related party relationships and authorize significant
transactions with related parties.

Inquiry should include confirmation with management of related parties, related party transactions, the nature and purpose of these relationships
and transactions, and any changes from the prior period.

We would expect controls to enable management to readily identify to the auditor a complete list of related parties and related party
transactions and readily explain to the auditor the nature and purpose of the relationships and transactions and any changes from the
prior period.

(3) Identification of Related Party Transactions
If identification of related party transactions was documented in any other section, auditors should summarize conclusions and link to that section

To the extent necessary based on risk, auditors should consider the following procedures to identify related party transactions:
Perform CAATS or search for payments to identified related parties.
Review minutes.
Review FAWF for news articles or other items.
Inquire with management as to whether there were any contracts, receipts, payments or other transactions with related parties that
occurred during the fiscal year.
If conflict of interest testing was done during the accountability audit, the auditor may refer to such work.
Consider whether transactions are occurring but not being recorded, such as receiving or providing services at no charge.

(4) Evaluation of Related Party Transactions and Disclosures
If evaluation or testing of identified related party transactions was documented in any other section, auditors should summarize conclusions and
link to that section in the record of work done.

For significant related party transactions outside the governments normal course of business, procedures are required to include:
Inspection of underlying contracts or agreements to evaluate whether transactions have been appropriately accounted for and disclosed.
Evaluation of the business purpose of transactions to determine whether they represent fraud or noncompliance.
Verification that transactions have been appropriately authorized and approved.
Evaluation of the adequacy of disclosures of material related party transactions
Auditors should also consider similar types of procedures for related party transactions that are not significant or that occur within the normal
course of the governments business to the extent necessary based on risk.

Policy/Standards:
SAO Audit Policy 6430 - Related Parties

Identification of Related Parties:
During planning, we updated our identification of related parties as documented in the permanent file District Operations

We identified the following related parties (not including District officials and staff):
King County Director's Association (KCDA)
The Alliance for Education
The City of Seattle
We noted that the District did not specific disclose all related parties in the notes. We compared the related parties identified during planning to
those disclosed in the District's note 14. The note did not discuss King County Director's Association and City of Seattle.

Controls over Related Party Transactions:
We spoke with Kathy Technow, Accounting Services Manager, and Barry Tsoi, Senior Accounting Supervisor, regarding related party transactions.
Kathy stated that she signs all contracts and Memorandums of Understanding and maintains awareness while signing if an entity fulfills the
characteristics of a related party. Barry stated that related party transactions are accounted for as interfund transactions and are treated as part
of the normal course of business. No additional authorization is necessary for significant transactions with related parties. We determined the
District does not have specific controls over related party transactions. Current procedures are might not be adequate to identify related
parties, see E: Related Parties Controls related party controls
Verbal Recommendation Reasoning: We determined the level of exception as a verbal recommendation as the District will work on improoving
the ways to identify the related parties and have a person that can provide a list to SAO in the future. Also, no significant related party
transactions outside the government's normal course of business were identified during our review of vendor payment transactions and amounts
for the identified related parties for FY13.

Identification of Related Party Transactions:
We did not identify related party transactions in other sections of the audit. Therefore, we performed the following procedures to identify related
party transactions:

We performed a search for payments to the identified related parties in the CAATS database and summarized the total payments below.
Related Party Total Amount
KCDA $494,830.84
Alliance for Education $134,431.26
City of Seattle $4,934,335.95
City of Seattle Parks &
Recreation
$1,535.00

We determined the District had contracts in place with KCDA, City of Seattle, Seattle Parks & Recreation and Alliance for Education via
contract review and search of the District's website.
We reviewed the meeting minutes up to the audit report date at Minutes.
We reviewed the FAWF for news articles or other items. No relevant information noted.
We inquired with management as to whether there were any contracts, receipts, payments or other transactions with related parties that
occurred during the fiscal year. Per Barry Tsoi, Senior Accounting Supervisor, these transactions are treated as part of the normal course
of business and were not significant.
We considered during our review of related party transactions whether transactions are occurring but not being recorded, such as
receiving or providing services at no charge.
In the course of our review, we noted no significant related party transactions.

Evaluation of Transactions and Disclosures:
No significant related party transactions outside the government's normal course of business were identified during our review of vendor payment
transactions and amounts for the identified related parties for FY13. No further evaluation necessary.


Procedure Step: Management override of controls

Purpose/Conclusion:
Purpose:
To address the risk of management override of controls.

Conclusion:
We addressed the risk of management override of controls.

Testing Strategy:
To address the risk of management override of controls, auditors are required to perform the following procedures:
Year End Adjusting J ournal Entries: Scan all year-end adjusting journal entries and test selected entries.

Adjustments may take many forms including 13th or 14th period entries, closing entries, consolidations or off-book adjustments,
reconciling items between the GL and prepared financial statements or reclassifications made when rolling up GL accounts to the financial
statements. We would expect supporting documentation that adequately explains all such adjustments.

The nature and extent of this testing should be based on risk, including our understanding of procedures and controls over the financial
statement preparation process.
Additional J ournal Entry Testing: Determine if additional testing of journal entries throughout the period is necessary.

Additional testing may have been planned to respond to specific risk indicators, or may be considered necessary at this point by the
auditor.
Evaluation of Estimates for Biases: Evaluate estimates for bias by documenting or referring to the following:
Identification of significant estimates in the Entity Operations step of the perm file.

An accounting estimate is an approximation of a financial statement item, such as allowance for doubtful accounts or self-
insurance liabilities. Significant accounting estimates are those that are based on highly sensitive assumptions or are otherwise
significantly affected by year-to-year judgments made by management.
Retrospective review of significant estimates.
A retrospective review entails comparing the estimate from prior periods to actual outcomes and following up on the reasons for
significant differences. While outcomes are expected to often differ from the estimate, such a review helps the auditor determine
the effectiveness of the estimate, the level of uncertainty inherent in the estimate, and indications of any management bias.

We would expect that management regularly performs retrospective reviews and makes necessary adjustments as part of its
controls over accounting estimates.
Evaluation of whether management may be under or overstating a number of estimates to influence perceptions about the entitys
financial position or performance.
Management bias may be difficult to detect for individual accounts or estimates, necessitating consideration in aggregate or as a
trend over several years. Although some level of management bias is inherent in subjective decisions, the auditor is concerned
with the nature (intended to mislead or not) and extent (trivial or significant) of any bias.
Unusual or Extraordinary Transactions: If any unusual, unsupported, disputed or extraordinary transactions were identified in
planning or during the course of the audit, document or reference follow-up testing.
Unusual or unsupported transactions are those that appear overly complex, inadequately explained or without a business
rationale. Disputed transactions are those where key entity staff disagree about the correct accounting. Extraordinary transactions are
those that occur outside the normal course of the governments business. Auditors should be especially sensitive to interfund or related
party transactions with any of the above characteristics. These transactions may be identified in the Risk Assessment Inquiry step or by
other planning or substantive procedures.
Other Testing: Perform other tests as necessary to address management override of controls.

Additional testing may have been planned to respond to specific risk indicators, or may be considered necessary at this point by the
auditor.

Policy/Standards:
SAO Audit Policy 6320 - Consideration of Fraud, Noncompliance and Abuse

Year End Adjusting J ournal Entries:
We scanned all year-end adjusting journal entries and selected six entries for testing at SSD AJ E Testing. At year end there were 12,502 individual
entries resulting in 6,251 transactions (mirrored debits and credits). We sorted the amounts from largest to smallest. We then selected the entries
we determined were most susceptible to management override, resulting in approximately 42% coverage. We reviewed the journal entries and
supporting documentation and determined the entries were adequately supported without exception.

J ournal Entries throughout the Period:
Based on our risk assessment and understanding, we determined that testing of journal entries throughout the period (in addition to any testing
performed in other sections of the audit) is not necessary.

Evaluation of Estimates for Biases:
We evaluated estimates for bias by documenting or referring to the following:
We did not identify any significant estimates in the Entity Operations step of the perm file at District Operations.
We did not perform a retrospective review since no significant estimates were identified.
We evaluated whether management may be under or overstating a number of estimates to influence perceptions about the entitys
financial position or performance.
Unusual or Extraordinary Transactions:
We did not identify any unusual or extraordinary transactions

Other Testing:
Additional testing was not necessary.


Procedure Step: Going Concern

Purpose/Conclusion:
Purpose:
To evaluate conditions noted during the audit regarding the entitys financial sustainability and conclude on the entitys ability to continue as a
going concern for one year after the end of the reporting period.

Conclusion:
We evaluated conditions noted during the audit regarding the entity's financial sustainability and concluded the entity has the ability to continue at
least one year after the end of the reporting period.

Testing Strategy:
Auditors are required to perform the following procedures to evaluate going concern:

I MPORTANT NOTE: Procedures performed in other steps are assumed to be sufficient to identify any conditions or events
that may indicate concerns regarding the governments ability to continue as a going concern. I n this step, auditors only
need to evaluate evidence obtained in other steps and if indicators are noted to follow-up on concerns.

STEP 1: Document any items identified during the audit that may indicate a going concern issue.

General examples of conditions, events or issues that may indicate a going concern issue include:
Recurring operating losses or negative cash flows from operating activities.
Working capital deficiencies combined with declining or insufficient revenues.
Declining unrestricted cash balances.
Current assets and expected net cash flows in the coming period are significantly less than current liabilities.
Default on debt, drawing on debt guarantees, noncompliance with debt covenants or attempts to restructure debt.
Continually growing need for short-term financing.
Need to disposal of assets outside the normal course of business.
Uneconomic long-term commitments.
Loss of key customers, contracts or partners.
Trigger of judgments, liabilities or contingencies that exceed the governments ability to pay.
Catastrophic events for which the government is uninsured or underinsured.
Significant uncertainties, such as outcomes of critical litigation or regulatory / licensing action, work stoppages, substantial dependence on
the success of a particular project or the need to significantly revise operations.
See the planning guide for guidance on measuring financial health for this specific entity type. Contact the applicable subject matter
specialist if assistance with the evaluation is needed.


STEP 2: If any such conditions are noted, the following procedures to follow-up and evaluate identified items:
Inform Kelly Collins and the applicable specialist.
Follow up with management to determine if they are aware of the conditions, their view of the severity of the conditions, managements
plan to resolve conditions and managements own evaluation of their plans (that is, key elements, likelihood of success, consequences of
failure and any significant uncertainties).

Auditors should also consider whether communication with the governing body is also appropriate. For example, if management
was not aware of the issue or if the governing body has otherwise not been informed of the issue or the significance of the issue.

Evaluate managements plans to determine whether plans are reasonable and would likely keep the government as a going concern.

For example, auditors may consider encumbrances and marketability of assets planned to be sold or apparent feasibility of plans to
reduce expenses or increase revenues, Contact the applicable subject matter specialist if assistance with the evaluation is needed.

Identify elements of managements plans that are particularly significant to overcoming identified issues and test support for such
elements.
If subsequent transactions or current conditions are significant to managements plans or assertions, auditors should review support for
such assertions.

For example, the auditor may review interim financial figures or bank statements, trend monthly cash balances or operating results
into the subsequent period, or review supporting documentation for key transactions occurring in the subsequent period such as
sales of assets or terms of new debt issuances.

Consider further financial analysis of financial condition, if needed to better understand the financial effect of noted items or place events
or issues in context.

If not already performed, auditors should consider using the Financial Condition step in the Ability to Meet Obligations folder.

Consider adding additional representations to the management representation letter to address significant conditions or uncertainties
noted.

See AU 580 Appendix B for an example representation for circumstances where financial conditions are strained and management is
asserting that the entity is able to continue as a going concern. Auditors may also consider additional representations specific to
management estimates, contingencies, or specific subsequent events or disclosures.

STEP 3: Conclude as to whether there is a substantial doubt about the governments ability to continue as a going concern for one year beyond
the date of the financial statements.

If auditors conclude that there is substantial doubt about the governments ability to continue as a going concern for one year beyond the
date of the financial statements, a going concern explanatory paragraph in the audit report is required. See ARS manual Part 3, chapter 9
for instructions and contact TAS for assistance with report modifications.

When this criteria is not met, auditors may choose to include an emphasis-of-a-matter paragraph if significant concerns or uncertainties
about the fiscal sustainability of the government are noted. Emphasis-of-a-matter paragraphs are never required, but are always an
allowable option for the auditor.

Any significant concerns regarding the ability to continue as a going concern or the long-term fiscal sustainability of the entity should be
formally shared with the governing body, even if the auditor concludes that a modification to the report is not necessary.

STEP 4: Evaluate the sufficiency of financial reporting and disclosure surrounding the conditions, liabilities, uncertainties or contingencies that
were noted.

As required by accounting standards, when the auditor concludes that there is substantial doubt about the ability of the government to
continue as a going concern, we would expect a note disclosure describing the following:
Conditions giving rise to substantial doubt about the governments ability to continue as a going concern
Potential effects of conditions
Managements evaluation
Possible discontinuance of operations
Managements plans (including relevant prospective information)
Information about the recoverability or classification of recorded assets and liabilities as required by accounting standards.
When the auditor has identified issues but concludes there is no going concern issue due to managements plans or other mitigating
factors, disclosure of adverse conditions or uncertainties and managements plans may still be necessary for fair presentation.

Policy/Standards:
SAO Audit Policy 6440 - Going Concern

STEP 1: Conditions or I ssues Noted:
We identified no conditions, events or issues that (individually or in aggregate) indicate there could be a substantial doubt about the ability to
continue as a going concern for a reasonable period of time to include:
No recurring operating losses or negative cash flows from operating activities
No working capital deficiencies combined with declining or insufficient revenues
No declining unrestricted cash balances
No continuous growing need for short-term financing
No need to dispose of assets outside the normal course of business

STEP 2: Evaluation of Noted Conditions or Issues
No evaluation necessary

STEP 3: Going Concern Conclusion
We concluded that there is no substantial doubt about the governments ability to continue as a going concern.
Based on the work performed and cumulative evidence obtained to support our opinion on the District annual financial statements for the year
ended August 31, 2013, we found the District's ability to remain a going concern is not impaired. Therefore, a going concern disclosure in the
audit report is not warranted. We evaluated the District's financial condition at Financial Condition and throughout the audit, noting no indications
of substantial financial distress or inability to continue operating that need to be reported during the FY2013 audit.
STEP 4: Review Financial Reporting
No further review necessary


Procedure Step: Implementation of SD Accounting Manual Changes

Purpose/Conclusion:
Purpose:
To determine whether major School District Accounting Manual changes have properly implemented, as applicable.
Conclusion:
We determined the major School District Accounting Manual changes were properly implemented.

Testing Strategy:

BACKGROUND:
In general, changes may be implemented early so long as changes are completely implemented. Effective dates represent when changes are
required to be implemented. Implementation questions should be directed to the School Program Manager.

To determine whether major Accounting Manual for School Districts changes have been properly implemented, auditors are required to perform
the following procedures, as applicable, in the year of implementation:

Fund Balance Classification (modified accrual only) FY 2012 and beyond
Verify that restricted net assets or fund balance agrees with reported restricted assets, less any off-setting liabilities.
Review supporting documentation for restrictions and other classifications.
Identify possible restrictions or removal of restrictions from planning procedures or based on an understanding of fund activities and
follow-up to determine whether it is properly reflected in net assets or fund balance classifications.
Search for journal entries that re-classify net assets (transaction is a debit and credit to different net asset accounts). Consider testing if
any risk indicators are noted.
Use the addendum to the accounting manual for FY 12 and FY 13 for classification
instructions: http://www.k12.wa.us/safs/INS/ACC/1213/FUND%20BALANCE%20REPORTING.pdf

FY 2012 is the first year that modified accrual Schools will report these fund balance classifications under GASB 54, so all related exceptions this
year should be reported as exit comments (FY 2012 only).

Policy/Standards:

Fund Balance Reporting (GASB 54)
FY 2012 and 2013 Addendum to the Accounting Manual for Public School
Districts: http://www.k12.wa.us/safs/I NS/ACC/1213/FUND%20BALANCE%20REPORTING.pdf

Fund Balance Classification changes were implemented and audited in the 2011 audit, 03Seattle-AC11-SA11 E.3 Additional
Risks/ Misclassified Fund Balance.


Procedure Step: Statements & Notes

Purpose/Conclusion:
Purpose:
To determine whether statements are properly and clearly presented and whether note disclosures are complete, accurate and understandable
and that disclosed events have occurred and pertain to the entity.

Conclusion:
We determined the statements are properly and clearly presented and the note disclosures are complete, accurate and understandable and that
disclosed events have occurred and pertain to the entity.

Testing Strategy:
The following procedures are required for reviewing presentation and disclosure assertions (occurrence and rights and obligations, completeness,
classification and understandability, accuracy and valuation) for the financial statements and notes.

Agree Statements to Accounting Records

Agree statements to the underlying accounting records (general ledger) by tracing the following balances to the general ledger trial balance
report, at a minimum:
Total expenditures for each fund
Total ending fund balance for each fund
All figures for the Permanent Fund (if applicable)
All figures for the Statement of Fiduciary Net Assets and Statement of Changes in Fiduciary Net Assets (if applicable)
NOTE: the extent of procedures should be based on identified risk. Specifically, whether the F196 was created based on an uploaded
data extract from a WISE or WESPAC general ledger or whether the F196 was created from a data extract from non-WSIPC software or
from manual input.

Statements:
So long as the F196 is used as the Districts financial statement, no further procedures need be done to verify presentation. The F196 process will
ensure that required statements have been prepared and ensure correct format, footing and tie to prior year.
Notes:
Scan notes to check for the following. Refer to the Schools manual for guidance.
Missing disclosures.
Disclosures that havent been updated from the prior year.
Information consistent with audit results and known activities and events.
Check footing of tables and agree amounts or totals from the notes to the financial statements or underlying accounting records. If errors
are noted, follow-up to determine how the error occurred, as it may indicate control deficiencies and other potential errors made in the
Determine whether the disclosed information is clearly expressed (understandable, rather than confusing or misleading).

Auditors should consider additional procedures based on risk, such as review and follow-up on the Financial Edit Report messages.

The Financial Edit Report is the last section of the F196. It contains the results of over 200 automated edit checks of the F196. There are
3 types of checks: (1) errors, which are required to be corrected, (2) warnings, which are required to be either corrected or explained
and (3) informational messages that may indicate a potential issue. We would therefore never expect to see errors (since these should
be corrected prior to the final F196) and would expect the District to have ready explanations and support for any warnings or
informational messages.

Policy/Standards:
AU-C 330.26 and A72 describes the auditors responsibilities with regard to auditing note disclosures:
"The auditor should perform audit procedures to evaluate whether the overall presentation of the financial statements, including the related
disclosures, are in accordance with the financial reporting framework.

Evaluating the overall presentation of the financial statements, including the related disclosures, relates to whether the individual financial
statements are presented in a manner that reflects the appropriate classification and description of financial information and the form,
arrangement, and content of the financial statements, including the related notes. This includes, for example, the terminology used, the amount
of detail given, the classification of items in the financial statements, and the basis of amounts set forth."

We performed the following required procedures for reviewing presentation and disclosure assertions (occurrence and rights and obligations,
completeness, classification and understandability, accuracy and valuation) for the financial statements and notes.

Agree Statements to Accounting Records
We agreed the statements to the underlying accounting records (general ledger) by tracing the following balances to the general ledger trial
balance report at SSD F196_GL Agreement
Total expenditures for each fund
We tied the total expenditures for each fund. We noted a $50,000 difference between the F196 report and the general ledger;
however we determined this amount is immaterial and pass on further review.
Total ending fund balance for each fund
We tied the total ending fund balance for each fund without exception.
All figures for the Permanent Fund (if applicable)
Not applicable as no amounts are reported in the Balance Sheet or Statement of Revenues, Expenditures, and Changes in Fund
Balance
All figures for the Statement of Fiduciary Net Assets and Statement of Changes in Fiduciary Net Assets (if applicable)
We tied the amounts on the Statement of Fiduciary Net Assets to the trial balance. The only issue we noted was a $28,143.58
difference for Assigned Purposes. We determined this difference is immaterial and pass further review. We tied the amounts on
the Statement of Changes in Fiduciary Net Assets to the database without exception.
Statements:
The F196 at FY2013_F196 is used as the Districts financial statement, and so no further procedures need be done to verify presentation. The
F196 process ensures that the required statements have been prepared and ensure correct format, footing and tie to prior year.

Notes:
We scanned the notes at SSD Footnotes 2013 a and checked for the following:
Missing disclosures.
We did not note any disclosures were missing
Disclosures that havent been updated from the prior year.
We did not note any disclosures that had not been updated from the prior year.
Information consistent with audit results and known activities and events.
We noted the information is consistent with audit results and known activities and events
Check footing of tables and agree amounts or totals from the notes to the financial statements or underlying accounting records. If errors
are noted, follow-up to determine how the error occurred, as it may indicate control deficiencies and other potential errors made in the
We footed and crossfooted the tables in the notes. We noted differences in Note 7: Construction and Other Significant
Commitments, Including Encumbrances, if Appropriate to include BTA III accumulated expenditures to date (reported
$66,304,032 vs. calculated $147,471,011), capital projects accumulated revenues to date (reported $12,496,050 vs. calculated
$19,571,402), and capital projects accumulated expenditures to date (reported $11,980,870 vs. calculated $19,056,224). We also
noted differences in Note 8: Required Disclosures about Long-Term Liabilities to include 2007 BEX III Series A & B 8/31/2013
balance (reported $9,385,000 vs. calculated $39,385,000), total LTGO & LGO bonds amount authorized (reported $468,052,000
vs. calculated $466,052,000), total LTGO & LGO bonds 8/31/2013 balance (reported $168,817,000 vs. calculated $60,987,000).
We reported these differences to Kathie Technow, Accounting Services Manager, on 2/19/2014, who stated these differences
were due to formatting issues. We received a corrected version of the notes at SSD Footnotes 2013 final. Based on further review
of the second version we noted note 7 also did not crossfoot correctly. We received a corrected version of the notes on 3/3/2014
at SSD Footnotes 2013 (version 3)_FI NAL See FS_V: Notes to the financial statements
We determined the level of the issue is a verbal recommendation as the errors are not significant or cause the District to have
unreported or missing items in the financial statements.
Determine whether the disclosed information is clearly expressed (understandable, rather than confusing or misleading).
We determined the disclosed information is clearly expressed



Procedure Step: Supplementary and Other Information

Purpose/Conclusion:
Purpose:
As applicable, to (1) determine whether supplemental information included with the financial statements (for which we will give an opinion in
relation to the financial statements as a whole) is fairly presented in accordance with applicable criteria and (2) determine whether other
information (for which no assurance will be given) is not misleading.

Conclusion:
We determined the supplemental information included with the financial statements (for which we will give an opinion in relation to the financial
statements as a whole) are fairly presented in accordance with applicable criteria and (2) we determined the other information (for which no
assurance will be given) is not misleading.

Testing Strategy:
Check that a Schedule of Long Term Liabilities and Schedule of Expenditures of Federal Awards (if applicable) are included as supplemental
schedules.

To test supplemental information, auditors are required to perform the following procedures. Materiality used for purposes of this testing would
be based on a level that represents the entire government (not individual opinion units). If the auditors report on financial statements contains a
qualified, adverse or a disclaimer of opinion, auditors must contact Team Audit Support for assistance with modifying the audit report.
Schedule of Long Term Liabilities:
Obtain an understanding about the methods of preparing this information (such as calculations for compensated absences) and determine
whether they have changed from the prior year. I f so, determine the reasons for the change(s).
Inquire with management about any significant assumptions or interpretations underlying the measurement of this information.
Trace figures to the underlying accounting and other records.
Read the schedule for consistency with inquiry and knowledge obtained during the audit.

NOTE: so long as the Schedule of Long Term Liabilities from the F196 is used, no further procedures need be done to verify presentation. The
F196 process will ensure correct format, footing and tie to prior year.

Based on assessed risks, auditors should also consider recalculating selected liabilities or performing discovery tests to determine if all applicable
liabilities were included on the schedule. For substantive testing strategies related to balances presented on the Schedule of Long-Term
Liabilities, see the "Long Term Liabilities" step in the Additional Risks folder.

Schedule of Expenditures of Federal Awards:
This schedule is only required to be included as a supplemental schedule if a Single Audit is also being done. See the Planning & Audit Plan |
Planning | Single Audit Planning | Schedule of Expenditures of Federal Awards step.

Additional Supplemental Information (on which we will give an in-relation-to opinion)
Auditors contact their manager for assistance if a client is requesting additional schedules or information to be included with the published
financial report that are not required by the Schools Manual. Auditors should work with Team Audit Support if unclear whether such additional
information would be considered "supplemental" or "other" information.
Ask management about the criteria used to prepare the combining statements and other information.
Determine that the form and content complies with the criteria.
Obtain an understanding about the methods of preparing this information and determine whether they have changed from the prior
year. If so, determine the reasons for the change(s).
Compare and reconcile the information to the underlying accounting and other records used in preparing the financial statements or to
the financial statements themselves.
Ask management about any significant assumptions or interpretations underlying the measurement of this information.
Evaluate the appropriateness and completeness of the information considering the results of the procedures performed and other
knowledge obtained during the audit. Auditors may consider testing accounting or other records through observation or examination of
source documents or other procedures ordinarily performed in an audit of the financial statements.
Materiality used for purposes of this testing would be based on a level that represents the entire government (not individual opinion units).

Other I nformation (on which no assurance will be given)
financial report that is not required by the Schools Manual. Auditors should work with Team Audit Support if unclear whether such additional
Read the sections and consider whether there are material inconsistencies with the audited financial statements.
Communicate with those charged with governance (1) the auditors responsibility with respect to the information, (2) the nature of the
procedures performed, and (3) the results. This communication can be done at the exit conference.
The auditor will need to take specific actions if material inconsistencies are noted between this information and the audited financial
statements, or material misstatements of fact. If management refuses to make the necessary revisions, the refusal should also be
communicated to the governing body. Auditors should contact Team Audit Support to determine the effect of that refusal on the audit.
Auditors may also consider reviewing the information by visually comparing the sections to information presented in the prior financial statement
report, if any, to identify significant changes and considering the reasonableness of the information in light of understanding of the entity obtained
during planning.

Policy/Standards:
Schedule of Long Term Liabilities - see Schools Manual chapter 8 and ABFR Handbook chapter VI

Schedule of Expenditures of Federal Awards - see ABFR Handbook chapter XI

Supplementary I nformation is addressed in AU-C 725:
The auditor is responsible to perform additional procedures on supplemental information, using the same materiality level as with the financial
statements. In our audit report, we will opine on whether supplemental information is "fairly presented in all material respects, in relation to the
financial statements as a whole".

Other I nformation is addressed in AU-C 720:
Other information consists of all other financial or non-financial information presented with the financial statements other than Required
Supplementary Information and Supplementary Information.

The auditor is only responsible to check that other information presented with the financial statements is not materially inconsistent with the
financial statements. No assurance is given on other information in our audit report.

Audit reports should not include information other than the minimum expected as shown in the Audit Report Standards Manual Part 3, chapter
3. If clients are required by grants or contracts to include additional schedules, or if clients simply want to include a supplemental schedule with
the financial statements, auditors should notify their manager so that the effect on the audit budget and the need for an engagement letter can
be evaluated.

Schedule of Long Term Liabilities:
Obtain an understanding about the methods of preparing this information (such as calculations for compensated absences) and determine
whether they have changed from the prior year. I f so, determine the reasons for the change(s).
We spoke to Barry Tsoi, Senior Accounting Supervisor, regarding the methods of preparing the information. He utilizes King
County statements and his own excel spreadsheets to determine amounts. The method has not changed from the prior year.
Inquire with management about any significant assumptions or interpretations underlying the measurement of this information.
We spoke to Barry Tsoi, who stated there were no significant assumptions or interpretations underlying the measurement of the
information.
Trace figures to the underlying accounting and other records.
We traced the figures at SSD F196_GL Agreement without exception.
Read the schedule for consistency with inquiry and knowledge obtained during the audit.
We read the schedule for consistency without exception.

Schedule of Expenditures of Federal Awards:
This schedule was reviewed at Schedule of Expenditures of Federal Awards.

Additional Supplemental Information (on which we will give an in-relation-to opinion)
The District does not have any additional supplemental information. Pass further review.
Other I nformation (on which no assurance will be given)
financial report that is not required by the Schools Manual. Auditors should work with Team Audit Support if unclear whether such additional
Read the sections and consider whether there are material inconsistencies with the audited financial statements.
We read the sections and determined there were no material inconsistencies with the audited financial statements.
Communicate with those charged with governance (1) the auditors responsibility with respect to the information, (2) the nature of the
procedures performed, and (3) the results. This communication can be done at the exit conference.
This information will be communicated at the exit conference Concluding Financial Audit Procedures
The auditor will need to take specific actions if material inconsistencies are noted between this information and the audited financial
statements, or material misstatements of fact. If management refuses to make the necessary revisions, the refusal should also be
communicated to the governing body. Auditors should contact Team Audit Support to determine the effect of that refusal on the audit.
No material inconsistencies were noted; no further action necessary.

F.4.PRG - Concluding Financial Audit Procedures

Procedure Step: Subsequent Events

Purpose/Conclusion:
Purpose:
To determine if there are events or transactions that occurred subsequent to the fiscal year-end - up to the audit report date - that have a
material effect on the financial statements and evaluate whether such events were properly reported or disclosed.

Conclusion:
We determined there are no events or transactions that occurred subsequent to the fiscal year-end - up to the audit report date - that have a
material effect on the financial statements and evaluated whether such events were properly reported or disclosed.

Testing Strategy:
The following procedures are required to review for subsequent events:
Obtain an understanding of any procedures or controls used by management to identify subsequent events, including subsequent events
for any significant components.
Review minutes up to the audit report date or as nearly as practicable.
Review FAWF for news articles or other items that may indicate a subsequent event.
Inquire with management (and review interim financial statements, if any) to determine whether any significant changes occurred
subsequent to the fiscal year end.
In performing these procedures, the auditor should specifically be alert for any of the following examples potential subsequent events
requiring adjustment to the financial statements:
Settlement or resolution of a major estimated liability
Significant differences in actual vs expected outcomes of accounting estimates (such as actual payments related to estimated liabilities or
actual collections related to receivable allowances)
Occurrence of a major lawsuit or contingency if the event causing the liability had taken place prior to fiscal year end
In performing these procedures, the auditor should specifically be alert for any of the following examples potential subsequent events
requiring disclosure:
Initiation or settlement of significant litigation
Issuance or refunding of long-term debt
Significant casualty, investment or other losses
Significant impairments to the Districts ability to provide services or continue operations
Significant unresolved strike at time of financial statement report issuance
Changes to District boundaries
Major changes in the scope of the Districts programs or activities that are anticipated to have a significant effect on future
statements. For example, joining or discontinuing cooperative programs
Auditors should consider additional procedures based on risks identified or follow-up procedures to verify information obtained in
minutes, news articles or inquiry or to obtain additional information to better evaluate potential subsequent events.
Compare audit results with the Districts subsequent event disclosure (if any). I f any potential subsequent events are identified and are
either not disclosed or inadequately described, the auditor should evaluate whether the lack of disclosure causes the statements to be
misleading.

Policy/Standards:
The Schools Manual gives the following instructions for subsequent events in the example notes:
"Describe significant events after the financial statement date, which materially impact the next and future years. Significant violations of finance-
related legal or contractual provisions should discuss actions taken to address such violations."

-----------------------------------------------------------------------

SAO Audit Policy 6410 - Subsequent Events

We performed the following procedures as required to review for subsequent events:
We obtained an understanding of any procedures or controls used by District management to identify subsequent events, including
subsequent events for any significant components. We spoke with Kathie Technow, Accounting Manager and Ron English, General
Counsel who review minutes, attend Board meetings and Ron is involved with any legal matters with the District. For any subsequent
events that are necessary, Ron provides the information to Kathie to include in the notes to the financial statements.
We reviewed the minutes up to the audit report date or as nearly as practicable. We did not note any significant items that would suggest
any subsequent events occured or would have a material effect on the financial statement needing to evaluate whether such events were
properly disclosed.
We reviewed the FAWF for news articles or other items and searched the internet that may indicate a subsequent event and noted none.
We inquired with Kathie Technow, Accounting Manager and Ron English, General Councel and determined there were no significant
changes that occurred subsequent to the fiscal year end. During our discussions we specifically looked for any:
Settlement or resolution of a major estimated liability
Significant differences in actual vs expected outcomes of accounting estimates (such as actual payments related to estimated liabilities or
actual collections related to receivable allowances)
Occurrence of a major lawsuit or contingency if the event causing the liability had taken place prior to fiscal year end
We were also alert for any of the following that would require disclosure:
Initiation or settlement of significant litigation
Issuance or refunding of long-term debt
Significant casualty, investment or other losses
Significant impairments to the Districts ability to provide services or continue operations
Significant unresolved strike at time of financial statement report issuance
Changes to District boundaries
Major changes in the scope of the Districts programs or activities that are anticipated to have a significant effect on future statements.
For example, joining or discontinuing cooperative programs
As noted above, we did not identify any items that would require disclosure in the financial statement notes.
As we did not identify additional risks from the procedures performed above, we did not need to perform follow-up procedures.
We compared audit results with the Districts notes to the financial statements and noted there is no note disclosure. Based on the
procedures performed above, we determined the risk of the notes or statements being misleading is low since we found no additional
information to support a subsequent event occurred.


Procedure Step: Attorney Letter

Purpose/Conclusion:
Purpose:
To determine if reporting and disclosure of any liabilities or contingencies related to litigation, claims or assessments are accurate and complete.

Conclusion:
We determined reporting and disclosure of any liabilities or contingencies related to litigation, claims or assessments are accurate and complete.

Testing Strategy:
BACKGROUND:
Auditors are required to review for the existence of legal liabilities and contingencies that should be reported or disclosed. Management is the
primary source of information about litigation, claims and assessments because these matters are within the direct knowledge and, often, control
of management. Since auditors are not ordinarily able to make judgments regarding legal matters, a letter of inquiry to the entitys legal counsel
is the primary means of corroborating information provided by management.

Auditors are required to perform the following risk assessment procedures:

Inquire and request a list of all litigation, claims and assessments existing as of fiscal year end or arising since that time from in-house
legal counsel (if applicable) or management, including a description and evaluation of each item.
Auditors should use the Legal Matters Inquiry Letter available in TeamMate to request this information from in-house legal counsel (such
as the County prosecuting attorney) or management. If management does not wish to complete this response themselves, they always
have the option of having their attorneys respond for them.

Review minutes for indications of litigation, claims or assessments.
Review legal expenses for outside attorneys to evaluate managements list of litigation, claims and assessments. Auditors should follow-
up on unexpected attorney expenses with inquiry of management and review of invoices or correspondence as necessary.
Consider results of other audit procedures performed during the course of the audit for indications of litigation, claims and assessments.
Auditors may become aware of actual or potential litigation, claims and assessments through citizen hotlines, newspaper articles, review
of contracts and grants, review of expenditures or other audit procedures.
If no matters were identified that indicate a risk of material misstatement, auditors must document this conclusion.
If any matters are identified that indicate a risk, auditors must request an attorney letter from any legal counsel involved in the
matter as follows:

Obtain an attorney letter from every attorney that has devoted substantial attention to matters that may give rise to a risk of material
misstatement:
Request from the entity an attorneys letter from all attorneys who have the primary responsibility for and knowledge about
particular litigation, claims, and assessments of which the auditor is concerned.
Auditors should use the Attorney Letter Request template in the SAOStore for both state agency and local government audits.
Evaluate the attorneys response to ensure it is clear, contains all items of information requested and covers matters existing as of
the financial statement date and through the effective date of the letter. If information is missing or unclear, request and
document clarification from the attorney either verbally or in writing. I f obtained verbally, a summary of the discussion must be
documented.
The government should be aware of any time we contact their attorney so they wont be surprised by any bills. See AU-C 501.A56-63
for guidance on evaluating any unexpected limitations on the attorneys response.

Compare reported or disclosed liabilities or contingent liabilities per the financial statements to the information in managements response,
any attorney letters and other evidence obtained. See the policy/standards tab for criteria on when liabilities should be reported or
disclosed. Auditors should also consider follow-up procedures for any variances, depending on the nature and materiality of potential
differences.
Contact the Director of Legal Affairs for any needed assistance in evaluating or corroborating managements evaluation of legal matters.
Management or legal counsels refusal to provide requested information either in writing or verbally would be a limitation on the scope of the
audit sufficient to preclude an unqualified opinion.

Policy/Standards:
The Schools Manual example notes require disclosure of material violations of financial-related legal or contractual provisions and significant
contingent liabilities.

The Schools Manual gives the following instructions for disclosure of contingent liabilities in the example notes:
"Contingent liabilities that are both probable and the amount of the loss can be reasonably estimated should be accrued and disclosed with a
description. A reasonably possible contingency should be disclosed with a description of the contingency and the range of possible amounts of
gain or loss. Care should be used in disclosing gain contingencies not to mislead the reader. Remote possibilities should be disclosed if they relate
to loss contingencies of guaranties, financing arrangements, or other similar obligations."

As described in the template request for an attorney letter, we will accept letters that reference FAS 5, ASC 450-20, GASB 62 or the Schools
Manual as criteria, as all of these sources are substantially the same.

SSAO Audit Policy 6420 - Obtaining Legal Letters

List of Legal Matters:
We noted that management utilizes in-house legal counsel. We requested a list of legal matters from Ron English, General Counsel. Our request
is documented in F.4.1 and General Counsels response is documented in F.4.8.

We conclude the letter contains a list of all requested information and matters existing at FYE 2013 and subsequent as of May 21, 2014. We
determined no clarification of the provided information is necessary and the letter is detailed for each type of legal matter.

Other Audit Procedures to Identify Legal Matters:
We were alert for indications of legal matters during the course of the audit including during our review of minutes, review of FAWF items, and
other procedures. We did not find any information the appears to contradict management's list of legal matters or other indications of litigation,
claims or assessments.

Attorney Letter:
We obtained the attorney letter with the District's responses to ongoing legal matters with the District, including and any follow-up
procedures from our legal matters request on May 21, 2014 at F.4.8 from Ron English, General Counsel.

Reporting & Disclosure of Liabilities and Contingencies:
We reviewed the attorney letter, met with District General Counsel, and read minutes up to the latest Distrct blog. We evaluated the attorney's
response and determined the letter is clear, contains all items of information requested and covers matters existing as of the financial statement
date and through the effective date of the letter. We did not find any missing or unclear information that required follow-up for clarification. We
noted the items disclosed in the attorney letter are items that are covered by the District's insurance and no items are above what the District
self-insures. The self-insurance is reported in the financial statements.
We determined the accuracy of reporting and disclosure of liabilites and contingencies arising from legal matters and noted no other items that
should be included in the financial statements or notes to financial statements.


Procedure Step: Aggregation of Misstatements

Purpose/Conclusion:
Purpose:
To accumulate, evaluate and communicate misstatements.

Conclusion:
We accumulated, evaluated and communicated misstatements to District management.

Testing Strategy:
The following procedures are required to accumulate, evaluate and communicate misstatements:

(1) Accumulation of Misstatements
Using the worksheet provided in TeamMate, document all non-trivial (above the floor) misstatements identified during the audit in order to
evaluate them individually and in aggregate and communicate to the client. For each misstatement:

1. Relate it to an opinion unit (if applicable) and financial statement or schedule
2. Provide a brief description suitable for sharing with the client, including the nature and amount or range of the misstatement.
3. Link or reference the audit documentation supporting the misstatement
4. If the misstatement has a quantitative affect on an opinion unit, enter the amount in the appropriate aggregation column, following
instructions on the spreadsheet.

Misstatements may have been identified in the current audit or identified in prior audits. Prior year uncorrected misstatements with a current
affect should have been identified and documented on the worksheet as part of the Other Engagements & FAWF planning step.

Definition of Misstatement
A misstatement in the financial statements is a difference between the amount, classification, presentation or disclosure of a reported item and
what it should be under the financial reporting framework. Misstatements may arise from error, fraud or noncompliance.

Misstatements may be either known (that is, factual misstatements where the auditor can give the precise difference between what was reported
and what should have been reported) or likely (that is, judgmental or projected misstatements where the amount of the misstatement is the
auditor's best estimate, like from when reported figures vary from expectations for substantive analytical procedures, when projecting the results
of a sample, or when auditors conclude that managements accounting estimates are unreasonable or inappropriate).

Aggregation of Misstatements Floor
The "floor" to the aggregation of misstatements is the threshold below which misstatements are considered trivial and do not need to be
accumulated or communicated to management. The floor should be set to an appropriately low level such that un-accumulated misstatements
would never reasonably be material, either individually or when aggregated with other misstatements, and considering the possibility of additional
undetected misstatements.

The default floor is 0.002 multiplied by the lower of the balance sheet or operating statement materiality, rounded up to the nearest
$1,000. Auditors may use professional judgment to adjust the default floor.

(2) Reconsideration of Planning
After compiling initial audit results, it is possible that planning decisions may need to be re-evaluated, especially if significant misstatements were
identified or if misstatements imply substantially different or increased risks than the audit was originally designed to address. Accordingly, the
auditor should re-evaluate the following planning decisions:
Materiality
Calculation of opinion units (if significant misstatements were identified)
Material balances
Relevant assertions
Control risk assessments
The nature and extent of substantive audit procedures
(3) Communication of Misstatements
All non-trivial known and likely misstatements must be discussed with management. The auditor should request that management take the
following actions with regard to known and likely misstatements:
Known Misstatements Request correction of misstatements.
Likely Misstatements involving a projection of a sample I f material (or close to materiality), request that management examine
the entire population in order to identify and correct any misstatements. If management reviews the entire population and makes
corrections, the auditor should re-evaluate the amount of likely misstatement.
Likely Misstatements involving differences in accounting estimates Request that management review the assumptions and
methods used in developing their estimate. If management reviews estimates and makes corrections, the auditor should re-evaluate the
amount of likely misstatement.
Likely Misstatements involving substantive analytical procedures Request the entity to investigate and then review or confirm
the results. I f necessary, the auditor should expand testing to determine whether a known misstatement exists.
As described above, auditors should not request corrections for likely misstatements. If likely misstatements, either individually or in
aggregate, approach materiality, the auditor must either perform additional work or else request that management review the entire
population to identify any known misstatements. If neither of these options are feasible, auditor judgment should be used in evaluating
and aggregating the likely misstatements with other known misstatements and considering the effect on the financial statement opinion.

(4) Evaluation of Uncorrected Misstatements
The auditor should obtain an understanding of managements reasons for not making corrections and should take these reasons into account
when considering the qualitative aspects of uncorrected misstatements.

Evaluate the individual and net aggregate effect of uncorrected misstatements. When making this evaluation, the auditor should consider:
Quantitative factors, such as whether the net effect of misstatements approaches or exceeds the quantitative materiality threshold. Note
that quantitative considerations would not be applicable to certain aspects of the statements (such as presentation and disclosure).
The possibility of additional undetected misstatements.
Qualitative factors effecting the fair presentation of the statements. Refer to the Policy/Criteria tab for examples of qualitative factors to
consider.
(5) Communication of Uncorrected Misstatements
All uncorrected known and likely misstatements identified during the audit must be communicated to both management and those charged with
governance. I n addition, management must agree that uncorrected misstatements are immaterial (this assertion must be included in the
representation letter).

A list of all uncorrected known and likely misstatements must be provided with the Management Representation Letter and the
Exit Conference handout. Auditors may provide the list as an attachment or include it in the Rep Letter template and Exit
Conference handouts. The Exit Conference handout must also note any material corrected misstatements.

Policy/Standards:
Both quantitative and qualitative factors should be considered when evaluating whether misstatements are material. Examples of qualitative
factors include:
The significance of the misstatements relative to reasonable user needs.
The potential effect of the misstatement on trends, especially financial sustainability trends.
The significance of the misstatement to the presentation of financial position or results of operations, such as a misstatement that
changes net position from positive to negative or a net loss into a net gain.
The potential effect of the misstatement on compliance with laws, bond covenants, contractual agreements or regulatory provisions.
The nature of the misstatement and managements reasons for not correcting it. For example, misstatements due to fraud, non-
compliance or other illegal acts; intentional misstatements management is making to avoid disclosing issues or to mislead users; omission
of disclosures related to publicly sensitive issues (such as related party transactions), etc.
Whether the misstatement is part of a possible pattern of management bias or represents a risk of possible additional undetected
misstatements.
Whether the misstatement is known or likely.
The likelihood that a misstatement that is currently immaterial may have a material effect in future periods because of a cumulative
effect.
The cost of making the correction it may not be cost-beneficial for the entity to develop a system to calculate a basis to record the
effect of an immaterial misstatement.
--------------------------------------------------------------------------------------

SAO Audit Policy 6450 - Misstatements

We performed the following as required to accumulate, evaluate and communicate misstatements:

(1) Accumulation of Misstatements
We documented all non-trivial (above the floor) misstatements identified during the audit in order to evaluate them individually and in aggregate
and communicated them to the client at F.4.4. There were no prior year uncorrected misstatements with an affect on the current financial
statements.

(2) Reconsideration of Planning
Although there were no significant misstatements, we re-evaluated the following planning decisions to ensure there are no increased risks than
identified during the financial statement audit planning:
Materiality
Calculation of opinion units (if significant misstatements were identified)
Material balances
Relevant assertions
Control risk assessments
The nature and extent of substantive audit procedures
We did not identify any additional risks from our original planning decisions.

(3) Communication of Misstatements
We communicated all misstatements with Kathie Technow, Accounting Manager, and requested the District take appropriate actions with regard
to the known known misstatements by correcting them.
(4) Evaluation of Uncorrected Misstatements
We met with Kathie Technow, Accounting Manager and they are going to research the Balance Sheet misstatements further to ensure the
financial statements in the future are correctly reporting the unrealized losses on impaired investments and making sure a double-sided journal
entry is made. We determined the likelihood of additional undetected misstatements is low as the error found is due to a unique situation that
there was not a lot of guidance at the time the unrealized losses occurred. We also determined there is a low likelihood of the immaterial
misstatement becoming material in future financial statements as the unrealized losses is less and less each year due to the economy improving
and King County settling on litigations due to the unrealized losses that occurred in 2008.
(5) Communication of Uncorrected Misstatements
We communicated and provided the aggregation of misstatements to District management and they agree the uncorrected misstatements are
immaterial to the financial statements. We provided the aggregation of misstatements to the Board during the exit conference.


Procedure Step: Letter of Representation

Purpose/Conclusion:
Purpose:
To confirm the continuing applicability of managements explicit or implicit representations and reduce the possibility of misunderstanding.

Conclusion:

Testing Strategy:

STEP 1:
representations needed from management for all periods covered by our audit report. The template should be modified as needed to reflect the
audit scope and situation.


STEP 2:

The entity has used the work of a specialist, such as for determining environmental remediation, pension, OPEB, self-insurance or
landfill obligations.
Supplementary information is being presented (such as CAFR or grant schedules).

STEP 3:




Policy/Standards:

STEP 1:
We selected the appropriate representation letter template from the Store and provided it to Kathie Technow, Accounting Manager for completion
on April 29, 2014.

STEP 2:
We considered whether any additional representations were needed beyond the standard ones included in the template. We determined that
no additional representations were needed. The template was provided to the entity and a list of uncorrected misstatements was included as an
attachment.

STEP 3:
We obtained the representation letter at F.4.9 and reviewed it to check that:
It was dated the same as our report date, May 21, 2014; and
It was signed by appropriate members of management (J ose Banda, Superintendent, and Kenneth Gotsch, Assistant Superintendent of
Business and Finance).


Procedure Step: Changes to Audit Plan

Purpose/Conclusion:
Purpose:
To document changes in the audit plan and determine whether changes caused audit objectives not to be met.

Conclusion:
No changes were necessary to the audit plan.

Testing Strategy:
Document any changes to the original audit plan.

Changes made during the course of the audit should be differentiated from the original audit plan. These changes may be documented in
the Record of Work Done below or as part of the original audit plan (ex: using a different font color or listing the changes in a separate
section of the original plan).

Determine whether changes to the original audit plan support audit objectives.

Auditors should consider whether permanent file information needs to be updated to capture any significant new information discovered during
the course of the audit.

Policy/Standards:

There were no changes made to the original audit plan.


Procedure Step: Final Analytical Procedures
Prepared By: (None)

Purpose/Conclusion:
Purpose:
To perform analytical review to evaluate audit conclusions reached and whether financial statements are consistent with the auditor understands
of the government.
Conclusion:
We performed analytical review to evaluate audit conclusions reached and whether financial statements are consistent with the auditors
understanding of the government. We agree with audit conclusions reached and believe that financial statements are consistent with the auditor's
understanding of the government.

Testing Strategy:
The Audit Manager or delegate is required to perform the following procedures in the final review stage of the audit after any necessary
adjustments to the financial statements are known.
Review the financial statements and notes to make sure they are consistent with the auditors understanding and conclusions. As part of
this review, consider:
Misstatements identified by the audit.
Adequacy of evidence obtained for significant risks or for any unusual or unexpected balances identified in planning or during fieldwork.
Whether there are any previously unidentified unusual or unexpected balances or relationships in the final draft financial statements.
Perform follow-up procedures as necessary in response to any issues or concerns noted during the final analytical review.

Policy/Standards:
SAO Audit Policy 6460 - Final Analytical Procedures

We performed the following procedures in the final review stage of the audit after any necessary adjustments to the financial statements are
known.
Review the financial statements and notes to make sure they are consistent with the auditors understanding and conclusions. As part of
this review, consider:
Misstatements identified by the audit.
Adequacy of evidence obtained for significant risks or for any unusual or unexpected balances identified in planning or during fieldwork.
Whether there are any previously unidentified unusual or unexpected balances or relationships in the final draft financial statements.
We noted no issues or concerns during the final analytical review.


Procedure Step: GAAP Opinion Summary

Purpose/Conclusion:
Purpose:
To determine (1) if audit evidence is sufficient and appropriate to support our modified GAAP opinion on the financial statements and (2) audit
results to be included in our GAAP opinion.
Conclusion:
See conclusions in Record of Work Done.

Testing Strategy:
Effective for audit periods ending on or after August 31, 2013

Auditors are required to perform the following procedures to address our GAAP opinion:

Evaluation of Evidence Obtained and Audit Risk
Since financial statements present individual funds, these funds would be considered separate opinion units (major funds) for purposes of our
GAAP opinion.

Considering assessed risk, testing procedures, and our anticipated modified opinion, determine if the audit has resulted in sufficient, appropriate
audit evidence to reduce audit risk (the risk of giving an incorrect opinion) to an appropriately low level.

Departures from GAAP
Summarize all identified departures from GAAP, including:
Accounting policies that are acceptable under the special purpose framework, but would not be under GAAP. We would expect all such
departures to be described in Note 1.
Misstatements (which would represent a departure from both the special purpose framework and GAAP)

We would expect that school district departures from GAAP would match the example note in the

Accounting Manual for School Districts, which are located at:
www.k12.wa.us/safs/INS/ACC/1213/SDAM_1213_Complete.pdf#CashNotes for cash basis
www.k12.wa.us/safs/INS/ACC/1213/SDAM_1213_Complete.pdf#F196Notes for modified accrual

For cash basis schools, we would presume that differences are material.

For modified accrual basis schools, each opinion unit would need to be evaluated to determine if any departures are material. Although lack of
RSI and government-wide statements are departures from GAAP, since they are not required elements of the regulatory basis, we would not
address them in our opinion. Therefore, the only expected material departure is for lack of conformity to GASB 63 in the classification and
presentation of fiduciary fund net position.

Contact the School Programs Manager if you identify additional accounting policies that represent a departure from GAAP, which may include
component units, accounting for joint ventures or other matters.

Determine modified GAAP opinion
Based on the identified departures from GAAP, if any, document the opinions to be given for each opinion unit/fund. An opinion for a fund may
be unmodified, qualified, or adverse, or a disclaimer of opinion could be given, if necessary. I f different types of opinions are involved, the
documentation should separately state the opinion for each opinion unit.

Departures from GAAP may include valuation, presentation or disclosure matters. AU-C 800.15 does not require quantification of
departures from GAAP in relation to special purpose financial statements. Rather, identified departures would be presumed material
unless the auditor has documented an analysis of the quantitative and qualitative effect to support the conclusion that the departure is
trivial.

Contact Team Audit Support for any assistance with this evaluation.

Policy/Standards:
In situations when financial statements are prepared on a basis other than GAAP and are intended for general distribution, AU-C 800.21 requires
the auditor to give a "dual" opinion on both fair presentation of the financial statements in accordance with the regulatory method and fair
presentation in accordance with GAAP.
This step is to address our GAAP opinion, whereas the "FS Summary & Report" step is to address our regulatory basis opinion and the rest of our
audit report. Contact TAS with any reporting questions.

Evaluation of Evidence and Audit Risk
We evaluated our risk assessment, testing and conclusions - including our aggregation of misstatements - as a basis for our modified GAAP
opinion, considering identified departures from GAAP as described below.
We determined that our audit work provides a sufficient basis on which to render a modified GAAP opinion. No further procedures are considered
necessary.
Departures from GAAP
Based on our testing and review of presentation & disclosure, we confirmed the following non-trivial departures from GAAP:
Fiduciary funds do not properly classify or present fund net position as required by GASB 63
The District worked with OSPI and corrected the Fiduciary funds to properly classify or present fund net position to conform with GASB 63. The
financial statements were corrected and provided to us on April 20, 2014 at F.4.5
Determine Opinion based on GAAP
Based on our audit, we made the following conclusions that will be reflected in our audit report:
Our opinion on the fair presentation of financial statements in accordance with GAAP will be:
General fund Unmodified
Associated Student Body fund Unmodified
Debt Service fund Unmodified
Capital Projects fund Unmodified
Permanent fund No activity
Fiduciary fund(s) Unmodified
Our opinion will not address the lack of government-wide statements and RSI since these are not required by the Accounting Manual for School
Districts and have been properly referenced as departures from GAAP in Note 1.
We determined that no variances from the ARS Manual report example are needed


Procedure Step: FS Summary & Report

Purpose/Conclusion:
Purpose:
To determine (1) if audit evidence is sufficient and appropriate to support the opinion on the financial statements and (2) audit results to be
included in our reports.

Conclusion:
We determined (1) the audit evidence is sufficient and appropriate to support the opinion on the financial statements and (2) audit results to be
included in our reports.

Testing Strategy:
Auditors are required to perform the following procedures to determine whether audit evidence is sufficient and appropriate to reduce audit risk
to a reasonably low level and to determine the content of our audit report:

(1) Evaluation of Evidence Obtained and Audit Risk
The assessment of the effect of uncorrected known and likely misstatements in the Aggregation of Misstatements step affects the determination
of the auditors opinion. Using that information, you must now determine if you have sufficient, appropriate audit evidence to reduce audit risk
(the risk of giving an incorrect opinion) to an appropriately low level.

Required matters to evaluate:
Completion of audit work: Check that all financial statement work is completed.
Reminder: all work supporting the financial statements must be completed and reviewed prior to the date of our financial statement audit
report. This includes any work documented in other audits or sections that support the financial statement opinion (ie: single audit or
accountability work referenced in financial statement testing, review of the Schedule of Expenditures of Federal Awards, separate audits
done to opine on component units, etc).
Identified risks: Determine whether risks identified in planning and during the audit were adequately addressed in documented audit
procedures.
Audit evidence: Determine whether procedures and results provided audit evidence of an appropriate quality and in a sufficient amount
to opine.
"Sufficient" refers to the amount of evidence obtained. "Appropriate" refers to the quality of the evidence supporting your
opinion. "Quality" refers to applicability of the evidence to the assertions related to the material balances.

If evidence is not sufficient or of an appropriate quality to opine on a particular opinion unit, the auditor should perform further tests or
procedures to obtain the necessary evidence. If this is not possible, then a qualified opinion or disclaimer of opinion may be appropriate.
Communication with the Governing Body: Evaluate whether two-way communication with those charged with governance has been
adequate for the purpose of the financial statement audit. If not, there is a risk that all of the audit evidence required to form an opinion
on the financial statements has not be obtained. In such cases, the auditor should take appropriate action to address the effectiveness of
the communication prior to opining.
The objective of this evaluation is to consider whether we have all the information we need from the governing body before issuing the
report. While an exit conference (or planned exit conference) may be necessary in some circumstances to obtain or confirm views of the
governing body, the auditor may conclude that communication is adequate and the report may be issued prior to the exit conference.

In evaluating communication, auditors should consider:
Whether the audit results in modifications of our opinion or findings or there were difficulties or disagreements during the course of the
audit that necessitate specific communication with the governing body
Whether the views of the governing body are important to any key audit evidence (such as managements plans in light of potential going
concern issues)
The apparent awareness and understanding of the governing body to any critical issues or business risks identified by the audit
The apparent openness of the governing body in their communications with auditors and their willingness and ability to meet with
auditors
The apparent level of communication by management with the governing body regarding the audit
Whether any members of the governing body have expressed interest or concern about any audit areas or issues

(2) Financial Statement Audit Reports
Determine the audit results to be included in our audit reports. If any conclusions require additional explanation or description that is not
documented elsewhere in the audit, such explanation or description should be included in this section.
Opinion on Fair Presentation of Statements (F report): Determine the opinion based on the auditors evaluation of uncorrected
misstatements and the sufficiency and appropriateness of audit evidence obtained.
Opinion on Fair Presentation of Other Information (F report): I f the report includes other information for which we give an
opinion (such as the SEFA or budgetary comparison schedules for which we give an opinion on fair presentation in relation to the financial
statements taken as a whole), determine our opinion for each schedule based on the auditors evaluation of uncorrected misstatements
and the sufficiency and appropriateness of audit evidence obtained.
Emphasis of Matter and Other Matter Paragraphs (F report): In certain circumstances, our audit report is required to include
emphasis and other matter paragraphs. In addition, the auditor always has the option to emphasize important matters regarding the
financial statements in the auditors report.
A comprehensive list of circumstances requiring an emphasis of matter paragraph is included in the ARS manual. The most common
situations are as follows:
Required supplementary information (ie: MD&A) has been omitted, contains material departures from standards or when the auditor has
not been able to adequately determine whether information conforms to standards.
Auditors opinion is based in part on the report of another auditor
There is substantial doubt about the entitys ability to continue as a going concern for one year beyond the date of the financial
statements.
There has been a material change in accounting principles from the prior years statements. This may be the result of the entity
implementing a new accounting standard (in which case, standard language is available in ORCA) or it may be the result of the entity
changing methods or application of principles (in which case, special language would need to be drafted).
Partial or incomplete prior period presentation when reporting on comparative financial statements.
Examples of matters the auditor may wish to emphasize include:
Significant concerns or uncertainties about the fiscal sustainability of the government or other matters that may have a significant impact
on the financial condition or operations of the government beyond one year from the financial statement date.
Unusual or catastrophic events that will likely have a significant ongoing or future impact on the entitys financial condition or operations.
Significant uncertainties surrounding projections or estimations in the financial statements.
Unusually important subsequent events or related party transactions.
Accounting matters, other than those involving a change in accounting principles, affecting the comparability of the financial statements
with those of preceding years.
Any other matter that the auditors consider significant for communication to users and oversight bodies in the auditors report
Controls over Financial Reporting (I report): Check internal control documentation in the permanent file folder for any significant
deficiencies or material weaknesses identified. Also consider whether exceptions or misstatements identified by the audit whether
individually or in combination - indicate a significant deficiency or material weakness.
For example, if the audit identifies a material misstatement, it would indicate a potential material weakness in controls over financial
reporting (since the controls did not prevent or detect and correct the material misstatement).

Also, if the audit identifies a number of control deficiencies that were not individually considered a material weakness, auditors should
evaluate the potential effect of these deficiencies together to determine whether they may represent a significant deficiency or material
weakness in combination
Compliance and other matters (I report): Based on the work performed in the audits of the financial statements, federal programs,
and accountability, determine if fraud, illegal acts, abuse, and violations of contracts or grants occurred or are likely to have occurred. I f
so, determine if they materially (either quantitatively or qualitatively) affect the financial statement amounts or other financial data
significant to the audit. I f the effect is more than inconsequential, refer to the ARS Manual for guidance in how to report instances of
non-compliance.
Preparation of the Audit Report:
All modifications to the standard, unqualified opinion must be reviewed by Team Audit Support. Contact TAS for assistance with any
special reporting situations or questions.
Obtain the electronic version of the financial statements and send the reports and statements to OS for processing.
Final audit report documents should be kept at AS3: Reports for OS.

Policy/Standards:

AU-C 330 par 28-29 and A75 describes the auditors responsibilities related to sufficient appropriate audit evidence:
"The auditor should conclude whether sufficient appropriate audit evidence has been obtained. I n forming a conclusion, the auditor should
consider all relevant audit evidence, regardless of whether it appears to corroborate or to contradict the assertions in the financial statements.

If the auditor has not obtained sufficient appropriate audit evidence about a relevant assertion, the auditor should attempt to obtain further audit
evidence. If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor should express a qualified opinion or disclaim an
opinion on the financial statements."

"The auditor's professional judgment about what constitutes sufficient appropriate audit evidence is influenced by such factors as the:
Significance of the potential misstatement in the relevant assertion and the likelihood of its having a material effect, individually or
aggregated with other potential misstatements, on the financial statements.
Effectiveness of management's responses and controls to address the risks.
Experience gained during previous audits with respect to similar potential misstatements.
Results of audit procedures performed, including whether such audit procedures identified specific instances of fraud or error.
Source and reliability of available information.
Persuasiveness of the audit evidence.
Understanding of the entity and its environment, including its internal control.

AU-C 260, par 19 and A44 describes the auditors responsibilities related to communication:
"The auditor should evaluate whether the two-way communication between the auditor and those charged with governance has been adequate
for the purpose of the audit. If it has not, the auditor should evaluate the effect, if any, on the auditors assessment of the risks of material
misstatement and ability to obtain sufficient appropriate audit evidence and should take appropriate action."

____________________________________________

SAO Audit Policy 6510 - Reporting on Financial Statement Audits


(1) Evaluation of Evidence Obtained and Audit Risk
We determined that sufficient, appropriate audit evidence was obtained and documented in order to support our audit report and reduce audit
risk to an appropriately low level. In making this determination, we considered:
Completion of work: whether all work necessary to support our opinion was completed.
Identified risks: Significant risks identified in planning and the risk of material misstatement due to error, fraud and
noncompliance. We specifically concluded that significant risks were adequately addressed in the audit.
Audit evidence: The quality and amount of audit evidence, in relation to identified risks.
Communication with governing body: The sufficiency and effectiveness of our communication with management and those charged
with governance.

(2) Financial Statement Audit Report
Based on our audit, we made the following conclusions that will be reflected in our audit report:
Opinion on Fair Presentation of Statements (F report):
Our opinion on the fair presentation of financial statements will be: unmodified for both the regulatory basis of accounting (Accounting Manual)
and Governmental and Fiduciary funds based on U.S. GAAP.
Opinion on Fair Presentation of Other Information (F report):
Our opinion on the fair presentation of Schedule of Expenditures of Federal Awards and the Schedule of Long-Term Debt will be: unmodified
Explanatory and Emphasis Paragraphs (F report):
We determined that no explanatory paragraphs were necessary.
In addition, we decided that the following matters needed emphasis. We determined to present the following additional paragraph:
"The Schedule of Families and Education Levy and notes to the Schedule of Families and Education Levy are not a required part of the
financial statements but are supplementary information presented for purposes of additional analysis. Such information has not been
subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it."
Controls over Financial Reporting (I report):
We noted no significant deficiencies or material weaknesses in controls over financial reporting and no deficiencies reported as
management letters that will be referenced in our financial report.

Compliance and Other Matters (I report):
We noted no material instances of noncompliance, fraud or abuse that impact the financial statements as a finding and no compliance
matters reported as management letters that will be referenced in our financial report.


Procedure Step: Exit Conference

Purpose/Conclusion:
To communicate the results of our audit with management and those charged with governance.

Testing Strategy:
I f no exit conference was held or if the report was issued prior to the date of the exit conference, explain the situation in this

Pre-Exit Meetings:

If pre-exit or departmental exit conferences are held, the official handout (if any) should be attached and the meeting documented in this
step. Attachments for pre-exit or departmental exit meetings should be clearly labeled to distinguish them from the official exit conference.

BEFORE the Exit Conference:
Communicate with management as to who will attend the exit conference and arrange for a convenient time and location for the exit
conference.
Invite elected officials to the exit conference (approved invitation letter templates are available in the SAOStore).
Prepare the exit conference handout using the template available in the SAOStore. Note: management letter, finding and status of prior
audit finding templates are also available in the SAOStore, if needed.
Prepare the draft audit report(s) for presentation at the exit conference.
Prepare a separate handout for exit items and share these items with management prior to the exit conference along with any draft
management letter or finding issues.
Exit items are referenced, but not included, in the exit conference document. Auditors should bring the handout to the exit and be
prepared to discuss exit items if requested.
For financial statement audits, print a schedule of uncorrected misstatements from the Aggregation of Misstatements spreadsheet to
attach to the exit handout. Also attach a copy of the Management Representation Letter.
Plan the presentation of audit results by considering the following:
Who will attend from SAO?
Who will present each section?
Detail of audit scope?

DURI NG the Exit Conference:
Present Exit conference handout. The conference must include discussion of significant audit results, such as:
Contents of the draft report.
All non-trivial uncorrected misstatements. Auditors should attach a schedule of uncorrected misstatements by following the
printing instructions on the Aggregation of Misstatements spreadsheet.
Any material corrected misstatements, if not already reported as part of a significant deficiency or material weakness finding.
Representations requested from management. A copy of the Management Representation Letter should be attached.
Significant disagreements with management and their resolution.
Significant difficulties encountered during the audit.
Our views on significant questions that management consulted with other CPAs about.
Any other significant issue related to the governing bodys financial reporting responsibilities.

AFTER the Exit Conference:
Document the conference attendees (SAO and entity) in the Record of Work Done.
Send copies of the exit document to any elected officials who were not able to attend the conference.
Include the official exit document in the AS2 Team Reports folder.
Ensure that the exceptions documented in TeamMate match the official exit document, management letter and findings, as
applicable. Note: Final exit documents, management letters and findings should be kept at AS2: Team Reports.

Policy/Standards:



Invitations:
We contacted Kathie Technow, Accounting Manager and asked to schedule Special Board Meeting to present our Financial Statment and Single
Audit results. Exit conference with the Board will take place during the Board Meeting on 5/28/2014.

Pre-Exit Conference:
In order to help the District meet the single audit deadline of May 31, 2014 and the fact the District was unable to schedule an exit conference at
an earlier date, we determined to hold a pre-exit conference. We held this meeting with the District's management (noted below) and then
provided the Board with the exit conference document, draft audit report.
We met with District management on May 21, 2014 to provide the results of the financial statement audit. We e-mailed pre-exit document at -
F.4.6, financial and single audit exit items at
AS3.g and uncorrected aggregation of misstatements at F.4.4 to the Board on May 21, notifying the board of the pre-exit with management and
the audit results. The following people attended the meeting, held in accordance with Audit Policy 2220:

Kevin Corrigan, Grants Manager
J im Griggs, SAO Audit Manager
Anastassia Kavanaugh, SAO Assistant Audit Manager
Heidi Wiley, SAO Auditor I n Charge

Exit Conference:The exit conference handout is documented at F.4.10. In addition, we prepared Attachment A for all financial statement exit
items at AS3.g and Attachment B for the uncorrected aggregation of misstatements. The following people attended the official exit conference,
held in accordance with Audit Policy 2220 on May 28, 2014:
Director Sharon Peaslee
Director Marty McLaren
Director Sherry Carr
Director Harium Martin-Morris
Director Betty Patu
Director Sue Peters
Director Stephan Blanford
Superintendent J ose Banda
Accounting Manager Kathie Technow
Grants Manager Kevin Corrigan

There were no other items discussed during the meeting that were not already included in the financial and single audit exit document, financial
and single audit exit items and uncorrected aggregation of misstatements.


Procedure Step: FS Quality Control Assurance Certification

Purpose/Conclusion:
To review and certify adherence to applicable audit standards and policy with regard to the financial statement audit.

Testing Strategy:
Certification should be signed-off before the Financial Statement report is issued.

NOTE: if a CAFR Letter is issued, the QAC should be signed before the CAFR Letter is issued.


Policy/Standards:

The certification should be signed-off before the Financial Statement report is issued.







3160).


9. Sufficient and appropriate audit evidence was obtained and evaluated to ensure audit objectives were achieved (Audit Policy 3210).

10. I n planning the financial statement audit, all planning steps in TeamMate were completed and documented (Audit Policy 6210).

11. All concluding audit steps in TeamMate were completed and documented (Audit Policy series 6400).

12. All government elected officials or the audit committee members were invited to official entrance and exit conferences in accordance with
Audit Policy 2130.


14. An exit conference was conducted in accordance with Audit Policies 2130 and 2220












G.1.PRG - School F196

Procedure Step: District Operations

Purpose/Conclusion:
Purpose:
To gain an understanding of the District and its operations sufficient to plan and perform the audit and identify items to consider in assessing
audit risks.

Conclusion:
Based on our understanding of the District and its operations, we noted the following potential risks:
The Seattle Parks and Recereation has an agreement with the District to administer certain field and facility rentals. We reviewed this area
in the prior audit in which the District received a finding for a lack of internal controls to ensure facilities usage revenues were collected.
Due to the District's history in not following up with findings, they may still lack internal controls.
The District chooses to use SAP software for payroll and the general ledger instead of the WESPAC system utilized by almost all
Washington state School Districts.

Testing Strategy:
Auditors are required to document an understanding of the following items. Documentation should be sufficient to plan and perform the audit
regardless of the audit scope.

J oint Ventures and Related Parties
List any joint operations, joint ventures, or jointly governed organizations (Note 1 will describe the Districts assertion regarding its
reporting entity).
List any related parties other than District officials and executive staff (who would be considered related parties, but aren't necessary to
list in the permanent file).
See the Reporting Entity and Related Party Transactions steps for definitions.

For purposes of the permanent file, auditors should list all organizations that would be considered component units, joint ventures, related
parties, etc by their nature. Auditors will evaluate materiality of organizations and transactions in the Reporting Entity and Related Party
Transaction steps for purposes of evaluating financial statement presentation and disclosure.

NOTE: the Educational Service District would not normally be considered a related party, even if the ESD performs Business Manager
functions for the District, since the ESD would not have responsibility for District operations nor have the ability to influence policy
decisions of the District (only financial processes).

Key Operational I nformation
Describe key information related to the Districts operations, including the following specific items.
The number of students and staff and the number of schools operated, by type (HS, MS, ES).
Any significant special programs the District offers, such as alternative learning programs, skills centers, daycare, or after-school
programs.
Any significant participation in cooperative programs.
Whether the District contracts for food services or transportation services, or performs any services on contract for other Districts.
Special Compliance Requirements and Policies
Describe any unique compliance requirements or policies as a supplement to general information in the planning guide. For example:
Compliance requirements related to unique programs or activities
Special compliance requirements related to material contracts or interlocal agreements
Results of legal research on unique compliance questions or practices
Significant Accounting Policies and Practices
NOTE: if no financial audit is performed, this section can be skipped.
Describe any unique accounting practices as a supplement to general information on reporting found in the planning guide. For example:
Document whether the District is reporting on the modified accrual basis or cash basis
Any accrual accounts used by a cash basis District
Application of accounting principles to joint ventures and cooperative programs
Unusual accounting or reconciling items with the County Treasurer
Deviations from the Schools Accounting Manual
Note that material changes in accounting practices require evaluation and possible disclosure in our audit report (see Policy/Criteria tab
for details).
Results of accounting research on unique accounting or reporting questions or practices.
List of significant accounting estimates, if any.
An accounting estimate is an approximation of a financial statement item, such as allowance for doubtful accounts or self-insurance
liabilities. Significant accounting estimates are those that are based on highly sensitive assumptions or are otherwise significantly affected
by year-to-year judgments made by management.

NOTE: Specific procedures are required to evaluate any significant accounting estimates for bias as part of the Management Override of
Controls step for financial audits.

Other I nformation
The auditor should also consider including additional sections or information as necessary.

Policy/Standards:
See the Reporting Entity Determination worksheet available in the TeamStore for definitions and criteria for component units,
related organizations, joint ventures, jointly governed organizations, undivided interests and related parties.

AU-C 708.07-11 describes the auditors evaluation of changes in accounting principles and the effects of an accounting change
on the auditors report.

J OINT VENTURES AND RELATED PARTIES
The reporting entity consists of the District itself. There are no component units, joint operations, joint ventures, or jointly governed organizations.
Accordingly, no additional note disclosures are required.

We have identified the following related parties (not including Districtc officials and staff):
The District is a member of the King County Director's Association (KCDA), however its activity with the organization is not material.
The Alliance for Education. The Alliance for Education is a LEF (Local Education Fund) and is a separate legal entity The Board President
and Superintendent Banda sit on the Board. In March of 2009, the District and the Alliance announced approximately $9 million dollars in
grant awards to support the District's five-year strategic plan, Excellence For All. These multi-year grants are from local and national
foundations and include the Bill & Melinda Gates Foundation ($6.5 million), the Eli & Edythe Broad Foundation ($0.6 million), The Boeing
Company ($317,000), and The Stuart Foundation ($784,000). At the close of the district's fiscal year 2011-2012, the funds remaining from
these awards is approximately $142,000. The District is the subrecipient and accounts for these as reimbursable grants. The School
District entered into a Memorandum Of Agreement on May 21, 2013 with the Alliance for Education, Univ of WA College of Ed and Seattle
Education Assoc to develop a Seattle Teacher Residency (STR) designed to repond to the needs of students from diverse socioeconomic,
cultural, and linguistic backgrounds. The partnership with Alliance for Eduction is disclosed in the District's Notes to the Financial
Statements.
The City of Seattle, through their Families and Education Levy (FEL), collaborates with the District on educational and
outside school activities. The Board annually approves the contracts dollar amounts funded. The 2012-2013 contract was approved
August 15, 2012 by the Board and expires August 31, 2013. We noted the Board approved the 2013-2014 contract on August 13, 2013.
Seattle Parks and Recreation has an agreement with the District to administer certain field and facility rentals. This agreement is effective
through August 31, 2015. We reviewed and tested internal controls over contracts/agreements to ensure facility usage revenues are
collected. the District and outside agencies/companies are complying with the contract terms and payments are adequately supported
during the prior year audit. We issued a finding due to the District lacking internal controls to ensure facilities usage revenues was
collected. This is a potential risk to the accountability audit as the District may not have followed up on the finding.
KEY OPERATIONAL INFORMATI ON
We noted the following key information as it relates to the Districts operations and environment:
Almost all Districts use a common software package from the Washington School Information Processing Cooperative (WSIPC) called the
WESPAC system. This system is designed solely for the Washington schools and designed to be in compliance with the Accounting Manual
standards. The Seattle School District uses SAP software for Payroll and FAST (Financial Accountability System), the general ledger
module. We believe that SAP increases the risk for errors in the financial statements due to all of the complexities with the system. In the
past the District had findings for incomplete financial statements, but in recent years, they have improved. We have not reported a finding
on the financial statements since the fiscal year 2009 audit. This is a potential risk to the financial statement audit as there is an increased
risk of errors in the financial statements due to the complexities of the system.
The District contracts with First Student, I nc for bus services for period September 1, 2012 through August 31, 2015. The District
contracts with King County Metro buses for transportation services provided to students who attend middle and high schools. The District
also provides students ORCA cards. Based on our understanding of these contracts, we would not expect to see any activity reported
under the Transportation Vehicles fund.
Substantially all District full-time and qualifying part-time employees participate in one of the following three contributory, multi-employer,
cost-sharing statewide retirement systems managed by the Washington State Department of Retirement Systems (DRS): Teachers
Retirement System (TRS), Public Employees Retirement System (PERS) and School Employees Retirement System (SERS).
The District has contracts with several unions covering their certificated and classified employees, including school principals.
The District does not appear to rely on any key customers or suppliers based on our cumulative knowledge and experience with the
District.
The District is a member of the King County Purchasing Cooperative (KCDA). This is not considered a risk factor since KCDA purchasing
activity and compliance with state law is audited annually by Team South King County
The District's Policy No. 2255 allows for schools to be ALE programs if they submit annually to the Board. As of August 13, 2013 the
District has two ALE programs at Interagency Academy and Cascade Parent Partnership Program.

SPECIAL COMPLIANCE REQUIREMENTS AND POLICIES
None noted

SIGNIFI CANT ACCOUNTING POLI CIES AND PRACTI CES
The Seattle School District presents governmental fund financial statements and related notes on the modified accrual basis of accounting as
prescribed by generally accepted accounting principles (GAAP) and required by its regulatory agencies, OSPI and SAO. However, the District
elects to not present District-wide financial statements, and management's discussion and analysis, which are departures from GAAP. This is
acceptable for schools in Washington.

Significant Estimates:
We identified no significant accounting estimates.


Procedure Step: Entity-Wide COSO Evaluation

Purpose/Conclusion:
Purpose:
To gain an understanding of the five components of internal control (control environment, risk assessment, information and
communications, monitoring and control activities) as they relate to the entity as a whole and identify items to consider in
assessing audit risks.

Conclusion:
Based on our understanding of entity-wide components of internal controls, we noted the following potential risks:
district employee and resignations of the Superintendent and Internal Auditor. SAO assessed in fiscal year 2012 that the Tone at the Top was
may not be fully recognized until subsequent year audits.(Financial Statement and Accountability Risk)

Testing Strategy:
Auditors are required to gain an understanding of the five components of internal control (control environment, risk assessment, information and
communications, monitoring and control activities) as they relate to the entity as a whole. Document any significant observations in the record of
work done.

NOTE: Small and medium sized entities are likely to have more informal controls than large entities. For example, management may provide
oversight through direct communication with staff rather than through formal processes. I nformal means of control can be adequate for entities
that are small and/or uncomplicated.

In evaluating COSO elements, the auditor should specifically consider the following:

Control Environment:
What key employees at the entity set the control environment.
Management integrity, as evidenced by past experience and response to audit questions and issues.
Involvement and oversight by the governing board, as evidenced through review of minutes and observation.
Whether management's philosophy and operating style promote correct reporting and effective internal controls, as evidenced by adopted
policy, inquiry, observation and past experience with the entity.
Management priorities with regard to financial reporting, as evidenced by response to audit issues.
Whether adequate training appears to be provided to staff, per conversations with staff and past experience.
Whether employees in key positions appear competent to perform their duties, as evidenced in past experience and interactions
throughout the audit.

Risk Assessment:
Refer to the "Risk Assessment I nquiry" step for suggested questions to evaluate managements risk assessment.

Note: this risk assessment is likely an informal practice. The key consideration for audit purposes is whether management has critically
evaluated risks.

Information & Communications:
Adequacy of accounting and information systems to meet information needs, as evidenced by supporting documentation available,
inquiry, review of system reports and past experience with entity.
Whether official policy appears to be adequately communicated, as evidenced by staff's knowledge and adherence to entity policies.
Whether the organizational structure appears to facilitate accountability, communication and resolution of issues, as evidenced by inquiry,
observation, policies and past experience with entity.
Adequacy of reports and information available to managers and supervisors, as evidenced by inquiry, review of system reports and past
experience with entity.

Monitoring:
What key employees at the entity are responsible for monitoring.
Whether there is an internal audit function. I f so, auditors should consider:
Whether internal audit directly reports to the chief executive or governing body
Whether internal auditors follow professional standards, such as I nternational Professional Practices Framework (IPPF) standards
promulgated by the I nstitute of Internal Auditors (IIA)
The scope and focus of internal audit activities. If any relevant work was performed by internal audit, we should consider this
work and results in the Other Audits & FAWF step.
Involvement and oversight by management and the governing board, as evidenced by inquiry, observation and minutes.
Any departments that are not subject to centralized monitoring or internal audit.

Policy/Standards:
SAO Audit Policy 6230 Understanding I nternal Control and Assessing Control Risk

Overall COSO Evaluation
The following is our understanding of internal controls over financial reporting. I n gaining our understanding, we considered the five components
of internal control based on the COSO framework (control environment, risk assessment, control activities, information and communication, and
monitoring).

Control Environment
The control environment consists of the actions, policies, and procedures that reflect the overall attitudes of top management
and the governing body of an entity about internal control and its importance.

We noted the following as it relates to the control environment:
Based on past audit experiences, we identified instances where senior management misrepresented information or manipulated data, and
shared this information with both the Board and general public, including misrepresented administrative costs. A former budget submitted
to OSPI allocated $45 million in administrative costs, while the Board approved only $15 million in administrative costs (the amount
conveyed during Open Public Meeting). Also, we noted in the prior year audit a letter sent from the Transportation Director to parents
requesting students and staff ride the bus during ridership count week regardless of whether they normally ride the bus. This suggests
management's attempt to manipulate ridership stats reported to the State in order to receive more funding. The letter stated that
subsidies were for classroom use, which is misleading because transportation funding is restricted to activity 99 (transportation to and
from school). Both instances speak to a lack of accuracy and integrity of information.
We noted in prior audits, the School board and senior management must improve oversight of District operations. We noted several
instances in which public assets were misappropriated or susceptible to misappropriation due to lack of effective policies, management's
failure to enforce existing policies and/or inadequately trained staff. We also found that the Board and management are not as familiar
with state and federal law on school district operations and on the use of grant funds as the public would expect.
We've communicated internal control weaknesses over the years in areas such as payroll, safeguarding of assets and cash
receipting. There have been numerous frauds in these areas that tend to be small in amount. Historically, management has not
adequately addressed the weaknesses recommended by SAO in prior audits. Although several causes for not addressing the identified
issues may be because of staffing shortages, significant turnover in management, technological shortcomings, and funding demands, the
historical lack of response and attitude of indifference towards the results of SAO work (a "so what" response), indicates that a high
degree of skepticism is warranted for all audits conducted at this entity.
district employee and resignations of the Superintendent and Internal Auditor. SAO reported in fiscal year 2012 that the Tone at the Top was
may not be fully recognized until subsequent year audits.
The School Board of Directors has a Finance & Audit Committee that meets monthly. The committee is comprised of three Board
members (Sherry Carr, Betty Patu and Harium Martin) and key District managers. They include Kathie Technow, Accounting Manager; J oe
Paperman, Budget Manager; Andrew Medina, Internal Auditor, and the Internal Audit team.
Board policy G06.00 stipulates the Seattle School Board will maintain an unreserved, undesignated fund balance at least equal to between
2 percent and 5 percent of the District's budgeted non-grant General Fund expenditures. Annually, the Board adopts a specific reserve
percentage for the upcoming fiscal year. The District maintained an undesignated fund balance of 3.25% of non-grant general fund
expenditures for FY2013.
Principals and Administrators have significant independence at their respective schools causing the District to be highly decentralized. This
is an advantage so administrators can best meet academic needs, but is a disadvantage because there is a lack of control, potential
ineffectiveness and a risk for District staff to not monitor budgets and expenditures as closely as they should.
In past audits we have seen almost an "anything goes" (laissez-faire) attitude among District employees with regard to expenditures. For
example, this almost an "ends-justifies-the-means" attitude was demonstrated in our RSBDP investigation. I n the past we spoke with
District employees who explicitly state that they are educators, not accountants, and that their responsibility is to the students, and not to
worry where the dollars come from or go. These employees were not in the Finance/Accounting department, but out in schools and other
District departments, which is significant since much of the District's operations are decentralized. We have not seen this attitude result
in any financial statement material misstatements; however, some processes currently in place appear to be, essentially, a rubber stamp
on reimbursements for employee expenditures that may or may not be for valid public purposes. We established quantitative materiality
at 5% instead of the default 10% due to our experience with auditing this District (e.g. the "fiscal crisis" at the beginning of the last
decade was due to management override of controls, omissions in the financial statement notes, and other significant errors reported in
prior audits as they pertain to classification).

Risk Assessment
Risk assessment is management's identification, assessment and response to risks relevant to the financial reporting and safeguarding of public
resources.

We performed a risk assessment inquiry as documented in B.2.PRG and noted the following:
In our judgment, most employees with key responsibilities in the financial reporting process are knowledgeable of accounting requirements
and standards and are competent to perform their duties as evidenced by inquiry, credentials and experience. Kathie
Technow, Accounting Manager is a key employee as it relates to maintaining the general ledger and financial statement preparation.
She attends WASBO meetings where she is exposed to emerging accounting issues specific to school districts. As the District's
Accounting Manager, she is also a member of the Washington State School District Accounting Advisory Committee. Barry Tsoi,
Accounting Supervisor, another key employee in financial statement preparation, has been responsible for compiling the general ledger
trial balance and the F-196 financial statements for over 14 years. We determined Barry appears knowledgeable about accounting
requirements and laws/regulations based on our discussions and confirmations with him of the financial statement preparation.
The District has Budget Analysts assigned to schools and organizations that monitor budget to actual expenditures monthly.
In prior audits, the District explained some of its vice principals (certificated staff) at schools with major renovation/capital construction also
function as project managers and, therefore, their salaries are charged to the Capital Projects Fund (CPF). It is widely known there are
fewer resources for instruction than is necessary to meet the District's needs and, therefore, we perceive there is a risk of manipulating
fund by using capital funds to pay operating expenditures. Significant increases in capital expenditures could be an indicator of attempts to
record expenditures in the incorrect fund. In the prior year audit we found the District charged nonallowable staff to the CPF. The District
also has accounts that roll-up into one account in the financial statements, such as central administration that they may misclassify to
make the accounts appear to be in-line with the Board's adopted budget. These are potential financial statements classification and
accountability risks as if found would demonstrate a willingness to disregard regulatory accounting requirements. From our experience in
past audits of this entity, we perceive a risk of deliberate attempts to expense rather than capitalize costs (and vice versa) to manipulate
the amounts reported in the financial statements and have incentive to misclassify central administration costs to make line items appear
in-line with the Board adopted budget.
The District has an Internal Auditor, Andrew Medina and internal audit team that perform risk-based audit plans for the District. They report
directly to the Audit & Finance Committee.
The School Board's Oversight Work Session uses a rotating schedule for District departments to appear before them and identify their key
internal control procedures, risks, and major initiatives.
Information and Communications
Information and communications are the procedures and systems to record and convey information that enables people to understand and carry
out their responsibilities.

We noted the following as it relates to information and communication systems:

Official policies related to finance and otherwise are most commonly communicated in writing and disseminated on the District's Intranet
called "Inside Seattle Schools". We observed there are numerous written policies and procedures organized by function such
as Administration, Fiscal Management and Support Services. Annually, the Finance Director issues specific guidance pertaining to
financial statements closing processes and disseminates expectations via a memorandum to school principals, fiscal clerks, secretaries,
administrators and program managers.
From past audit experiences, and instances of noncompliance noted during recent audits, there is miscommunication and sometimes a
lack of awareness of District policies, especially at the individual school level. For example, we recently saw that a high school principal
was not aware of District policy limiting fundraising to only specific types of activities. During accountability audits especially, we commonly
find that District staff have not adhered to management expectations and District policy. The misuse of District resources and losses at the
hands of employees in the areas of personal use of a District credit card, personal use of a District vehicle, theft of cash receipts and
payroll frauds, are typical examples of employees disregarding District policies (and the law). Individually, the events and instances of
noncompliance have not been quantitatively or qualitatively material to the financial statements (i.e., they have not been large amounts
compared to the District's total assets and equity). However, from an accountability standpoint, the losses tend to be of interest to the non-
financial community and to the users of the SAO Accountability Audit Reports, and speak to larger issues such as ethical conduct and the
expectation that District employees, as public employees, will act in an ethical manner in all of their duties all of the time.
In the last two years, the District has changed their organizational structure to address past issues and create new departments and
structure that are more in line with their purpose. Due to the new capital funding levy, the District created a new department called Capital,
Facilities and Enrollment, headed by Lester Herndon, Assistant Superintendent. This changed the Department of Operations, headed by
Pegi McEvoy to no longer include only district operations and no longer capital or facilities maintenance or construction projects. An
updated organizational chart is located at SPS_OrgChart_All.
Monitoring
Monitoring is management's processes to evaluate the adequacy and effectiveness of the entity's own internal controls.
We noted the following as it relates to monitoring:
The District has an internal audit function, led by Andrew Medina, Internal Auditor and a team that review District internal controls. They do
not audit financial statement or federal audit areas as they rely on SAO audit work to cover these areas. The Internal Auditor reports
directly to the Audit and Finance Committee in order to maintain independence from the District. We noted the District's Internal
Auditor prior to Andrew being hired in August 2011, attempted to filter information from District personnel in order to control the direction
and scope of the audit and the information SAO received to conduct the audit. the District did not have an internal audit function or other
formal process to review internal controls. After significant issues as the SAO audit liaison and the District's RSBDP and private
RSBDP involvement, the former Internal Auditor subsequently resigned in December 31, 2010. Since that time, it appears the new Internal
Auditor and the District have improved controls to ensure the internal audit function is independent from the District. The SAO audit liaison
is now the head of the Accounting Department, Kathie Technow, Accounting Manager.
Principals, program managers and other administrators are responsible for monitoring the budget and other financial indicators for their
particular area of responsibility at the school and program levels. Generally, as noted in the "Control Environment" section above, we do
not consider these reviews as reliable for monitoring because some may not perform a review, not perform a meaningful review, and/or
the review may not be performed regularly and timely. Anomalies and unexpected results may not be recognized, questioned and
explained.
Control Activiti es
Control activities are the policies and procedures that help ensure necessary actions are taken to address financial reporting and accountability
objectives (ex: bank reconciliations, etc.)
Control activities are, for the most part, specific to the control objectives for individual systems. Control activities will be identified and evaluated
separately for each significant accounting system.


Procedure Step: Key Software Applications

Purpose/Conclusion:
Purpose:
To evaluate key software applications for items to consider in assessing audit risks.

Conclusion:
Based on our evaluation of key software applications, we noted the following potential risks. Potential risks will be evaluated further during our
planning conference brainstorm.


Testing Strategy:
Auditors are required to perform the following procedures to identify relevant risks:
Identify key software applications.
For financial audit purposes, key software applications include general ledger software and other software that processes significant
(volume or type) transactions that roll up into the general ledger or financial statements.
Complete the Key Software Applications spreadsheet for each application identified.
Evaluate risk indicators and conclude on potential risks.
Email the completed spreadsheet to fapalert@sao.wa.gov in order to update the I T Systems Database.

NOTE: Auditors should consider contacting the Local ISA team to discuss any questions or concerns related to key software
applications or for assistance in evaluating risk indicators.

Policy/Standards:

We performed the following procedures as required to identiy relevant risks:

1. We identified the key software applications by discussing the District's software with Barbara Robbins, Department of Technology Manager.

2. We completed the Key Software Applications spreadsheet for each application identified at G.1.2

3. We evaluated risk indicators and concluded the following potential risks:
4. We emailed the completed spreadsheet to fapalert@sao.wa.gov in order to update the IT Systems Database.


Procedure Step: F/S Internal Controls - School F196

Purpose/Conclusion:
Purpose:
To gain an understanding of internal controls and assess control risk in order to help plan the nature, timing and extent of substantive testing.
Conclusion:
We have gained an understanding of internal controls over the significant accounting systems and determined that substantive procedures alone
will be effective to reduce detection risk to an acceptable level. Therefore, our final control risk assessment is MAXIMUM for all material balances.

We noted no material weaknesses or significant deficiencies in internal controls.

Testing Strategy:
This template should only be used for School Districts presenting F196 financial statements. The template assumes controls will
not be tested and that all control documentation can be efficiently documented in a single step. Auditors may want to use the
TEMPLATE Internal Controls step to document one or more systems if (a) many additional risks are identified, (b) significant
deficiencies are noted, (c) controls are tested, or (d) documentation is extensive.

Audit Steps:

1. Gain an understanding of the five components of internal control based on the COSO framework (control environment, risk assessment,
information and communications, monitoring and control activities) as they relate to the entity as a whole. Document any significant observations

Since control activities are, for the most part, specific to the control objectives for individual systems, this element is primarily addressed in
step 2.

2. Gain an understanding of internal controls over financial statement preparation, confirm key controls and note any control deficiencies.

The period-end financial reporting process includes all steps associated with converting the general ledger or other source accounting records
into the financial statements

Effective key controls provide reasonable assurance that material misstatements in relevant assertions will be prevented or detected and
corrected timely. If there is not a key control designed to address a relevant assertion, a significant deficiency likely exists. Depending on the
magnitude and likelihood of potential effects and any compensating controls, the deficiency may represent a material weakness.

3. Gain an understanding of internal controls related to risks covered by the County Treasurer reconciliation test, confirm key controls
and note any control deficiencies.

Our planned County Treasurer reconciliation test is designed to cover most existence and completeness risks for all balances. We would
expect the entity to have a similar reconciliation process in place to compare recorded cash, revenues, expenditures and other balances to
County Treasurer statements.

4. Gain an understanding of internal controls related to additional risks identified in planning, confirm key controls and note any control
deficiencies.

For each additional risk identified in planning, the auditor needs to identify the significant accounting system related to that risk, gain an
understanding of controls and confirm controls. The auditor may also decide to test controls in order to set control risk at LOW and reduce
the amount of substantive testing necessary. I f the auditor decides to test controls for one or more additional risks, the template will need to
be modified to reflect this.

5. Evaluate the results and document a control risk assessment. Consider whether any internal control issues identified represent material
weaknesses or significant deficiencies.

Since the auditor will not be testing the operating effectiveness of controls, control risk must be set at MAXI MUM.

Regardless of the control risk assessment, the auditor must identify and report any significant deficiencies or material weaknesses discovered
in either the design or operation of controls. See the Policy/Criteria tab for guidance on evaluating whether an identified issue represents a
material weakness or significant deficiency.

All potential material weaknesses and significant deficiencies should be discussed with the AI C or AAM, since they must be
reported as findings.

Policy/Standards:
All identified issues should be evaluated individually and in combination to determine whether or not they represent a material weakness or
significant deficiency. Any material weaknesses or significant deficiencies must be reported as a finding. Control issues that are less severe than
a significant deficiency may be reported in an exit comment or management letter, as appropriate.

The following table summarizes the auditors evaluation of control issues to determine whether they represent material weaknesses or significant
deficiencies.

Likelihood of
Misstatement
Magnitude of Potential or Actual Misstatement
Less than Material Material
Remote (slight) Control issue Control issue
Reasonably
Possible
Evaluate factors to determine if the control
issue represents a Significant Deficiency
Material Weakness

Additional guidance is given below to help auditors evaluate control issues.

Material Weakness Determination
A material weakness is an issue or combination of issues that results in a reasonable possibility a material misstatement will not be prevented or
detected and corrected in a timely manner.

Auditors must consider the following three questions to make this determination:

(1) Magnitude could potential misstatements be quantitatively or qualitatively material?

In making this determination, the auditor should consider the balances and/or classes of transactions exposed to the deficiency,
as well as any actual misstatements caused by the deficiency.

For example, standards give the following situations that indicate a material weakness:
Restatement of previously issued financial statements to reflect the correction of material misstatement (material prior period
adjustments).
Material misstatements identified by auditors.
Intentional misstatement by management.

(2) Likelihood is there a reasonable possibility that material misstatements would occur in any given year?

Reasonable possibility is defined by standards as a possibility with a more than remote (slight) likelihood of occurrence. The
primary factor to consider in determining likelihood is the auditors assessment of inherent risk.

(3) Compensating Controls are there no compensating controls that were evaluated and tested that make potential misstatements
immaterial or the likelihood of potentially material misstatements remote?

Compensating controls must be understood and tested in order for the auditor to consider their effects on control issues.

If the answer to all three questions is "yes," then the issue represents a material weakness.

If the answer to any question is "no," then the issue would not be a material weakness. As a way to check judgments made, the auditor should
consider whether a prudent official would agree with the determination that the issue is not a material weakness.

Significant Deficiency Determination
A significant deficiency is an issue or combination of issues that is less severe than a material weakness, yet is important enough to merit the
attention of the governing body. This determination is based on auditor judgment, considering the following factors:

(1) Magnitude of Potential Misstatements at a minimum, the auditor should consider:
How quantitatively or qualitatively significant could potential misstatements be? For example, potential misstatements may be
quantitatively significant if more than 20-60% of materiality, depending on the type of opinion unit.

A lower quantitative threshold would be used for large opinion units with many types of transactions (ie: government wide
statements). A higher quantitative threshold would be used for smaller opinion units with only a few transactions where the
potential for other misstatements beyond the identified risk is limited (ie: special revenue or debt service fund).
Could potential misstatements affect audit decisions (ie: missing Type A program on the SEFA)?
Is the risk related to intentional misstatement, violation of laws or contracts, or error?
Does the risk affect only classification between line items?
Are there any compensating controls that were understood and tested that reduce the potential magnitude of misstatements?

If potential misstatements would not be significant to users, the audit scope or the governing bodys oversight of management,
the issue would not normally merit the attention of the governing body.

(2) Likelihood of Misstatements at a minimum, the auditor should consider:
Did the control issue actually result in any misstatements?
If not, how likely are misstatements?
Are there any compensating controls that were understood and tested that reduce the likelihood of misstatements?

If the possibility of a significant misstatement is remote (slight),the issue would not normally merit the attention of the governing
body.

(3) Responsiveness of Management at a minimum, the auditor should consider:
How much effort did management make to address the risk (whether or not that effort was effective)?
Does management seem willing to immediately implement effective changes?
Are entity-wide COSO elements strong enough to support immediate changes or do these elements contribute to the issue?

If management is immediately and effectively responsive in addressing the issue, the issue may not merit the attention of the
governing body, depending on the nature of the issue.

SAO Audit Policy 6230 Understanding I nternal Control and Assessing Control Risk

monitoring).

1. Overall COSO Evaluation
We completed our COSO evaluation at G.1.PRG.

2. Understand & Confirm Controls over Financial Statement Preparation
The District uses the F-196 Annual Financial Statements to formally report to the public its financial condition. Approximately, 75 percent of the
preparation process for generating the actual F-196 is largely automated. The exception is the manual preparation of the Statement of Fiduciary
Net Assets and its accompanying operating statement as compilation of those statements. Barry Tsoi, Senior Accounting Supervisor prepares all
statements except for the Private Purpose Trust Fund, which is prepared by Erma Hill, ASB Accountant. Kathie Technow, Accounting Manager
assigns the preparers of the notes to the financial statements, based on the note prepare the notes to the financial statements although portions
of the notes are assigned to other employees. The F-196 are the statements OSPI requires to be submitted, but they are not prepared using
GAAP. We determined the District's statements have a departure from GAAP since they do not use a regulatory basis of accounting. The AICPA
requires us to formally acknowledge when government entities do not prepare their financial statement according to GAAP. We will determine the
differences from the F-196 and GAAP, considering both quantitative and qualitative factors during review of the financial statement presentation
and disclosure at Review Presentation & Disclosure and concluding financial statement procedures at GAAP Opinion Summary.

The cut-off date for expenditures is for all warehouse items received by August 30, 2013 and all invoices received by September 13, 2013. Barry
generates a data file report from the general ledger which lists the balances in asset, liability, equity, and revenue and expenditure accounts by
fund and by balance sheet account at fiscal year end. This trial balance is the basis for the compilation of the F-196 Annual Financial Statements.
Barry ensures all subsidiary data is recorded in FAST/SAP system prior to generating the trial balance. Afterwards, Barry coordinates with the
Department of Technology (DOT), to electronically send the data file to Office of Superintendent of Public I nstruction (OSPI) website. Once the
data is uploaded to the OSPI website, Barry and Kathie review the draft financial statements to ensure that the district's balances agrees to the F-
196 Annual Financial Statements. The Assistant Superintendent Business and Finance reviews the draft Statement of Revenues, Expenditures and
Changes in Fund Balance and other statements, as well as the Financial Statement Notes with Barry and Kathie. Once the review is complete and
no changes are necessar, the Assistant Superintendent of Business and Finance signs off on the F-196 before it is forward to ESD for review. Once
the ESD review is completed, the F-196 is forward to the Superintendent to sign and certify the final financial statement prior to submitting
it to OSPI's approval. I n addition to the period-end processes, Kathie prepares a different packet of financial information to the Board of Directors
monthly, which is reviewed by the Audit and Finance Committe. The monthly reports include summarized current-to-date financial statements,
budget, and trend analysis and is reviewed at the Audit and Finance Committee meetings.
Note: The only way the F-196 Annual Financial Statements can be different than the GL is if the F-196 Annual Financial Statements was run and
subsequent changes were made to the GL without updating the F-196 Annual Financial Statements. The F-196 Annual Financial Statements
is formatted to be compliance with applicable reporting requirements. I n the draft financial statements, an edit report is generated as part of
the F-196 Annual Financial Statements process that identifies errors or possible problems. The F-196 Annual Financial Statements cannot be
finalized if the edit report contains error messages. Barry reviews and follows up on any issues noted, as applicable.
KEY CONTROLS
Key Control #1: Barry Tsoi, Senior Accounting Supervisor and Kathie Technow, Accounting Manager reviews the draft financial
statements to ensure the District's data from the general ledger agrees to the F-196 Annual Financial Statements. (Existence,
Completeness, Rights and Obligations, Valuation, & Classification) Kathie assigns the notes based on what type of notes they are and
reviews the notes to agree to the financial statements.
Confirm our Understanding
Key Control #1: Barry Tsoi, Senior Accounting Supervisor and Kathie Technow, Accounting Manager reviews the draft financial
statements to ensure the District's data from the general ledger agrees to the F-196 Annual Financial Statements. (Existence,
Completeness, Rights and Obligations, Valuation, & Classification) Kathie assigns the notes based on what type of notes they are
and reviews the notes to agree to the financial statements.
On November 26, 2013 we met with Barry Tsoi, Senior Accounting Supervisor, to confirm our understanding of key controls to demonstrate that
the District ensures the financial statements are presented in accordance with GAAP and Accounting Manual. Barry showed us his financial
statement preparation folder which includes several versions of the draft financial statements. We confirmed evidence of review by witnessing
checkmarks and calculations on the draft financial statement and notes. He also showed us his monthly and yearly binder report received from
King County for the General Fund, Transportation Fund, and Debt Service Fund. Barry indicated he gives the ASB Fund reports to Erma Hill, ASB &
Imprest Accountant and the Capital Projects Fund reports to Grace Ngai, Accounting Analyst III. We noted the reports have hand-written notes or
tickmarks on them, which evidence the reconciliations are performed by staff. Barry showed us how the F-196 was prepared by using data files
from the general ledger. He demonstrated this by running a balance sheet report in the general ledger for the General Fund and logging in to the
OPSI's website. We noted the General Fund Cash and Cash Equivalents on the F-196 agree to the general ledger of $85,414,486.29.

In addition, Barry showed us the review of the F-196 report that J oe Paperman, Acting Assistant Superintendent of Business and Finance signed
off on the report on November 14, 2013 and the F-196 was certified by Bob Boesche, Deputy Superintendent on November 14, 2013.
As part of our financial statements audit substantive testing we confirmed our understanding that the financial statements are based on the
general ledger. We will agree the financial statements to the general ledger at F.3.PRG.
The control appears to be functioning as intended.
3. Understand & Confirm Controls over County Treasurer Reconciliation
The District receives monthly and annual reports from King County (KC), the District's fiscal agent, and uses the reports to reconcile to the
District's general ledger. These reports are known as the F-197 reports. The following District employees in Central Accounting perform
monthly/periodic reconciliations of KC reports to the District's general ledger:
(1) Erma Hill, ASB & Imprest Accountant - reconciles ASB Fund cash and cash equivalents accounts monthly.
(2) Grace Ngai, Accounting Analyst III - reconciles Capital Project Fund accounts monthly.
(3) Barry Tsoi, Senior Accounting Supervisor - reconciles the cash and cash equivalents accounts in the General Fund, and Debt Service
Fund, as recorded in the District's general ledger to the KC cash and cash equivalents balances.
(4) Elma Allen, Cash Office Coordinator, and Anna Chui and Marlene Fuller, Accountant - reconciles imprest fund accounts.
(5) Anna Chui, Accountant - reconciles
warrants outstanding on its behalf by King County (its Treasurer) to postings in the accounts payable module and to the general ledger to
ensure this information is accurate as it appears in the FAST/SAP system monthly.
(6) J udy Otsuji, Accounting Analyst, Kenny Ching, Grants Accounting Supervisor, and Barry Tsoi, Senior Accounting Supervisor -
reconcile payroll accounts between the general ledger and the subsidiary payroll system (SAP), to verify information uploaded
automatically and electronically, which is posted to the general ledger, is recorded completely and accurately.
(7) Kathy Gallichan, Grants Accountant, Kelly Knight, Grants Accountant, and Kenny Ching, Grant Accounting Supervisor - reconcile the grant
accounts.
Barry Tsoi, Senior Accounting Supervisor, performs the final review of these reconciliations during the monthly closing process. When performing
the reviews he considers whether significant balances in the FAST/SAP system, such as cash and cash equivalents, major revenue streams, and
expenditures, are reasonable. Barry noted that there are usually only differences in the cash accounts and they are of trivial dollar amounts. The
differences result from timing of credit transactions.

Based on our conversations with Barry, we determined employees that handle areas of the reconciliation are independent of cash handling and
expenditure systems and the district uses the template in the ABFR manual.

Any reconciliations completed by Barry are reviewed by Kathie Technow, Accounting Manager.

KEY CONTROLS
Key control #1: Barry Tsoi, Senior Accounting Supervisor, reviews the monthly King County reports to District general
ledger reconciliations during the monthly closing process and considers whether significant balances in the FAST/SAP system, such as
cash and cash equivalents, major revenue streams, and expenditures, are reasonable. (Existence & Completeness)
Confirm Understanding
Key control #1: Barry Tsoi, Senior Accounting Supervisor, reviews the monthly King County reports to District general
ledger reconciliations during the monthly closing process and considers whether significant balances in the FAST/ SAP system,
such as cash and cash equivalents, major revenue streams, and expenditures, are reasonable. (Existence & Completeness)
On November 26, 2013, we met with Barry Tsoi, Accounting Supervisor who provided us with the August 2013 reconciliation of the general ledger
ending balance to the County Treasurer reports. We reviewed the monthly reconciliation performed by various individuals (as indicated above in
our understanding of controls over County Treasurer Reconciliations) using the King County report. Specifically, we inspected the cash account
reconciliation for the General Fund, Debt Service Fund, Transportation Fund, ASB Fund, and the Capital Projects Fund for the period ending
August 31, 2013. Barry indicated the only reconciled items between the KC report and the FAST system are credit items such as amounts received
as revenues but subsequently paid back as refunds and/or timing differences. Barry showed us his County reconciliation for the General Fund's
cash and cash equivalents balance. We noted the County reports tied to the District's general ledger.
We noted there was $16,140.73 reconciling items due to revenues process on August 29, 30 and 31 but not received until next month by the
County.

4. Understand & Confirm Controls over Additional Risks I dentified
We described the District's key controls over significant accounting systems related to additional risks identified in planning at the following
locations:
J ournal Entries/Interfund Transfers at G.1.PRG
Payroll Expenditures at G.1.PRG
Non-Payroll Capital Expenditures/Year-end Accruals at G.1.PRG
5. Control Risk Assessment
We determined that substantive procedures alone will be effective to reduce detection risk to an acceptably low level. Therefore, our final control
risk assessment is MAXIMUM for all material balances.
In gaining and confirming our understanding of controls, we noted no matters involving internal control over financial reporting and its operation
that we consider to be significant deficiencies or material weaknesses.


Procedure Step: Journal Entries/Interfund Transfers

Purpose/Conclusion:
Purpose:

Conclusion:
We have gained an understanding of internal controls and assessed control risk at maximum. Therefore, we will not place reliance on
controls. Our understanding of internal controls and control risk assessment will be used to help plan the nature, timing and extent of substantive
testing.

Testing Strategy:

Policy/Standards:

monitoring).

Relevant Personnel:
Barry Tsoi, Senior Accounting Supervisor
Kenny Ching, Grants Supervisor
Kathy Technow, Accounting Supervisor

Relevant Assertion(s):
Classification
Rights and Obligations

1. Gain an Understanding of I nternal Controls
Significant classes of transactions are posted to the general ledger (g/l) in one of two ways. The first is by automated upload from a subsidiary
system to the financial accounting system, called FAST/SAP. The second is manually recording of information through journal entries. The
Department of Technology (DoTS), Payroll and Central Accounting run jobs in sequence to upload data from subsidiary systems and post entries
to the FAST/SAP system.

Manual journal entries are used by the District to accomplish several objectives as follows:
Make corrections
Record certain cash management transactions
Record activity in warrant clearing accounts
Record revenue
Record fund balances
Record month-end and year-end closing accruals

The journal entry forms include the document date, posting date, document type, document reference, and a nine-digit journal entry number
generated automatically from the District's FAST/SAP or g/l. The form also includes the name of the requestor and a place for the
approver's signature. The most widely used document type code in Central Accounting is J E. When journal entries are prepared or entered into
the FAST/SAP system, they are given to Barry Tsoi, Senior Accounting Supervisor for review, approval, and posting to the general ledger. Barry
Tsoi, Senior Accounting Supervisor, reviews journal entries originated by Central Accounting to ensure they are accurate,
appropriately supported, charged to the correct fund(s), and contain the correct account coding. (Classification) Kathie Technow,
Accounting Manager, who reviews all year end adjustment entries, also reviews any J Es prepared by Barry and is the backup to review and
approve other journal entries when Barry is unavailable.

Barry also reviews I nterfund transfers. Barry identifies the appropriate interfund transfers by running a business area balancing report in SAP. The
report automatically generates the interfund transfers, which Barry reviews to ensure that the correct funds are included. The SAP system also
shows the supporting entry details. Barry Tsoi, Senior Accounting Supervisor, reviews interfund journal entries to ensure they are
accurate and contain the appropriate funds and accounts. (Rights and Obligations)

Grant J ournal Entries
Kathy Gallichan and Kelly Knight, Grant Accounting Analysts prepare manual journal entries in the Grants Accounting section. Kenny Ching, Grants
Supervisor, reviews and approves manual journal entries initiated by the Grants Accounting section. The document type code used in Grants
Accounting is J G. Kenny normally prepares a limited number of entries. When this happens, Kathy and Kelly review and approve the journal
entries prepared by Kenny. Kenny Ching, Grants Supervisor reviews journal entries originated by Grants Accounting to ensure they
are accurate, appropriately supported, are charged to the correct fund(s), and contrain the correct account coding.
(Classification)
KEY CONTROLS
Key Control #1: Barry Tsoi, Senior Accounting Supervisor, reviews journal entries originated by Central Accounting and Kenny Ching,
Grants Supervisor, reviews journal entries originated by Grants Accounting to ensure they are accurate, appropriately supported, charged
to the correct fund(s), and contain the correct account coding. (Classification)
Key Control #2: Barry Tsoi, Senior Accounting Supervisor, reviews interfund journal entries to ensure they are accurate and include the
appropriate funds and accounts. (Rights and Obligations)
2. Confirm Understanding
Key Control #1: Barry Tsoi, Senior Accounting Supervisor, reviews journal entries originated by Central Accounting and Kenny
Ching, Grants Supervisor, reviews journal entries originated by Grants Accounting to ensure they are accurate, appropriately
supported, charged to the correct fund(s), and contain the correct account coding. (Classification)
On November 26, 2013, we met with Barry Tsoi, Senior Accounting Supervisor to go over his review process over journal entries. Barry walked us
through his journal entry review. Barry receives the journal entry package prepared by the accounting staff along with adequate supporting
documentation. We reviewed a journal entry to transfer the money clearing account in the general fund at month-end of $2,487,765.55 created
by Kathy Gallichan, Accounting Analyst and approved by Barry Tsoi on September 5, 2013.

We also walked through the journal entry review process with Kenny Ching, Grants Supervisor. He walked us through an FY13 adjusting journal
entry to transfer disallowed costs from fund 1K98 High School Graduation I nitiative grant to the general fund on September 18, 2013 for
$464,964.43. We noted the J E was created by Kenny and approved by Kathie Technow, Accounting Manager on September 20, 2013. We noted
the attached supporting documentation includes highlights, tickmarks, notes, and circles indicating review and any questions being answered
before approval.

We observed the staff performing monitoring of the journal entry transactions appear to be knowledgeable about the manual journal entry
process and the District's financial accounting system (FAST/SAP). The control appears to be functioning as intended.

Key Control #2: Barry Tsoi, Accounting Supervisor, reviews interfund journal entries to ensure they are accurate
and include the appropriate funds and accounts (Rights and Obligations).
On November 26, 2013 we met with Barry Tsoi, Senior Accounting Supervisor to go over his review process over interfund transfers. Barry stated
the interfund transfers are similar to the manual journal entries which are created by the Accounting staff. All interfund transfers are supported by
adequate documentation. Barry showed us the Business Area Balancing report that he said he runs periodically. We noted that the report
identifies interfunds and allows Barry to look at the supporting (original) entries. Barry reviews the entries and then posts them after he
determines that they are appropriate. All postings made by Barry is reviewed by Kathie Technow, Accounting Manager for approval. We noted
that Barry is knowledgeable about this process and navigates through the report easily. We also met with Kathie Technow, Accounting Manager
who verified she reviews and approves the interfund transfers.
We spoke with Kathie Technow, Accounting Manager who verified she reviews and approves interfund transfers.
This control appears to be functioning as intended.

3. Preliminary Control Risk Assessment
MAX - We noted no matters involving internal control over financial reporting and its operation that we consider to be significant deficiencies or
material weaknesses. However, we have assessed control risk at max because we have determined that substantive procedures alone will be
effective to reduce detection risk to an acceptable level.

4. Control Risk at LOW - Test Key Controls
Not applicable - we are not planning on relying on controls and therefore do not need to test controls; control risk will be assessed at maximum.

5. Final Control Risk Assessment
MAX - We noted no matters involving internal control over financial reporting and its operation that we consider to be
significant deficiencies or material weaknesses. However, we have assessed control risk at max because we have determined
that substantive procedures alone will be effective to reduce detection risk to an acceptable level.


Procedure Step: Payroll Expenditures

Purpose/Conclusion:
Purpose:

Conclusion:
testing.

Testing Strategy:

Policy/Standards:

monitoring).

Classification
Completeness

Payroll expenditures are primarily composed of gross pay and employer paid benefits.

The Budget Department is responsible for establishing new employee positions. New employees are set up by the Responsible Originator (i.e.
School Principal) who submits a Personnel Change Request (PCR). The Budget Department determines the funding source (Cost Center, Fund,
Activity, Program, Org Unit, etc.), and the Position Number, along with the employee's J ob Title and Location. The Accounting Department sets up
the new account codes and cost centers as needed.

Payroll staff assign the new employee a position number/cost center in the SAP Employee Master file when the District hires an employee. HR
staff will enter in the employee's position number/cost center, pay, and static information documented on the PCR into the Employee Master File
in the Payroll Module.
The payroll calculation captures employee gross pay and employer paid benefits based on employee and position number. Hourly employees gross
pay calculation is based on their pay rate established in the Employee Master File and the number of approved hours in the ESS (Employee Self
Service) from the CATS Time Reporting System. Salary employees calculation is based on their pay rate established in the Employee Master File,
subject to changes due to leave without pay. The employer paid benefits are calculated based on the non-retirement benefits selected by the
employee and defined in the Employee Master File.
There are two main groups of wage types: GL wage types representing salaries and benefits expenditures that are posted to the GL and non-
expenditure wage types representing net pay and other payroll liabilities. There are two payroll runs: bi-weekly and monthly. The payroll staff run
the Payroll Runs for each type. Once the Payroll Run is complete J udy Otsuji, Fund Accountant, runs the FI simulation process which translates
payroll to the account code for the GL wage types.
The following FI Simulation and Posting runs are completed each month (this process is followed for monthly, bi-weekly and off-cycle payroll
runs):
* Steps 1-4 are completed prior to the payroll exit for each payroll process.
Job #/Task Description
1 PA03 Verify that payroll has run successfully
2 PC00_M99_CIPE Run FI Simulation (repeat daily until all errors are corrected)
3 PCP0
Review run results for errors (Fund, Cost center, CI, encumbrance related
errors, etc)
4 Error research and corrections
Research errored records & communicate with HR staff and DoTS to
make necessary corrections
5 Reasonableness check Verify liability amounts by b/s accounts for reasonableness
6 PC00_M99_CIPE: run FI Posting Start when notified by Becky that payroll has exited
7 PCP0 Release and post all documents to FI
8 PC00_M99_CIPC Run to check for "unposted records"
9 Prepare Journal Entries Payroll adjustments
J udy Otsuji, Fund Accountant runs the FI simulation process to ensure all employees' gross pay and employer paid benefits are
included in the final payroll run and costs are charged to valid account codes in the District's SAP general ledger system. At the
end of each period (bi-weekly and monthly), J udy runs the FI Simulation process daily to ensure all employee pay are correct and there are no
fails. J udy receives the FI log, which is generated after the FI Simulation is complete. This documents all the employees that were successful or
failed the funding distribution process. Employees can will fail the FI simulation if their wage distribution is incorrect. The employee's transactions
that have failed the distribution process are identified by J udy and sent to the Human Resources I nformation System (HRIS) group for research
and correction. I f the correction has not been made by the deadline for payroll distribution, then the transaction is assigned to a general default
cost center (9P001271E0). J udy tracks the employees that were assigned to the default cost center and as the HRIS group notifies J udy of the
correct cost center, she creates a J ournal Voucher (J V) to correct the accounting code. J udy creates the J V in Excel, uploads the J V into the SAP
general ledger, prints a hardcopy J V for approval and maintains approved J Vs from Barry Tsoi, Senior Accounting Supervisor, in a folder.

In addition, J udy receives another error log report that documents the employees that have failed the FI Simulation process entirely, due to an
imbalance of the employee's debits and credits (e.g. retroactive payments, extra time sub). J udy obtains their pay information from the Payroll
module, estimates the non-retirement benefits, assigns a default cost center (9P001271C0) and creates a J ournal Voucher for the employees in
the error log report. These individuals are tracked until the District is able to determine the imbalance and correct it. The transactions are
then reversed via J V with the correct cost center. At the end of the week J udy runs a final FI Simulation, prints the first page of the FI Log, called
the Payroll Summary Report and Kathie Technow, Accounting Manager approves the pay. The Payroll Group then performs a Payroll Exit for pay
to be distributed, then J udy processes the FI Posting. Monthly, J udy Otsuji, Fund Accountant reconciles payroll to the general ledger. J udy
generates a Payroll report of GL related wage types for each month and then a GL report of payroll expenditures transactions for the month for all
funds. She then exports the information from the reports into Excel worksheets and reconciles the totals. The Accounting Manager, Kathie
Technow reviews monthly Payroll Expenditures using GL reports. Kathie Technow, Accounting Manager reviews and approves the FI
Simulation Payroll Summary Report and reviews monthly Payroll Expenditure reconciliation to the GL reports.
Summary of Key Controls
Key Control #1: J udy Otsuji, Fund Accountant runs the FI simulation process to ensure all employees' gross pay and employer paid
benefits are included in the final payroll run and costs are charged to valid account codes in the District's SAP general ledger system.
(Classification)
Key Control #2: Kathie Technow, Accounting Manager reviews and approves the FI Simulation Payroll Summary Report and reviews
monthly Payroll Expenditure reconciliation to the GL reports. (Completeness)

Key Control #1: J udy Otsuji, Fund Accountant runs the FI simulation process to ensure all employees' gross pay and employer
paid benefits are included in the final payroll run and costs are charged to valid account codes in the District's SAP general
ledger system. (Classification)

We met with J udy on February 27, 2014 to go over her review process. We noted that J udy keeps the FI simulation file for each month of the
year in her file cabinet. We walked through the FI simulation process for Run #4096 for October 18, 2013. The report includes a PCPO
EDIT report, which displays the results of the FI simulation by detail and the Payroll Summary Report. The report noted errors because
employees' salaries were coded to cost centers that would not allow direct charges. J udy indicated that she had to redirect their salaries to other
cost centers or notify the payroll department and have them fix the error. J udy stated she works closely with the Payroll Department to make sure
the errors are corrected through email and phone. J udy showed us an email sent October 10, 2013 to Rebecca Keesling in payroll to fix an error
she found in an employee job key field that is showing 0000000 which is causing an error on the FI stimulation run. J udy indicated that all errors
must be corrected before the payroll is processed or they are noted in a default cost center and research at the end of the payroll processing. Any
changes are made after payroll is posted and process is created by using a J V.


Key Control #2: Kathie Technow, Accounting Manager reviews and approves the FI Simulation Payroll Summary Report and
reviews monthly Payroll Expenditure reconciliation to the GL reports. (Completeness)
We met with Kathie Technow, Accounting Manager on February 27, 2014. We were provided the Payroll Summary Report for February 1-15, 2014
pay period and noted tickmarks and notes indicating Kathie performed a reasonableness check. Kathie signed her initials with an "OK" on
February 25, 2014. Kathie showed us that she uses the Payroll Summary Report to check if there are any fails listed on the summary report.
Kathie stated she reviews the report for any other fails and scans for any unusual pays. She also verified that after she signs the Payroll Summary
Report and payroll submits the Payroll Exit that she reviews the payroll expenditures to the SAP GL to make sure they agree.





Procedure Step: Non-Payroll Expenditures/Year-End Accruals

Purpose/Conclusion:
Purpose:

Conclusion:
testing.

Testing Strategy:

Policy/Standards:

monitoring).

Classification
Completeness

Program Managers in the Capital, Facilities and Enrollment Planning Department approve requisitions/contracts verifying the capital purchases
have coding setup for the correct fund, cost center and expenditure account. Program Managers forward the requisition/contract to any other
employees required to approve the expenditure, based on the pricing of the expenditure, and return the requisition to the Accounting Specialist in
Accounting. The Capital fund also includes technology expenditures because the District has a technology levy, which is approved as capital
expenditures. For technology purchases, the Department of Technology Services (DoTS) follows the requisition/contract approval process and
forwards the support and approval signatures to Central Accounting.

The Program Manager forwards the supporting documentation and approval signatures to the appropriate Accounting staff work with capital
expenditures. Sai Vang, Accounting Specialist verifies the required approvals are obtained for construction and services contracts; Nga (Kim)
Luong, Accounting Specialist verifies the required approvals are obtained for goods and furniture capital expenditure purchases. Once received in
Central Accounting, Sai or Kim verify all required approvals were obtained, ensure funds are available in the specified cost center, encumbers the
funds in FAST/SAP andd sets up the fund and account coding assigned to the contract number, and generates a contract number. Requisitions for
goods are forwarded from the Accounting Specialist to Purchasing, who processes as appropriate for procurement.

When services or goods are received and vendor invoices (progress payments - capital expenditures) come in, staff receiving the services will
authorize the invoice per P.O. or Contract number. The expenditure is then posted to the G/L, based on the coding assigned to the P.O. or
Contract number. Capital Facilities personnel, Denise McElhinney and Ellen Novitsky, create the account coding for the invoices. Kim Luong,
Accounting Specialist reviews the accounting requisition form for goods and furniture purchases, and Sai Vang reviews for
construction and services costs to ensure the expenditures are properly coded using FMEQ or FMRP_RFFMEP1FX-FI reports in
SAP before posting in the SAP general ledger system. J ournal entries are requested by Capital Facilities and booked by Accounting to
correct any errors.

Year-End Accruals
For financial reporting purposes, Grace Ngai, Accounting Analyst manually reviews capital project fund expenditures and
categorizes them to be reported as Building, Equipment or Energy. Capital reports are reviewed each month by the Senior
Accounting Supervisor and the Accounting Manager.

Central Accounting keeps the final month of the fiscal year (August) open throughout September and October to allow time to capture
transactions in the general ledger in the proper month and year. The Accounts Payable subsidiary system is closed at the end of September. Any
payable entries after this for are entered in the g/l by manual journal entry. See journal entry controls at G.1.PRG. Some year-end manual journal
entries, code type J E, are prepared and approved by Kathie Technow, Accounting Manager who then gives them to Barry Tsoi, Senior Accounting
Supervisor for actual input into the FAST/SAP system.

In the Capital Project Fund, staff are given a late September deadline for reviewing year-end cut-off. Capital Facilities oversees capital projects
activities and initiates significant construction and public works project expenditures. At fiscal year-end Kathie Technow, Accounting Manager and
the Accounts Payable Supervisor run the SAP Purchasing Documents per Vendor (ME2L) report and review all open purchase orders, including
Capital expenditures, remaining encumbrances, and purchase orders with open balances to ensure completeness and proper accrual of capital
expenditures. The ME2L report includes the review of encumbrance balances and dates of invoice activity on projects. Kathie contacts capital
projects staff to obtain copies of any large and unusual unspent balances (including construction progress estimates) to ensure that there are no
unsubmitted/unprocessed invoices and that all current charges are reported and included in the accounts payable (A/P) module before the system
closes for the fiscal year. Once A/P is closed, uninvoiced activity is accrued via J ournal Entry. Additionally, buyers in the Purchasing Department
perform a similar review several times during the fiscal year. The Senior Cost Technician also performs a similar review for the open purchase
orders related to the maintenance department.

In the General Fund, staff are given a mid-September deadline for reviewing year-end cut off. Several versions of the ME2L report are run and
reviewed for purchase orders (POs). Staff also run FMEQ and ZFPLAN reports in order to compile all open POs, remaining encumbrances, and
open balance POs and review the details of encumbrance balances by org.

Goods received and contract services expenditures are processed through the SAP system during year-end closing. Kathie Technow, Accounting
Manager reviews the manual journal entries and liabilities at year-end to ensure they are coded correctly as capital or non-
capital expenditures. Kathie runs the SAP ME2L (Purchasing Documents by Vendor) reports at year-end to identify remaining fiscal year-
end encumbrances to help identify large outstanding invoices by vendor. Based on this review, journal entries are prepared to accrue the amounts
to the proper period.

Key Controls:
Key Control #1: Kim Luong, Accounting Specialist reviews the accounting requisition form for goods and furniture purchases, and Sai
Vang reviews for construction and services costs to ensure the expenditures are properly coded using FMEQ or FMRP_RFFMEP1FX-
FI reports in SAP before posting in the SAP general ledger system. (Classification)
Key Control #2: Grace Ngai, Accounting Analyst manually reviews capital project fund expenditures and categorizes them to be
reported as Building, Equipment or Energy.(Classification)
Key Control #3: Kathie Technow, Accounting Manager reviews the manual journal entries and liabilities at year-end to ensure they are
coded correctly as capital or non-capital expenditures. (Classification)

Key Control #1: Kim Luong, Accounting Specialist reviews the accounting requisition form for goods and furniture purchases,
and Sai Vang reviews for construction and services costs to ensure the expenditures are properly coded using FMEQ or
FMRP_ RFFMEP1FX-FI reports in SAP before posting in the SAP general ledger system. (Classification)
We met with Kim Luong, Accounting Specialist on February 20, 2014. We had her walk us through her review process for goods and furniture
purchases. She demonstrated that she receives the invoices from the Project Managers and prepares a the purchase in the B2B purchase order
system to ensure the expenditures are properly coded and the amount paid is for the goods received. Kim showed us a current invoice for
February 17, 2014 showing she reveiced an email from the Project Manager with the invoice quoate of $911.84 and a spreadshee with project
information. Kim showed us how she processes the purchase in the B2B system and that the approver of the purchase is either Director of Capital
Projects or the Assistant Superintendent of Capital, Facilities and Enrollment. Kim stated once the purchase order is approved, it is routed to the
Purchasing Department and they will issue the PO and send out to the vendor. She showed us that she keeps copies of purchase orders that are
important due to larger dollar amount purchases. After a couple of days after a purchase is placed in the B2B system, Kim checks the status using
the SAP PO History Report to make sure the status says Purchasing Document. Once complete, she prints out the History for PO for her
documentation.

We met with Sai Vang, Accounting Specialist on February 21, 2014. We had her walk us through her review process. She showed us a
construction purchase for Western Ventures Construction of $70,572.75 on April 5, 2013. Sai showed us using the purchase that she prepared a
"Certification of Services Rendered for Construction Payment" form to ensure the expenditures are properly coded and the amount paid is for
services received. We noted the form includes the contract no., amount due to the contractor, retainage, sales tax, and approvals from the Project
Manager. She stated if the payment were over $100,000 it would be signed by the Director of Capital and Planning. Once the form is approved by
the Project Managers and the accounting coding is verified, Sai forwards the approved invoices to Central Accounts Payable staff for posting to the
SAP general ledger system. In addition, Sai showed us that all capital projects invoices and approved contracts are scanned and placed on the
District's sharefolder for Project Managers to review at any time. She also stated she stays in contact with the Project Managers throughout the
life of projects to ensure payments are made and that the Application and Certificate for Payment are provided before first payment is made.

Based on our review, this control is operating as intended.

2. Grace Ngai, Capital Accounting Analyst review capital project fund expenditures and categorize them to be reported as
Building, Equipment or Energy. (Classification)
We met with Grace Ngai, Capital Accounting Analyst on February 19, 2014 to review her capital project fund expenditures and how she categorize
them to Building, Equipment or Energy on the F-196 Capital Outlay for Capital Projects Fund.

Grace explained that monthly she separates buildings, equipment or energy charges based on account coding and purchase description. Monthly,
she runs the FMFQ report in SAP general ledger system. Grace showed us her spreadsheet used to prepare the F-196 Capital Outlay for
the Capital Projects Fund called CPF_FY13_Expenditures. We noted the spreadsheet breaks out the charges into three categories: building, energy
and furniture & equipment and technology levies. She runs financial reports on a monthly basis in order to review capital expenditures. From
there, we noted that Grace adds the expenditures to the correct category in her spreadsheet. Grace also showed us a ZFUND_Funds Avail Report
with Hier Key Figure report which breaks out the current projects by levy. Grace showed us that she runs the report for funds 2000-2999 which
are all Capital Projects Fund; commitment items 0-9999; and period 0 to period 13. This report shows the entire year. The technology levies are in
Fund 2520, 2610 and 2720. This helps Grace be aware of what expenditures belong in the levy category. We compared Grace's spreadsheet to
the F-196 for building, energy and equipment and noted they agree.


Key Control #3: Kathie Technow, Accounting Manager reviews the manual journal entries and liabilities at year-end to ensure
they are coded correctly as capital or non-capital expenditures. (Classification)
On February 21, 2014 we met with Kathie Technow, Accounting Manager to go over her review process. Kathie showed us the ME2L Purchasing
report which she ran in SAP to show us all capital projects with year-end encumbrance. We noted the report is broken out by vendor name,
purchase order, amount billed to date and remaining amount to be billed. She uses this report to review all project activity with a remaining
balance to determine whether an accrual is needed for year-end. Once she documents her notes of activity and remaining dollars, she works with
the Capital Projects Fiscal to determine whether the project is completed and how much the District should accrue before year-end. I n addition,
Kathie showed us a letter memo sent out May 20, 2013 to all School Principals, School Secretaries, Fiscal Clerks, and Program Managers &
Administrators regarding the cutoff-dates for fiscal year 2013 (2012-2013 school year). We noted the letter included instructions on how to
prepare the accrual package for general fund, ASB fund and capital project fund.





G.2.PRG - SSD Perm File

Procedure Step: Entity Specific Information

Purpose/Conclusion:
Purpose:
To record general information important to the adminstration of the audit with the District.

Conclusion:
We recorded general information important to the adminstration of the audit with the District. See FAWF for more specific audit related
information.

Testing Strategy:

Policy/Standards:

NOTE:
This section is meant to carry forward each audit to help the next year's auditors prepare for the audit.

Planning Guide
We downloaded the most current planning guide on November 13, 2013 and updated the information specifically related to the District at G.2.1.
We noted the planning guide is not updated for FY2013.

We downloaded draft of General School District Planning guide at G.2.2.
Main Audit Contacts:
Kathie Technow, Accounting Manager - Audit Liaison
Theresa Hale, Board Office Manager - Contact to schedule Board, Superintendent, and Executive Management risk assessment meetings
Barry Tsoi, Senior Accounting Supervisor - Prepares F-196
Kenny Ching, Accounting Supervisor II - Prepares SEFA
Kevin Corrigan, Grants and Strategic Partnerships Director - Grant contracts and internal controls contact

Prior Audit Exceptions:
We created a District audit exception spreadsheet for the 2010, 2011 and 2012 financial, single and accountability audits which include all
findings, management letters, exceptions and verbal recommendations. See 3 YR SSD Audit Exceptions Summary This spreadsheet is intended for
informational purposes for new audit staff to gain an understanding of the District. We also provided this document to the District Deputy
Superintendent, Charles Wright on February 17, 2014 as he is new to the District and inquired for more information to help understand past
audits and what SAO audits. We will add to this spreadsheet each year and delete prior year information as necessary (retention policy).

H.1.PRG - H-13-507 HSGI at Rainier Beach

Procedure Step: H-13-507 Examination

Purpose/Conclusion:
Purpose:
To document the Examination of Hotline H-13-507, and conclude on whether the allegations/concerns in the hotline referral are substantiated.
Conclusion:
We documented the Examination of Hotline H-13-507, and concluded on whether the allegations/concerns in the hotline referral are
substantiated. The citizen's concern addressed is whether the High School Graduation Initiative grant funding is allowable to pay for the Family
Support Worker's salary at Rainier Beach High School. We determined the District was paying the Family Support Worker's salary using the grant's
Communities That Care mini-grant funds, which is not allowable. These funds are to specifically pay for approved Communities That Care grant
programs. As of J anuary 14, 2014 the high school had not applied for any of these specific grant programs. The District appropriately redistributed
these funds from Rainier Beach High School as the grant requirements were not yet made. Once the high school has applied for the Communities
That Care mini-grants, the District will allocate the necessary grant funds to the high school.

Testing Strategy:
The Examination step is where to document the following:

The specific citizen hotline allegations/concerns by either copying the actual language in the web form or by scanning a copy of a written
letter.

The work performed to adequately address the hotline issue(s). Documentation should be sufficient to enable an experienced auditor
or investigator to ascertain that the information collected and the work performed support the significant judgments and conclusions. If
needed, additional steps may be added based on the size and complexity of the issue(s).

Policy/Standards:

SAO Audit Policy 1510 Citizen Hotline Referrals (effective 1/ 1/ 12)

BACKGROUND
Citizens who observe waste, inefficiency, abuse or efficiencies in state and local government may report such information to the Hotline
established under state law (RCW 43.09.186). We determine whether those issues are within our authority to review and whether they require
further examination.

Citizens who communicate concerns to our Office do not have the same legal protections as those contained in the state employee Whistleblower
Act, so confidentiality is protected only until the examination is complete. Correspondence between our Office and the citizen falls within the
scope of the Public Records Act.

REQUIREMENTS

1. Citizen hotline referrals will be processed and performed in accordance with the Citizen Hotline Protocols.

The protocols are located on the intranet page and in TeamMate.

2. An initial review will be performed of all citizen hotline referrals to determine if issues raised are within the authority of
our Office and require further examination.

When concerns are not within the statutory authority of our Office to review, we will assist citizens in contacting the proper agency as
appropriate.

3. The Hotline Coordinator will work with the Audit Teams to ensure an acknowledgement is made to the citizen if contact
information is provided for in the referral.

Contact with the citizen will be made in a timely manner. Audit managers are not required to acknowledge the referral if it is made through our
website because the electronic submission process automatically creates the acknowledgement.

4. Results will be timely communicated to the citizen and entity. Professional judgment will be used in deciding the level of
reporting.

Refer to the Citizen Hotline Protocols for the reporting options and required level of review.

Citizen Hotline Protocols

Revised March 2010

In 2007, the Legislature voted unanimously to establish the Citizen Hotline Program in the State Auditors Office. Senate Bill 5513 (codified at
RCW 43.09.186) was designed to give citizens a way to recommend measures to improve efficiency in state and local governments and to report
waste, inefficiency, or abuse, as well as examples of efficiency or outstanding achievement by state and local agencies, public employees, or
persons under contract with state and local agencies.

The State Auditors Office takes very seriously the role of citizens in promoting accountability, fiscal integrity and openness in state and local
government. The Office also strive to ensure the efficient and effective use of public resources, therefore not every submission will result in an
examination by our Office.

Unless waived by the citizen, the law requires the names of those contacting the Hotline as well as any documentation to be kept CONFIDENTIAL
until cases are closed.

Please contact the Hotline Coordinator if you have questions on the following protocols for the Citizen Hotline process.

Hotline Submissions

All citizen submissions will be logged into the Hotline database and assigned an individual referral number to allow for central tracking and
monitoring. Intake of citizen submissions can occur one of the following ways:
Web site- Citizen submission(s) will automatically populate the database.
Letter/mail - The Hotline Coordinaator will input information into database.
Fax - The Hotline Coordinator will input information into database.
Phone - Caller to the toll-free line will get a voice message requesting that he or she leave information or provide information using the
above methods. The Hotline Coordinator will oversee the input of the information into the database.
Audit Team Audit Managers should complete the intake form on the SAO Web site to ensure the submission is inputted into the
database.
Initial Assessment Process

The Hotline Coordinator will work with the Director of Legal Affairs, Deputy Director of Audit and the applicable Audit Manager to assess the
submissions to determine one of the following courses of action:

No Action FYI to the audit team.
No Action Refer to state or local entity
Audit team considers in next audit.
Audit team examines the concern immediately.
DSI examines the concern immediately.

Reporting Results

The results of hotline examinations should be reported timely to both the entity and citizen. Audit Managers should determine the appropriate
method of reporting based on the significance of the issue and the ability to timely report the results. Audit Managers should ensure the final
reporting is attached to the hotline in the database under the Supporting Documents tab and all fields in the database are complete.

If after completing the hotline examination, it is decided that contacting (i.e. phone call or meeting with them) the citizen to discuss their
submission(s) would be timelier, more effective or efficient then that contact should be documented in the Activity Log section for that hotline
and can replace sending a closure letter explaining the results of the examination.

Audit Managers should consult the following decision chart to assess reporting for hotline submissions:

Are There Hotline Investigation Results with Significant Issues?

1. Yes - Significant Issues Are Audits Currently Being Completed?
a. Yes Issue as Finding in Audit Report
b. No Issue Hotline Report

2. No significant issues Are Audits Currently Being Completed?
a. Yes Issue as ML or Exit Item
b. No Issue Hotline Letter to the citizen

Hotline Related Work

Billing

Audit teams should charge investigations to the entitys audit using the project code CI TZ to enable SAO to track all time examining citizen
submissions.

Workpapers

- Audit Teams should document hotline examinations in TeamMate using a separate folder Special Services. Audit Managers should approve
workpapers prior to releasing final letters or reports.

Management of Hotline Submissions

Audit Managers should review the report available in the hotline database for their team and notify the Hotline Coordinator of any information that
needs to be updated in the database.

Phone Conferences - Quarterly the Deputy Director of Audit and the Hotline Coordinator will conduct phone conferences with the Audit Managers
to discuss the status of outstanding Hotline submissions.

Summary of Citizen Concern

Entity - Seattle School District No. 1

Please provide a detailed description of the assertion or outstanding achievement, including who, when, where, what, how and
how much.
In reviewing Report No. 1009771 there is no mention of the original grants guidelines. I have a concern that an FSW position that is specifically
focusing on achieving the goals of the HS Grant is not being funded 2013-2014 school year because of this report.

My question is if a position was not mentioned in the original grant, but specifically meets the goal of the HS Grant is it still possible to fund that
position? I need a response to this question ASAP as we are trying to get funds for this position from the District. The District is maintaining that
they cannot fund it and instead is funding a CTC position which is not addressing the needs of our school (Rainier Beach High School).

How did this issue come to your attention?
The District's first stating funding would be received in October only to later find out that they were not going to fund the position. The school
used funds the PTSA secured from the State and those funds were to be used to fund other pressing needs. Instead we are funding a position
that the district should be funding.

What employee(s), contractors, etc., were involved in the assertion or achievement? Please include employee titles if possible.
Family Support Worker assigned to Rainier Beach specifically to focus on helping our students stay in school by addressing issues that are
preventing them from excelling.

Please provide any additional details or comments that would help us understand your assertion or achievement.
District is withholding funds that I believe are perfectly allowable under the HS Grant. I need rolution ASAP prior to Year end so we can secure
funds for the second half of the school year.

Does your assertion relate to a current litigation? No

Additional Information
On J anuary 10, 2014 we received additional information from the citizen at Email with additional information from citizen The email includes the
following information that will be included in our review of the grant:

The District withheld the HSGI funding for the Family Support Worker (FSW) at Rainier High School because the position could be a
potential risk of having a violation.
The objective of CFDA 84.360 is to fund positions to support school dropout prevention and provide at-risk students with services
designed to keep them in school.
The FSW positions is more valuable to the school than the Communities that Cares Mobilizer/Coordinator position.

Strategy and Testing
Strategy
We will obtain the High School Grant I nitiative (HSGI) grant application and award letter from J anet Blanford, HSGI Audit Liaison. We will also
meet with J anet and Lisa Sharp and Lisa Love, who are Co-Program Managers for the HSGI grant. We will then determine further documentation
needed to ensure the hotline is addressed appropriately.

Documentation Reviewed
J anet Blanford provided the grant application and notice of award. Due to the size of the application and notice of award, we scanned the most
important and relevant information for the hotline into one document at HSGI Scanned Application & Notice of Award:

Notice of Award: pages 1-14
Page three of the award states "If you have not already done so in your application, you will be developing project-specific
indicators for each one of your project's goals. Detailed information about the APR including: developing project-specific
indicators; establishing targets for Government Performance and Results Act and project-specific indicators...."
Grant period (page 5) - October 1, 2010 through September 30, 2015
Attachment J (pages 9-10) - No changes were made, except to the budgets between years; including revisions to personnel FTE
based on the project activities, supplies and contractuals between years.
We identified one change to note as the amount for the "CTC mini-grant program was reduced $600,000 to $500,000 for
years 1-4 and removed completely for year 5. The Department of Ed determined the CTC mini-grants to the Limited
English Proficiency communities are unallowable to the project.
Attachment T (page 11) - I dentifies the schools allowable for the grant activities. We noted Rainier Beach High School is included.
Abstract (page 12) - The District will use the HSGI grant to expand, enhance and link a three-tier model of: drop-out prevention,
truancy intervention and drop-out recover. The District will use HSGI to implement The Communities That Care (CTC) model to
assess each school's risk and protection profiles to identify effective strategies to addess each school's strengths and needs. The
CTC process will identify new evidence based programs from the CTC mini-grants to schools for funding.
Purpose of the Program (page 13) - To implement dropout prevention and reentry projects that undertake activities that are
scientifically based to provide support, enrichment and motivation to students at risk of dropping out or that seek to reenter
school. Such activities should raise standards and expectations for disadvantaged students traditionally underserved in schools in
order to ensure school completion.
Application for HSGI grant: pages 15-53
District's Narrative for the HSGI grant (pages 21-50). We noted the following relevant information for this inquiry:
Quality of Project Services (page 22-26)
Goal 1 - To provide risk and protective factor data to inform Continuous School I mprovement Plan (C-SIP)
strategies, then implement evidence-based programs to reduce dropout rates. The CTC model is a developed
research system used along with student-filled needs-assessment surveys to determine each school's prevalence
rates of behaviors, risk and protective factors that impact academic performance and dropout rates. The District
uses hired employee CTC Community Mobilizers along with the University of Washington to analyze and the
results are analyzed by the District CTC Leadership Team. This team then prepares a scorecard and key
performance indicator to identify the appropriate CTC mini-grant applications and awards to best meet the needs
of the grant and increase graduation rates. The school staff, parents, volunteers and community agencies that
work in the school are provided training and professional development to administer the CTC mini-grant programs
and strategies effectively. The staff for the individual schools use the District's strong Professional Learning
Communities to systematically study the assessment data and use the data to prepare their instruction and work
with others to refine their teaching practices.

District Staff Inquiry
We met with J anet Blanford, Lisa Sharp and Lisa Love, Health Education Manager on December 20, 2013 and J anuary 10, 2014 to discuss the
hotline. The Notice of Award, Attachment T shows that Rainier Beach High School is included as part of the grant. We discussed the process of
how the grant funds are distributed and are determined allowable or unallowable. They explained that the grant has been slow to get started in
the first three years because the District has been unable to hire the 3 FTE required for the CTC Community Mobilizers; the District currently only
has 1.1 FTE filled for the mobilizers. The CTC Community Mobilizers are required because they go out into the schools allowable to the grant and
help determine the best CTC mini-grants for the particular schools. Each school is required to have established mini-grants at their school or at
least started the process to get the mini-grants in order to receive the grant funds. The purpose of the HSGI grant is to address each
school's graduation rates and have a program(s) in place to drive the graduation rates up through additional CTC mini-grant application and
approval. Additional information about the CTC mini-grants can be found at www.communitiesthatcare.net. Because the District has had difficulty
in finding qualified candidates for the CTC Community Mobilizers, there have only been eight schools that have gone through the CTC process and
training to receive the mini-grants. Lisa Sharp indicated she maintains a list of the status of each school allowed in the grant. We obtained this
status list at CTC Status Table Dec 13 and noted Rainier Beach has not met with a CTC Mobilizer and the mini-grant programs selected are TBD (to
be determined).

Per Lisa Sharp, after the prior year audit and SAO's determination of so many unallowable costs, that once the Program Manager was changed to
two Program Managers (Lisa Sharp and Lisa Love), that they went through each cost to ensure the costs were allowable. She also stated the
Department of Education came in and also did a review. Their review noted concerns that the District wasn't at the full 3 FTE for the CTC
Mobilizer positions and because of this, were far behind in implementing the CTC mini-grants that are necessary for the grant. Because of this, the
Program Managers determined the funds being received at Rainier Beach for the Family Support Worker were unallowable as they had done
nothing to start the process of determining the mini-grants needed for the school. The funding to pay for the Family Support Worker was the
mini-grant funding portion of the grant. The Program Managers stated Pegi McEvoy, the prior Program Manager interpreted the grant as the
Family Support Worker is an allowable program (mini-grant) rather than having to go through the CTC mini-grant application and approval
process. The new Program Managers determined this is not allowable funding for the CTC portion of the grant. Once the school meets the
requirements for the grant, such as meeting with CTC Mobilizers to determine the mini-grants that best support the schools needs and
implementing them, the Program Managers will reallocate the CTC mini-grant funds back to the school. Until then, the District determined the
school is not meeting the grant requirements and the funds would best be met to pay for the other schools that have already implemented the
mini-grants. In addition, the Program Managers stated Rainier Beach High School does still receive other HSGI grant funding such as for a
Truancy Officer. The only funding that was determined not currently allowable was the CTC mini-grant portionl.

On J anuary 15, 2014 Lisa Sharp also provided us with an email string between the HSGI grant coordinators, Maggie Whicker, CTC Mobilizer
and Dwane Chappelle, Rainier Beach Principal. The email string goes back to December 9, 2013 when the District contacted the Rainier Beach
Principal to try to schedule a meeting to start the CTC mobilization process, training and mini-grant selection. We noted the meeting was
scheduled for J anuary 14, 2014. Lisa also provided us with an emailed meeting summary from the CTC Mobilizer. The meeting was the first initial
meeting to discuss the HSGI grant, CTC mini-grant application process, who is a part of the school team to select the grants, and the possible
target population of ninth-graders.

Results
The concern was "if a position was not mentioned in the original grant, but specifically meets the goal of the HS Grant is it still possible to fund
that position?" at Rainier Beach High School. There was funding originally charged for the Family Support Worker at Rainier Beach High School
that was later determined not allowable to the grant.
We met with District HSGI Program Managers, obtained the grant contract, grant application, notice of award and CTC school status list to
address the citizens concern. We determined the goals of the grant are to obtain data for the students to determine the Communities that Care
(CTC) mini-grants that will best help the school increase the high school graduation rate. The grant specifically states CTC Mobilizers must be
hired and used to meet with each school, obtain the student data, help the school select the best mini-grants to meet the specific needs of the
school, provide mini-grant training and follow-up to see how the grants are working.

Rainier Beach was not meeting the grant requirements going into the grant's year three. The District acted appropriately by moving the funds
away from the school back into the pool for those schools and employee pay allowable and already meeting the grant requirements. Rainier
Beach did not begin to meet the grant requirements until J anuary 14, 2014 when they first started the mini-grant application process by meeting
with a CTC Mobilizer. Now that the school is starting the process to meet the requirements of the HSGI grant, they will begin to receive HSGI
grant funding. These funds should only be used for the approved CTC mini-grants and fulfilling the HSGI grant requirements.

H.1.PRG - H-13-507 HSGI at Rainier Beach

Procedure Step: Reporting

Purpose/Conclusion:
Purpose:
To report the results of the hotline examination to the citizen (if named in the referral) and to determine the method of reporting to the entity.

Conclusion:
We reported the results of the hotline examination to the citizen (if named in the referral) by phone and provided the District with a hotline
letter.

Testing Strategy:
Reporting to Entity:

Determine the appropriate method of reporting to the entity based on the significance of the issue and the ability to timely report the
results. Refer to the protocols in the Policy/Standards tab for guidance in making this determination. I f assertions are not substantiated,
communication to the entity may not be necessary; however, Audit Managers must approve this decision and include it in the
workpapers.

Audit Managers must approve the reporting method. If a hotline letter is used to report the results to the entity, use the template in
TeamMate. Refer to ORCA and the ARS Manual if a hotline report is used to report the results.

Ensure that the appropriate reviews of the reporting method are completed as outlined in the protocols in the Policy/Standards
tab. Attach the final hotline letter or report in TeamMate, as applicable. Audit Managers must approve workpapers prior to releasing final
letters or reports.

The final reporting should also be attached to the hotline in the database under the "Supporting Documents" tab in accordance with the
Citizen Hotline Protocols. This is done by the Audit Manager.

Reporting to Citizen:

Use the "Hotline Citizen Letter Template" document in TeamMate to draft a letter to the citizen explaining the results of the
investigation. The letter must be processed through the Audit I ssues Library for review and approval prior to issuance. Attach the final
letter in TeamMate.

Policy/Standards:


BACKGROUND
further examination. Citizens who communicate concerns to our Office do not have the same legal protections as those contained in the state
employee Whistleblower Act, so confidentiality is protected only until the examination is complete. Correspondence between our Office and the
citizen falls within the scope of the Public Records Act.

REQUIREMENTS




appropriate.



reporting. Refer to the Citizen Hotline Protocols for the reporting options and required level of review.


Revised March 2010





Hotline Submissions


database.



Reporting Results

reporting is attached to the hotline in the database under the Supporting Documents tab and all fields in the database are complete. If after
completing the hotline examination, it is decided that contacting (i.e. phone call or meeting with them) the citizen to discuss their submission(s)
would be timelier, more effective or efficient then that contact should be documented in the Activity Log section for that hotline and can replace
sending a closure letter explaining the results of the examination.



1. Yes - Significant Issues Are Audits Currently Being Completed? a. Yes Issue as Finding in Audit
Report

2. No significant issues Are Audits Currently Being Completed? a. Yes Issue as ML or Exit Item

b. No Issue Hotline Letter to the citizen Hotline Related Work

Billing Audit teams should charge investigations to the entitys audit using the project code CI TZ to enable SAO to track all time examining
citizen submissions.

Workpapers - Audit Teams should document hotline examinations in TeamMate using a separate folder Special Services. Audit Managers
should approve workpapers prior to releasing final letters or reports.




We met with District personnel who asked we provide a letter to upper management. We downloaded the hotline letter from the TeamStore and
prepared the letter at Hotline Letter Entity Template.

We contacted the citizen by phone and explained the results of the investigation as approved by J im Griggs, Audit Manager.

H.2.PRG - H-13-415-Seattle Teacher Residency Program

Procedure Step: Examination

Purpose/Conclusion:
Purpose:

Conclusion:
Based on our examination of the concerns regarding the District's involvement in Seattle Teacher Residency program reported in Hotline H-13-
415, we determined that the District did not violate Board Policies related to Grants (No 6114), related to Procurement (No 6220), related to
Recruitment and Employment (No 5000, 5005) or state laws related to employment and hiring (RCW 28A.400.300, 28A.405.210).

Key People:
Clover Codd, Exec Dir of Strategic Planning & Partnerships, clcodd@seattleschools.org, 252-0106
Dan Dizon, Director of Human Resources Operations, dsdizon@seattleschools.org, 252-0378
Ron English, Deputy General Counsel, renglish@seattleschools.org, 252-0651
Kathie Technow, Manager-Accounting Services, katechnow@seattleschools.org, 252-0274
Kevin Corrigan, Director Grants & Strategic Partnerships,kgcorrigan@seattleschools.org, 252-0222

Testing Strategy:

letter.


Policy/Standards:


BACKGROUND


REQUIREMENTS




appropriate.



reporting.



Revised March 2010





Hotline Submissions

database.



Reporting Results








Billing

submissions.

Workpapers





Background:
The citizen reported multiple concerns regarding the District's involvement with the Seattle Teacher Residency Program. In May 2013, the District signed a
Partnership Memorandum of Agreement (MOA) to help design and support the Seattle Teacher Residency (STR) Program. The program is designed to recruit
and develop a pipeline of teachers specifically for Seattle Public Schools. The other partners in the program are Alliance of Education, University of Washington
College of Education, and the Seattle Education Association. The Alliance of Education is the fiscal agent for the STR Program. When the MOA was signed in
May, the District initially committed to providing up to $50,000 in expenditures to pay the cost of substitutes for District mentor teachers. In January 2014,
the District applied for and recieved a $225,455 Race to the Top (RTT) grant award from the Puget Sound Educational Service District which it subsequently
sub-granted to the Alliance of Education to support the Seattle Teacher Residency Program.

Key People:

Resources:
H-13-415 Citizen report H_13_415
STR MOA STR MOA
STR initial budget (May 2013) STR initial budget May 2013
RTT application STR 2013-2014 budget STR 1st year budget
RTT application Seattle STR Grant App
RTT award (with amended amount) RTTT-D Project 1 1M52 Mod 1
Personal services contract with Alliance for Education Personal Service Contract Alliance of Education
Personal services contract with UW Educational Outreach Personal Service Contract STR TIF mentor teacher training
Ron English response Ron English response
Clover Codd response Clover Codd statement
Dan Dizon response Dan Dizon response
Kathie Technow response Kathie Technow response

Examination work:
We have listed the citizens concerns obtained from Hotline H-13-415 report and our examination of each concern in the order listed in the hotline report.

1. Do resources of the STR program intended to be expended for the benefit of the Seattle School District need to be reported in District budget documents,
whether or not the District directly expends the funds itself?

To obtain the answer/explanation for this question we intervied Clover Codd, Director of Strategic Plan and Partnerships.

-According to Clover Codd, Director of Strategic Plan and Partnerships, the Alliance of Education is the fiscal agent and administrator for the Seattle Teacher
Residency program. The District will only report expenditures it contributes to the STR program, the District will not report expenditures related to the STR
program that isnt provided by the District. We noted no exceptions regarding this concern.


Answer: For the school year 2013-2014 funds used for STR were initialy budgeted in TIF (Teacher Incentive Fund) under Career Ladder
Program (CLP). CLP has flexibility to use fund for the activities such as STR.

2. How much of the $1,094,569 2013-2014 resources of the STR program are intended to be expended for the benefit of the Seattle School District?
-The citizen pointed out that the MOA states that The Seattle Teacher Residency will focus on developing a diverse pipeline of teachers specifically for the
Seattle Public Schools. After examining this matter, it is our judgment that while the STR program was designed to benefit the Seattle School District, the
District itself benefits only indirectly from the program. The District receives no direct financial support, grants, services, supplies or equipment from the STR
program and therefore this indirect benefit cannot be construed as "assistance" per Board Policy 6114. We noted no exceptions regarding this concern.
Answer: Even though all of the resources of the STR program are spent for SSD benift, this benefit is indirect. The District receives no direct
financial support, grants, services, supplies or equipment from the STR program and therefore this indirect benefit cannot be construed as "assistance" per
Board Policy 6114.

3. If the intended expenditures and/or acceptance of STR related resources exceed $250,000, did the District violate Board Policy and/or state law, by not
having the School Board approve the expenditure and/or acceptance of these STR resources?
-In regards to acceptance of resources exceeding $250,000 for the STR program:
-Board Policy 6114 states that Any gift of any type having a total value (including both the contribution and any district resources required to be contributed) of
$250,000 or greater will be subject to board approval.

The District applied for Race to the Top (RTT) funds and was awarded $225,455 in funding from Puget Sound Education Service District in January 2014. In the
Districts Race to the Top application which includes an updated of the STR budget for year 2013-2014, The District listed approximately $160,000 worth of in-
kind resources related to the STR program. If the in-kind resources are added to the awarded amount, this exceeds the $250,000 threshold required for
board approval. The citizen contends that the acceptance of RTT funds exceeds the $250,000 threshold based on this calculation. We spoke to Clover Codd,
Director of Strategic Planning and Partnerships, who oversaw the RTT grant application. She stated that the in-kind resources were not included in the award
amount because these expenditures were not required to obtain the grant. She forwarded us an email from Ron English, Deputy General Counsel, in which he
confirmed that in this case, the in-kind resources should not be included as part of the award amount because it was not required to obtain the RTT funds. We
followed up with Ron on this matter, Ron affirmed that the District did not violate Board Policy 6114 with the acceptance of RTT funds. See Rons response
here Ron English response . We accept the Districts position on this matter and noted no exceptions.

-In regards to expenditures exceeding the $250,000 threshold for the SRT program:

Board Policy No. 6220 states that All contracts for more than $250,000 initial value, excluding sales tax and contingencies, and changes or amendments for
more than $250,000, excluding sales tax and contingencies, must be approved by the School Board. Multiple changes and amendments which are for the same
or similar services at the same time and same location, or continuation of existing activity shall be considered a single action for approval purposes.

The District applied for Race to the Top (RTT) funds and was awarded $225,455 in funding from Puget Sound Education Service District. In the application, the
District stated that most of the funds that may be awarded through the proposal will be sub granted to the Alliance (to be used for the SRT program). In our
meeting with Kevin Corrigan, Director Grants & Strategic Partnerships, he stated that the District intends to use all RTT resources solely for the STR
program. Furthermore, Clover Codd, Director of Strategic Plan and Partnerships, confirmed that the entire RTT grant is earmarked for the SRT program. We
found that the District entered into a personal services contract with the Alliance for Education to implement the Seattle Teacher Residency project for
$202,405 in January 2014. In addition to this, we found that the District entered into another personal services contract with the University of Washington to
provide professional development training for mentor teachers amounting to $13,500. Clover stated these are the only expenditures that the District expects
to spend on the STR program for SY2013-2014, no other District funds were earmarked or used towards the STR program for school year 2013-2014.

In the initial budget for the STR program in May 2013, we noted that the District was expected to fund 5% of the total cost of the STR program, amounting to
approximately $50,000. The language in the MOA also speaks about a commitment of the same amount, The District agrees for year 2 (the 2013-2014 school
year) to provide substitutes to District Mentor teachers for up to a maximum of 10 days per year (up to a $50,000 commitment). We also noted that in the
June 7, 2013 School Board Action Report, it states that The program design for 2013-2014 has been finalized and the total budget is estimated at
$1,094,569. Seattle Public Schools contribution is 5% and is paid in full by the TIF grant. We asked Clover why $50,000 in Teacher Incentive Fund (TIF) funds
werent included in the total expenditure for the STR program. Clover stated that the $50,000 comes from expenditures earmarked for the Districts Career
Ladder program and that Since the $50,000 expenditures are coded to the Career Ladder program, and were budgeted in the 2013-2014 school year, they
are not considered an additional expenditure that needed to be budgeted specifically for the STR program. See Clovers statement here Clover Codd
statement

We asked the Kathie Technow whether the District keeps a separate accounting of revenues and expenditures related to the STR program. Kathie said no but
that this could change in the future. She did, however, confirm that professional development expenditures are paid with the TIF grant are not segregated for
STR activities. See Kathies email response here Kathie Technow response

Based on the results of our examination, we determined that the only expenditures related specifically to the STR program is the personal services contract
with the Alliance for Education for $202,405 which is below the $250,000 mark required for board approval. We accept the Districts position and noted no
exceptions on this matter.

Answer: Our review indicated that the District did not have any individual contract over $250,000 in 2013-14 school year for STR Program that would
require Board Approval. There were two personal service contracts, one with UW for $13,500 and the other one with the Alliance of Education for $225,000
from the Race to the Top grant funds.

4. If the District did violate Board Policy and/or state law by not having the School Board approve the expenditure and/or acceptance of STR-related resources,
does this invalidate the MOA?
-The STR program is a five year program, with the expectation that the Districts financial contribution will be 5%, 20%, 30%, 40%, 51% in years 1 through
5. We noted that the MOA contains a withdrawal policy, however, the partners are automatically obligated to each year in the contract unless they file
paperwork to withdraw before Nov 30 before the start of next program year. It appears that it is the intention of the partners to commit 5 years to this
project. The citizen is concerned that the District has entered into a long term contract that obligates it to spend well over $250K over the entire term of the
contract without obtaining board approval for expenditures related to the program and questioned if this is a violation of board policy 6114. We contacted
Ron English, District Counsel to provide an explanation. Ron stated that the provision in board policy 6114 speaks to resources required to be committed and
that anticipated or expected contributions which are not required to be committed do not trigger Board approval. Please see Ron's response here Ron
English response We confirmed that while the initial STR budget and Board Action Report indicates the intention by the District to increase its contributions
over the five years, the MOA itself contains no such binding language. We accept the Districts position on this matter and noted no exceptions.

Answer: The District did not violate Board Policy 6114.

5. Is the Memorandum of Agreement (MOA) a Memorandum of Understanding (MOU)?
-During the board meeting on Sept 4, SEA President Jonathan Knapp wanted to make it clear to the School Board that the contract is an MOA, not an MOU (An
MOU would require a SEA vote). The MOA that the District entered into on May 21, 2013 contains the wording Adapted from UTRU MOU template, Teach
Here MOU DRAFT, and Boettcher Teachers Program MOU. Since this MOA was adapted from other MOUs, the citizens concern appears to be that this
contract is in fact a MOU that has been called an MOA so as to avoid a SEA vote. We contacted Ron English to provide an explanation. He stated that is a SEA
matter that doesnt concern or have any implications for Seattle Public Schools (SPS), please see Rons response located here. Ron English response We accept
the Districts position on this matter and noted no exceptions.

Answer: This matter is outside of the scope of our authority to examine. We don not audit Seattle Education Association. Also it does not have
any implications on SSD.

6. Was the School Boards action on September 4, 2013, legal in granting pre-approval for contingency contracts, that is, approval in advance from the School
Board to allow the Superintendent to issue contracts to these students upon successful completion of the program?
- In the MOA, it states that Seattle Public Schools will provide a contingency teaching contract to all satisfactorily performing Residents (subject to SPS hiring
process approval). SPS will submit a separate document to its Board of Directors asking permission to give out contingency contracts to STR Residents accepted
into the Program. SPS has final decision making authority for all SPS staff assignments and evaluations.

-We contacted Dan Dizon, Director of Human Resources, to provide an explanation. Dan stated that the first cohorts of the Seattle Teacher
Residency program have not received a contingent contract at this time but that the long term goal is to have the School Board promise a job 18
months in advance. In an email response, he stated, even early offers must be approved by the board via the personnel action report before offer
is complete. Please Dan's response here Dan Dizon response. We determined that the District did not violate board policies in obtaining pre-
approval for contingent contracts because the District has not granted contingent contracts to STR cohorts and intend to gain board approval via
personnel reports before granting STR cohorts employment contracts.

The citizen also questioned the Districts need to offer cohorts contingent contracts in advance. To this end, Dan stated the STR program was designed to
improve issues around vacancies and retention for Elementary, Special Education, and English Language Learner teachers.

Based on our examination, we determined that the District did not violate Board policy because it intends to receive Board approval via the personnel report
when issuing contingent contracts, after the start of the residency for current cohorts and before the start of the residency for future cohorts. We noted no
exceptions.

Answer: Based on the results of our examination we determined that the School Board did not concede its authority to approve STR residents for
employment.

7. Did the Boards action on SRT constitute an unfair employment practice? Does it give certain applicants an unfair advantage over other applicants?
-According to Dan Dizon, Director of Human Resources, the Residents are not employed upon completion of the residency. The District will require that they
obtain and pass a background check, complete and submit an application, interview, pass reference checks, and receive School Board approval among other
requirements. We determined that the District is not in violation of its hiring policies and noted no exceptions.
Answer: Same as above.

H.2.PRG - H-13-415-Seattle Teacher Residency Program


Purpose/Conclusion:
Purpose:
To report the results of the hotline examination to the citizen Chris J ackins and to determine the method of reporting to the entity.

Conclusion:
Based on our examination of Hotline H-13-415, we did not find evidence to substantiate the concerns listed in the citizen hotline report. We
determined the appropriate method of reporting is through issuing a letter to the citizen.
Key People:

Testing Strategy:

workpapers.


letters or reports.



letter in TeamMate.

Policy/Standards:


BACKGROUND

REQUIREMENTS




appropriate.





Revised March 2010




Hotline Submissions


database.



Reporting Results




Report







After examining Hotline H-13-415, we did not find any evidence to substantiate the concerns listed in the hotline report submitted by the
citizen. We have followed procedures for reporting to citizen through issuing a letter using the Hotline Citizen Letter template document. We
drafted a letter Hotline H-13-415 Letter to Citizen to the citizen explaining the results of the investigation.

H.3.PRG - H-14-096 - SPED


Purpose/Conclusion:
Purpose:
Conclusion:
We documented the Examination of Hotline H-14-096, and concluded that concerns in the hotline referral are not substantiated. This Hotline is
annonymous and therefore no official response is prepared.

Testing Strategy:

letter.


Policy/Standards:


BACKGROUND


REQUIREMENTS




appropriate.



reporting.



Revised March 2010





Hotline Submissions

database.



Reporting Results








Billing

submissions.

Workpapers





This is an anonymous referral; citizen provided no information to reply.
See H.3.1 for the details of H-14-096.
In the referral citizen states that Seattle School District fails to provide "the least restrictive" accommodation for special education students. IEP
transportation requirements are not reviewed annually to determine if/when students should be:
1) Educated in the use of regular transit; and
2) Prepared for life beyond school by learning how to use public transit.
To examine this concern:

We e-mailed to Michaela Clancy, SPED Compliance Manager
Michaela informed us that:
There is a newly developed task force to review how I EP teams determine and set up developmentally appropriate IEP goals. Mary Perrigo-Decker
is our representative on that taskforce from special education, and Sherry Studley is facilitating our department professional development as
supervisor.

We met with Sherry Studley, SPED Manager to identify procedures in place to educate SPED students on how to use public transportation. Sherry
explained that Individual Education Plan (IEP) is created for each SPED student annually. IEP team that includes parents and teaches of the
student makes decision about transportation option for the student. I f IEP team decides that student can take public transportation, student will
be educated on how to take a bus and provided ORCA card.
Sherry explained that any interested party can call IEP meeting to re-evaluate student's ability to use public transportation. She also showed us
that IEP on line has a part where IEP team indicates transportation option.
We met with Marie Perrigo-Decker, Special Education I nstructional Support and Resource Teacher to learn about a newly developed task force.
Marie explained that she is currently working with Department of Transportation to develop more specific guidance to IEP teams what needs to be
done when SPED student is deemed capable to take public transportation. Mary developed a draft of Transportation Rubric that she shared with
us. Transportation Rubric provides detailed instructions for transportation assessment and education.
Based on the results of our examination we noted that SSD SPED has procedures in place to make sure that SPED students provided appropriate
mode of transportation.

H.4.PRG - H-14-085 Renting out Properties


Purpose/Conclusion:
Purpose:

Conclusion:
We documented the Examination of Hotline 14-085 and concluded the allegations of illegal payment to the contractor could not be substantiated.
This Hotline is annonymous and therefore no official response is prepared.

Testing Strategy:

letter.


Policy/Standards:


BACKGROUND


REQUIREMENTS




appropriate.



reporting.



Revised March 2010





Hotline Submissions

database.



Reporting Results








Billing

submissions.

Workpapers





Re: Construction delay claim for the Historic Horace Mann School addition and renovation project.

Background:
The citizen questions a potential misuse of public funds paid for fines/penalties paid for construction delays caused by tenant issues. Were
the penalties a result of the District's failure to enforce contracts with tenants?
Further, the citizen questions the legality of SD employees acting as rental agents to locate rental alternatives for tenants.
Did the District pay employees overtime as a consequence of their failure to enfore contracts with tenants. See also
HotlineReferralDetails-H-14-085

We reviewed the construction contract between the District and Construction Services Inc.(CSI), the firm awarded the bid for renovation of the
Horace Mann School. We noted the NTP date of 9/3/13 documented in Section 3.03 of the contract is 23 calendar days prior to date contract
was signed (9/25) (considered a binding agreement between parties.) We met with Paul Wight, Capital Project Manager to verify the sequence of
events. The start date was initially determined when the contract was put out for bid in the Spring of 2013 with the intent that most of the
excavation would be complete prior to rainy season. The building was occupied by tenants and all tenants received the standard lease termination
notices, which most tenants honored in a timely manner. Tenants who refused to vacate forced the District to pursue legal alternatives in
accodance with City ordinances that resulted in an eviction process that was monitored by the Seattle Police Dept. This sequence of events
prevented the contractor from honoring the NTP date. Per Section 7.04 of the contract General Conditions -- the contractor may request an
equitable adjustment in the contract sum subject to the following:
1. The change in contract time shall be caused solely by the fault or negligence of the Owner, its agents, employees or contractors. As the
delays were of no fault or negligence on the part of the contractor, the District agreed to pay an equitable adjustment to the contractor.
Per Ron English, District Counsel, the District considered a rebid with a later start date and after review and cost analysis, it was determined that
the cost of re-bid could put the District at risk of losing 5% or more of the pricing model received from CSI . This could incur additional cost of of
$400,000 or more on a $8M contract. Further the contractor's bid was based on a start date prior to rainy season and additional cost of
excavation during the rainy season was not included in the original bid submission. Further, the contract signature was delayed due to funding
issues. Hence the District decided to honor the original contract agreement which stipulated the Notice to Proceed date of Sept 3rd.

The District and CSI negotiated an amount of consideration due to CSI via Change order #01. CSI contract_ CO 1The consideration was based
on labor hours for calendar days lost from the NTP date to the date the contractor was ultimately allowed access to the construction site. The
amount of consideration requested by CSI was $1,837.86 plus administrative and insurance cost per calendar day for the period of 9/26 through
11/18 plus a reduced rate of $!,490 per day for the NTP date of 9/3 to 9/25 (date contract was signed). The District disallowed the administrative
and overhead costs and reduced the full amount of consideration by approximately $20,000 to $82,011.76 or 1% of the contract value. The
change order was authorized by Flip Herndon, Dir of Capital Projects and authorized by Kenneth Gotsch, Deputy Director of Finance &
Administration.
We reviewed overtime charges during this time period and were not able to attribute OT costs to tenant issues at the Horace Mann building. We
noted increased hours charged at 1.5 times regular pay rate was attributed to budget cuts of two hourly security positions and that the first
quarter of the school year typically includes OT payroll costs to provide security attendants for events held after school and weekends. Therefore
we were unable to conclude OT costs were attributed to additional security or custodial services provided at the Horace Mann Building. I n addition
the Facility Rental staff is knowledgeable of current market rental rates and may have provided suggestions of relocation options in the Seattle
area during the course of a normal work day. We noted no evidence during our review of overtime pay that facility rental staff acted as agents
outside the scope of their job description.
Based on our review, the District acted as a steward of the facility and in good faith to resolve the conflict with the tenants of the Horace Mann
building with minimal disruption to the community. The Notice to Proceed commencement and construction of the building dated September 3,
2013 and prior to the date the contract is not typicaly business practice and was prompted by extenuating circumstance. This date became the
baseline for determining consideration due to the contractor for unforeseen delays and prevented furthur cost of a rebid. Ultimately construction
did not commence until 11/19/13 due to tenant eviction issues and the District negotiated an adjustment for the delayed site access up to 11/18.
The adjustment of $82,011.76 for lost wages to the contractor is considered fair business practice and mitigated further cost of a rebid and delays
to the project. The additional cost of $82,011.76 or 1% of the award amount was documented as Change Order #1 and was within the allowed
15% threshold to resolve unanticipated and unavoidable construction costs.

H.5.PRG - H-14-067 Gifting of SSD Resources


Purpose/Conclusion:
Purpose:
To document the Examination of Hotline H14-067, and conclude on whether the allegations/concerns in the hotline referral are substantiated.
Conclusion:
Based on our examination of the concerns regarding the District's gifting use of its facilities for non district youth activities, we determined the
District did not violate its policies regarding facility rental and waiver of costs as documented in Policies 4260 and 4120 or state state laws related
to gifting of public funds.

Testing Strategy:

letter.


Policy/Standards:


BACKGROUND


REQUIREMENTS




appropriate.



reporting.



Revised March 2010





Hotline Submissions

database.



Reporting Results








Billing

submissions.

Workpapers





Citizen Letter is referenced at H_14_067[1]

Citizen Concern
The Citizen is concerned that the Superintendent approved changes to Policy 4260 in September 2013 to allow free use of district facilities to non
district youth enrichment groups. The questions the citizen raises are as follows:
What is the basis of authority used by the Superintendent to amend policy prior to a board voted and adopted amendment?
How many instances of free rental to non district youth occurred while the policy was in review and the Board approved the action?
Does the rent free activity identified during this period constitute gifting of public funds?

Procedures:
We reviewed School District policies identified as Series 4000, which are Board approved measures created to address community relations. As a
rule the District encourages public participation and public access to schools to further its mission and interpret the schools' performance and
effectiveness in addressing the needs of its diverse communities.
In addition to the aforesaid policies the District has a joint use agreement with the City of Seattle Dept of Parks and Recreation for paid use of its
facilities. Such events are scheduled through Seattle Parks Department and the revenue stream from these activities is reported and paid to the
District quarterly.
Policy 4120 School Support Organizations was adopted by the School Board in September 2011. Per this policy the School Board
encourages the formation of parent-teacher-student associations at each school building for the purpose of providing an opportunity for
families, teachers and students to join efforts and enhance school programs. I n schools where no such organization exists, booster clubs
and/or special interest organizations may be formed to support and strengthen activities conducted within the school or district. All such
groups must receive the approval of the school principal or Superintendent to be recognized as a booster organization. Under the original
policy these organizations, which support youth education shall not require payment of rent. Youth education includes but is not limited to
academics. See policy for additional explanation of youth education.
Policy 4265 School and Community Partnerships was adopted by the Seattle School Board in September, 2011. The Board believes
it is vital to engage families and community members in the life of the school and create partnerships between SPS and the community
that further the District's mission, and serve the diversity of its districts. Such partnerships include academic and non-academic activities
such as the arts, social and emotional support groups, tutoring, mentorship, health, vocational experiences etc. Partnerships must be
documented and have the approval of the Principal of the school they serve. If the partnership is not demonstrating a substantial positive
impact or is determined to be unsatisfactory the SPS reserves the right to terminate the partnership.
Policy 4270 Lead Community Partner Policy adopted by the board in September 2011 addresses the District's initiative to work
collaboratively with the community and other partners in support of school and District goals by written agreements that meet or exceed
$250,000. Since the citizen's concern is with illegal gift of public resources no further review of this initiative is required.

The language of Policy 4260 was revised per meeting minutes of Feb 5, 2014 to better represent the District's intent to act as steward
of its resources and provide rent free use for non-district youth enrichment programs. The edits to the language do not deviate from the
board approved mission to work in partnership with organizations to build better communities provided the activity is youth oriented
and open to all interested participants on a first come first serve basis. Based on our review of the revisions and our discussions with
staff, the revisions address the reservation process and bolster the District's policy regarding utility usage, safety and insurance
requirements. Policy 4260SP is still in revision.

The District implemented a facility use and rental fee tracking system called Financial Services Direct in September 2012. I nitially there were a
number of for profit organizations registering for events under an affiliated sponsor name or organization such as the School's respective PTA. An
outcome of revised policy 4260 is that organizations must register under the legal and insured name of the organization and all current insurance
documents must be received by the District prior to the scheduled event. We noted from our discussions with staff these organizations were
initially billed which is not in accordance with District policy to provide free use for youth enrichment activities. Many of these billings
were disputed by the PTA's and may have contributed to a large unpaid accounts receivable balance, which is currently being addressed and
resolved on a case by case basis. Balances that remain unpaid are flagged in the reservation system as "do not rent" to avoid further payment
disputes.

The District now has a formal procedure for a waiver of rental fees. To ensure greater accountability over youth enrichment activity, each
organization must submit a rent waiver form signed by the school principal and assigned to each scheduled event by id number in the reservation
system. In addition, the representative of the organization must state that the event will be open to the public on a first come/first serve basis
and meet all criteria for use of school district space as outlined in Policies 4120 and 4260. The Superintendent is granted authority by the Board to
establish procedures including reserving space in accordance with priority among users and verify entitlement to rent-free use.

Results:
Based on our review we are unable to conclude that unauthorized activity or gifting of district resources is evident. The District continues to refine
its procedures for waiver of rental fees and address delinquent billable accounts on a case by case basis.
What is the basis of authority used by the Superintendent to amend policy prior to a board voted and adopted amendment? Board policy
4120, 4260, and Superintendent procedures uphold the District's mission to work in partnership with organizations such as the
PTA and PTSA's provided these activities are open to all interested parties.
How many instances of free rental to non district youth occurred while the policy was in review and the Board approved the action? All
activities sponsored by PTA's and PTSA's are granted free use of space. Other organizations may have the rental fee waived if
the Principal creates a signed waiver authorization.

Does the rent free activity identified during this period constitute gifting of public funds? Based on our review the use of District facilities
free of charge is supported by current District policy.

H.5.PRG - H-14-067 Gifting of SSD Resources


Purpose/Conclusion:
Purpose:

Conclusion:
We reported the results of the hotline examination to the citizen and determined the method of reporting to the entity.

Testing Strategy:

workpapers.


letters or reports.



letter in TeamMate.

Policy/Standards:


BACKGROUND

REQUIREMENTS




appropriate.





Revised March 2010




Hotline Submissions


database.



Reporting Results




Report







The citizen's concern regarding gifting of school district property was referred to CKC to be included as part of our accountability audit.
We have drafted a letter to the citizen explaining the results of our inquiry of this matter.
See H.5.3

H.6.PRG - H-14-086 Principals Professional Development Leave


Purpose/Conclusion:
Purpose:
Conclusion:
We document the Examination of Hotline H-14-086, and concluded that $16,645 out of $116,205 supplemental pay was not earned. The Human
Resource department is responsible for processing supplemental compensation pay and assuring that it is authorized, approved and supported by appropriate
documentation. We noted that the procedures the department has currently in place are not sufficient to ensure supplemental compensation is paid appropriately.
Implement procedures sufficient to assure that supplemental compensation paid is for authorized activities and in proper amounts.
Provide training to Human Resource department employees on preparing and processing documentation for supplemental compensation.

Testing Strategy:

letter.


Policy/Standards:


BACKGROUND


REQUIREMENTS




appropriate.



reporting.



Revised March 2010





Hotline Submissions

database.



Reporting Results








Billing

submissions.

Workpapers





Key People:
Paul Robb, Professional Development ProgramManager, (206) 252-0235
Terry Meisenburg, Director Labor/Employee Relations, (206) 252-0294
Wyeth J essee
Mark Starowsky
J ulie Breidenbach

Background Info:
The citizen submitted an anonymous report containing the following:
"School principals claimto work and are paid for working over school breaks when their buildings are closed but many are not working. Further, there is no
verification that they worked off-site.
Also, some school principals use professional (development) leave to fund vacations out of the country."

Examination work:
On 3/31/2014, we met with Terry Meisenburg, Director of Labor/Employee Relations, to discuss compensation for principals. We learned that principals are paid
an annual salary based on 2080 hours of work per year. We confirmed this in the PASS bargaining agreement. (Q: Are all principals represented by PASS?). The
PASS agreement contains two provisions which allow principals to earn additional pay. There is a review and approval process that goes to committee. Once
approved, the principal is paid a stipend that is added to their paycheck.

On 3/31/2014, we met with Paul Robb to discuss professional development, specifically for PASS members. He confirmed that PASS members are allowed
$1,000 to use for professional development. PASS members must fill out a requisition formand submit it to Julie Breidenbach, Principal, Fairmont Park
Elementary School, for approval. Julie reviews the requisition form for reasonableness and forwards the reimbursement to the District's accounting
department.

Testing of additional pay:

We determined that Principals and Assistant Principals receive an additional pay that is coded as supplemental compensation. At H.6.1 we analyzed supplemenal
compensation and selected three principals for further review. We included the testing in Payroll/Human Resorses controls work. We noted that one of three
tested transacions resulted in overpayment over $16,000. See work at D.5.PRG and management letter recommendation at ISS.18.

H.6.PRG - H-14-086 Principals Professional Development Leave


Purpose/Conclusion:
Purpose:
Conclusion:
The results of the examination were reported as a part of the Management Letter.

Testing Strategy:

workpapers.


letters or reports.



letter in TeamMate.

Policy/Standards:


BACKGROUND

REQUIREMENTS




appropriate.





Revised March 2010




Hotline Submissions


database.



Reporting Results




Report







The citizen did not provide name or contact information therefore we did not prepare a formal letter of response for this hotline. We included the
examination in our Payroll/Human Resources control work and included recommendations in the Management Letter.

H.7.PRG - H-14-210-MedicalBenefitsTermination


Purpose/Conclusion:
Purpose:

Conclusion:

We will include review of H-14-210 in our 2014 SSD AC audit.

Testing Strategy:

letter.


Policy/Standards:


BACKGROUND


REQUIREMENTS




appropriate.



reporting.



Revised March 2010





Hotline Submissions

database.



Reporting Results








Billing

submissions.

Workpapers





See H.7.1for details of referral.
Citizen provided name and contact information and asked for anonymity.

We can not include this employee into our regular review of HR because we were finished with testing when we received referral. Specific
investigaion will require to disclose citizen's identity to HR.

In order to proceed with this investigation we contacted HR. HR stated that it would be difficult to investigate the matter unless they knew the
specific details of employment. We attempted to contact the citizen on three different occasions via phone and e-mail in order to discuss if he is
comfortable with us providing his name to HR to get specific details on the matter. We left three voice mails and send two e-mails. We were not
able to get a hold of him.

We will include this matter into our next SSD audit that starts in November 2014.
To FAWF AS4.f

I.1.PRG - F-13-257

Procedure Step: Summary

Purpose/Conclusion:
To summarize the results of fieldwork and assess whether evidence is sufficient and appropriate to support conclusions.

Testing Strategy:
Summarize the results of fieldwork including a schedule of the fraudulent activities and amounts which are cross-referenced to supporting work.

Assess the overall sufficiency and appropriateness of evidence obtained throughout the investigation. In assessing the sufficiency of evidence,
consider whether there is enough evidence to persuade a knowledgeable person that the conclusions are reasonable. In assessing the
appropriateness of evidence, consider its relevance, validity and reliability.

Policy/Standards:
SAO Audit Policy 1410

Based on our assessment of the evidence obtained and documented, we believe there is sufficient and appropriate evidence to provide a
reasonable basis for conclusions reached.
A summary of the results of fieldwork is we determined that we can rely on the work of other for F-13-257. No additional work needed to be
perfromed.

I.1.PRG - F-13-257

Procedure Step: Rely on Work of Others

Purpose/Conclusion:
To determine if our Office can rely on work conducted by the client or external parties such as law enforcement.

Testing Strategy:
Review work of others using the external fraud review checklist. I f it is determined additional work is needed, contact the Fraud Manager to
establish a revised strategy, budget and timeframe. Update the fieldwork plan for modifications and notify the DSI Director.

Policy/Standards:
SAO Audit Policy 1410

We determined that our office can rely on work of Seattle Ethics and Elections Commission for this investigation.
See report at I.1.2
SEEC was not able to find any evidence of misappropriation because the person in question did not keep sufficient records and destroyed any
records that existed.

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