Edkey, Inc.

Finding Number: 2025-003: Procurement/Suspension and Debarment – Material Weakness (repeat of finding in 2024; Finding Number 2024-004) Assistance Listing Number 84.027A Program Title: Special Education Cluster: Grants to State-IDEA, Part B Federal Agency: U.S. Department of Education

Assistance Listing Number 84.010A Program Title: Title 1, Part A, Grants to Local Education Agencies Federal Agency: U.S. Department of Education

Assistance Listing Number 10.555 Program Title: Child Nutrition Cluster- National School Lunch Program Federal Agency: U.S. Department of Agriculture

Criteria: Recipients and subrecipients are subject to the non-procurement debarment and suspension regulations per 2 CFR part 180. The regulations in 2 CFR part 180 restrict making Federal awards, subawards, and contracts with certain parties that are debarred, suspended, or otherwise excluded from receiving or participating in Federal awards. Condition: As a result of auditor testing, it was found that the School did not have a process to document evidence that suspension and debarment checks were being performed for vendors paid greater than $25,000 on an annual basis. Cause: During the year ended June 30, 2025, the School had not implemented a process to ensure that suspension and debarment checks were being performed and documented. Effect: Without a process in place to ensure proper suspension and debarment checks in accordance with the Uniform Guidance, it's possible the School could pay a vendor who has been suspended or debarred. Recommendation: We noted that the School implemented a written policy on July 1, 2024 that requires suspension and debarment checks on vendors. We recommend that procedures are implemented to ensure this policy is being followed. We also recommend an oversight process be implemented that requires documentation of the process and documentation that an individual has performed approval over the process. Views of Responsible Officials: The School concurs with the recommendation.

Finding Number: 2025-004: Schedule of Expenditures of Federal Awards (SEFA) Preparation – Material Weakness (repeat finding from 2023 and 2024; Finding Number 2023-002 and 2024-005) Criteria: Non-federal entities in receipt of federal funds must comply with the requirements of 2 CFR 200.303(a), which require an entity to establish and maintain effective internal control over the federal award to ensure compliance with federal statutes, regulations, and the terms and conditions of the federal award. This includes properly identifying all federal awards subject to the Uniform Guidance and fairly presenting the required information in the schedule of expenditures of federal awards. Condition: Audit procedures resulted in the discovery that the originally prepared schedule of expenditures of federal awards was understated relating mostly to NSLP funding in the amount of approximately $1,790,000 for the year ended June 30, 2025. Cause: The original omission of NSLP and two other smaller grants from the Schedule of Expenditures of Federal Awards (SEFA) was due to turnover within the accounting team during the reporting period. The transition of responsibilities and loss of institutional knowledge resulted in inadequate communication and incomplete identification of all federal awards, and established procedures for compiling the SEFA were not effectively followed or sufficiently documented to ensure continuity. Effect: Before the correction was made, the SEFA was understated in the amount of approximately $1,790,000. If the error had not been detected, this deficiency could impact the accuracy of major program determination and may affect the scope of audit procedures performed, potentially leading to noncompliance with Uniform Guidance reporting requirements. Recommendation: We recommend that management strengthen controls over the SEFA preparation process by formalizing and documenting procedures for identifying and tracking all federal awards. This should include maintaining a comprehensive and regularly updated listing of federal programs, implementing a standardized SEFA preparation and review checklist, and ensuring adequate cross-training of accounting personnel to mitigate the impact of staff turnover. Additionally, management should establish a formal supervisory review process to verify the completeness and accuracy of the SEFA prior to submission. Views of Responsible Officials: The School concurs with the recommendation.

Finding Number: 2025-005: Unsupported Payroll Costs Assistance Listing Number 84.027A Program Title: Special Education Cluster: Grants to State-IDEA, Part B Federal Agency: U.S. Department of Education Questioned Costs: $157,000

Assistance Listing Number 84.010A Program Title: Title 1, Part A, Grants to Local Education Agencies Federal Agency: U.S. Department of Education Questioned Costs: $209,000

Criteria: Per 2 CFR §200.403 and §200.430 of the Uniform Guidance, costs charged to federal awards must be allowable, allocable, and adequately documented. Specifically, payroll costs charged to the federal award must be supported by records that accurately reflect the work performed and are supported by a system of internal controls. Condition: During our testing of payroll expenditures, we identified $157,000 and $209,000 of payroll costs charged to the special education federal program and the Title 1 federal program, respectively, for which the School was unable to provide sufficient supporting documentation. Requested documentation included a listing of employees with wage amounts, time and effort certifications, or other records demonstrating that the costs were properly allocable to the federal program. The School was unable to produce adequate support for these costs. Cause: The issue appears to be due to inadequate internal controls over maintaining payroll documentation at a federal award level during the year ended June 30, 2025. This was mostly caused by several large reclassification entries recorded to allocate payroll costs between various programs, without maintaining support for which payroll amounts (by employee) were included in the reclassification totals. Effect: As a result, there is an increased risk that payroll costs charged to the federal program may be unallowable or improperly allocated. Recommendation: We recommend that management strengthen internal controls over payroll charged to federal awards by implementing procedures to ensure all payroll costs are supported by appropriate documentation, including detailed amounts to support any reclassification entries, and establishing a review process to verify that payroll charges are properly allocated to federal programs. Views of Responsible Officials: The School concurs with the recommendation.

Assistance Listing Numbers: 10.555 84.027A Program Titles: Child Nutrition Cluster- Special Education Cluster: National School Lunch Program Grants to State-IDEA, Part B Federal Agencies: U.S. Department of Agriculture U.S. Department of Education Award Numbers: N/A- direct program 21FESCBG-110XXX-09A Pass-Through Entity: N/A- direct program Arizona Dept. of Education Criteria: Recipients and subrecipients are subject to the non-procurement debarment and suspension regulations per 2 CFR part 180. The regulations in 2 CFR part 180 restrict making Federal awards, subawards, and contracts with certain parties that are debarred, suspended, or otherwise excluded from receiving or participating in Federal awards. Condition: As a result of auditor testing, it was found that the Organization did not have a process to document evidence that suspension and debarment checks were being performed for vendors paid greater than $25,000 on an annual basis. Cause: During the year ended June 30, 2024, the Organization had not implemented a process to ensure that suspension and debarment checks were being performed and documented. Effect: Without a process in place to ensure proper suspension and debarment checks in accordance with the Uniform Guidance, it's possible the Organization could pay a vendor who has been suspended or debarred. Recommendation: We acknowledge that the Organization implemented a written policy on July 1, 2024 that requires suspension and debarment checks on vendors. We recommend that an oversight process also be implemented that requires documentation of the process and documentation that an individual has performed approval over the process.

Assistance Listing Number: 84.425 Program Title: COVID-19 American Rescue Plan, Elementary and Secondary School Emergency Relief Fund (ESSER)/Education Stabilization Fund Federal Agency: U.S. Department of Education Award Numbers:22FAHIC-210299-01A Pass-Through Entity: Arizona Department of Education Criteria: Non-federal entities in receipt of federal funds must comply with the requirements of 2 CFR 200.303(a), which require an entity to establish and maintain effective internal control over the federal award to ensure compliance with federal statutes, regulations, and the terms and conditions of the federal award. This includes properly identifying all federal awards subject to the Uniform Guidance and fairly presenting the required information in the schedule of expenditures of federal awards. Condition: Audit procedures resulted in the discovery that the originally prepared schedule of expenditures of federal awards was overstated relating to ESSER funding in the amount of approximately $399,000 for the year ended June 30, 2024. Cause: The ESSER grant award had a 3-year grant term. This required the Organization to track and accumulate allowable expenses each year against the total grant award available to ensure full use of the award. The Organization tracked these totals based on the total accumulated billings to the funding source. Allowable expenses incurred in each fiscal year should be included on the schedule of expenditures for that fiscal year. Certain allowable ESSER expenses that were incurred and included on the schedule of federal expenditures in the year ended June 30, 2023 were never billed for reimbursement from the funding source. Because these amounts were never billed and because the Organization tracked the remaining available grant award amount based on total billings, it appeared to the Organization during the year ended June 30, 2024 that an additional amount was available to spend and charge to the grant. The Organization incurred additional allowable expenses for this grant in the year ended June 30, 2024 and billed those amounts so that the total grant award available was billed in full. These additional expenses were originally included on the schedule of expenditures provided to the auditors for the year ended June 30, 2024. Since other expenses incurred in the year ended June 30, 2023 totaling the same amount had been included on the prior year schedule of expenditures of federal awards, this schedule for the year ended June 30, 2024 was initially overstated. Effect: Before the correction was made, the schedule of expenditures of federal awards was overstated in the amount of approximately $399,000. Recommendation: We recommend that an oversight process is implemented to ensure all expenses incurred for reimbursement under cost reimbursement grant awards are billed to the funding source in a timely manner.

Assistance Listing Numbers: All Federal Agency: All Criteria: Section 200.512 of the Uniform Guidance requires the Organization submit an annual single audit reporting package and a data collection form no later than nine months after the end of the audit period. Condition: The Organization did not submit the single audit reporting package with the data collection form within the required timeline. Cause: Financial reporting and adjustments through June 30, 2024 was delayed due to lack of proper oversight over the accounting team. Effect: The late submission of the audited financial statements and data collection form resulted in the Organization being noncompliant with Section 200.512 of the Uniform Guidance. Recommendation: We recommend that the Organization hire a competent team to effectively oversee the accounting processes and financial reporting responsibilities. Views of responsible officials: The Organization concurs with the recommendation.

5 out of 12 non-payroll expenditures tested were purchased with a credit card. The LEA's policies indicate that a purchase requisition is required to be approved for federal purchases prior to the actual purchase. The approved purchase requisitions were not completed. Additionally, documentation of approval for payment was not present

4 out of 12 non-payroll expenditures tested were purchased with a credit card. The LEA's policies indicate that a purchase requisition is required to be approved for federal purchases prior to the actual purchase. The approved purchase requisitions were not completed. Additionally, documentation of approval for payment was not present and there was 1 out of 5 invoices that did not have any support retained.

10 out of 40 non-payroll expenditures tested were purchased with a credit card. The LEA's policies indicate that a purchase requisition is required to be approved for federal purchases prior to the actual purchase. The approved purchase requisitions were not completed. Additionally, documentation of approval for payment was not present and there are 2 out of 40 invoices that did not have any support retained.

There were no quotes obtained for the three vendors tested. Also, there was not a documented process for performing the suspension and debarment check.