The City did not have adequate internal controls and did not comply with federal wage rate requirements
Assistance Listing Number and Title: 20.205, Highway Planning and Construction
Federal Grantor Name: Federal Highway Administration,
U.S. Department of Transportation
Federal Award/Contract Number: N/A
Pass-through Entity Name: Washington State Department of Transportation
Pass-through Award/Contract Number: LA 10182
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
The purpose of the Highway Planning and Construction grant funds is to provide funds for the planning, design, construction and rehabilitation of highways and bridge transportation systems. During fiscal year 2023, the City spent $1,610,715 in program funds.
Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls.
Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers similar to what local workers have been paid for similar projects.
For construction contracts subject to these wage rate requirements, the City must include a provision that the contractors and subcontractors must comply with those requirements and the Department of Labor’s regulations. This includes a requirement that the contractors and its subcontractors must submit certified payrolls reports to the City weekly, for each week that laborers performed contract work. These reports must include a copy of the payroll and a signed statement of compliance.
Description of Condition
The City hired a contractor to complete an overlay project. During 2023, the City paid $1,515,163 from its award to the contractor for work that laborers performed on the project. Our audit found the City did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the City did not collect and review all weekly certified payroll reports from the subcontractors to confirm they paid laborers proper prevailing wages.
We consider this internal control deficiency to be a material weakness that led to material noncompliance.
Cause of Condition
The City experienced turnover in the position responsible for managing this program and current staff could not locate weekly certified payrolls for subcontractors.
Effect of Condition
Without adequate internal controls to ensure it collects all weekly certified payroll reports, the City cannot demonstrate it complied with federal wage rate requirements. The City could also be liable for paying any additional wages if the subcontractor did not pay prevailing wage rates to laborers working on the contract. The City did not collect 69 out of a total of 90 weekly certified payroll reports. During the audit, the City subsequently collected all weekly certified payrolls.
Recommendation
We recommend the City develop internal controls to ensure compliance with federal wage rate requirements. This should include obtaining the federal certified payroll reports, as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports from contractors and subcontractors.
City’s Response
The City of Sammamish appreciates the opportunity to respond to the Washington State Auditor’s Office notification of a finding for the period ending December 31, 2023.
The City’s finance department experienced several vacancies and staff turnover between October 2023 and April 2024 that directly impacted the preparation and review of the City’s Annual Financial Report. Incoming staff were tasked with quickly preparing the financial reports and ensuring they were filed with the State Auditor’s Office by May 30, 2024, the required filing date. Reviews of the statements did not catch the miscoding of the settlement payments in the Transportation CIP fund which resulted in this finding. When notified of the error, staff quickly corrected the Transportation CIP fund statement to correctly reflect the settlements as miscellaneous revenue.
The City acknowledges its responsibility to accurately prepare its financial statements following generally accepted accounting principles (GAAP). We are committed to ensuring staff receive appropriate training and guidance for financial statement preparation and reviews. City staff have already completed training related to the fundamentals of preparing the ACFR and have implemented improvements in the review process.
We appreciate the support of the Washington State Auditor’s Office as we continue to improve our financial reporting process.
Auditor’s Remarks
We appreciate the City’s commitment to resolve this finding and thank the
City for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit.
Applicable Laws and Regulations
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements.
The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
Title 29 CFR, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports.
The City did not have adequate internal controls and did not comply with federal wage rate requirements
Assistance Listing Number and Title: 20.205, Highway Planning and Construction
Federal Grantor Name: Federal Highway Administration,
U.S. Department of Transportation
Federal Award/Contract Number: N/A
Pass-through Entity Name: Washington State Department of Transportation
Pass-through Award/Contract Number: LA 10182
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
The purpose of the Highway Planning and Construction grant funds is to provide funds for the planning, design, construction and rehabilitation of highways and bridge transportation systems. During fiscal year 2023, the City spent $1,610,715 in program funds.
Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls.
Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers similar to what local workers have been paid for similar projects.
For construction contracts subject to these wage rate requirements, the City must include a provision that the contractors and subcontractors must comply with those requirements and the Department of Labor’s regulations. This includes a requirement that the contractors and its subcontractors must submit certified payrolls reports to the City weekly, for each week that laborers performed contract work. These reports must include a copy of the payroll and a signed statement of compliance.
Description of Condition
The City hired a contractor to complete an overlay project. During 2023, the City paid $1,515,163 from its award to the contractor for work that laborers performed on the project. Our audit found the City did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the City did not collect and review all weekly certified payroll reports from the subcontractors to confirm they paid laborers proper prevailing wages.
We consider this internal control deficiency to be a material weakness that led to material noncompliance.
Cause of Condition
The City experienced turnover in the position responsible for managing this program and current staff could not locate weekly certified payrolls for subcontractors.
Effect of Condition
Without adequate internal controls to ensure it collects all weekly certified payroll reports, the City cannot demonstrate it complied with federal wage rate requirements. The City could also be liable for paying any additional wages if the subcontractor did not pay prevailing wage rates to laborers working on the contract. The City did not collect 69 out of a total of 90 weekly certified payroll reports. During the audit, the City subsequently collected all weekly certified payrolls.
Recommendation
We recommend the City develop internal controls to ensure compliance with federal wage rate requirements. This should include obtaining the federal certified payroll reports, as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports from contractors and subcontractors.
City’s Response
The City of Sammamish appreciates the opportunity to respond to the Washington State Auditor’s Office notification of a finding for the period ending December 31, 2023.
The City’s finance department experienced several vacancies and staff turnover between October 2023 and April 2024 that directly impacted the preparation and review of the City’s Annual Financial Report. Incoming staff were tasked with quickly preparing the financial reports and ensuring they were filed with the State Auditor’s Office by May 30, 2024, the required filing date. Reviews of the statements did not catch the miscoding of the settlement payments in the Transportation CIP fund which resulted in this finding. When notified of the error, staff quickly corrected the Transportation CIP fund statement to correctly reflect the settlements as miscellaneous revenue.
The City acknowledges its responsibility to accurately prepare its financial statements following generally accepted accounting principles (GAAP). We are committed to ensuring staff receive appropriate training and guidance for financial statement preparation and reviews. City staff have already completed training related to the fundamentals of preparing the ACFR and have implemented improvements in the review process.
We appreciate the support of the Washington State Auditor’s Office as we continue to improve our financial reporting process.
Auditor’s Remarks
We appreciate the City’s commitment to resolve this finding and thank the
City for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular audit.
Applicable Laws and Regulations
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings.
Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements.
The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11.
Title 29 CFR, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports.