Audit 37239

FINDING 2022-002 Subject: Special Tests and Provisions - Wage Rate Requirements Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/State's program and Non-Entitlement Grants in Hawaii Assistance Listing Number: 14.228 Federal Award Number and Year (or Other Identifying Numbers): ST-19-104 Pass-Through Entity: Indiana Office of Community and Rural Affairs Compliance Requirement: Special Tests and Provisions - Wage Rate Requirements Audit Finding: Material Weakness Condition and Context The Town had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties that would likely be effective in preventing, or detecting and correcting, material noncompliance related to the collection of weekly certified payrolls for contracts subject to the wage rate requirements. Construction contracts in excess of $2,000 financed by federal assistance funds must pay wages not less than those established for the locality of the project (prevailing wage rates) by the Department of Labor (DOL) to their laborers and mechanics. Nonfederal entities are to include in its construction contracts subject to the Wage Rate Requirements a provision that the contractor or subcontractor comply with these requirements and the DOL regulations. This would include a requirement to submit a copy of the payroll and statement of compliance to the entity for each week in which contract work was performed. Although the Town utilized a grant administrator, who obtained certified payrolls as required, the Town did not have an oversight, or review process in place to ensure the certified payrolls were obtained by the grant administrator as required. The lack of internal controls was a systemic issue throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." Cause A proper system of internal controls over wage rate requirements was not designed by management of the Town, which would include segregation of key functions to ensure certified payrolls were received as required. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the Town's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the Town. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Town design and implement a proper system of internal controls that would provide segregation of duties for the collection of certified payrolls. Additionally, policies and procedures should be implemented to ensure appropriate reviews, approvals, and oversight are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.

FINDING 2022-002 Subject: Special Tests and Provisions - Wage Rate Requirements Federal Agency: Department of Housing and Urban Development Federal Program: Community Development Block Grants/State's program and Non-Entitlement Grants in Hawaii Assistance Listing Number: 14.228 Federal Award Number and Year (or Other Identifying Numbers): ST-19-104 Pass-Through Entity: Indiana Office of Community and Rural Affairs Compliance Requirement: Special Tests and Provisions - Wage Rate Requirements Audit Finding: Material Weakness Condition and Context The Town had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties that would likely be effective in preventing, or detecting and correcting, material noncompliance related to the collection of weekly certified payrolls for contracts subject to the wage rate requirements. Construction contracts in excess of $2,000 financed by federal assistance funds must pay wages not less than those established for the locality of the project (prevailing wage rates) by the Department of Labor (DOL) to their laborers and mechanics. Nonfederal entities are to include in its construction contracts subject to the Wage Rate Requirements a provision that the contractor or subcontractor comply with these requirements and the DOL regulations. This would include a requirement to submit a copy of the payroll and statement of compliance to the entity for each week in which contract work was performed. Although the Town utilized a grant administrator, who obtained certified payrolls as required, the Town did not have an oversight, or review process in place to ensure the certified payrolls were obtained by the grant administrator as required. The lack of internal controls was a systemic issue throughout the audit period. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." Cause A proper system of internal controls over wage rate requirements was not designed by management of the Town, which would include segregation of key functions to ensure certified payrolls were received as required. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the Town's management statements of what should be done to effect internal controls, and procedures should consist of actions that would implement these policies. Effect Without the proper implementation of an effectively designed system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions of the federal award could result in the loss of future federal funding to the Town. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the Town design and implement a proper system of internal controls that would provide segregation of duties for the collection of certified payrolls. Additionally, policies and procedures should be implemented to ensure appropriate reviews, approvals, and oversight are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.