Audit 375306

2 CFR § 2400 gives regulatory effect to Housing and Urban Development (HUD) for Appendix II to 2 CFR § 200 which states, in part, all contracts made by the non-Federal entity under the Federal award must contain provisions covering the following: (D) Davis-Bacon Act, as amended (40 U.S.C. 3141-3148). When required by Federal program legislation, all prime construction contracts in excess of $2,000 awarded by non-Federal entities must include a provision for compliance with the Davis-Bacon Act (40 U.S.C. 3141-3144, and 3146-3148) as supplemented by Department of Labor regulations (29 CFR Part 5, “Labor Standards Provisions Applicable to Contracts Covering Federally Financed and Assisted Construction”). In accordance with the statute, contractors must be required to pay wages to laborers and mechanics at a rate not less than the prevailing wages specified in a wage determination made by the Secretary of Labor. In addition, contractors must be required to pay wages not less than once a week. The non-Federal entity must place a copy of the current prevailing wage determination issued by the Department of Labor in each solicitation. The decision to award a contract or subcontract must be conditioned upon the acceptance of the wage determination. The non-Federal entity must report all suspected or reported violations to the Federal awarding agency. The contracts must also include a provision for compliance with the Copeland “Anti-Kickback” Act (40 U.S.C. 3145), as supplemented by Department of Labor regulations (29 CFR Part 3, “Contractors and Subcontractors on Public Building or Public Work Financed in Whole or in Part by Loans or Grants from the United States”). The Act provides that each contractor or subrecipient must be prohibited from inducing, by any means, any person employed in the construction, completion, or repair of public work, to give up any part of the compensation to which he or she is otherwise entitled. The non-Federal entity must report all suspected or reported violations to the Federal awarding agency.The lack of controls over the prevailing wage requirements pertaining to the UMD revolving loan led to them not meeting the requirements of the Davis-Bacon Act. The County did not obtain copies of the weekly certified payroll reports from the contractor to verify prevailing wages were paid on a weekly basis for each week in which any contract work was performed. Failure to obtain the required approvals and to ensure compliance can result in improper budgeting, regulatory noncompliance, and reduced effectiveness of management oversight.This noncompliance also resulted in a qualified opinion over the AL# 14.228 Community Development Block Grants/State’s Program. Failure to have effective controls in place over wage-rate requirements may result in the Knox County and its contractors or subcontractors failing to pay prevailing wages when required by Federal law and could result in reduction of future Federal funding or other sanctions imposed by Federal grantors. When required by Federal grant legislation, the County should develop and implement an internal control process to ensure prime construction contracts in excess of $2,000 paid with Federal grant monies contain provisions that require the contractor to comply with wage rate requirements and the DOL regulations (29 CFR Part 5). Further, the County should develop and implement an internal control process to ensure certified payroll reports are provided weekly by the contractor.