Audit 407427

2 CFR § 3474.1 gives regulatory effect to the Department of Education (ED) for Appendix II to 2 CFR Part 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. Lack of effective controls led to the Academy expending AL# 84.425 COVID-19 Education Stabilization Fund federal grant funds on projects which did not meet the requirements of the Davis Bacon Act. For all projects subject to federal prevailing wage requirements, the Academy did not enter into a written agreement with the contractor which contained a provision to ensure the contractor complied with Federal wage rate requirements. Further, the Academy did not obtain weekly certified payroll reports from the contractor to verify prevailing wages were paid on a weekly basis. This noncompliance also resulted in a qualified opinion over the AL# 84.425 COVID-19 Education Stabilization Fund program. Failure to have effective controls in place over wage-rate requirements may result in the Academy 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 Academy should 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. Further, the Academy should ensure certified payroll reports are provided weekly by the contractor.

2 CFR § 3474.1 gives regulatory effect to the Department of Education for 2 CFR § 200.313(d) which provides that procedures for managing equipment (including replacement equipment), whether acquired in whole or in part under a Federal award, until disposition takes place will, as a minimum, meet the following requirements: (1) Property records must be maintained that include a description of the property, a serial number or other identification number, the source of funding for the property (including the FAIN), who holds title, the acquisition date, and cost of the property, percentage of Federal participation in the project costs for the Federal award under which the property was acquired, the location, use and condition of the property, and any ultimate disposition data including the date of disposal and sale price of the property. (2) A physical inventory of the property must be taken and the results reconciled with the property records at least once every two years. (3) A control system must be developed to ensure adequate safeguards to prevent loss, damage, or theft of the property. Any loss, damage, or theft must be investigated. (4) Adequate maintenance procedures must be developed to keep the property in good condition. (5) If the non-Federal entity is authorized or required to sell the property, proper sales procedures must be established to ensure the highest possible return. Furthermore, the Academy’s Fixed Asset Policy requires a “periodic” physical inventory of Fixed Assets. Due to the lack of proper controls over equipment and real property, the Academy did not perform a physical inventory of fixed assets within the prior two fiscal years. Additionally, the documented frequency in which a physical inventory is to be performed within the Academy’s Fixed Asset Policy is not in agreement with federal requirements. This noncompliance also resulted in a qualified opinion over the AL# 84.425 COVID-19 Education Stabilization Fund program. Failure to perform required physical inventories may result in the loss, misappropriation, theft, or diversion of assets and noncompliance with federal award requirements and Academy policy. The Academy should perform the required physical inventory of property at least once every two years. The Academy should also revise its Fixed Asset Policy to ensure agreement with federal requirements.