2025-001 The County 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 (WSDOT) Pass-through Award/Contract Number: 2101/1308/2201 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Highway Planning and Construction program is to provide funds for the planning, design, construction, and rehabilitation of highways and bridge transportation systems. During fiscal year 2025, the County spent $1,812,124 in program funds. Federal regulations require recipients to establish, document and maintain effective 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 County 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 payroll reports to the County 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 During fiscal year 2025, the County spent $1,769,000 in program funds to pay one contractor for various improvements and repairs to its roads. Our audit found the County did not have internal controls for ensuring compliance with federal wage rate requirements. Specifically, the County did not collect weekly certified payroll reports from the contractor and its subcontractors to confirm they paid laborers proper prevailing wages. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition During 2025, the County experienced turnover in the position responsible for managing the program and current County staff did not know about the requirement to obtain and review weekly certified payroll reports. Effect of Condition Without adequate internal controls to ensure it collects all weekly certified payroll reports, the County cannot demonstrate it complied with federal wage rate requirements. The County could also be liable for paying any additional wages if the contractor and subcontractors did not pay prevailing wage rates to laborers working on the contract. The County did not collect 21 out of 30 weekly certified payroll reports. During the audit, the County subsequently collected all weekly certified payroll reports. Recommendation We recommend the County strengthen 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. Additionally, we recommend the County provide training to ensure staff overseeing compliance with federal programs are aware of all applicable requirements. County’s Response The County will strengthen internal controls to ensure compliance with federal wage rate requirements. This will 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. The County will provide training to ensure staff overseeing compliance with federal programs are aware of all applicable requirements. Auditor’s Remarks We appreciate the County's commitment to resolving the issues noted and will follow up during the next 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. Title 29 CFR, Section 5.5 – Contract provisions and related matters establishes the requirements for the contracting officer to insert in full in any contract in excess of $2,000 which is entered into for the actual construction, alteration and/or repair, including painting and decorating, of a public building or public work, or building or work financed in whole or in part with federal funds the clauses listed, which includes but is not limited to the minimum wages to be paid and payrolls and basic records to be maintained (submission of weekly certified payrolls).