Audit 4730

USDA Rural Development - Water and Waste Disposal Loans, Loan Guarantees, and Grants ALN 10.770 Federal Award Year 2022 - Material Weakness - Immaterial Non-Compliance - Failure to implement requirements in the letter of conditions provided by USDA related to funding. Criteria: The letter of condition dated July 31, 2017 and reiterated in the letter of condition dated March 11, 2022, provided that the District must establish a separate construction account that meets the requirements of 31 CFR Part 202, and that all funds be deposited into the account. Financial institutions or depositories accepting deposits of public funds are required to pledge adequate, acceptable securites as collateral. All funds in the account will be secured by a collateral pledge equaling at least 100% of the highest amount of funds expected to be deposited in the construction account at any one time. The letter also required position fidelity bonds for all persons entrusted with the receipt and/or disbursement of funds. The minimum coverage for each position to be bonded is to be at least one annual installment on the bond. Condition - The district did not secure collateral for the construction account, deposited bond proceeds into the general fund account which in turn paid for budgeted construction allowed under the federal funding and/or transfered the balance to the construction account. The position fidelity bonds were not obtained. Questioned costs - None. Repeat finding - No. Cause - The district did not assign any staff personnel to oversee compliance with these requirements. Recommendation - The district should immediately secure collateral for the construction account and obtain the required position fidelity bond. Some individual within the district managment, or some external contracted professional, should be appointed as compliance officer with respect to compliance matters not being handled by the district's engineering firm.

USDA Rural Development - Water and Waste Disposal Loans, Loan Guarantees, and Grants ALN 10.770 Federal Award Year 2022 - Material Weakness In Controls Over Compliance - Failure to obtain payroll certifications for all periods in which work was performed, wage certifications listed fewer than the total number of workers, and failure to obtain contracts from sub-contractors of the primary sub-contractor. Criteria: This program requires compliance with the Davis-Bacon Act. Condition - All labor involved in this contract is provided by a sub-contractor employed by the general contractor. The sub-contractor provided payroll certifications reporting the sub-contractor's employees along with hours and payments to the sucontractors of the sub-contractor. No contracts were obtained for the sub-contractors of the sub-contractor, assuring that if they hired workers or provided materials, they would be bound by the provisions of the contractact between the owner and the general contractor. The payroll certifications for employees of the sub-contractor were incomplete in that withholding details were not included. In addition, the resident engineer observed work being performed during periods in which no payroll certifications were provided, and in some periods when payroll certifications were provided the resident engineer observed more workers than were listed in the payroll certifications. A contracted teamster had been omitted from some of the original pay estimates. Questioned costs - None. Repeat finding - No. Cause: Adequate attention was not given to the payroll certifications and/or the lack of sub-sub contrats and missing details were ignored. Recommendation: The District should insist that contracts are obtained from all sub-contractors (including workers the contractor or sub-contractor pay on a contractual basis), that all information is provided on the payroll certifications, and that all workers are accounted for on the payroll certification befor approving pay estimates. The District should have contact information for all contractors, sub-contractors, or contractual personnel working on the project. All sub-contractors should agree to comply with Davis-Bacon provisions of the original contract.

USDA Rural Development - Water and Waste Disposal Loans, Loan Guarantees, and Grants ALN 10.770 Federal Award Year 2022 - Material Weakness In Controls Over Compliance - Failure to obtain contracts for sub-contractors of the primary sub-contractor agreeing to American Iron and Steel Act (AIS) and other compliance requirements and failure to obtain documentation for quantities of AIS compliant materials for some iron and steel products. Criteria: This program requires compliance with the AIS. Condition - Some of the manufacturer certifications for material subject to the AIS did not show the quantites or place of delivery. In addition, sub-contractors of the primary sub-contractor, did not sign contracts assuring their agreement with these requirements. It does not appear that any of these sub-contractors provided any material. In fact, they were generally individual "contractual workers". Questioned costs - None. Repeat finding - No. Cause: Adequate documentation of AIS compliance, apparently, was not obtained prior to approving payments. Sub-sub-contracts and missing quantities were ignored. Recomendation: The District should insist that contracts are obtained from all sub-contractors (including workers the contractor or sub-contractor pay on a contractual basis). All contractors should agree to comply with AIS provisions of the original contract. Verification of delivery of quanties of Iron and Steel products should be obtained and reviewed prior to approving partial pay estimates.

USDA Rural Development - Water and Waste Disposal Loans, Loan Guarantees, and Grants ALN 10.770 Federal Award Year 2022 - Material Weakness - Immaterial Non-Compliance - Failure to implement requirements in the letter of conditions provided by USDA related to funding. Criteria: The letter of condition dated July 31, 2017 and reiterated in the letter of condition dated March 11, 2022, provided that the District must establish a separate construction account that meets the requirements of 31 CFR Part 202, and that all funds be deposited into the account. Financial institutions or depositories accepting deposits of public funds are required to pledge adequate, acceptable securites as collateral. All funds in the account will be secured by a collateral pledge equaling at least 100% of the highest amount of funds expected to be deposited in the construction account at any one time. The letter also required position fidelity bonds for all persons entrusted with the receipt and/or disbursement of funds. The minimum coverage for each position to be bonded is to be at least one annual installment on the bond. Condition - The district did not secure collateral for the construction account, deposited bond proceeds into the general fund account which in turn paid for budgeted construction allowed under the federal funding and/or transfered the balance to the construction account. The position fidelity bonds were not obtained. Questioned costs - None. Repeat finding - No. Cause - The district did not assign any staff personnel to oversee compliance with these requirements. Recommendation - The district should immediately secure collateral for the construction account and obtain the required position fidelity bond. Some individual within the district managment, or some external contracted professional, should be appointed as compliance officer with respect to compliance matters not being handled by the district's engineering firm.

USDA Rural Development - Water and Waste Disposal Loans, Loan Guarantees, and Grants ALN 10.770 Federal Award Year 2022 - Material Weakness In Controls Over Compliance - Failure to obtain payroll certifications for all periods in which work was performed, wage certifications listed fewer than the total number of workers, and failure to obtain contracts from sub-contractors of the primary sub-contractor. Criteria: This program requires compliance with the Davis-Bacon Act. Condition - All labor involved in this contract is provided by a sub-contractor employed by the general contractor. The sub-contractor provided payroll certifications reporting the sub-contractor's employees along with hours and payments to the sucontractors of the sub-contractor. No contracts were obtained for the sub-contractors of the sub-contractor, assuring that if they hired workers or provided materials, they would be bound by the provisions of the contractact between the owner and the general contractor. The payroll certifications for employees of the sub-contractor were incomplete in that withholding details were not included. In addition, the resident engineer observed work being performed during periods in which no payroll certifications were provided, and in some periods when payroll certifications were provided the resident engineer observed more workers than were listed in the payroll certifications. A contracted teamster had been omitted from some of the original pay estimates. Questioned costs - None. Repeat finding - No. Cause: Adequate attention was not given to the payroll certifications and/or the lack of sub-sub contrats and missing details were ignored. Recommendation: The District should insist that contracts are obtained from all sub-contractors (including workers the contractor or sub-contractor pay on a contractual basis), that all information is provided on the payroll certifications, and that all workers are accounted for on the payroll certification befor approving pay estimates. The District should have contact information for all contractors, sub-contractors, or contractual personnel working on the project. All sub-contractors should agree to comply with Davis-Bacon provisions of the original contract.

USDA Rural Development - Water and Waste Disposal Loans, Loan Guarantees, and Grants ALN 10.770 Federal Award Year 2022 - Material Weakness In Controls Over Compliance - Failure to obtain contracts for sub-contractors of the primary sub-contractor agreeing to American Iron and Steel Act (AIS) and other compliance requirements and failure to obtain documentation for quantities of AIS compliant materials for some iron and steel products. Criteria: This program requires compliance with the AIS. Condition - Some of the manufacturer certifications for material subject to the AIS did not show the quantites or place of delivery. In addition, sub-contractors of the primary sub-contractor, did not sign contracts assuring their agreement with these requirements. It does not appear that any of these sub-contractors provided any material. In fact, they were generally individual "contractual workers". Questioned costs - None. Repeat finding - No. Cause: Adequate documentation of AIS compliance, apparently, was not obtained prior to approving payments. Sub-sub-contracts and missing quantities were ignored. Recomendation: The District should insist that contracts are obtained from all sub-contractors (including workers the contractor or sub-contractor pay on a contractual basis). All contractors should agree to comply with AIS provisions of the original contract. Verification of delivery of quanties of Iron and Steel products should be obtained and reviewed prior to approving partial pay estimates.