Shelton School District No. 309
September 1, 2022 through August 31, 2023
2023-001 The District did not have adequate internal controls for ensuring compliance with federal wage rate requirements.
Assistance Listing Number and Title: 84.425 – COVID-19 Education Stabilization Fund
Federal Grantor Name: Department of Education
Federal Award/Contract Number: N/A
Pass-through Entity Name: Office of Superintendent of Public Instruction
Pass-through Award/Contract Number: COVID-19, 84.425U-138110
COVID-19, 84.425D-120504
COVID-19, 84.425U-137039
COVID-19, 84.425D-144557
COVID-19, 84.425W-459031
COVID-19, 84.425W-459604
COVID-19, 84.425U
COVID-19, 84.425D
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
The objectives of the Education Stabilization Fund (ESF) are to prevent, prepare for and respond to the COVID-19 pandemic. In the fiscal year 2023, the District spent a total of $7,172,673 of its ESF awards. This included $694,922 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), $6,403,577 in the American Rescue Plan Elementary and Secondary School Emergency Relief Fund (ARP ESSER/ESSER III) subprogram (84.425U) and $74,174 in the American Rescue Plan Elementary and Secondary School Emergency Relief – Homeless Children and Youth (ARP-HCY) subprogram (84.425W).
Federal regulations require recipients to establish and maintain 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 being similar to what local workers have been paid for similar projects.
For construction contracts subject to these wage rate requirements, the District must include a provision that the contractors and subcontractors comply with those requirements and the Department of Labor’s regulations. This includes a requirement for the contractors and their subcontractors to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance.
Description of Condition
During the 2023 school year, the District spent $240,684 for payments to six contractors for installing portable buildings under award number 84.425U-138110.
Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements. Specifically, the District did not:
Establish a contract with the contractors that included the required prevailing wage rate clauses
Collect weekly certified payroll reports from the contractors to confirm they paid laborers the proper prevailing wages
We consider these deficiencies in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
The District does not normally use federal funds on public works projects. District employees said they reviewed the Washington State Department of Labor and Industries (L&I) website when closing out the project to confirm the prime contractors submitted weekly certified payroll reports. However, District staff were unaware of the requirement to obtain and review certified payroll reports each week.
District management were unaware of the federal requirement to establish contracts that include the federal prevailing wage rate clauses.
Effect of Condition
Without adequate internal controls to ensure it includes the wage rate clauses in its contracts and collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. Additionally, because the District did not notify the contractors that the project was federally funded, the contractors submitted state certified payroll reports instead of federal certified payroll reports. The subcontractor did not submit any certified payroll reports. The District could also be liable for paying any additional wages if the contractors and subcontractor did not pay prevailing wage rates to laborers working on the contracts.
The District did not include federal wage rate provisions in its contracts and did not collect weekly certified payroll reports for six contractors and one subcontractor.
Recommendation
We recommend the District develop internal controls to ensure compliance with federal wage rate requirements. This should include inserting wage rate clauses into contracts and 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 District provide additional training to ensure staff overseeing compliance with federal programs are aware of all applicable requirements.
District’s Response
If federal funds are used for future construction projects, the Shelton School District will refer to the Davis-Bason Act for specific guidance. The district used the small work roster procedures based on Washington State law because we were not aware of the Davis-Bacon Act.
The Director of Facilities and Construction has been given a copy of the Davis-Bacon Act for future reference.
This is the first time the Shelton School District has used federal funds for construction in my 34 years in the district.
Auditor’s Remarks
We appreciate the steps the District is taking to resolve this issue. We will review the condition during our 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 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).