FINDING 2024-003
Subject: COVID-19 - Education Stabilization Fund - Special
Tests and Provisions - Wage Rate Requirements
Federal Agency: Department of Education
Federal Program: COVID-19 - Education Stabilization Fund
Assistance Listings Numbers: 84.425D, 84.425U
Federal Award Numbers and Years (or Other Identifying Numbers): S425D210013, S425U210013
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Special Tests and Provisions - Wage Rate Requirements
Audit Findings: Material Weakness, Modified Opinion
Repeat Finding
This is a repeat finding from the immediately prior audit report. The prior audit finding number was
2022-004.
Condition and Context
An effective internal control system, which would include segregation of duties, was not in place at
the School Corporation in order to ensure compliance with requirements related to the grant agreement
and the Special Tests and Provisions - Wage Rate Requirements compliance requirement.
Construction contracts in excess of $2,000 financed by federal assistance funds must pay wages
not less than those established for the locality of the project (prevailing wage rates) by the Department of
Labor (DOL) to their laborers and mechanics. Nonfederal entities are to include in their construction
contracts subject to the Wage Rate Requirements a provision that the contractor or subcontractor comply
with these requirements and the DOL regulations. This would include a requirement to submit a copy of
the payroll and statement of compliance to the entity for each week in which contract work was performed.
The School Corporation had not designed, nor implemented, a system of internal controls to ensure
that the wage rate requirements were met for construction projects. The School Corporation contracted
with a company to complete a greenhouse for $705,886 to be fully paid with the Education Stabilization
Funds (ESF) and another company to complete a cafeteria for $5,221,000 to be partially paid from the ESF.
Although both contracts included Wage Rate Requirements, only one certified payroll from a single
subcontractor was presented for audit pertaining to these to construction contracts.
The lack of internal controls and noncompliance were systemic issues throughout the audit period.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
(a) Establish and maintain effective internal control over the Federal award that provides
reasonable assurance that the non-Federal entity is managing the Federal award in
compliance with Federal statutes, regulations, and the terms and conditions of the Federal
award. These internal controls should be in compliance with guidance in 'Standards for
Internal Control in the Federal Government' issued by the Comptroller General of the
United States or the 'Internal Control Integrated Framework', issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). . . ."
INDIANA STATE BOARD OF ACCOUNTS
20
EAST WASHINGTON SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
29 CFR 5.5 states in part:
"(a) The Agency head will cause or require the contracting officer to require the contracting
officer to insert in full, or (for contracts covered by the Federal Acquisition Regulation
(48 CFR chapter 1)) by reference, 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 from Federal funds or in
accordance with guarantees of a Federal agency or financed from funds obtained by pledge of
any contract of a Federal agency to make a loan, grant or annual contribution (except where a
different meaning is expressly indicated), and which is subject to the labor standards provisions
of any of the laws referenced by § 5.1, the following clauses . . .
(1) Minimum wages—
(i) All laborers and mechanics employed or working upon the site of the work (or
otherwise working in construction or development of the project under a development
statute), will be paid unconditionally and not less often than once a week, and without
subsequent deduction or rebate on any account (except such payroll deductions as
are permitted by regulations issued by the Secretary of Labor under the Copeland Act
(29 CFR part 3)), the full amount of basic hourly wages and bona fide fringe benefits
(or cash equivalents thereof) due at time of payment computed at rates not less than
those contained in the wage determination of the Secretary of Labor which is attached
hereto and made a part hereof, regardless of any contractual relationship which may
be alleged to exist between the contractor and such laborers and mechanics. . . .
(3) . . .
(ii)
(A) The contractor or subcontractor must submit weekly, for each week in which
any DBA- or Related Acts-covered work is performed, certified payrolls to the [write
in name of appropriate Federal agency] if the agency is a party to the contract, but if
the agency is not such a party, the contractor will submit the certified payrolls to the
applicant, sponsor, owner, or other entity, as the case may be, that maintains such
records, for transmission to the (write in name of agency). . . ."
Cause
The School Corporation's management had not implemented any type of internal control to ensure
that contractors and subcontractors were properly submitting certified payrolls. Due to this lack of internal
control, only one certified payroll was submitted during the audit period.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
internal control system cannot be capable of effectively preventing, or detecting and correcting, material
noncompliance. As a result, the School Corporation had not properly obtained and reviewed certified
payrolls from contractors and subcontractors of projects funded with federal dollars.
Noncompliance with the grant agreement and the compliance requirement could result in the loss
of federal funds to the School Corporation.
INDIANA STATE BOARD OF ACCOUNTS
21
EAST WASHINGTON SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the School Corporation's management design and implement a proper
system of internal controls and develop policies and procedures to ensure all applicable construction
contracts to be paid with federal dollars include payroll certifications provided to the School Corporation for
review.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
INDIANA STATE BOARD OF ACCOUNTS
22