Finding Text
FINDING 2024-005
Subject: COVID-19 - Education Stabilization Fund - Special
Tests and Provisions - Wage Rate Requirement
Federal Agency: Department of Education
Federal Program: COVID-19 - Education Stabilization Fund
Assistance Listings Number: 84.425D
Federal Award Number and Year (or Other Identifying Number): S425D210013
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Special Tests and Provisions - Wage Rate Requirement
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
2022-001.
Condition and Context
An effective internal control system was not designed or implemented at the School Corporation
to ensure compliance with requirements related to the grant agreement and the Special Tests and
Provisions - Wage Rate Requirements compliance requirement.
INDIANA STATE BOARD OF ACCOUNTS 23
SCHOOL CITY OF MISHAWAKA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
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 includes a requirement for the contractor or subcontractor
to submit to the nonfederal entity weekly, for each week in which any contract work is performed,
a copy of the payroll and a statement of compliance.
The School Corporation did not have adequate policies or procedures to ensure that all construction
contracts in excess of $2,000 paid from federal grant funds included a prevailing wage rate clause or
certified payrolls were submitted. The School Corporation entered into three contracts during the audit
period that were subject to the wage rate requirements. Two of the three contracts did not have the required
prevailing wage rate clause included in the contract nor were certified payrolls submitted to the unit for each
week in which construction was performed for these two same contractors.
The lack of internal controls and noncompliance during the audit period was isolated to the two
contracts noted above.
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). . . ."
29 CFR 5.5 states in part:
"(a) The Agency head shall cause or require 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 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 acts listed in § 5.1, the
following clauses . . .
(1) Minimum wages.
INDIANA STATE BOARD OF ACCOUNTS
24
SCHOOL CITY OF MISHAWAKA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(i) All laborers and mechanics employed or working upon the site of the work (or
under the United States Housing Act of 1937 or under the Housing Act of 1949 in the
construction or development of the project), 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 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) Records and certified payrolls . . .
(ii) Certified payroll requirements
(A) Frequency and method of submission. 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]. The prime contractor is
responsible for the submission of all certified payrolls by all subcontractors. A
contracting agency or prime contractor may permit or require contractors to
submit certified payrolls through an electronic system, as long as the electronic
system requires a legally valid electronic signature; the system allows the
contractor, the contracting agency, and the Department of Labor to access the
certified payrolls upon request for at least 3 years after the work on the prime
contract has been completed; and the contracting agency or prime contractor
permits other methods of submission in situations where the contractor is
unable or limited in its ability to use or access the electronic system. . . ."
2 CFR 200 Appendix II states in part:
"In addition to other provisions required by the Federal agency or non-Federal entity; all
contracts made by the non-Federal entity under the Federal award must contain provisions
covering the following, as applicable. . . .
(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. . . ."
Cause
Management had not established a system of internal controls that would ensure compliance
including ensuring that the required clause was included in the contracts and that certified payrolls were
received for the Special Tests and Provisions - Wage Rate Requirements compliance requirement.
INDIANA STATE BOARD OF ACCOUNTS
25
SCHOOL CITY OF MISHAWAKA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Effect
The failure to establish an effective system of internal controls over the Special Test and
Provisions - Wage Rate Requirement resulted in two contracts not meeting the guidelines established.
Noncompliance with the grant agreement and the compliance requirement could result in the repayment of
federal funds.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the School Corporation's management establish internal controls to ensure
compliance and comply with the grant agreement and the Special Tests and Provisions - Wage Rate
Requirements compliance requirement.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.