FINDING 2024-009
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 Number: 84.425U
Federal Award Number and Year (or Other Identifying Number): S425U210013
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Special Tests and Provisions - Wage Rate Requirements
Audit Findings: Material Weakness, Modified Opinion
This is a repeat finding from the immediately prior audit report. The prior audit finding number was
2022-005.
Condition and Context
Internal control is generally defined as a process affected by an entity's oversight body, management,
and other personnel that provides reasonable assurance that the objectives of an entity will be
achieved. With respect to federal awards, nonfederal entities, such as the School Corporation, are required
to establish and maintain internal control over federal awards that provides reasonable assurance that the
non-federal entity is managing the federal award in compliance with federal statutes, regulations, and terms
and conditions of the federal awards.
Internal control is not one event or circumstance, but a dynamic and iterative process. The internal
control process is based on fundamental principles that operate as a whole but are best understood when
analyzed individually. The fundamental principles are related to five components of internal control which
are as follows: Control Environment, Risk Assessment, Control Activities, Information and Communication,
and Monitoring. If a component is not effective, or the components are not operating together in an
integrated manner, then an internal control system cannot be effective. Deficiencies as noted below were
identified in the risk assessment, monitoring, and control activities components.
Risk Assessment
The School Corporation has not established a formal risk assessment process. There is no
documented risk assessment policy, nor is there evidence of periodic risk identification,
analysis, or evaluation.
INDIANA STATE BOARD OF ACCOUNTS
36
CANNELTON CITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Monitoring
The School Corporation did not conduct ongoing or periodic reviews to ensure that internal
controls were operating as intended and to identify areas for improvement. Furthermore, the
School Corporation did not have a process to follow up on corrective actions written as a
response to audit findings.
Control Activities
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 did not have policies and procedures in place to ensure that contractors
were paid prevailing wage rates for contracts in excess of $2,000 that were paid from federal grant funds.
The one contract tested did not include the required prevailing wage rate clause, and the contractor did not
submit the certified payrolls to the School Corporation.
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 awards 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 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.
INDIANA STATE BOARD OF ACCOUNTS
37
CANNELTON CITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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) Payrolls and basic records. . . .
(ii)
(A) The contractor shall submit weekly for each week in which any contract work
is performed a copy of all 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 payrolls to the applicant, sponsor, or
owner, as the case may be, for transmission to the (write in name of agency).
The payrolls submitted shall set out accurately and completely all of the
information required to be maintained under 29 CFR 5.5(a)(3)(i), except that
full social security numbers and home addresses shall not be included on
weekly transmittals. . . ."
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 of the School Corporation had not taken steps to design and implement policies and
procedures to assess risks facing the School Corporation or to establish and operate monitoring activities
that monitor the internal control system. Additionally, management of the School Corporation did not take
steps to ensure compliance with the requirement, such as amending the contract and requesting future
payroll certifications, after being made aware of noncompliance during the last audit engagement.
INDIANA STATE BOARD OF ACCOUNTS
38
CANNELTON CITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Effect
As a result of the five components of internal control not being adequately designed and implemented,
the internal control system cannot be effective. Thus, general risks or specific risks from fraud and
significant changes could negatively impact the School Corporation, identified internal control deficiencies
could continue, and unidentified flaws within the internal control system could exist. Furthermore, not taking
corrective action after the last audit led to additional noncompliance.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the School Corporation's management establish a proper system of internal
controls, which would include policies and procedures related to risk assessment and monitoring.
Additionally, we recommended that the School Corporation's management establish a system of internal
controls and include the wage rate requirement clause in construction contracts and obtain certified payrolls
as required.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.