FINDING 2024-004
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
Condition and Context
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 construction contracts in excess of $2,000 paid from federal grant funds included a prevailing wage
rate clause. Two construction contracts, totaling $9,625 from ESSER funds, were paid during the audit
period. The contracts did not include the required prevailing wage rate clause, nor were the certified
payrolls submitted by both the contractors.
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
METROPOLITAN SCHOOL DISTRICT OF NORTH POSEY COUNTY
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
29 CFR 5.5 states in part:
"(a) Required contract clauses. 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) Wage rates and fringe benefits. 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) 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. . . ."
INDIANA STATE BOARD OF ACCOUNTS
21
METROPOLITAN SCHOOL DISTRICT OF NORTH POSEY COUNTY
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
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
The School Corporation was unaware of the Davis Bacon Act and its requirements on contracts
which use federal funds. This resulted in no internal control for the wage rate requirements for these
contracts.
Effect
Without the proper implementation of an effectively designed system of internal controls, there were
no internal controls to verify compliance for federal funds spent on construction. As a result, construction
contracts entered into did not contain the required wage rate requirements clauses nor were certified
payrolls obtained by the School Corporation.
Noncompliance with the grant agreement and the compliance requirement could result in the loss
of future federal funds to the School Corporation
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the School Corporation's management establish a system of internal
controls and include the wage rate requirement clause in construction contracts. In addition, certified
payrolls should be obtained as required.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.