FINDING 2024-014
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
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.
All laborers and mechanics employed by contractors or subcontractors to work on construction
contracts in excess of $2,000 financed by federal assistance funds must be paid wages not less than those
established for the locality of the project (prevailing wage rates) by the Indiana Department of Labor (DOL).
Nonfederal entities shall include in their construction contracts subject to the Wage Rate
Requirements a provision that the contractor or subcontractor comply with those 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 (certified payrolls).
The School Corporation had not implemented procedures to ensure the applicable wage rate
requirements were included in the contract and had also not designed or implemented policies or
procedures to ensure that contractors or subcontractors submitted certified payrolls weekly.
During the audit period, the School Corporation received five contractor pay applications for a
construction contract subject to the Wage Rate Requirements which included labor charges that were paid
with COVID-19 - Education Stabilization Fund grant awards. Of the five pay applications with labor charges,
the School Corporation had obtained some (not all) certified payrolls for three pay applications and had
obtained no certified payrolls for two of the pay applications. Through inquiry with the School Corporation,
it was determined the certified payrolls that were obtained were obtained as the result of an Indiana
Department of Education Construction Monitoring Review request.
The lack of internal controls was systemic throughout the audit period.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
INDIANA STATE BOARD OF ACCOUNTS
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HUNTINGTON COUNTY COMMUNITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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) 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]. . . ."
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. . . .
INDIANA STATE BOARD OF ACCOUNTS
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HUNTINGTON COUNTY COMMUNITY SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
(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 did not have an effective internal control system in place
to detect noncompliance when the contractor did not provide the School Corporation with a copy of the
certified payroll and statement of compliance for all construction invoices.
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, not all certified payrolls were provided to the School Corporation by the
contractor. Noncompliance with the provisions of federal statutes, regulations, and the terms and conditions
of the federal award could result in the loss of future federal funding to the School Corporation.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that management of the School Corporation establish a proper system of
internal controls and develop policies and procedures to ensure that all certified payrolls are provided to
the School Corporation from the contractor.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.