Finding 1137855 (2024-003)

Material Weakness
Requirement
N
Questioned Costs
-
Year
2024
Accepted
2025-05-22

AI Summary

  • Core Issue: The District lacked adequate internal controls and did not comply with federal wage rate requirements for contractors on federally funded projects.
  • Impacted Requirements: Failure to include wage rate clauses in contracts and collect certified payroll reports led to material noncompliance with federal regulations.
  • Recommended Follow-Up: Strengthen internal controls, implement monitoring processes for payroll reports, and provide training for staff on compliance requirements.

Finding Text

Castle Rock School District No. 401 September 1, 2023 through August 31, 2024 2024-003 The District did not have adequate internal controls and did not comply with federal wage rate requirements. Assistance Listing Number and Title: 84.425, COVID-19 Education Stabilization Fund Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: COVID-19, 84.425D-02372 COVID-19, 84.425D-0120374 COVID-19, 84.425U-0138017 COVID-19, 84.425D-0459515 COVID-19, 84.425U-0137066 COVID-19, 84.425D Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In fiscal year 2024, the District reported total expenses of $1,603,672 of its ESF awards. This included $203,142 in the Elementary and Secondary School Emergency Relief Fund (ESSERII) subprogram (84.425D) and $1,400,529 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram, (84.425U). Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls. Under federal wage rate requirements, also known as the Davis-Bacon Act, contractors and subcontractors that work on projects financed with more than $2,000 of federal funds must pay laborers and mechanics wage rates that the U.S. Department of Labor considers similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the District must include a provision that the contractors and subcontractors must comply with those requirements and the Department of Labor’s regulations. This includes a requirement that the contractors and its subcontractors must submit certified payrolls reports to the District weekly, for each week that laborers performed contract work. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition The District spent $1,035,138 for payments to five contractors for eight projects to update the heating, ventilation and air conditioning (HVAC) system controls and repair insulation in its facilities. Our audit found the District did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the District did not: • Include the required wage rate provisions in all the contracts • Collect weekly certified payroll reports from five contractors and subcontractors to confirm they paid laborers the proper prevailing wages We consider these deficiencies in internal controls to be material weaknesses that led to material noncompliance. Cause of Condition District staff did not know about the federal wage rate contract clause requirement. Additionally, when the District paid for work on some of the projects, staff did not intend to use federal funds to pay for the costs. As a result, the District did not follow requirements to obtain and review certified payrolls before payment. Effect of Condition Without adequate internal controls to ensure it includes the wage rate clauses in its contracts and collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District could also be liable for paying any additional wages if the contractor and subcontractor did not pay prevailing wage rates to laborers working on the contract. The District did not collect eight out of a total of 73 weekly certified payroll reports. Also, the District did not include federal wage provisions in seven out of eight contracts. Recommendation We recommend the District strengthen internal controls to ensure compliance with federal wage rate requirements. This should include inserting wage rate clauses into contracts, as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports from contractors and subcontractors. Additionally, we recommend the District provide training to ensure staff overseeing compliance with federal programs are aware of all applicable requirements. District’s Response The District will: • Provide a check list for finance, facilities, and procurement staff on Davis- Bacon compliance requirements, including how to access and apply wage determinations from SAM.gov. • Require all contractors and subcontractors on federally funded projects to sign certifications of compliance with federal wage laws. • Implement a checklist for federal construction projects. • Provide training to all relevant staff on reviewing and verifying certified payroll reports. Auditor’s Remarks We thank the District for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the District’s corrective action during our next audit. Applicable Laws and Regulations Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), section 516, Audit findings, establishes reporting requirements for audit findings. Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes the requirements for auditees to maintain internal controls over federal programs and comply with federal program requirements. The American Institute of Certified Public Accountants defines significant deficiencies and material weaknesses in its Codification of Statements on Auditing Standards, section 935, Compliance Audits, paragraph 11. Title 29 CFR, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports. Title 29 CFR, Section 5.5 – Contract provisions and related matters establishes the requirements for 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 with federal funds the clauses listed, which includes but is not limited to the minimum wages to be paid and payrolls and basic records to be maintained (submission of weekly certified payrolls).

Categories

Procurement, Suspension & Debarment Subrecipient Monitoring Allowable Costs / Cost Principles Material Weakness Reporting

Other Findings in this Audit

  • 561404 2024-002
    Material Weakness Repeat
  • 561405 2024-002
    Material Weakness Repeat
  • 561406 2024-002
    Material Weakness Repeat
  • 561407 2024-002
    Material Weakness Repeat
  • 561408 2024-003
    Material Weakness
  • 561409 2024-003
    Material Weakness
  • 561410 2024-003
    Material Weakness
  • 561411 2024-003
    Material Weakness
  • 561412 2024-003
    Material Weakness
  • 561413 2024-003
    Material Weakness
  • 1137846 2024-002
    Material Weakness Repeat
  • 1137847 2024-002
    Material Weakness Repeat
  • 1137848 2024-002
    Material Weakness Repeat
  • 1137849 2024-002
    Material Weakness Repeat
  • 1137850 2024-003
    Material Weakness
  • 1137851 2024-003
    Material Weakness
  • 1137852 2024-003
    Material Weakness
  • 1137853 2024-003
    Material Weakness
  • 1137854 2024-003
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
84.010 Title I Grants to Local Educational Agencies $354,481
10.553 School Breakfast Program $170,353
84.425 Covid 19 - Education Stabilization Fund $86,942
10.555 National School Lunch Program $64,977
84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants) $28,848
32.009 Covid 19 - Emergency Connectivity Fund Program $23,100
84.048 Career and Technical Education -- Basic Grants to States $17,924
84.027 Special Education Grants to States $5,033
84.173 Special Education Preschool Grants $4,999
10.665 Schools and Roads - Grants to States $4,323