The District did not have adequate internal controls for ensuring compliance with allowable costs and federal wage rate requirements. Assistance Listing Number and Title: 84.425 COVID 19 – Education Stabilization Fund Federal Grantor Name: Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: 84.425D 145075 84.425D 135590 84.425D 120446 84.425U 137263 84.425U 138278 Known Questioned Cost Amount: $48.456 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 the fiscal year 2023, the District spent a total of $663,559 of its ESF awards. This included $229,802 in the Elementary and Secondary School Emergency Relief Fund (ESSERII) subprogram (84.425D) and $433,757 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). Federal regulations establish principles and standards for determining allowable direct and indirect costs for federal awards. All costs that recipients charge to the program must comply with program requirements and recipients must support this compliance with proper documentation that demonstrates costs are allowable. 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 being 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 comply with those requirements and the Department of Labor’s regulations. This includes a requirement for the contractors and its subcontractors to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition Allowable activities and costs The District’s internal controls were ineffective for ensuring it supported all costs it charged to the program. Specifically, the District claimed reimbursement for more expenditures than it had spent for the program. We consider this internal control deficiency to be a significant deficiency. Wage rate requirements During the 2023 school year, the District spent $112,469 for payments to two contractors for two projects for various improvements and repairs to 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 the contracts Collect weekly certified payroll reports from all contractors and subcontractors to confirm they paid laborers the proper prevailing wages We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition The District experienced turnover in the position responsible for managing this program and current staff could not locate supporting documentation for claimed expenditures, contracts and weekly certified payrolls. Effect of Condition and Questioned Costs Allowable costs and activities The District claimed and received reimbursement for $48,456 in unsupported expenditures. We are questioning these costs for award number 137263. Federal regulations require the State Auditor’s Office to report known questioned costs that are more than $25,000 for each type of compliance requirement. We question costs when we find the District has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures. Wage rate requirements 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 contractors and subcontractor did not pay prevailing wage rates to laborers working on the contracts. The District did not include federal wage rate provisions in its contracts and did not collect weekly certified payroll reports for two contractors. Recommendation Allowable costs We recommend the District ensure all costs it charges to federal programs are supported by documentation, allowable and comply with cost principles. Wage rate requirements We recommend the District design internal controls to ensure compliance with federal wage rate requirements. This should include inserting wage rate clauses into contracts and obtaining the federal certified payroll reports, 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 is setting a process up for getting federal wage requirement when projects are being completed. The district will also make sure that the proper training and time will go into allowable cost. 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 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting allowability of costs, describes the cost principles for how direct costs should be charged to federal programs. 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).