Finding Text
SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS City of Stevenson January 1, 2024 through December 31, 2024 2024-001 The City did not have adequate internal controls and did not comply with federal wage rate requirements. Assistance Listing Number and Title: 11.307 - Economic Adjustment Assistance Federal Grantor Name: U.S. Department of Commerce Economic Development Administration Federal Award/Contract Number: N/A Pass-through Entity Name: N/A Pass-through Award/Contract Number: N/A Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The Economic Adjustment Assistance (EAA) program helps state and local governments respond to a variety of economic challenges. During fiscal year 2024, the City spent $2,009,721 in program funds. Federal regulations require recipients to establish, document and maintain effective 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 City 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 City weekly, for each week that laborers performed contract work. These reports must include a copy of the payroll and a signed statement of compliance. The City may use a contracted project manager to collect certified payroll reports from contractors and subcontractors, but ultimately, it is the City’s responsibility to comply with these requirements and maintain documentation demonstrating compliance. Description of Condition During fiscal year 2024, the City spent $2,009,721 for payments to one contractor to make improvements to the City’s wastewater collection system. Our audit found the City did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the City did not collect, or ensure the project manager collected, weekly certified payroll reports from the contractor and their subcontractors to confirm they paid laborers proper prevailing wages. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Cause of Condition The City experienced turnover in the position responsible for managing this program and City staff were unaware of federal wage rate requirements and the requirement to obtain and review certified payroll reports each week before payment. Effect of Condition Without adequate internal controls to ensure it collects all weekly certified payroll reports, the City cannot demonstrate it complied with federal wage rate requirements. The City could also be liable for paying any additional wages if the contractor and subcontractors did not pay prevailing wage rates to laborers working on the contract. The City did not collect 147 out of a total of 174 weekly certified payroll reports within the audit period. Recommendation We recommend the City strengthen internal controls to ensure compliance with federal wage rate requirements. This should include 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 City provide additional training to ensure staff overseeing compliance with federal programs are aware of all applicable requirements. City’s Response The City will strengthen oversight of federally funded projects by enhancing internal review and documentation processes. 1. A project compliance tracking form will be created and used for each project to document required wage rate verifications, funding sources, reporting deadlines, and accounting setup. This form will be reviewed and updated annually to ensure compliance with current federal requirements. 2. The City will also create a reimbursement tracking system to monitor project reimbursements and ensure consistency with the SEFA. 3. Staff responsible for project and grant administration will attend training opportunities related to federal compliance and wage rate requirements to ensure continued understanding and adherence. Auditor’s Remarks We appreciate the City’s response and commitment to resolving this finding. We thank it for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular 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.