Finding Text
SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Town of Malden January 1, 2023 through December 31, 2023 2023-002 The Town did not have adequate internal controls and did not comply with federal wage rate requirements. Assistance Listing Number and Title: 14.228 Community Development Block Grants/State’s Program and Non-Entitlement Grants in Hawaii Federal Grantor Name: U.S. Department of Housing and Urban Development Federal Award/Contract Number: N/A Pass-through Entity Name: Washington State Department of Commerce Pass-through Award/Contract Number: 21-32210-033; 21-62219-019 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The primary objective of the Community Development Block Grants (CDBG)/State’s Program and Non-Entitlement Grants in Hawaii (State CDBG Program) is the development of viable communities by providing decent housing, a suitable living environment, and expanded economic opportunities, primarily for people of low-and moderate-income. In 2023, the Town spent $917,050 in CDBG 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 Town 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 Town 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 During 2023, the Town spent $577,279 in program funds under award number 21-62210-033 to pay one contractor for construction of a new fire station. Our audit found the Town did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the Town did not collect all weekly certified payroll reports from two 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 Town does not usually use federal funds on public works projects. While Town staff knew about wage rate requirements, they overlooked collecting some of the weekly certified payroll reports. Effect of Condition Without adequate internal controls to ensure it collects all weekly certified payroll reports, the Town cannot demonstrate it complied with federal wage rate requirements. The Town could also be liable for paying any additional wages if the subcontractors did not pay prevailing wage rates to laborers working on the contract. The Town did not collect 17 out of 59 weekly certified payroll reports we tested. Recommendation We recommend the Town strengthen internal controls to ensure compliance with federal wage rate requirements. This should include implementing effective monitoring processes to collect and review all weekly certified payroll reports from contractors and subcontractors. Town’s Response We agree with the SAO staff as far as the Town staff being new to federal grants and the requirements of recordkeeping associated with it. It is obvious that the Town staff can not handle the workload of administering all the grants that the town has obtained since the 2020 Babb Road Fire. We are in the process of contracting an outside party that will handle most of the current grants. The Town staff thought they processed all the certified payroll information that was received. We were surprised that there were some missing. The State Department of Commerce has been working with the staff on making sure that the certified payroll process was complete. With any future grants we will make sure that Town staff will pursue training on Certified Payroll to make sure all papers are received. Auditor’s Remarks We appreciate the Town’s commitment to resolve this finding and thank the Town for its cooperation and assistance during the audit. We will review corrective action taken during the 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.