2025-001 The Authority did not have adequate internal controls and did not comply with federal wage rate requirements. Assistance Listing Number and Title: 20.106, Airport Improvement Program, Infrastructure Investment and Jobs Act Programs, and COVID-19 Airports Programs Federal Grantor Name: Federal Aviation Administration Federal Award/Contract Number: DOT-FA24NM-0031, 3-53-0084-052-2024 DOT-FA25NM-008, 3-53-0084-054-2025 DOT-FA24NM-0032, 3-53-0084-055-2024 DOT-FA25NM-041, 3-53-0084-056-2025 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 objective of the Airport Improvement Program is to assist sponsors, owners, or operators of public-use airports in the development of a nationwide system of airports adequate to meet the needs of civil aeronautics. In fiscal year 2025, the Authority spent $19,296,133 in program funds for various improvements to its runways and airport terminal and acquiring snow removal equipment. 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 Authority 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 payroll reports to the Authority 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 Authority may use a contracted project manager or engineer to collect certified payroll reports from contractors and subcontractors, but ultimately, it is the Authority’s responsibility to comply with these requirements and maintain documentation demonstrating compliance. Description of Condition During fiscal year 2025, the Authority spent $15,755,593 in program funds to pay its two primary contractors for various improvements to its runways and airport terminal. Our audit found the Authority did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the Authority did not collect, or ensure project managers collected, weekly certified payroll reports from the contractors 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 Authority staff relied on two contracted engineers to collect weekly certified payrolls and did not fully understand the requirements for monitoring the contracted engineers and collecting this documentation. Effect of Condition Without adequate internal controls to ensure it collects all weekly certified payroll reports, the Authority cannot demonstrate it complied with federal wage rate requirements. The Authority could also be liable for paying any additional wages if the contractors and subcontractors did not pay prevailing wage rates to laborers working on the contracts. The Authority did not collect 201 out of 251 weekly certified payroll reports we tested. During the audit, the Authority subsequently collected all weekly certified payrolls. Recommendation We recommend the Authority 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 Authority provide training to ensure staff overseeing compliance with federal program are aware of all applicable requirements. Port’s Response The Port Authority acknowledges the State Auditor’s finding regarding internal controls over compliance with federal Davis-Bacon prevailing wage requirements. During the audit period, the Port Authority contracted with professional consultants to perform certain construction administration and federal compliance functions on federally funded capital projects. For the runway project, the Port Authority’s contracted engineer was assigned responsibility for collecting, reviewing, and verifying certified payroll and other prevailing wage documentation. For the General Aviation Terminal project, the contracted engineer was engaged to provide training and guidance to the project architect, who was then responsible for performing these compliance functions. Although these responsibilities were assigned to qualified professional consultants, the Port Authority recognizes that ultimate responsibility for compliance with federal grant requirements remained with the Port Authority. The Port Authority did not have a sufficiently documented internal control process to independently verify that all required certified payroll reports and related prevailing wage compliance reviews were being completed, documented, and retained throughout the projects. Following identification of this issue, the Port Authority worked with its consultants, contractors, and subcontractors to obtain the outstanding prevailing wage documentation. The Port Authority has subsequently collected the outstanding documentation, and no workers have been identified as having been paid less than the applicable prevailing wage requirements. The Port Authority agrees that its internal controls should be strengthened to provide greater oversight of federal compliance requirements, including requirements assigned to contracted consultants. The Port Authority has already begun implementing corrective measures, including the addition of a Contract Specialist with relevant federal contracting and compliance experience and the development of more comprehensive written procedures for federally funded projects. Auditor’s Remarks We appreciate the steps the Port Authority is taking to address these issues. We will follow up 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.