Finding 1238742 (2025-001)

2025-001 The County did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Assistance Listing Number and Title: 11.463 Habitat Conservation Federal Grantor Name: National Oceanic and Atmospheric Administration, Department of Commerce Federal Award/Contract Number: NA23NMF4630090 NA23NMF4630025 NA24NMFX463C0038 Pass-through Entity Name: The Tulalip Tribes of Washington; Washington State Department of Fish and Wildlife Pass-through Award/Contract Number: N/A; 23-22747 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A Background The purpose of the Habitat Restoration grant funds is to provide funds for habitat conservation activities including coastal and marine habitat restoration and protection. During fiscal year 2025, the County spent $3,688,636 in program funds. The County received subawards from the Tulalip Tribes of Washington and Washington State Department of Fish and Wildlife. The deficiency described below only impacts subawards the County received from the Tulalip Tribes of Washington. 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 County 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 County 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 fiscal year 2025, the County spent $2,189,879 in program funds to pay 21 contractors for the construction of waterway infrastructure to improve fish habitat. Our audit found the County did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the County did not include the required wage rate provisions in the contract. We consider this internal control deficiency to be a significant deficiency. Cause of Condition While County staff were aware of the federal wage rate requirements for the collection of weekly certified payrolls, they did not know about the federal guidelines that contracts needed to include specific language to meet federal wage rate requirements. Effect of Condition Without adequate internal controls to ensure it includes the wage rate clauses in its contracts, the County cannot demonstrate it complied with federal wage rate requirements. Additionally, because the County did not notify the contractor that the project was federally funded, the contractor submitted state-certified payroll reports instead of federal-certified payroll reports. The County 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. Recommendation We recommend the County strengthen internal controls to ensure compliance with federal wage rate requirements. This should include inserting wage rate clauses into contracts and obtaining federal certified payroll reports. County’s Response Controls are in place to ensure federal requirements are followed. All Specification Documents will undergo a mandatory compliance review by the contracting Division’s Contract Administrator and the Funding Coordinator prior to advertisement. This review will verify federal funding designation, confirm which federal terms apply based on funding source, and ensure that all required federal wage provisions are included. Auditor’s Remarks We appreciate the County’s commitment to resolve this finding and thank the County 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 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).