2022-001 The District did not have adequate internal controls for ensuring compliance with Davis-Bacon Act (prevailing wage rate) requirements. Assistance Listing Number and Title: 84.425, COVID-19 ? Education Stabilization Fund Federal Grantor Name: U.S. Department of Education Federal Award/Contract Number: N/A Pass-through Entity Name: Office of Superintendent of Public Instruction Pass-through Award/Contract Number: COVID-19, 84.425D-120372 COVID-19, 84.425U-138075 COVID-19, 84.425U-137123 COVID-19, 84.425U-712253 Known Questioned Cost Amount: $0 Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In fiscal year 2022, the District expended a total of $702,732 in federal funding under its ESF awards. This included $208,180 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), and $494,552 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). The Davis-Bacon Act requires contractors and subcontractors that work on construction contracts in excess of $2,000 financed with federal financial assistance to pay laborers and mechanics prevailing wages?the wage rates the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. Prevailing wage rate requirements specify that the contract between the District and the prime contractor includes specific language to ensure contractors and subcontractors are paid at prevailing wage rates. Additionally, the District is required to collect certified payroll reports from contractors and subcontractors, which include copies of their payroll and signed ?Statement of Compliance.? Description of Condition The District hired one contractor to upgrade the public address system for the Wind River Middle School. This project was part of the District?s school facility capital improvement efforts to prevent the spread of COVID-19 and enable its schools to operate by creating space for social distancing. During the 2021-22 school year, the District expended $85,933 from its ESSER II award for work performed on the project. Our audit found the District did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the District did not enter into a contract with the prime contractor that included prevailing wage rate clauses. Additionally, the District did not monitor to ensure staff collected all certified payroll reports from the contractor to confirm that it paid laborers the proper prevailing wages. We consider this internal control deficiency to be a material weakness that led to material noncompliance. The issue was not reported as a finding in the prior audit. Cause of Condition Due to the effects of the COVID-19 pandemic, it was crucial for the District to quickly improve the building where the new middle school would operate. Due to the small size and the immediate need to complete the project, the District?s IT department managed the upgrade. However, the District employees responsible for overseeing the project were not aware of wage rate requirements. Effect of Condition Without adequate internal controls, the District cannot demonstrate it complied with the Davis-Bacon Act requirements, which could place it at risk for paying any additional wages if the contractor did not pay prevailing wage rates to laborers. For this project, the District was required to obtain a total of 13 weekly certified payroll reports. The contractor had submitted all required payroll reports for the project to the Washington State Department of Labor and Industries, so the District was subsequently able to collect them during our audit. Recommendation We recommend the District develop internal controls to ensure compliance with federal wage rate requirements. This should include inserting prevailing wage clauses into contracts, as well as implementing effective monitoring processes to ensure the District collects and reviews all certified payroll reports from contractors and subcontractors on a weekly basis. District?s Response All parties contracting services will receive training on prevailing wage compliance. The business manager will review and ensure the requirements are being met. Auditor?s Remarks We appreciate the District?s commitment to resolve this finding and thank the District 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 Part 5 Subpart A, Davis-Bacon and Related Acts Provisions and Procedures, 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).