2022-001 The District did not have adequate internal controls for ensuring compliance with 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 PublicInstruction Pass-through Award/Contract Number: COVID-19, 84.425D-120235, COVID-19, 84.425D-120566, COVID-19, 84.425U-138272, COVID-19, 84.425U-140013, COVID-19, 84.425U-140610, COVID-19, 84.425U-142118, COVID-19, 84.425U-142137, COVID-19, 84.425U-137262, COVID-19, 84.425U-712014, COVID-19, 84.425U-712207, COVID-19, 84.425W-459538 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 spent $30,567,612 of its ESF awards. This included $12,047,944 in the Elementary and Secondary School Emergency Relief (ESSER I and II) Fund subprogram (84.425D), $18,490,882 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $28,786 in the American Rescue Plan Elementary and Secondary School Emergency Relief ? Homeless Children and Youth (ARP ESSER ? HCY I and II) subprogram (84.425W). Federal regulations require award recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding grant 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 money must pay laborers and mechanics wage rates that the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. For construction contracts subject to these wage rate requirements, the District must include a provision that the contractor and subcontractor comply with those requirements and the Department of Labor?s regulations. This includes a requirement for the contractor and its subcontractor to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition During the 2021?2022 school year, the District paid $3,021,357 from its ESSER III award to one contractor and its subcontractors for heating, ventilation and air conditioning upgrades in 11 school buildings to improve air quality and circulation to prevent the spread of COVID-19. Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements. Specifically, the District did not collect weekly certified payroll reports from the contractor and subcontractors to confirm they paid laborers proper prevailing wages. We consider this deficiency in internal controls to be a material weakness, which led to material noncompliance. The issue was not reported as a finding in the prior audit. Cause of Condition District officials did not know they had to obtain weekly certified payroll reports when using federal funds for construction projects. Effect of Condition Without adequate internal controls that ensure it collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District 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 contracts. During the audit period, the District was required to collect certified payroll reports from one contractor and nine subcontractors. We found the District should have obtained a total of 99 weekly certified payroll reports. Since the contractor and subcontractors submitted all required payroll reports for the projects to the Washington State Department of Labor and Industries, the District was subsequently able to collect them during our audit. Recommendation We recommend the District develop internal controls that ensure compliance with federal prevailing wage rate requirements. Additionally, we recommend the District implement effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District?s Response The District takes seriously its role for stewardship of public resources and prides itself on developing and maintaining systems of strong internal controls. To this end, the District has already taken steps to ensure additional compliance steps are followed for any federally funded construction projects. The District will also ensure staff are appropriately trained on these requirements. It is important to note that the District does have a well-established internal control process to check for compliance with state prevailing wage requirements. Unlike federal law, state law does not require collection and review of certified payroll records for public works. The District generally does not use federal funds for public works contracts and so this difference in protocol was missed. During the course of the audit, when made aware of, the District immediately took steps to obtain and review all certified payroll documents from the beginning of the project to current and verified that the contractor was compliant with federal prevailing wage rules. This information was provided to the Auditors. Federal Way Public Schools appreciates the efforts of the State Auditor?s Office in conducting their annual audit. Given the receipt of one-time federal dollars districts received to support and mitigate the impacts of the COVID-19 pandemic, coupled with the fact that federal dollars are rarely ever used to support public works projects, the District believes all districts statewide would have benefited and audit findings could have been reduced had there been greater awareness and callouts from supporting state agencies for the additional federal reporting requirements. Auditor?s Remarks We appreciate the District?s commitment to resolving the issue. We will review the condition during our 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. 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).