Meridian School District No. 505 September 1, 2021 through August 31, 2022 2022-001 The District did not have adequate internal controls for ensuring compliance with federal 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: 84.425D-120471, 84.425D-140511, 84.425U-138132, 84.425U-137129 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 a total of $1,760,422 in federal funding under its ESF awards. This included $858,630 in the Elementary and Secondary School Emergency Relief (ESSER II) Fund subprogram (84.425D), and $901,792 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). Federal regulations require award recipients to establish and follow 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 prevailing wage rates that the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. 16 Office of the Washington State Auditor sao.wa.gov 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?22 school year, the District spent $808,174 from its ESSER II award to pay seven contractors to install portable classrooms. Our audit found the District did not have adequate internal controls for ensuring compliance with wage rate requirements. Specifically, the District did not: ?Ensure the clause in the contract specifically conveyed the requirement ?Review weekly certified payroll reports submitted by the contractors toconfirm they paid laborers proper prevailing wages We consider these deficiencies 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 The District used a contract procured through a cooperative and believed the language included in the contract was adequate to convey the wage rate requirement. Further, the District was aware that the contractor needed to submit weekly certifications but were not aware of the federal guidelines to review those prior to payment. Instead, the District focused on the state requirements including the Affidavit of Wages paid that were submitted with each progress payment to ensure the higher of federal or state prevailing wage rates were paid. Effect of Condition Without adequate internal controls that ensure it includes the prevailing wage rate clauses in its contracts and reviews all weekly certified payroll reports, the District cannot demonstrate it complied with the federal wage rate requirements. The District could also be liable for paying any additional wages if the contractor and 17 Office of the Washington State Auditor sao.wa.gov subcontractors did not pay prevailing wage rates to laborers working on the contract. We were able to confirm that weekly certifications were submitted and that the higher of federal or state prevailing wages were paid. Therefore, we are not questioning any costs related to these projects. Recommendation We recommend the District strengthen internal controls to ensure compliance with federal wage rate requirements. This should include a process to ensure the prevailing wage rate clause in contracts clearly convey the applicable requirements. Further, the District should strengthen monitoring processes to ensure all weekly certified payroll reports are reviewed in a timely manner from contractors and subcontractors. District?s Response The district would like to thank the auditors for their work and recommendations regarding Davis-Bacon requirements. The district has implemented internal controls to ensure that contract language meets Davis-Bacon requirements. The district has also implemented internal controls to ensure that contractors submit weekly certified payroll and Davis-Bacon requirements are 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. 18 Office of the Washington State Auditor sao.wa.gov 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). 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. 19