2022-002 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 Public Instruction Pass-through Award/Contract Number: COVID-19, 84.425U ? 0140019 COVID-19, 84.425D ? 0120386 COVID-19, 84.425U ? 0138086 COVID-19, 84.425U ? 0137046 COVID-19, 84.425U ? 0142124 COVID-19, 84.425W ? 0459542 COVID-19, 84.425U ? 0712125 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 $5,980,651 in federal funding under its ESF awards. This included $2,339,665 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), $3,627,257 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $13,729 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 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 subcontractors 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. The District may use a contracted project manager to collect certified payroll reports from contractors and subcontractors, but ultimately, it is the District?s responsibility to comply with these requirements and maintain documentation demonstrating compliance. Description of Condition The District hired one contractor to update the heating, ventilation and air conditioning controls in school buildings to improve air quality and circulation to prevent the spread of COVID-19, and hired a second contractor for high school track improvements. During the 2021?2022 school year, the District paid $4,661,461 from its ESSER II and III awards for work the contractors and their subcontractors performed on these projects. 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: ? Include the required prevailing wage provision in the contracts established with its contractors ? Collect, or ensure the project manager collected, weekly certified payroll reports from the contractors and their subcontractors to confirm 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 While District officials knew about state prevailing wage requirements, they were unaware of the federal requirements since these contracts were the District?s first federally funded construction projects. Specifically, officials did not know the District needed to obtain all certified payroll reports each week and that the contract between the District and the contractors needed to include specific language to meet prevailing wage rate requirements. Effect of Condition Without adequate internal controls that ensure it includes the prevailing wage rate clauses in its contracts and collects 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 contractors and subcontractors did not pay prevailing wage rates to laborers working on the contracts. Recommendation We recommend the District develop internal controls that ensure compliance with federal wage rate requirements. This should include inserting prevailing wage rate clauses into contracts, as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. Additionally, we recommend the District consider the benefit of additional training to ensure staff overseeing compliance with federal programs are aware of all applicable requirements. District?s Response The District Management relied upon the contracted Project Manager & company to ensure all applicable laws were followed. The District used Department of Enterprise to manage the replacement of the HVAC system at the Middle & Elementary schools, which was a recommended use of funds by WA OSPI. The District was not aware of the requirement to collect weekly, certified payroll reports from the contractor. Should the district utilize federal funds for future construction projects, district management will request weekly certified payrolls from the construction company. Auditor?s Remarks We thank the District for its cooperation and assistance during the audit, and acknowledge its commitment to improving the condition described. We will review the status of this issue 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 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.