Enumclaw School District No. 216 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: COVID-19, 84.425D-0120359 COVID-19, 84.425U-0138220 COVID-19, 84.425U-0140071 COVID-19, 84.425W-0459008 Known Questioned Cost Amount: Prior Year Audit Finding: $0 Yes, Finding 2021-001 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 $2,138,589 in federal funding under its ESF awards. This included $539,050 in Elementary and Secondary School Emergency Relief (ESSER II) Fund subprogram (84.425D), $1,595,258 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER) subprogram (84.425U), and $4,281 in the American Rescue Plan Elementary and Secondary School Emergency Relief ? Homeless Children and Youth (ARP-HCY) subprogram (84.425W). Federal regulations require award recipients to establish and follow 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 construction contracts 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 contractors and subcontractors 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 $490,603 from its ESSER II and ESSER III awards to eight contractors. These contractors repaired or replaced building roofs and updated the heating, ventilation, and air conditioning systems at various 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. We tested two contractors and their subcontractors for the audit, and we found the District did not collect weekly certified payroll reports from them to confirm they paid laborers proper prevailing wages. We consider this internal control deficiency to be a material weakness that led to material noncompliance. Cause of Condition While District officials were aware of state prevailing wage requirements, they were unaware of the federal requirement to obtain weekly certified payrolls because these construction projects were the first ones the District paid for with federal funds. 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 contractors and subcontractors did not pay prevailing wage rates to laborers working on the contracts. During the 2021-2022 school year, the District was required to collect certified payroll reports from eight contractors. We sampled two of these contractors and found the District did not obtain any of the 23 total weekly certified payroll reports. The District subsequently collected all weekly certified payrolls. Recommendation We recommend the District develop internal controls that ensure compliance with federal prevailing wage rate requirements. This should include implementing an effective monitoring process to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District?s Response This repeat finding was the result of timing. Prior year?s 2020-2021 finding was discovered around the final quarter of the audited year 2021-2022. Due to its timing, it is not possible to go back and correct the whole fiscal year because the requirement needs to be completed in real time weekly. The District concurs with the description and cause of condition as presented by the State Auditor up until May 2022. May 2022 is the date when we implemented our corrective action plan. In its investigation of this matter prior to May 2022, the District learned there was an additional required step of weekly certified payroll collection for federally funded projects beyond those of our previously established practices. The district?s use of federal funds (ESSER funding) for capital projects is a new and uncommon practice that has only recently been an option. For these construction projects (HVAC, roofing, etc.) we were initially under the impression that KCDA, our purchasing cooperative and direct vendor for the projects, maintained responsibility for wage verifications and oversight for these projects. In addition, our normal process for verifying wages and proper payment through Labor and Industries was thought to be a further safeguard in this area. However, due to the specific requirements of the Davis-Bacon Act, we understand that weekly certified payroll collection is a responsibility of the school district for any federally funded construction contracts in excess of $2,000. As such, we have already implemented corrective action steps to ensure compliance with federal regulations. We have examined our current practice and have identified a process to resolve the certified payroll collection issue. We are collecting all certified payroll reports for federally funded projects on a weekly basis to include printing, date-stamping, and filing the certified payroll reports or electronically downloading and filing the certified payroll reports for review and verification of wages. 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).