SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS North Franklin School District No. J51-162 September 1, 2021 through August 31, 2022 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 Public Instruction Pass-through Award/Contract Number: COVID-19, 84.425D ? 0712054 COVID-19, 84.425U ? 0120393 COVID-19, 84.425U ? 0138123 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 $2,502,682 in federal funding under its ESF awards. This included $8,830 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $2,493,852 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). 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. Description of Condition During the 2021?22 school year, the District spent $245,624 from its ESSER III award to pay one contractor and its subcontractors for upgrading the District?s heating, ventilation and air conditioning system. This project was part of the District?s school facility capital improvement efforts to prevent the spread of COVID-19 and enable school operations by facilitating greater air flow and filtration. 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 contract ? Collect weekly certified payroll reports from the contractor and its 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 this was the District?s first federally funded construction project. Specifically, District officials did not know the District needed to obtain all certified payroll reports each week and that the contract between the District and the contractor 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 contractor and subcontractors did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the District develop internal controls to 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 This was North Franklin School District?s first federally funded construction project. In previous years, construction projects have been state or locally funded. The District did comply with requirements for state or locally funded construction projects. This particular project was funded through ESSER funds which are considered federal funds. Federal funds require a different set of guidelines. In the future, if the District uses federal funds for construction projects, the District will include a provision that the contractor or subcontractors comply with requirements to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. These reports will include a copy of the payroll and a signed statement of compliance. The District will also include inserting the required prevailing wage provisions into the contract. Auditor?s Remarks We thank the district for its cooperation and assistance during the audit and acknowledge its commitment to taking immediate action on the condition described. We will follow up on the status of this issue during the next scheduled 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.