Finding Text
FINDING 2023-006
Subject: COVID-19 - Education Stabilization Fund - Special Tests
and Provisions - Wage Rate Requirements
Federal Program: COVID-19 - Education Stabilization Fund
Assistance Listings Numbers: 84.425D, 84.425U
Federal Award Numbers and Years (or Other Identifying Numbers): S425D210013, S425U200013
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Special Tests and Provisions - Wage Rate Requirements
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
Construction contracts in excess of $2,000 financed by federal assistance funds must pay wages
not less than those established for the locality of the project (prevailing wage rates) by the Department of
Labor (DOL) to their laborers and mechanics. Nonfederal entities are to include in their construction
contracts subject to the Wage Rate Requirements a provision that the contractor or subcontractor comply
with these requirements and the DOL regulations. This would include a requirement to submit a copy of
the payroll and statement of compliance to the entity for each week in which contract work was performed.
The School Corporation had not designed, nor implemented a system of internal controls to ensure
that construction contracts in excess of $2,000 paid from federal grant funds included a prevailing wage
rate clause. Three construction contracts, with expenditures totaling $2,416,190, were paid from the
COVID-19 - Education Stabilization Fund grant funds during the audit period. All three contracts were
tested. None of the contracts contained the required prevailing wage rate clause and two of three did not
have certified payrolls submitted by the contractors.
The lack of internal controls and noncompliance were systemic issues throughout the audit period.
INDIANA STATE BOARD OF ACCOUNTS
24
RANDOLPH CENTRAL SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Criteria
29 CFR 5.5 states in part:
"(a) The Agency head shall cause or require 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 from Federal funds or in accordance with guarantees of a Federal agency or
financed from funds obtained by pledge of any contract of a Federal agency to make a loan, grant
or annual contribution (except where a different meaning is expressly indicated), and which is
subject to the labor standards provisions of any of the acts listed in § 5.1, the following clauses
. . .
(1) Minimum wages.
(i) All laborers and mechanics employed or working upon the site of the work (or
under the United States Housing Act of 1937 or under the Housing Act of 1949 in
the construction or development of the project), will be paid unconditionally and
not less often than once a week, and without subsequent deduction or rebate on
any account (except such payroll deductions as are permitted by regulations
issued by the Secretary of Labor under the Copeland Act (29 CFR part 3)), the
full amount of wages and bona fide fringe benefits (or cash equivalents thereof)
due at time of payment computed at rates not less than those contained in the
wage determination of the Secretary of Labor which is attached hereto and made
a part hereof, regardless of any contractual relationship which may be alleged to
exist between the contractor and such laborers and mechanics. . . .
(3) Payrolls and basic records. . . .
(ii)
(A) The contractor shall submit weekly for each week in which any contract work
is performed a copy of all payrolls to the (write in name of appropriate federal
agency) if the agency is a party to the contract, but if the agency is not such a
party, the contractor will submit the payrolls to the applicant, sponsor, or owner,
as the case may be, for transmission to the (write in name of agency). . . ."
2 CFR 200 Appendix II states in part:
"In addition to other provisions required by the Federal agency or non-Federal entity; all
contracts made by the non-Federal entity under the Federal award must contain provisions
covering the following, as applicable. . . .
(D) Davis-Bacon Act, as amended (40 U.S.C. 3141-3148). When required by Federal
program legislation, all prime construction contracts in excess of $2,000 awarded by non-
Federal entities must include a provision for compliance with the Davis-Bacon Act (40
U.S.C. 3141-3144, and 3146-3148) as supplemented by Department of Labor regulations
(29 CFR Part 5, 'Labor Standards Provisions Applicable to Contracts Covering Federally
Financed and Assisted Construction'). In accordance with the statute, contractors must be
required to pay wages to laborers and mechanics at a rate not less than the prevailing
wages specified in a wage determination made by the Secretary of Labor. In addition,
contractors must be required to pay wages not less than once a week. . . ."
INDIANA STATE BOARD OF ACCOUNTS
25
RANDOLPH CENTRAL SCHOOL CORPORATION
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
(Continued)
Cause
A proper system of internal controls was not designed by management of the School Corporation,
which would include segregation of key functions. Embedded within a properly designed and implemented
internal control system should be internal controls consisting of policies and procedures. Policies reflect
the School Corporation's management statements of what should be done to effect internal controls, and
procedures should consist of actions that would implement these policies.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
internal control system cannot be capable of effectively preventing, or detecting and correcting, material
noncompliance. As a result, construction contracts entered into did not contain the required wage rate
requirements clauses nor were all certified payrolls obtained by the School Corporation.
Noncompliance with the grant agreement and the compliance requirement could result in the loss
of future federal funds to the School Corporation.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the School Corporation's management establish a system of internal
controls and include the wage rate requirement clause in construction contracts. In addition, certified
payrolls should be obtained as required for all contracts.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.