Finding 2023-004
Information on the federal program:
Subject: Education Stabilization Fund – Special Tests and Provisions - Wage Rate Requirements
Federal Agency: Department of Education
Federal Program: COVID-19 - Education Stabilization Fund
Assistance Listing Number: 84.425D, 84.425U
Federal Award Numbers and Years (or Other Identifying Numbers): S425D200013, S425D210013
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Special Tests and Provisions - Wage Rate Requirements
Audit Findings: Material Weakness, Qualified Opinion
Criteria: 2 CFR section 200.303 states in part:
"The non-Federal entity must:
(a) Establish and maintain effective internal control over Federal award that provides reasonable assurance
that the non-Federal entity is managing the Federal awards in compliance with Federal statutes,
regulations, and the terms and conditions of the Federal award. These internal controls should be in
compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the
Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ."
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)(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). Finding 2023-004 (Continued)
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.. . .”
Condition: An effective internal control system was not in place at the School Corporation in order to
ensure compliance with requirements related to the grant agreement and the Special Tests and Provisions
– Wage Rate Requirements compliance requirements. The School Corporation did not include Davis Bacon
wage rate requirements in its contract with vendor which includes labor. The School Corporation did not
obtain the weekly payroll reports certifications from a construction company and its subcontractors for a
building project.
Cause: The School Corporation's management had not developed a system of internal controls to ensure
compliance with the compliance requirements listed above.
Effect: The failure to design and implement an effective internal control system enabled material
noncompliance to go undetected. Noncompliance with the grant agreement and the Special Tests and
Provisions – Wage Rate Requirements compliance requirement could result in the loss of future federal
funds to the School Corporation.
Questioned Costs: There were no questioned costs identified.
Context: The School Corporation expended $2,354,885 during the audit period on equipment acquisitions
for a new HVAC system and chiller at the North White Middle-High School building which included labor
installation costs subject to federal Davis Bacon wage rate requirements. Each project had a separate
vendor for a total of two vendor contracts during the audit period subject to testing for Davis Bacon wage
rate requirements.
The vendor contracts did not include a Davis-Bacon clause prescribing federal wage rate requirements
required for construction contracts with labor installation costs. The School Corporation did not have an
internal control designed to collect the weekly payroll reports certifications from a construction company
and its subcontractors, as applicable, for building projects to verify prevailing wages were being paid during
the project period. Therefore, no review was performed by management to ensure that pay rates complied
with the federal wage rate requirements. Finding 2023-004 (Continued)
For the period July 1, 2021 through June 30, 2023, $925,844 was disbursed related to these building
projects and charged to the ESSER II grant award (84.425D). For the period July 1, 2021 through June 30,
2023, $1,429,041 was disbursed related to these building projects and charged to the ESSER III grant
award (84.425U). The construction payments represented approximately 80.1% of the Education
Stabilization Fund expenditures for the audit period.
Identification as a repeat finding: No.
Recommendation: We recommend the School Corporation include Davis-Bacon wage requirements in
construction contracts which are federally funded and implement a formal process to ensure the required
weekly payroll report certifications are collected and reviewed by management to ensure compliance with
the federal wage rate requirements.
Views of Responsible Officials and Planned Corrective Actions: Management agrees with the finding
and has prepared a corrective action plan.