SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Inchelium School District No. 70 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, 120444 COVID-19, 84.425U, 138003 COVID-19, 84.425U, 137050 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 expended a total of $234,924 of its ESF awards. This included $63,908 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), and $171,016 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 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 2021-22 school year, the District spent $34,057 from its ESSER II award to pay one contractor and its subcontractors for installing a variable frequency drive and replacing the fan motors so they would be compatible with it. This project was part of the District?s school facility capital improvement efforts to prevent the spread of COVID-19 by improving the heating, ventilation and air conditioning system. During the audit period, the District awarded and entered into a contract with one contractor. The District was responsible for collecting weekly certified payroll reports from the contractor and its subcontractors. 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 collect weekly certified payroll reports from the contractor and its subcontractors to confirm they paid laborers proper prevailing wages. We consider this deficiency 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 The District does not normally use federal funds on public works projects, so management and staff overlooked the prevailing wage requirements for the construction project. Additionally, management did not dedicate the necessary resources to ensure staff were aware of and understood the requirements. 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 contractor and its subcontractors did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the District develop internal controls that ensure compliance with federal wage rate requirements. This should include informing District staff about federal program requirements, as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District?s Response The District acknowledges the need to develop internal controls that ensure compliance with federal wage rate requirements. The District will inform District staff about federal program requirements. The District will require contractors/subcontractors to submit all weekly certified payroll reports in a timely manner. The payroll reports will be reviewed upon submission. Auditor?s Remarks We appreciate the District?s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular 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 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).