Finding Text
2023-001 The District did not have adequate internal controls for ensuring compliance with federal wage rate requirements.
Assistance Listing Number and Title: 84.425 COVID19 – 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 – 120454
COVID 19, 84.425U – 138194
COVID 19, 84.425U - 137218
Known Questioned Cost Amount: $0
Prior Year Audit Finding: N/A
Background
The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In the fiscal year 2023, the District spent a total of $7,418,568 of its ESF awards. This included $108,315 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (ALN 84.425D) and $7,310,253 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER III) subprogram (ALN 84.425U).
Federal regulations require recipients to establish and maintain 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 projects financed with more than $2,000 of federal funds 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 contractors 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.
The District may use a contracted project manager to collect certified payroll reports from contractors and subcontractors, but ultimately, it is the District‘s responsibility to comply with these requirements and maintain documentation demonstrating compliance.
Description of Condition
During the 2023 fiscal year, the District spent $3,489,891 for payments to one contractor to update the heating ventilation, and air conditioning (HVAC) system and for various improvements and repairs to its facilities.
Our audit found the District did not have adequate controls for ensuring compliance with federal wage rate requirements. Specifically, the District did not collect, or ensure the project manager collected, weekly certified payroll reports from the contractor and subcontractors.
We consider this internal control deficiency to be a material weakness that led to material noncompliance.
Cause of Condition
The District does not normally use federal funds on public works projects. Although District staff were aware of the requirement to include the federal wage rate requirements in the contracts, they were unaware of the requirement to ensure project managers obtain and review certified payroll reports each week prior to payment.
Effect of Condition
Without adequate internal controls to ensure it collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District could be liable for paying any additional wages if the contractor or subcontractors did not pay prevailing wage rates to laborers working on the contract. The District did not collect weekly certified payroll reports for one contractor and its subcontractors.
Recommendation
We recommend the District establish internal controls to ensure compliance with federal wage rate requirements. This should include implementing an effective monitoring process to collect and review all weekly certified payroll reports from contractor and subcontractors.
District’s Response
The District made sure the Federal Wage Rate requirements were in the contract as a requirement. The District relied on the contracted Architect to ensure these requirements were followed before the district received the pay application.
The District now understands that a designated district program director should receive weekly certified payroll reports to ensure compliance.
On the next project that requires Prevailing Wage Rates, the District will make sure to receive weekly certified payroll reports to ensure compliance.
Auditor’s Remarks
We appreciate the District’s commitment to resolving the issues identified above. We will follow up on the status of the finding during the next regularly 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 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.