The District did not have adequate internal controls for ensuring compliance with federal 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 84.425 135593,
COVID-19 84.425D 144125, COVID-19 84.425D 140558, COVID-19 84.425U 138236, COVID-19 84.425U 137232,
COVID-19 84.425U 114917,
Known Questioned Cost Amount: $0
Prior Year Audit Finding: Finding 2022-001
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 $1,259,886 of its ESF awards. This included $105,500 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $1,154,386 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). The District spent $515,770 in program funds for various improvements and repairs to its facilities.
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 their 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 school year, the District spent $515,770 for payments to six contractors for six projects for various improvements and repairs to its schools.
Our audit found the District did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the District did not:
• Include the required wage rate provisions in two of the six contracts.
• Collect, or ensure the project manager collected, weekly certified payroll reports from the contractors to confirm they paid laborers proper prevailing wages.
We consider these deficiencies in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
District staff informed us they were aware of federal wage rate requirements because they had received a finding in this area during the prior school year but said they did not have time to implement internal control changes for the current school year.
Additionally, the District’s contracted project manager said he reviewed the Washington State Department of Labor and Industries’ website to confirm the contractors submitted weekly certified payroll reports. However, the project manager and District staff did not know that this process, while sufficient for state requirements, did not meet federal requirements.
Lastly, two of the contracts were initially planned to be paid with local funds, but the District later decided to use ESF program funds instead. As a result, the federal wage rate requirement language was not included in the two contracts, and the District did not subsequently notify the contractor of the change in funding.
Effect of Condition
Without adequate internal controls to ensure it includes the wage rate clauses in its contracts and 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 did not pay prevailing wage rates to laborers working on the contract.
The District did not collect weekly certified payroll reports for six contractors, and did not include federal wage rate provisions in two out of six contracts.
Recommendation
We recommend the District develop internal controls to ensure compliance with federal wage rate requirements. This should include inserting wage rate clauses into contracts, as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports from contractors.
District’s Response
For future federal prevailing wage projects, the district will review and update contracts to include language regarding Davis Bacon wages and contractor’s responsibility to file weekly certified payroll. The district will verify the filing of weekly certified payroll reports.
Auditor’s Remarks
We thank the District for its cooperation and assistance during the audit and acknowledge its commitment to resolve this finding. We will review the corrective action taken during our next 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 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).