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-0120592 COVID-19, 84.425D-0120248 COVID-19, 84.425U-0712119 COVID-19, 84.425U-0712308 COVID-19, 84.425U-0138189 COVID-19, 84.425U-0137202 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 $740,632 of its ESF awards. This included $230,284 in the Elementary and Secondary School Emergency Relief (ESSER II) Fund subprogram (84.425D), and $510,348 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 subcontractors 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. 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 2021?22 school year, the District spent $383,528 from its ESSER II and ARP ESSER/ESSER III awards to pay one contractor and its subcontractors for the installation of a portable building. This project was part of the District?s school facility capital improvement efforts to prevent the spread of COVID-19 and enable school operations by creating extra space for students to work. During the audit period, the District awarded and entered into a contract with the contractor, and contracted with one project manager to supervise the project, which included collecting weekly certified payroll reports from the contractors and 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, or ensure the project manager collected, 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 District management did not know about the federal requirement to collect all certified payroll reports from the contractor and its subcontractors each week to confirm they paid laborers proper prevailing wages. 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 subcontractors did not pay prevailing wage rates to laborers working on the contracts. Recommendation We recommend the District develop internal controls to ensure compliance with federal wage rate requirements. This should include implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District?s Response When or if the District enters into another project funded with federal dollars, the District will create a spreadsheet to track the submittals of weekly certified payrolls. This tracking document will include the following data: Project Description/Subcontractor Vendor/Date SAM verified/Date Intent Filed and Project Number/Date Affidavit Filed/Position & Dates/Verified Prevailing Wage (State or Federal, whichever is higher). Federal purchasing requirements will be shared with all staff tasked to manage the project. 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.