2022-001 The District did not have adequate 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 Education Pass-through Award/Contract Number: COVID-19, 84.425D 120497 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. The District spent $703,757 of its ESF awards during fiscal year 2022. This included $568,323 of its Elementary and Secondary School Emergency Relief (ESSER II) Fund subprogram award (84.425D). Federal regulations require award recipients to establish and follow 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 construction contracts 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 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?2022 school year, the District paid $425,200 from its ESSER II award to contractors for work performed on several projects at one school. 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 clauses in the contracts, and did not collect weekly certified payroll reports from the contractors and subcontractors to confirm they paid laborers proper prevailing wages. We consider these deficiencies 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 hired an external consulting firm to manage contracts paid through its ESF awards. During the audit period, the firm helped the District hire two contractors to repair and upgrade Rise Academy?s mechanical and electrical systems, and add a stormwater mitigation system. District staff were not aware of the specific requirement to include wage rate clauses in contracts, and neither District staff nor the external consulting firm were aware of the requirement to obtain weekly certified payrolls for the project. Effect of Condition Without adequate internal controls to ensure it includes the required prevailing wage 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 be liable for paying any additional wages if the contractor 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 to ensure that all public works contracts include the required prevailing wage citations or references, and that it obtains and reviews all weekly certified payrolls from contractors and subcontractors. District?s Response The District was aware of the Davis Bacon contract requirements and wrote them into the bid documentation. The District did not update the state public works contracts to reflect proper federal prevailing wage contract language, but allowed the bid documentation attached to the contract to fulfill that role. For future federal prevailing wage projects, the district will have an attorney specializing in public works construction law to review and update contracts to include language regarding Davis Bacon wages and contractors' responsibilities to file weekly certified payroll per 29 CFR 3.3, 3.4 and 5.5. For federally funded projects administered by state agencies, with the exception of prevailing wage laws, competitive bidding for projects over $100,000 are very similar to state requirements. a. The district complied with public works requirements by requiring contractors to file Intent to Pay Prevailing Wage Form (Federal) prior to initial payment, required contractors to file Affidavit of Wages Paid and solicited through Notice of Completion for agency waivers before retainage was released. This process through the L&I PWIA Account is performed electronically. b. Similar to state RCW 39.12.120, CFR 29 3.3, 3.4, and 5.5 do not stipulate any obligations on the awarding agencies to "collect", "obtain", or otherwise monitor the contractor's responsibilities except through the process stated in 3a. and b. above. 4. Because of the L&I electronic PWIA portal's feedback loop on wage rates, the risk of workers not being paid the appropriate wage is removed. There was no harm to workers. Recognizing that most contractors in Soap Lake School District's circle will not be familiar with 29 CFR, the district will take what was learned in this audit to ensure they are fully aware of their responsibilities and obligations to file the weekly certified payroll under federal funds. Auditor?s Remarks We appreciate the District's commitment to resolving the issues noted, and we will follow up on the corrective action during the 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 CFE, 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).