Finding Text
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 84.425D/0135508
COVID-19 84.425D/0145091
COVID-19 84.425U/0138222
COVID-19 84.425W/0459633
COVID-19 84.425D/0144030
COVID-19 84.425D/0142530
COVID-19 84.425D
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 $1,712,342 of its ESF awards. This included $332,127 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), $1,366,872 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U) and $13,343 in the American Rescue Plan Elementary and Secondary School Emergency Relief – Homeless Children and Youth (ARP-HCY) subprogram (84.425W).
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.
Description of Condition
During the 2023 school year, the District spent $358,900 for payments to one contractor for a project including the purchase and installation of two portables.
Our audit found the District did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the District did not collect weekly certified payroll reports from all contractors and subcontractors to confirm they paid laborers the proper prevailing wages.
We consider this deficiency in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
The District experienced turnover in the position responsible for managing this project and current staff could not locate the weekly certified payrolls.
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 did not collect weekly certified payroll reports for any of the three weeks contractors performed work on the project.
During the audit, the District subsequently collected all weekly certified payrolls.
Recommendation
We recommend the District establish internal controls to ensure compliance with federal wage rate requirements. This should include obtaining the federal certified payroll reports, implementing effective monitoring processes to collect and review all weekly certified payroll reports from contractors and subcontractors. Additionally, we recommend the District provide additional training to ensure staff overseeing compliance with federal programs are aware of all applicable requirements.
District’s Response
Corrective actions for ensuring compliance with federal wage requirements.
1) Maintain detailed documentation of all wage rate determinations, calculations, and payments made to employees by verifying contractors certified weekly payrolls.
2) Print and maintain all certified payrolls from the L&I website, contractors, sub-contractors and maintain copies onsite with awarded contract.
3) Provide training to employees involved in contracting on federal wage rate requirements to ensure they are aware of their responsibilities.
4) Monitor changes in federal wage rate requirements and update internal controls accordingly to stay compliant.
Auditor’s Remarks
We thank the District for its cooperation throughout the audit and the steps it is taking to address these concerns. We will review the status of the District’s corrective action 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.
Office of the Washington State Auditor sao.wa.gov
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.