Finding Text
The District did not have adequate internal controls for ensuring compliance with wage rate requirements. "See Schedule of Findings and Questioned Costs for chart/table." 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 spent $622,303 of its ESF awards, all from 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 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 $329,379 from its ESSER III award to one contractor for three projects to update the heating, ventilation and air conditioning systems. These projects were part of the District?s school facility capital improvement efforts to prevent the spread of COVID-19 and enable school operations by facilitating greater air flow and filtration. 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 ensure appropriate wage rate clauses were included in the contract with the contractor, nor did the District collect weekly certified payroll reports from the contractor to confirm it 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 While District officials knew about state prevailing wage requirements, they were unaware of the federal requirements because the District does not usually spend federal money on construction projects. Effect of Condition Without adequate internal controls that ensure it includes prevailing wage rate clauses in contracts and collects all weekly certified payroll reports, the District cannot demonstrate it complied with prevailing 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 contracts. Recommendation We recommend the District develop internal controls to ensure compliance with federal prevailing wage rate requirements. This should include inserting the prevailing wage rate clauses into contracts, as well as implementing an effective monitoring process to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District?s Response The district agrees that we did not include the required wage rate clauses in the contract nor did we collect certified weekly payroll reports. Prevailing wages were paid on the project and we received releases from all appropriate agencies at the conclusion of the project before paying retainage. Auditor?s Remarks We appreciate the steps the District is taking to solve this issue. We will review the condition 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).