Finding Text
Finding 2023-003
Information on the federal program:
Subject: Airport Improvement Program, COVID-19 – Airports Program, and Infrastructure Investment and Jobs Act Programs – Special Tests and Provisions - Wage Rate Requirements
Federal Agency: Department of Transportation
Federal Program: Airport Improvement Program, COVID-19 – Airports Program, and Infrastructure
Investment and Jobs Act Programs
Assistance Listing Number: 20.106
Federal Award Numbers and Years (or Other Identifying Numbers): AIP16
Compliance Requirement: Special Tests and Provisions - Wage Rate Requirements
Audit Findings: Significant Deficiency
Criteria: 2 CFR section 200.303 states in part:
"The non-Federal entity must:
(a) Establish and maintain effective internal control over Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal awards in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ."
29 CFR 5.5 states in part:
a. The Agency head shall cause or require 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 from Federal funds or in accordance with guarantees of a Federal agency or financed from funds obtained by pledge of any contract of a Federal agency to make a loan, grant or annual contribution (except where a different meaning is expressly indicated), and which is subject to the labor standards provisions of any of the acts listed in §5.1, the following clauses…
(1) Minimum wages.
(i) All laborers and mechanics employed or working upon the site of the work (or under the United States Housing Act of 1937 or under the Housing Act of 1949 in the construction or development of the project), will be paid unconditionally and not less often than once a week, and without subsequent deduction or rebate on any account (except such payroll deductions as are permitted by regulations issued by the Secretary of Labor under the Copeland Act (29 CFR part 3)), the full amount of wages and bona fide fringe benefits (or cash equivalents thereof) due at time of payment computed at rates not less than those contained in the wage determination of the Secretary of Labor which is attached hereto and made a part hereof, regardless of any contractual relationship which may be alleged to exist between the contractor and such laborers and mechanics…
(3)(ii)(A) The contractor shall submit weekly for each week in which any contract work is performed a copy of all payrolls to the (write in name of appropriate federal agency) if the agency is a party to the contract, but if the agency is not such a party, the contractor will submit the payrolls to the applicant, sponsor, or owner, as the case may be, for transmission to the (write in name of agency).
2 CFR 200 Appendix II states in part:
In addition to other provisions required by the Federal agency or non-Federal entity; all contracts made by the non-Federal entity under the Federal award must contain provisions covering the following, as applicable. . . .
(D) Davis-Bacon Act, as amended (40 U.S.C. 3141-3148). When required by Federal program legislation, all prime construction contracts in excess of $2,000 awarded by non-Federal entities must include a provision for compliance with the Davis-Bacon Act (40 U.S.C. 3141-3144, and 3146-3148) as supplemented by Department of Labor regulations (29 CFR Part 5, “Labor Standards Provisions Applicable to Contracts Covering Federally Financed and Assisted Construction”). In accordance with the statute, contractors must be required to pay wages to laborers and mechanics at a rate not less than the prevailing wages specified in a wage determination made by the Secretary of Labor. In addition, contractors must be required to pay wages not less than once a week.. . .”
Condition: An effective internal control system was not in place at the City in order to ensure compliance with requirements related to the grant agreement and the Special Tests and Provisions – Wage Rate Requirements compliance requirements. The City did not obtain the weekly payroll reports certifications from a construction company and its subcontractors for a building project.
Cause: The City's management had not developed a system of internal controls to ensure compliance with the compliance requirements listed above.
Effect: The failure to design and implement an effective internal control system enabled material noncompliance to go undetected. Noncompliance with the grant agreement and the Special Tests and Provisions – Wage Rate Requirements compliance requirement could result in the loss of future federal funds to the School Corporation.
Questioned Costs: There were no questioned costs identified.
Context: There were two construction contracts funded by the Airport Improvement Program (AIP) with expenditures totaling $4,984,949 during the audit period and subject to federal Davis Bacon wage rate requirements. The first contract tested had expenditures of $4,811,862 over 47 planned construction weeks during the audit period. There were no exceptions to the wage rate testing performed for this contract.
The second contract had expenditures of $173,087 over 14 planning construction weeks during the audit period. For this contract, the City’s internal control to collect the weekly payroll reports certifications from the construction company and its subcontractors, as applicable, did not work as designed. The testing noted there was only one certified payroll collected over the fourteen week planned work period. Therefore, insufficient review was performed by management to ensure that pay rates complied with the federal wage rate requirements. These construction payments for this project represented approximately 2.2% of the Airport Improvement Program expenditures for the audit period.
Identification as a repeat finding: No.
Recommendation: We recommend the City revise their process to ensure the required weekly payroll report certifications are collected and reviewed by management to ensure compliance with the federal wage rate requirements.
Views of Responsible Officials and Planned Corrective Actions: Management agrees with the finding and has prepared a corrective action plan.