2022-001 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-120522 COVID-19 84.425U-138243 COVID-19 84.425U-137140 COVID-19 84.425U-140003 COVID-19 84.425U-140602 COVID-19 84.425U-140067 COVID-19 84.425U-712185 COVID-19 84.425W-459002 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 fiscal year 2022, the District spent a total of $8,739,363 in federal funding under its ESF awards. This included $6,203,589 in the Elementary and Secondary School Emergency Relief (ESSER II) Fund subprogram (84.425D), $2,533,071 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $2,703 in American Rescue Plan Elementary and Secondary School Emergency Relief ? Homeless Children and Youth (ARP HCY I & II) subprogram (84.425W). 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 projects financed with more than $2,000 of federal money must pay laborers and mechanics prevailing wage rates 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 they perform any contract work, certified payroll reports. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition During the 2021-22 school year, the District paid $1,505,365 from its ESSER II award to pay four contracts to install heating, ventilation and air conditioning systems to improve air quality. 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 prevailing wage provision in the contracts ? Collect weekly certified payroll reports submitted by the contractors 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 District staff did not know about the prevailing wage rate contract clause requirement, and that the District needed to obtain all certified payroll reports each week. Instead, staff relied on the contractors and their subcontractors to submit weekly certified payroll to the Washington State Department Labor and Industries (L&I) website. Although staff said they checked that the contractors and subcontractors uploaded their weekly certified payrolls to the L&I system before the District paid them, staff did not review the submissions weekly. Effect of Condition Without adequate internal controls to ensure it includes the prevailing wage rate 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 also be liable for paying any additional wages if the contractors did not pay prevailing wage rates to laborers working on the contracts. The District was required to collect a total of 244 weekly certified payroll reports. During the audit, the District subsequently collected all of them. Recommendation We recommend the District develop internal controls to ensure compliance with federal prevailing wage rate requirements. This should include inserting prevailing wage rate clauses into contracts, as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District?s Response Bethel School District appreciates the State Auditor?s Office review of the federal public works contracts used to improve air quality in our buildings. The District takes seriously its role for stewardship of public resources and prides itself on developing and maintaining systems of strong internal controls. The District generally has not used federal funds for public works contracts. The District is taking steps to ensure future federal funding construction projects are in compliance by including federal prevailing wage rate clauses in the contracts. Ensuring staff are appropriately trained on the federal requirements and obtaining the weekly certified payroll reports. The District will continue its established process for reviewing certified payrolls reports and documents this review on project spreadsheets, this review ensured that the contractors were paying the federal prevailing rate or higher. 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. 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).