Finding Text
The City did not have adequate internal controls to ensure compliance with reporting and federal wage rate requirements. Background The primary objective of the Community Development Block Grants/Entitlement Grants (CDBG) programs is to help provide decent and affordable housing, particularly for people with moderate, low and very low incomes. Funds also help recipients implement strategies for achieving an adequate supply of decent housing and providing suitable living environments and expanded economic opportunities for people with low incomes. In 2023, the City spent $5,924,887 for its CDBG program. 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. Reporting. The Federal Funding Accountability and Transparency Act (FFATA) requires direct recipients that make first-tier subawards of $30,000 or more to report them in the FFATA Subaward Reporting System. The City must report subawards and subaward amendments by the end of the month following the month in which it made the subawards and subaward amendments. Wage Rate Requirements. 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 City 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 certified payroll reports to the City weekly, for each week in which any contract work is performed. These reports must include a copy of the payroll and a signed statement of compliance. Description of Condition. Reporting. The City’s internal controls were ineffective for ensuring compliance with FFATA reporting requirements. Specifically, the City made five new subawards in 2023 that exceeded $30,000 and it did not prepare or submit any FFATA reports for these subawards, as federal regulations require. We consider this deficiency in internal controls to be a material weakness that led to material noncompliance. Wage Rate Requirements. During fiscal year 2023, the City spent $2,000,000 for payments to one contractor and seven subcontractors for the Links to Opportunity Streetscape project under award numbers B-16-MC-53-0007 and B-17-MC-53-0007. Our audit found the City did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the City did not establish a contract with the contractor that included the required wage rate provisions. We consider this internal control deficiency to be a significant deficiency. Cause of Condition. Reporting. We reported this issue as a finding in the prior audit. Although City management took corrective action, they did not monitor staff to ensure they completed the reports. Wage Rate Requirements. While City officials knew about federal wage requirements, not all contract templates had been updated to include specific language to meet federal wage rate requirements. Department staff rely on the templates, and as a result, the contract with the prime contractor did not include the required federal wage rate clauses. Effect of Condition. Reporting. Failing to submit the required reports diminishes the federal government's ability to ensure accountability and transparency of federal spending. The following table summarizes the discrepancies we identified. Wage Rate Requirements. Without adequate internal controls to ensure it includes the wage rate clauses in its contracts, the City cannot demonstrate it complied with federal wage rate requirements. Additionally, contractors may be unaware of the wage rate requirements and the City could be liable for paying additional wages if the contractor did not pay prevailing wage rates to laborers working on the contract. Recommendation. Reporting. We recommend the City provide training to ensure staff overseeing compliance with federal programs are aware of all applicable federal FFATA reporting requirements. Wage Rate Requirements. We recommend the City develop internal controls to ensure compliance with federal wage rate requirements. This should include inserting wage rate clauses into contracts. Additionally, we recommend the City provide additional training to ensure all staff overseeing compliance with federal programs are aware of all applicable requirements.