SCHEDULE OF FEDERAL AWARD FINDINGS AND
QUESTIONED COSTS
Longview School District No. 122
September 1, 2022 through August 31, 2023
2023-001 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-0120567
COVID-19, 84.425U-0137255
COVID-19, 84.425U-0138283
COVID-19, 84.425D-0144530
COVID-19, 84.425D
COVID-19, 84.425U-0140026
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 $15,314,974 of its ESF awards. This included $3,728,566 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $11,586,408 in 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 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 $3,565,224 for payments to several contractors for various improvements and repairs to its facilities.
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 during the audit period 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 does not normally use federal funds on public works projects. District employees said they reviewed the Washington State Department of Labor and Industries (L&I) website to confirm the contractor and subcontractor submitted weekly certified payroll reports. However, they did not know that this process, while sufficient for state requirements, did not meet federal requirements.
While the District relied on obtaining all weekly certified payroll reports from the L&I website, it did not know which subcontractors were working on its projects each week. As a result, it could not ensure it was obtaining all certified payroll reports as required.
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 could also be liable for paying any additional wages if the contractor and subcontractor did not pay prevailing wage rates to laborers working on the contract.
During the audit period, the District did not collect six out of a total of 48 weekly certified payroll reports tested. 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 implementing effective monitoring processes to collect and review all weekly certified payroll reports from contractors and subcontractors.
District’s Response
The Longview School District takes financial management of all of its grants and programs very seriously. At all times we are mindful of the complex statutory requirements and work very hard to remain in compliance and be good stewards of the resources provided to the District.
The District appreciates the Auditor’s Office’s thorough review of the District’s ESSER II and ESSER III grants. The District used some of its federal ESSER II and ESSER III grants to pay for major improvements to indoor air quality through renovation or replacement of HVAC systems in several school buildings.
When a school district uses federal funds for construction contracts it becomes subject to federal Davis-Bacon wage rate requirements, which requires that contractors and subcontractors must pay laborers and mechanics wage rates not less than those established for the locality of the project (prevailing wage rates).
The audit team tested two components of the Davis-Bacon wage rate requirements as follows:
1. For construction contracts subject to these wage rate requirements, the school district contract must include a provision that the contractors and subcontractors comply with Davis-Bacon requirements and the Department of Labor’s regulations.
• The District was found to be in compliance in this aspect because its contract with contractor did contain all the proper clauses and provisions.
2. Davis-Bacon provisions also include a requirement for the contractors and its subcontractors to submit weekly certified payroll reports, for each week in which any contract work is performed. The certified payroll reports are used to verify that each laborer or mechanic is paid the correct prevailing wage rate. The auditor report states “Specifically, the District did not collect weekly certified payroll reports from all contractors and subcontractors during the audit period to confirm they paid laborers the proper prevailing wages.”
• We believe this statement is misleading to the reader, because the District did collect all weekly certified payroll reports. We do not dispute that some small local subcontractors were late in preparing their certified payroll, and one prime contractor underwent a reorganization and had to obtain a new reporting ID which delayed their ability to file certified payrolls. However, as soon as the District was able to obtain certified payrolls, the District verified that the rates paid the workers were correct. Therefore we see this as a timing issue and not a compliance issue.
• The audit report goes on to say “During the audit period, the District did not collect six out of a total of 48 weekly certified payroll reports tested. The District subsequently collected all weekly certified payrolls.” This statement supports the district’s position that this remains a timing issue not a compliance issue as the district did in fact collect all 48 weekly certified payroll reports.
We want to reiterate that the District did collect, document and verify that laborers and mechanics (for both prime contractors and subcontractors) were paid the appropriate wages on all weekly certified payroll reports as soon as we could obtain the reports, and always prior to completion and closeout of the contract and release of retainage.
In addition to Davis-Bacon wage rate law, the District must include in its process the ability to follow state and federal law to pay contractors timely for satisfactorily-completed work. Federal FAR 52.232-5 states that “The Government shall make progress payments monthly as the work proceeds”. It has always been the District’s practice to pay promptly for satisfactorily completed work as an act of good faith to our contractor, recognizing they must in turn pay for labor and materials necessary to complete the job, and also to preserve good relations with our contractors, many of which are members of our local community. There is no law which requires us to withhold all progress payments from prime contractors for satisfactorily completed work if a certified payroll report is late. The law does state that we should withhold progress payments if directed to do so by the U.S. Department of Labor, but we were never so directed.
As a result of the auditor’s finding the district has implemented enhanced processes for the collection and verification of weekly certified payroll from the prime contractors for federally funded construction projects to assist in satisfying the timing issue identified as part of the audit.
Auditor’s Remarks
We thank the District for its assistance provided throughout the audit. As noted in the finding above, the District did not have the controls in place to ensure compliance with wage rate requirements. Specifically, as noted above, the requirement is for contractors and its subcontractors to submit to the District weekly, for each week in which any contract work is performed, certified payroll reports. The District did not have a compete complete process to ensure that all certified payroll reports were obtained by the District timely. Our audit is conducted in accordance with the criteria established by the federal government and the pass-through agency, in this case OSPI. We reaffirm our finding and 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.