Finding Text
FINDING 2024-005
Subject: COVID-19 - Education Stabilization Fund - Special
Tests and Provisions - Wage Rate Requirements
Federal Agency: Department of Education
Federal Program: COVID-19 - Education Stabilization Fund
Assistance Listings Numbers: 84.425D, 84.425U
Federal Award Numbers and Years (or Other Identifying Numbers): S425D210013, S425U210013
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Special Tests and Provisions - Wage Rate Requirements
Audit Findings: Material Weakness, Modified Opinion
Condition and Context
An effective internal control system was not in place at the School Corporation in order to ensure
compliance with requirements related to the grant agreement and the Special Tests and Provisions - Wage
Rate Requirements compliance requirement.
Construction contracts in excess of $2,000 financed by federal assistance funds must pay wages
not less than those established for the locality of the project (prevailing wage rates) by the Department of
Labor (DOL) to their laborers and mechanics. Nonfederal entities are to include in their construction
contracts subject to the Wage Rate Requirements a provision that the contractor or subcontractor comply
with these requirements and the DOL regulations. This would include a requirement to submit a copy of
the payroll and statement of compliance to the entity for each week in which contract work was performed.
The School Corporation had four applicable construction projects, funded in part or entirely with
ESF funding during the audit period; however, related contracts did not contain the required prevailing wage
rate clause. Additionally, the School Corporation did not obtain certified payroll documentation from
contractors as required throughout the construction projects and audit period.
The lack of internal controls was a systemic issue throughout the audit period and noncompliance
affected each of the four applicable construction projects.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
(a) Establish and maintain effective internal control over the Federal award that provides
reasonable assurance that the non-Federal entity is managing the Federal award 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) Required contract clauses. 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) Wages rates and fringe benefits. 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. . . .
(a)(3)(ii) Certified payroll requirements—
(A) The contractor or subcontractor must submit weekly, for each week in which any
DBA- or Related Acts-covered work is performed, certified 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 certified payrolls to the
applicant, sponsor, owner, or other entity, as the case may be, that maintains such
records, 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."
Cause
The School Corporation officials were unaware of the requirements to include Wage Rate
Requirements (Davis Bacon) provisions in the respective construction contracts and obtain weekly certified
payrolls from the contractor(s) throughout the construction period.
Effect
The lack of an effective internal control system enabled material noncompliance with the grant
agreement and the aforementioned compliance requirement to occur and remain undetected. Lack of
compliance could result in contractors paying wages below those required by the DOL regulations.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the School Corporation's management establish a system of internal
controls and include the wage rate requirement clause in federally funded construction contracts. In
addition, certified payrolls should be obtained as required for all federally funded construction contracts in
excess of $2,000.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.