Finding 539604 (2024-002)

Criteria: 2 CFR section 200.303 requires that nonfederal entities receiving federal awards establish and maintain internal control over the federal awards that provides reasonable assurance that the nonfederal entity is managing the federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. 2 CFR Part 176 Subpart C requires nonfederal entities to include provisions requiring compliance with the Wage-Rate requirements in federally-funded construction contracts exceeding $2,000, and to collect certified payrolls from contractors and subcontractors for every week in which contract work is performed. Condition: There were no controls over the wage rate compliance requirements which resulted in the District being unaware that two of the contractors did not have the required Davis-Bacon wage rate clause in their contracts and were not submitting the required certified payrolls. Cause: While the District was aware that wage-rate requirements applied to construction type federal grant expenditures, they did not consider whether these requirements were considered in projects originally intended to be paid from non-federal funds. The funding source of certain projects was changed mid process and the District did not have a process in place to review the agreements for compliance with federal grant requirements prior to the change. Effect: The District’s lack of controls over the wage rate compliance requirements led to deficiencies within the compliance requirements resulting in questioned costs of $773,629. Perspective: Errors noted in actual dollar amounts are not material to the grant. The noncompliance was considered at 100% of the amounts paid under the two contracts that did not include the Wage Rate requirements and for which no certified payrolls were obtained. There were two other contractors under which $2,802,969 was paid that were in compliance with the wage rate requirements. Therefore, there are no amounts of unknown questioned costs. In addition, the questioned costs noted stem from control deficiencies rather than intentional noncompliance as management was unaware that contractors were required to have both the Davis-Bacon wage rate clause in their contracts and to submit certified payrolls. Questioned Costs: Questioned costs were considered at 100%. Total questioned costs were $773,629. Recommendation: The District should implement and document standardized processes and procedures to identify that contractors have the required Davis-Bacon wage rate clause in their contracts and to ensure that contractors are submitting certified payrolls. We also recommend general training be completed for all staff regarding this requirement to standardize the process throughout the District and consider when other processes may be more effective and efficient if not specifically required. Management Response: See attached Corrective Action Plan.