SCHEDULE OF FEDERAL AWARD FINDINGS AND
QUESTIONED COSTS
Highline School District No. 401
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-0144521
COVID-19, 84.425W-0459544
COVID-19, 84.425W-0459014
COVID-19, 84.425U-0140657
COVID-19, 84.425U-0145305
COVID-19, 84.425U-0140072
COVID-19, 84.425U-0140021
COVID-19, 84.425U-0140020
COVID-19, 84.425D-N/A
COVID-19, 84.425D-0120523
COVID-19, 84.425D-0138183
COVID-19, 84.425D-0137204
Known Questioned Cost Amount: $0
Prior Year Audit Finding: Yes, Finding 2022-001
Description of Condition
During the 2022–23 school year, the District spent $5,160,728 for payments to one
contractor to update the heating, ventilation and air conditioning (HVAC) system
in four schools to improve air quality and circulation to prevent the spread of
COVID-19.
Our audit found that the District did not have adequate internal controls for ensuring
compliance with federal prevailing wage rate requirements. Specifically, the
District did not collect weekly certified payroll reports from the contractor and
subcontractors to confirm it paid laborers proper prevailing wages.
We consider this deficiency in internal controls to be a material weakness that led
to material noncompliance.
Cause of Condition
District staff were aware of state prevailing wage requirements. However, District
staff did not collect certified payroll reports because they mistakenly believed they
were only required to review the certified payroll in the Washington State
Department of Labor and Industries (L&I) website to confirm the contractors and
subcontractors submitted weekly certified payroll reports. However, they did not
know that this process, while sufficient for state requirements, did not meet federal
requirements.
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 be liable for paying any additional wages if the
contractor and its subcontractors did not pay prevailing wage rates to laborers
working on the contract.
During the audit period, the District was required to collect certified payroll reports
from one contractor and 24 subcontractors. The audit selected the prime contractor
and one subcontractor for testing. We found that the District did not obtain any of
the weekly certified payroll reports for the contractor and subcontractor we tested.
During the audit, the District subsequently collected all weekly certified payrolls.
Recommendation
We recommend the District strengthen internal controls to ensure compliance with
federal prevailing wage rate requirements. This should include obtaining the federal
certified payroll reports, as well as implementing effective monitoring processes to
collect and review all weekly certified payroll reports from contractors and
subcontractors. Additionally, we recommend the District provide additional
training to ensure staff overseeing compliance with federal programs are aware of
all applicable requirements.
District’s Response
The District stewards public resources carefully and takes pride in developing and
maintaining strong internal controls. The District made adjustments in response to
this finding to ensure compliance for Federally funded construction projects. Going
forward, the District will also ensure staff are appropriately trained on these
requirements.
The context of this finding is that the District had established internal controls to
check for compliance with state prevailing wage requirements. Until 2021-22, the
District very rarely utilized Federal funds for public works contracts, and thus the
unique and complex nature of these Federal resources and the requirements
around their use were unanticipated. When made aware of this oversight during
the 2021-22 audit, the District took steps to review certified payroll documents from
the beginning of the project to the current period, and to verify that contractors
were in compliance with Federal prevailing wage rules. However, by the time the
District took those steps, several months of the next fiscal year (2022-23) had
already passed, resulting in the District being out of compliance that year, as well.
Many other districts throughout the state received near identical prevailing wage
findings from the State Auditor’s Office in the 2021-22 year. However, only a
handful of districts, Highline among them, received a second prevailing wage
finding in 2022-23, despite every district that was issued an earlier finding facing
the same catch-22 conditions described above.
Another important point to consider is that the underlying intent of this regulation
is to ensure workers are not paid less than Federal prevailing wage. The state of
Washington’s prevailing wages are significantly higher than Federal, and the
District is in compliance with state prevailing wage regulations. Though the
District does not refute being out of compliance in this narrow area, the District is
certain that workers on these Federal publics works projects were paid well above
Federal prevailing wage.
The District respects and values the work of the State Auditor’s Office in conducting
their annual audit. Given that numerous districts across the state were provided
with one-time federal ESSER dollars to mitigate the impacts of a global pandemic,
and that Federal funds are rarely used by districts in Washington to support public
works projects, all districts and the State Auditor’s Office would have benefited
from clearer guidance and consideration from Federal granting authorities.
Auditor’s Remarks
We appreciate the District’s commitment to resolving the issue. We 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.
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).