Woodland School District No. 404 September 1, 2021 through August 31, 2022 2022-002 The District did not have adequate internal controls for ensuring compliance with 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, 84.425U-0138240 COVID-19, 84.425U-0140061 COVID-19, 84.425W-0459042 COVID-19, 84.425D-0120475 COVID-19, 84.425U-0137031 COVID-19, 84.425U-0712029 COVID-19, 84.425U-0712051 Known Questioned Cost Amount: $0 Description of Condition The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In fiscal year 2022, the District spent a total of $1,357,653 of its ESF awards. This included $533,511 in the Elementary and Secondary School Emergency Relief (ESSER II) Fund subprogram (84.425D), $21,693 in American Rescue Plan ? Elementary and Secondary School Emergency Relief ? Homeless Children and Youth (ARP ESSER ? HCY II) subprogram (84.425W), and $802,449 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 grant 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 money 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 contractor and subcontractor comply with those requirements and the Department of Labor?s regulations. This includes a requirement for the contractor and its subcontractor 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 The District hired one contractor to install a ductless heating, ventilation, and air conditioning system. This project was part of the District?s school facility capital improvement efforts to prevent the spread of COVID-19. During the 2021?22 school year, the District spent $364,000 from its ESSER II and III awards for work performed on the project. Our audit found 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 its subcontractors to confirm they paid laborers proper prevailing wages. We consider this deficiency in internal controls to be a material weakness, which led to material noncompliance. The issue was not reported as a finding in the prior audit. Cause of Condition The District does not typically spend federal funds on construction projects; therefore, District management did not know about the federal requirements to collect all certified payroll reports from the contractor and its subcontractors each week to confirm laborers were paid proper prevailing wages. Effect of Condition Without adequate internal controls that 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 contractors and subcontractors did not pay prevailing wage rates to laborers working on the contracts. Recommendation We recommend the District develop 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 timely from contractors and subcontractors. District?s Response The district has not had any projects funded by Federal grants in the past. We included the Davis-Bacon language in the contracts and purchase orders. The contractors are supposed to post the weekly payrolls to the L&I website which is where we went to find and review. Sometimes they were posted late and in some cases they were not posted and we requested copies. The Purchasing and Benefits Coordinator reviews the payrolls to ensure they meet the requirements, however, we did not obtain copies or document that the payrolls were reviewed. We will develop a better process to ensure documentation in the future. Auditor?s Remarks We appreciate the District?s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular 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 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).