Finding Text
2022-001 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: 84.425D-S425D210015 Known Questioned Cost Amount: $0 Background 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 $1,252,131 in federal funding under its ESF awards. This included $1,143,453 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), and $108,678 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). Federal regulations require award recipients to establish and follow 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 for the purchase and installation of new heating ventilation and air conditioning systems to improve air quality and circulation to prevent the spread of COVID-19 in its combined junior and senior high school building. During the 2021-2022 school year, the District paid the contractor $116,587 from its ESSER II award for the project. Our audit found the District did not have adequate internal controls for ensuring compliance with prevailing wage rate requirements. Specifically, the District did not include the required prevailing wage rate clauses in the contract with the contractor. 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 District management and staff thought the language in the contract that stated the contractor would comply with all state and federal laws was sufficient to meet the contract requirements. Effect of Condition Without adequate internal controls that ensure it includes the required prevailing wage rate clause in its contract, the District cannot demonstrate it complied with the federal wage rate requirements. The District could also be liable for paying any additional wages if the contractor did not pay prevailing wage rates to laborers working on the contract. Recommendation We recommend the District develop internal controls that ensure compliance with federal wage rate requirements. This should include inserting the prevailing wage clauses into all public works contracts paid with federal funds. District?s Response The district will be sure to include the Federal prevailing wage rate clauses in future contracts per Code of Federal Regulations (CFR) language for projects that are federally funded in excess of $2,000. 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 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).