SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Warden School District No. 146-161 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, 84.425D-120428 COVID-19, 84.425U-138091 COVID-19, 84.425U-137151 COVID-19, 84.425U-712234 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 $1,560,045 of its ESF awards. This included $608,734 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), and $951,311 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. The District may use a contracted project manager to collect certified payroll reports from contractors and subcontractors, but ultimately, it is the District?s responsibility to comply with these requirements and maintain documentation demonstrating compliance. Description of Condition During the 2021-22 school year, the District spent $673,437 from its ESSER II and ESSER III awards to pay a contractor and its subcontractors for installing and upgrading the heating, ventilation and air conditioning systems at its middle and high school buildings. This project was part of the District?s school facility capital improvement efforts to prevent the spread of COVID-19 and enable school operations by facilitating greater air flow and filtration. During the audit period, the District contracted with one project manager to assist in developing the contract between the District and the contractor, as well as collecting weekly certified payroll reports from the contractor and subcontractors. 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: ? Include, or ensure the project manager included, the required prevailing wage rate clauses in the contract established with its contractor ? Collect, or ensure the project manager collected, weekly certified payroll reports from the contractor and its subcontractors to confirm they paid laborers proper prevailing wages We consider these deficiencies 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 relied on the project manager to include the federal prevailing wage rate clause in the contract with the contractor, and District management and staff did not know this language was missing when they reviewed and approved the contract. Additionally, District management did not know about the federal requirement to collect all certified payroll reports from the contractor and its subcontractors each week to confirm they paid laborers proper prevailing wages. Effect of Condition Without adequate internal controls that ensure it includes the prevailing wage rate clauses in its contract and 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 contractor and subcontractors 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 rate clauses into contracts, as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District?s Response All parties contracting services will receive training on prevailing wage compliance. The business manager will review and ensure the requirements are being met. 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 status of the District?s corrective action 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 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)