SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Sumner-Bonney Lake School District No. 320 September 1, 2021 through August 31, 2022 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: COVID-19, 84.425D-120509 COVID-19, 84.425U-138105 COVID-19, 84.425U-140628 COVID-19, 84.425U-137138 COVID-19, 84.425U-712163 COVID-19, 84.425W-459036 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 $3,342,733 of its ESF awards. This included $1,579,106 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), $1,721,418 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $42,209 in ARP ESSER Homeless Children and Youth (HCY I & II). 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 a contractor through a cooperative purchasing organization to update the heating, ventilation and air conditioning controls in one school to improve air quality and circulation to prevent the spread of COVID-19. During the 2021-22 school year, the District paid $321,332 from its ESSER III award for work performed on this 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 it paid laborers the 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 relied on the contractor and subcontractors to submit weekly certified payroll to the Washington State Department Labor and Industries (L&I) website. Although staff said they checked that weekly certified payrolls were uploaded to the L&I system before the District paid the contractor, this process was not documented. Further, staff did not know the District needed to obtain all certified payroll reports each week. 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 contractor and subcontractors did not pay prevailing wage rates to laborers working on the contracts. For this project, the District was required to obtain a total of nine weekly certified payroll reports. Since the required payroll reports for the project had been submitted to L&I, the District was subsequently able to collect them during our audit. Recommendation We recommend the District develop internal controls that 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 Sumner-Bonney Lake School District appreciates the State Auditor?s Office review of the Davis-Bacon Act requirements in our use of federal funding at Daffodil Valley Elementary HVAC air quality improvements. The Sumner-Bonney Lake School District agrees with the auditor?s finding that more frequent monitoring of wage and payroll certifications is necessary to conform with the Davis-Bacon Act. We realize that our reliance on the State of Washington?s Labor and Industries prevailing wage and payroll certifications site (where wage and certification data is submitted and stored) will require weekly documented review of submitted contractor/subcontractor payrolls and certifications. As we move forward, we will ensure ? Capital Facilities Manager will provide weekly oversite of contractor compliance ? Collect and document the review of weekly certifications and payroll District office will ensure that our Capital Facilities Manager and other departments will adhere to Davis-Bacon Act requirements when using federal funds Auditor?s Remarks We appreciate the District?s commitment to improving its processes and resolving this issue. We thank the District for its cooperation and assistance during the audit. We will review the status of the District?s corrective action during the 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, establish 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).