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-0120422 COVID-19, 84.425U-137024 COVID-19, 84.425U-138022 COVID-19, 84.425W-0459032 COVID-19, 84.425U-0712042 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 $1,342,036 in federal funding under its ESF awards. This included $227,985 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), $1,083,571 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $30,480 in the American Rescue Plan Elementary and Secondary School Emergency Relief ? Homeless Children and Youth (ARP ESSER ? HCY I subprogram (84.425W). 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 During the 2021-22 school year, the District spent $109,803 from its ESSER II award to pay three contractors for projects that included installing heating, ventilation and air conditioning systems, plumbing drain lines, and installing new playground equipment. These projects were 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. Our audit found the District did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the District did not include the required prevailing wage rate clauses in the contract with two of the three contractors. We consider this deficiency in internal controls to be a material weakness, which led to material noncompliance. The issue was reported as a finding in the prior audit as finding 2021-001. Cause of Condition Prior to June 13, 2022, which was when our prior audit finding was issued, District staff did not know that federal prevailing wage rate clauses must be included in contracts if the District intends to pay for them with federal funds. The contracts that the District issued before June 13, 2022, did not include the required language, however, the one contract it entered into after this date did include the required language. Effect of Condition Without adequate internal controls that ensure it includes the required prevailing wage rate clause in its contracts, 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 include the required prevailing wage rate clauses in all public works contracts paid with federal funds. District?s Response The District acknowledges the finding and would like to point out we have previously corrected the issue by adding internal controls to ensure this oversight does not happen again. These measures were taken during the 2021-22 fiscal year and remain current. 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. 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).