SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Nine Mile Falls School District No. 325/179 September 1, 2020 through August 31, 2022 2022-001 The District did not have adequate internal controls for ensuring compliance with federal 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, 0712171 COVID-19, 84.425W, 0459570 COVID-19, 84.425D, 0120524 COVID-19, 84.425U, 0138168 COVID-19, 84.425U, 0137194 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 $3,272,427 of its ESF awards. This included $1,509,930 in the Elementary and Secondary School Emergency Relief (ESSER II) Fund subprogram (84.425D), $1,751,572 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $10,925 in the American Rescue Plan Elementary and Secondary School Emergency Relief ? Homeless Children and Youth (ARP ESSER ? HCY II) 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 $984,328 from its ESSER III award to pay three contractors and their subcontractors for three projects, which included an addition of a portable building and replacement of the heating, ventilation and air conditioning systems and heating units for two elementary schools. These projects were part of the District?s school facility capital improvement efforts to prevent the spread of COVID-19 by improving the structure of the elementary school buildings and facilitating social distancing in classrooms. During the audit period, the District was responsible for collecting weekly certified payroll reports from the three contractors and their 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 the required prevailing wage rate clauses in two of the three contracts established with contractors ? Collect 22 out of 72 weekly certified payroll reports from the contractors and their 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 District staff did not fully understand the requirements for contract language, and was not aware of the federal prevailing wage rate clauses that needed to be included. Additionally, staff had an established process for collecting and reviewing the weekly certified payroll reports, but could not find documentation showing the District obtained the 22 payroll reports. 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 contractors and subcontractors did not pay prevailing wage rates to laborers working on the contracts. Recommendation We recommend the District continue to improve internal controls to ensure compliance with federal wage rate requirements. This should include: ? Informing District staff and contractors about federal program requirements ? Inserting prevailing wage clauses into contracts ? Implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors ? Documenting and retaining evidence to support the District?s compliance with the requirement to collect weekly certified payroll reports District?s Response The district relied upon experienced contractors during these federally-funded projects to ensure proper contract language was used and to submit weekly certified payroll reports. The two (2) contracts without specific Davis Bacon language both mentioned local prevailing wages, which is higher than federal prevailing wages, so both the contractors and the district thought this was sufficient and would be considered compliant. Future federal projects exceeding $2,000 in federal dollars will include federal language as required by Title 29 CFR, ?5.5. The district has created a project tracking sheet which contains the following information: project location, project description, funding source, estimated contract amount, date of award, awarded contractor, SAM verification date, intent and affidavit numbers and dates, subcontractor information, and certified payroll verification for weeks work completed. 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).