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: US. 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-0120437 COVID-19, 84.425D-0120181 COVID-19, 84.425U-0137150 COVID-19, 84.425U-0138065 COVID-19, 84.425U-0142501 COVID-19, 84.425U-0712008 COVID-19, 84.425U-0712141 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 $2,795,654 of its ESF awards. This included $1,122,978 in the Elementary and Secondary School Emergency Relief (ESSER I and II) Fund subprogram (84.425D) and $1,672,676 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 subcontractors 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 paid $189,061.32 from its ESSER II and ESSER III awards to pay three contractors to replace a heating, ventilation and air conditioning system valve, provide voltage wiring and concrete path access to portable buildings, and replace lunchroom windows with awnings. 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 prevailing wage rate requirements. Specifically, the District did not include the required prevailing wage rate clauses in the contracts. 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 While District officials were aware of state prevailing wage requirements, they did not know federal regulations required the contracts between the District and the contractors include specific language to meet prevailing wage rate requirements. Effect of Condition Without adequate internal controls that ensure it includes the required prevailing wage rate clauses 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 contractors did not pay prevailing wage rates to laborers working on the contracts. Recommendation We recommend the District develop internal controls that ensure compliance with federal wage rate requirements. This should include inserting prevailing wage clauses into all public works contracts paid with federal funds. District?s Response It is highly unusual for the district to utilize federal funds for construction projects; the Covid-19 Education Stabilization Funds were an anomaly. The District?s Director of Business and Operations was unaware that prevailing wage clauses are required to be included in all public works contracts over $2,000 that are paid with federal funds. She was aware that prevailing wages need to be paid. The audit finding does not dispute that prevailing wages were paid appropriately, just that the clauses were not included in the contracts. To be very clear, this finding is for not having required language in contracts. The District is now aware that inclusion of the clauses is a compliance requirement. Going forward, it is unlikely that federal funds will be used for construction projects; however, when federal funds are utilized for construction projects, the District will either include the required prevailing wage rate clauses in its contracts or will obtain a separate signed clause with the required prevailing wage rate information. Auditor?s Remarks We appreciate the District?s commitment to resolve these issues 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 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).