2022-002 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, 84,425 0430813 COVID-19, 84,425 0459003 COVID-19, 84,425 0459517 COVID-19, 84,425 0120584 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 $4,246,922 of its ESF awards. This included $4,220,149 in the Elementary and Secondary School Emergency Relief (ESSER II) Fund subprogram (84.425D), as well as $26,773 in the American Rescue Plan Elementary and Secondary School Emergency Relief ? Homeless Children and Youth (ARP ESSER ? HCY) 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 $45,363 from its ESSER II award to pay two contractors for projects that included installing outdoor food storage units and ventilation maintenance. 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 social distancing and greater air circulation. 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 contract with both contractors. Further, the District did not collect weekly certified payroll reports from the contractors to confirm they paid laborers 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 did not have a process in place to ensure federal wage rate clauses were included in the contracts, nor did it have a process to verify whether prevailing wage requirements applied to the projects. Effect of Condition Without adequate internal controls, 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 develop internal controls to ensure compliance with federal wage rate requirements. This should include inserting prevailing wage clauses into all public works contracts paid with federal funds, as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors. District?s Response Going forward, the District will update Departments on procurement requirements to ensure that prevailing wage is included in contracts for public works projects that use Federal dollars. We will also ensure that Vendors who are completing public works projects for the District are sending their certified payroll into the District for projects over $2,000. Auditor?s Remarks We thank the District for its cooperation throughout the audit and the steps it is taking to address these concerns. 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).