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-6112 COVID-19, 84.425U-1300 COVID-19, 84.425U-6114 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 expended a total of $448,883 of its ESF awards. This included $71,556 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), and $377,327 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 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 $206,340 from its ESSER II award to pay one contractor for installing and upgrading the flooring throughout District buildings. This project was part of the District?s school facility capital improvement efforts to prevent the spread of COVID-19 and enable school operations by providing a surface that is easier to clean. 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: ? Establish a contract with the contractor that included the required prevailing wage rate clauses ? Collect weekly certified payroll reports from the contractor to confirm it 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 management did not know about the requirement to establish a contract and include the federal prevailing wage rate clauses in it. Additionally, District management did not know about the federal requirement to collect all certified payroll reports from the contractor each week to confirm laborers were paid prevailing wages. Effect of Condition Without adequate internal controls that ensure it establishes contracts, includes the prevailing wage rate clauses in them, 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 contractor did not pay prevailing wage rates to laborers working on the contract. However, during the audit, the District subsequently verified wage rate requirements by reviewing hourly rates on the contractor?s invoices and confirming they were above the prevailing wage. Recommendation We recommend the District develop internal controls to ensure compliance with federal wage rate requirements. This should include establishing contracts and inserting prevailing wage rate clauses into them, as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District?s Response We appreciate the opportunity to work with the State Auditor's Office in regard to this matter and will work to implement the required changes going forward. Northport School District will follow the corrective action to ensure that adequate internal controls are followed. Northport School District will make sure that a formal contract is written up and the Federal Prevailing Wage clause is included in the contract. Northport School District will rely on a Project Manager who is responsible for collecting weekly certified payroll reports from contractors and subcontractors for each week in which work was performed. Northport School District will monitor the Project Manager to ensure all weekly certified payrolls are being collected. Northport School District will make every effort to ensure that correct procedures are followed. 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).