2022-001 The District did not have adequate internal controls for ensuring compliance with wage rate requirements. "See Schedule of Findings and Questioned Costs for chart/table" 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 $1,587,989 of its ESF awards. This included $381,774 of its Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), and $1,206,215 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER II/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 contacts 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 affirming compliance. Description of Condition During the 2021-22 school year, the District spent $200,335 from its ESSER II award to pay two contractors and their subcontractors for installing and upgrading the heating, ventilation and air conditioning systems at one school building, and for upgrading the intercom communication system at another school building. 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 communications. 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 the contract with both contractors ? Collect weekly certified payroll reports from the contractors and subcontractors to confirm they paid 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 The District does not normally use federal funds on construction projects, and management did not know about the additional requirements for prevailing wages when using federal funds to pay for projects. Effect of Condition Without adequate internal controls that ensure it includes the prevailing wage rate clauses it its contracts 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 additional wages if the contractors and subcontractors did not pay prevailing wage rates to laborers and mechanics working on the contracts. During the audit, the District obtained all weekly certified payroll reports from the contractors and subcontractors. Recommendation We recommend the District develop internal controls that ensure compliance with federal wage rate requirements. This should include inserting prevailing wage rate clauses into contracts, training management and staff about federal program requirements, and implementing an effective monitoring process to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District?s Response Auditor?s Remarks 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).