Finding Text
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 spent $909,869 of its ESF awards. This included $423,779 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $486,090 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. The District may use a contracted project manager to collect certified payroll reports from contractors and subcontractors, but ultimately, it is the District?s responsibility to comply with these requirements and maintain documentation demonstrating compliance. Description of Condition The District paid one contractor $157,800 in the 2021-2022 school year to replace a boiler as a part of its school capital facility improvement efforts to improve air quality. 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 collect all weekly certified payroll reports from the contractor working on the project to confirm they paid laborers proper prevailing wages. We consider this internal control deficiency to be a material weakness that led to material noncompliance. This issue was not reported as a finding in the prior audit. Cause of Condition The District does not normally use federal funds on public works projects, and management did not dedicate the necessary resources to ensure staff were aware of and understood the requirements. Effect of Condition Without adequate internal controls that ensure it collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. This 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. During the audit, the District subsequently obtained all weekly certified payrolls from the contractor. Recommendation We recommend the District develop internal controls that ensure compliance with federal wage rate requirements. This should include informing staff about federal program requirements, and implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. District?s Response The District concurs with the State Auditor finding that the Davis-Bacon Act Requirements were not met for the boiler installation project using federal funding. Effective immediately the District will implement new internal controls and procedures for future capital project expenditures using federal funding as outlined in our Corrective Action Plan. 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.