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-0120470 COVID-19, 84.425D-0142210 COVID-19, 84.425U-0138039 COVID-19, 84.425U-0137029 COVID-19, 84.425U-0142353 COVID-19, 84.425U-0712170 COVID-19, 84.425W-0459016 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 $4,765,771 in federal funding under its ESF awards. This included $1,899,568 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), $2,862,426 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $3,777 in the American Rescue Plan Elementary and Secondary School Emergency Relief ? Homeless Children and Youth (ARP HCY I & II) subprogram (84.425W). 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 or 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 ensure compliance and maintain the documents in accordance with records retention requirements. Description of Condition The District hired a project manager to supervise an upgrade project for the heating, ventilation and air conditioning (HVAC) system for Huntington Middle School. 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 facilitating greater air flow and filtration. During the 2021-22 school year, the District expended $750,000 from its ARP ESSER/ESSER III ESF award for work performed on the project. Our audit found the District did not have an adequate process in place to ensure its contracted project manager collected all weekly certified payroll reports from each subcontractor working on the project. We consider this internal control deficiency to be a material weakness that 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 public works projects, and management did not dedicate the necessary resources to ensure staff understood the requirements. Effect of Condition Without adequate internal controls, the District cannot demonstrate it complied with federal wage rate requirements. This could place the District at risk for paying any additional wages if the contractor did not pay prevailing wage rates to laborers. Recommendation We recommend the District develop internal controls to ensure compliance with federal wage rate requirements. This should include implementing effective monitoring processes to ensure project managers collect all certified payroll reports from contractors and subcontractors. District?s Response The Kelso School District appreciates the State Auditor?s Office review of the Davis-Bacon Act requirements in our use of federal funding for the Huntington Middle School construction project. The Kelso School District agrees with the auditor?s finding that more frequent monitoring of wage and payroll certifications is necessary to conform to Davis-Bacon Act. We realize that our reliance on the State of Washington?s Labor and Industries prevailing wage and payroll certifications site (where wage and certification data is submitted and stored) will require weekly review of submitted contractor payrolls and certifications. As we move forward into two additional construction projects utilizing federal funds, we will ensure our project management team provides weekly oversight of contractor compliance, collects weekly certifications and payrolls, and provides Kelso School District with required documentation. Auditor?s Remarks We appreciate the District?s response and commitment to resolving this finding. We thank it 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, Subtitle A Part 5, Labor Standards Provisions Applicable to Contracts Covering Federally Financed and Assisted Construction (Also Labor Standards Provisions Applicable to Nonconstruction Contracts Subject to the Contract Work Hours and Safety Standards Act), 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).