FINDING 2023-003
Subject: COVID-19 - Education Stabilization Fund - Special Tests
and Provisions - Wage Rate Requirements
Federal Agency: Department of Education
Federal Program: COVID-19 - Education Stabilization Fund
Assistance Listings Numbers: 84.425D, 84.425U
Federal Award Numbers and Years (or Other Identifying Numbers): S425D210013, S425U210013
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Special Tests and Provisions - Wage Rate Requirements
Audit Findings: Material Weakness, Other Matters
Condition and Context
Construction contracts in excess of $2,000 financed by federal assistance funds must pay wages
not less than those established for the locality of the project (prevailing wage rates) by the Department of
Labor (DOL) to its laborers and mechanics. Nonfederal entities are to include in its construction contracts
subject to the Wage Rate Requirements a provision that the contractor or subcontractor comply with these
requirements and the DOL regulations. This would include a requirement to submit a copy of the payroll
and statement of compliance to the entity for each week in which contract work was performed.
The School Corporation had not designed, nor implemented a system of internal controls to ensure
that construction contracts in excess of $2,000 paid from federal grant funds included a prevailing wage
rate clause and that a copy of the payroll was submitted for each week in which contract work was
performed. Two construction projects were paid for from the Elementary and Secondary School Emergency
Relief Fund grant funds during the audit period. Both contracts were tested. Both contracts contained the
required prevailing wage rate clause; however, a copy of the payroll was not submitted for either contract
for any week in which work was performed.
The lack of internal controls and noncompliance were systemic issues throughout the audit period.
Criteria
2 CFR 200.303 states in part:
"The non-Federal entity must:
(a) Establish and maintain effective internal control over the Federal award that provides
reasonable assurance that the non-Federal entity is managing the Federal award in
compliance with Federal statutes, regulations, and the terms and conditions of the Federal
award. These internal controls should be in compliance with guidance in 'Standards for
Internal Control in the Federal Government' issued by the Comptroller General of the
United States or the 'Internal Control Integrated Framework', issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). . . ."
29 CFR 5.5 states in part:
"(a) The Agency head shall cause or require 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 from Federal funds or in accordance with guarantees of a Federal
agency or financed from funds obtained by pledge of any contract of a Federal agency to make
a loan, grant or annual contribution (except where a different meaning is expressly indicated),
and which is subject to the labor standards provisions of any of the acts listed in § 5.1, the
following clauses. . .
(1) Minimum wages.
(i) All laborers and mechanics employed or working upon the site of the work (or
under the United States Housing Act of 1937 or under the Housing Act of 1949 in the
construction or development of the project), will be paid unconditionally and not less
often than once a week, and without subsequent deduction or rebate on any account
(except such payroll deductions as are permitted by regulations issued by the
Secretary of Labor under the Copeland Act (29 CFR part 3)), the full amount of wages
and bona fide fringe benefits (or cash equivalents thereof) due at time of payment
computed at rates not less than those contained in the wage determination of the
Secretary of Labor which is attached hereto and made a part hereof, regardless of any
contractual relationship which may be alleged to exist between the contractor and such
laborers and mechanics. . . .
(3) Payrolls and basic records. . . .
(ii)
(A) The contractor shall submit weekly for each week in which any contract work
is performed a copy of all payrolls to the (write in name of appropriate federal
agency) if the agency is a party to the contract, but if the agency is not such a
party, the contractor will submit the payrolls to the applicant, sponsor, or owner, as
the case may be, for transmission to the (write in name of agency). The payrolls
submitted shall set out accurately and completely all of the information required to
be maintained under 29 CFR 5.5(a)(3)(i), except that full social security numbers
and home addresses shall not be included on weekly transmittals. Instead the
payrolls shall only need to include an individually identifying number for each
employee (e.g., the last four digits of the employee's social security number). The
required weekly payroll information may be submitted in any form desired.
Optional Form WH-347 is available for this purpose from the Wage and Hour
Division Web site at http://www.dol.gov/esa/whd/forms/wh347instr.htm or its
successor site. The prime contractor is responsible for the submission of copies
of payrolls by all subcontractors. . . ."
2 CFR 200 Appendix II states in part:
"In addition to other provisions required by the Federal agency or non-Federal entity; all
contracts made by the non-Federal entity under the Federal award must contain provisions
covering the following, as applicable. . . .
(D) Davis-Bacon Act, as amended (40 U.S.C. 3141-3148). When required by Federal
program legislation, all prime construction contracts in excess of $2,000 awarded by non-
Federal entities must include a provision for compliance with the Davis-Bacon Act (40
U.S.C. 3141-3144, and 3146-3148) as supplemented by Department of Labor regulations
(29 CFR Part 5, 'Labor Standards Provisions Applicable to Contracts Covering Federally
Financed and Assisted Construction'). In accordance with the statute, contractors must be
required to pay wages to laborers and mechanics at a rate not less than the prevailing
wages specified in a wage determination made by the Secretary of Labor. In addition,
contractors must be required to pay wages not less than once a week. . . ."
2 CFR 200.334 states in part:
"Financial records, supporting documents, statistical records, and all other non-Federal entity
records pertinent to a Federal award must be retained for a period of three years from the date
of submission of the final expenditure report or, for Federal awards that are renewed quarterly
or annually, from the date of the submission of the quarterly or annual financial report,
respectively, as reported to the Federal awarding agency or pass-through entity in the case of
a subrecipient. . . ."
Cause
A proper system of internal controls was not designed by management of the School Corporation,
which would include segregation of key functions. Embedded within a properly designed and implemented
internal control system should be internal controls consisting of policies and procedures. Policies reflect
the School Corporation's management statements of what should be done to effect internal control, and
procedures should consist of actions that would implement these policies.
Effect
Without the proper implementation of an effectively designed system of internal controls, the
internal control system cannot be capable of effectively preventing, or detecting and correcting, material
noncompliance. As a result, certified payrolls were not obtained by the School Corporation.
Noncompliance with the grant agreement and the compliance requirement could result in the loss
of future federal funds to the School Corporation.
Questioned Costs
There were no questioned costs identified.
Recommendation
We recommended that the School Corporation's management establish a system of internal
controls and ensure certified payrolls are obtained as required for all contracts.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.