FINDING 2023-005
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): S425D200013, S425U210013
Pass-Through Entity: Indiana Department of Education
Compliance Requirement: Special Tests and Provisions - Wage Rate Requirements
Audit Findings: Material Weakness, Modified Opinion
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. Four contracts entered into by the School Corporation during the audit period were to be paid
from multiple fund sources, including COVID-19 - Education Stabilization Fund grant funds. Total contract
expenditures from the COVID-19 - Education Stabilization Fund grant funds during the audit period was
$2,518,768. All four contracts tested did not contain the required prevailing wage rate clause. Furthermore,
eight invoices were tested and did not include the required certified payrolls from the contractors.
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 clause . . .
(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. . . .
(i)
(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).
. . ."
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. . . ."
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 controls, 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, construction contracts entered into did not contain the required wage rate
requirements clauses, nor were certified payrolls 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 include the wage rate requirement clause in construction contracts. In addition, certified payrolls
should be obtained as required in a timely manner.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.
Auditor's Response
While the need to have the prevailing wage rate clause, was not required at the initial inception of
the contracts, as federal dollars were not the funding source, once it was determined federal funds were
going to be utilized in whole or in part all requirements of the federal funds being utilized should have been
considered. Any additional requirements necessitated by the change in funding source should have been
incorporated into existing and future contracts. In addition, certified payroll documentation should have
been obtained and reviewed by the School Corporation to ensure that contractors complied with wage rate
requirements.