2023-004: Material Weakness and Material Noncompliance – Wage Rate Requirements
Federal Program Information:
Education Stabilization Fund, ALN 84.425
Condition:
The District entered into an agreement for installation of replacement boilers using Education Stabilization Funds with total project costs of $350,000. As a result of a lack of proper internal controls, the required clauses concerning prevailing wage rates and the requirement that the contractor submit weekly payroll reports for all weeks in which work was performed were not included in the agreement.
Criteria:
2 CFR § 3474.1 gives regulatory effect to the Department of Education for Appendix II to 2 CFR § 200 which states that, 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. The non-Federal entity must place a copy of the current prevailing wage determination issued by the Department of Labor in each solicitation. The decision to award a contract or subcontract must be conditioned upon the acceptance of the wage determination. The non-Federal entity must report all suspected or reported violations to the Federal awarding agency. The contracts must also include a provision for compliance with the Copeland “Anti-Kickback” Act (40 U.S.C. 3145), as supplemented by Department of Labor regulations (29 CFR Part 3, “Contractors and Subcontractors on Public Building or Public Work Financed in Whole or in Part by Loans or Grants from the United States”). The Act provides that each contractor or subrecipient must be prohibited from inducing, by any means, any person employed in the construction, completion, or repair of public work, to give up any part of the compensation to which he or she is otherwise entitled. The non-Federal entity must report all suspected or reported violations to the Federal awarding agency.
29 CFR § 5.5(a)(3)(ii)(A) requires, in part, that a contract in excess of $2,000 which is entered into for the actual construction, alteration and/or repair 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 shall require a clause that the contractor shall submit weekly for each week in which any contract work is performed a copy of all payrolls to the appropriate 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 agency. Agencies which do not directly enter into such contracts shall promulgate the necessary regulations or procedures to require the recipient of the Federal assistance to insert in its contracts the provisions of § 5.5.
Cause:
The District did not have internal controls in place to ensure the applicable wage rate provisions and the requirement that the contractor shall submit weekly for each week in which any contract work is performed a copy of all payrolls to the District were not included in the agreement. As a result of a lack of proper internal controls, none of the applicable wage rate provisions were included in the agreement. Additionally, while the contractor maintained weekly certified payrolls, these were not sent to the District weekly for each week during which contract work was performed during fiscal year 2023. Rather, certified payrolls were sent to the District when they were requested during the audit.
Effect:
Without proper controls over wage rate requirements, there is an increased risk that the District, its contractors and subcontractors are not in compliance with applicable federal regulations. Additionally, noncompliance could result in federal funding being reduced or taken away, or other sanctions imposed by the federal grantor agency.
Recommendation:
The District should establish internal controls to include the required clauses of 29 CFR 5.5, particularly those concerning prevailing wage rate and the requirement that the contractor shall submit weekly, for each week in which any contract work is performed, a copy of all payrolls to the District, in its requests for quotes or bids for any projects greater than $2,000 that are covered by wage rate requirements. In addition, the District should obtain all necessary information from contractors to document compliance with wage rate requirements.
Management’s Response:
See Corrective Action Plan