FINDING 2023-006
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
Assistant Listings Number: 84.425U
Federal Award Number and Year (or Other Identifying Number): 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 construction contracts
subject to the Wage Rate Requirements a provision that the contractor or subcontractor must 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 established policies and procedures to ensure that construction
contracts in excess of $2,000 paid from federal grant funds included a prevailing wage rate clause prior to
management signing the contract; however, the School Corporation's policies did not include a system of
internal controls to ensure that the required certified payrolls were submitted by the contractors.
One construction contract was awarded, totaling $629,800, with payments of $472,180 during the
audit period, that was paid from the COVID-19 - Education Stabilization Fund grant award. The contract
contained the required prevailing wage rate clause; however, the School Corporation had not obtained the
required payroll and statements of compliance related to the contract.
The lack of internal controls and noncompliance were isolated to the one contract noted above.
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 under29 CFR 5.5(a)(3)(i), except that
full social security numbers and home addresses shall not be included on
weekly transmittals. . . ."
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.
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, certified payrolls were not obtained as required.
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 management of the School Corporation establish a proper system of
internal controls and develop policies and procedures to ensure payroll records are obtained as required.
Views of Responsible Officials
For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.