2023-003 The District did not have adequate internal controls for ensuring compliance with allowable activities and costs and federal 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: 84.425U-137210
84.425U-138191
84.425W-459040
84.425U-144921
84.425U-140056
84.425D-135507
84.425D-140546
84.425D-144566
Known Questioned Cost Amount: $36,441
Prior Year Audit Finding: Yes, Finding 2022-003
Background
The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In the fiscal year 2023, the District spent a total of $3,087,660 of its ESF awards. This included $196,669 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), $2,848,767 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U) and $42,224 in the American Rescue Plan Elementary and Secondary School Emergency Relief – Homeless Children and Youth (ARP-HCY) subprogram (84.425W).
Federal regulations require recipients to establish and maintain internal controls that ensure compliance with program requirements. These controls include understanding program requirements and monitoring the effectiveness of established controls.
Activities Allowed/Allowable Costs
Federal regulations also establish principles and standards for determining allowable direct and indirect costs for federal awards. All costs that recipients charge to the program must comply with program requirements and be supported by proper documentation that demonstrates costs are allowable.
Federal Wage Rate Requirements
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 funds 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 contractors and subcontractors comply with those requirements and the Department of Labor’s regulations. This includes a requirement for the contractors and its subcontractors 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.
Description of Condition
Activities Allowed/Allowable Costs
Although the District’s internal controls were adequate for ensuring it materially complied with the program’s allowable activities and costs requirements, the District did not ensure that all expenditures claimed were supported and allowed to be charged to the program. Our audit found that the District requested reimbursement for $36,441 more than its expenses for its ESSER III award (84.425U).
Federal Wage Rate Requirements
During the 2023 school year, the District spent $384,089 for payments to one contractor for a security camera system project. Our audit found the District did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements. Specifically, the District did not:
• Include the required prevailing wage provisions in the contract
• Collect weekly certified payroll reports from the contractor and subcontractors to confirm they paid laborers the proper prevailing wages
We consider these deficiencies in internal controls over federal wage rate requirements to be material weaknesses that led to material noncompliance.
Cause of Condition
Activities Allowed/Allowable Costs
The District moved expenses out of the program after requesting reimbursement and did not update its reimbursement request.
Federal Wage Rate Requirements
District staff were not aware of federal prevailing wage requirements and were unaware of the requirement to obtain and review certified payroll reports each week prior to payment until after the project was complete.
Effect of Condition and Questioned Costs
Activities Allowed/Allowable Costs
We found that the District requested reimbursement for $35,269 of direct and $1,172 of indirect costs through its ESSER III award (84.425U) that were not supported by allowable expenditures. We are questioning these costs.
Federal regulations require the State Auditor’s Office to report known questioned costs that are greater than $25,000 for each type of compliance requirement. We question costs when we find the District has not complied with grant regulations and/or when it does not have adequate documentation to support expenditures.
Federal Wage Rate Requirements
Without adequate internal controls to ensure it includes the prevailing wage rate clauses in its contracts and collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. The District could also be liable for paying any additional wages if the contractor and subcontractors did not pay prevailing wage rates to laborers working on the contract.
The District did not include federal prevailing wage provisions in its contracts and did not collect weekly certified payroll reports for the contractor and subcontractors.
Recommendation
We recommend the District ensure only allowable costs are charged to federal awards. We further recommend the District design internal controls to ensure compliance with federal prevailing wage rate requirements. This should include inserting prevailing wage rate clauses into contracts, as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports timely from contractors and subcontractors. Additionally, we recommend the District provide additional training to ensure staff overseeing compliance with the federal programs are aware of all applicable requirements.
District’s Response
Wahluke School District is currently working on implementing adequate internal controls for prevailing wages. We now have new staff in place, so we are currently creating internal controls over prevailing wage requirements by doing the following:
1. Policy and Procedure Documentation: Establish clear policies and procedures outlining the school district's commitment to complying with prevailing wage requirements.
2. Training and Education: Provide training to relevant staff members responsible for payroll, human resources, and project management on prevailing wage requirements.
3. Vendor and Contractor Oversight: Require contractors to provide certified payroll reports regularly, detailing wages paid to each worker on prevailing wage projects.
4. Recordkeeping and Documentation: Maintain detailed records of all labor costs associated with prevailing wage projects. This includes employee time cards, payroll records, fringe benefit payments, and any other documentation required by state law.
5. Segregation of Duties: Implement segregation of duties to prevent one individual from having sole control over the entire process. For example, separate individuals should be responsible for approving timecards, preparing payroll, and reconciling payroll records.
6. Regular Audits and Reviews: Conduct regular internal audits or reviews of payroll records to ensure compliance with prevailing wage requirements. This can help identify any discrepancies or errors that need to be addressed promptly.
7. Monitoring and Enforcement: Establish mechanisms for monitoring compliance with prevailing wage requirements. Enforce consequences for non-compliance, such as withholding payments until issues are resolved or terminating contracts with repeat offenders.
8. Communication Channels: Maintain open lines of communication with employees, contractors, and relevant government agencies regarding prevailing wage requirements.
9. External Assistance: Consider engaging external consultants or legal counsel with expertise in prevailing wage compliance to provide guidance and assistance as needed.
By implementing these internal controls, Wahluke School District can help ensure that it meets its obligations under prevailing wage laws, minimizes the risk of non-compliance, and maintains transparency and accountability in its operations.
The Wahluke School District has established internal controls to track expenses diligently and ensure that the claims submitted are only for allowable activities and cost. Program Directors and Building Administrators receive weekly budget reports that they review for accuracy to ensure that only allowable activities are charged to their grants. The district has also included the Grants Manager in the review and approval of requisitions and time cards. This ensures that all proposed expenditures and time worked is allowable and aligns with the grant spending plan.
Auditor’s Remarks
We thank the District for its cooperation and assistance during the audit and acknowledge its commitment to improving the condition described. We will review the status of this issue during our next audit.
Applicable Laws and Regulations
Title 2 CFR Part 200, Uniform Guidance, section 403, Factors affecting allowability of costs, describes the cost principles for how direct and indirect costs should be charged to federal programs.
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, Section 3.3 – Weekly statement with respect to payment of wages, and Section 3.4 – Submission of weekly statements and the preservation and inspection of weekly payroll records, establishes requirements for contractor or subcontractor submission of weekly certified payroll reports.
Title 29 CFR, 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).