SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Clarkston School District No. J250-185
September 1, 2022 through August 31, 2023
2023-001 The District did not have adequate internal controls for ensuring compliance with 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 the Superintendent of Public Instruction
Pass-through Award/Contract Number: COVID-19, 84.425D 0120416
COVID-19, 84.425U 0138012
COVID-19, 84.425U 0142141
COVID-19, 84.425W 0459522
COVID-19, 84.425U 0142503
COVID-19, 84.425U 0137011
COVID-19, 84.425U 0142368
COVID-19, 84.425D 0135902
COVID-19, 84.425D
Known Questioned Cost Amount: $0
Prior Year Audit Finding: Yes, Finding 2022-001
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 $1,724,408 of its ESF awards. This included $245,566 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), $1,474,038 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $4,804 in the American Rescue Plan Elementary and Secondary School Emergency Relief – Homeless Children and Youth (ARP HCY I & II) subprogram (84.425W). The District spent $162,361 in program funds for installing and upgrading the heating, ventilation and air conditioning systems in one school building.
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.
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 their 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.
The District may use a contracted project manager to collect certified payroll reports from contractors and subcontractors, but ultimately it is the District‘s responsibility to comply with these requirements and maintain documentation demonstrating compliance.
Description of Condition
During the 2023 school year, the District spent $162,361 for payments to one contractor and their subcontractors to install and upgrade the heating, ventilation and air conditioning system controls in one school to prevent the spread of COVID-19.
Our audit found the District did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Specifically, the District did not collect, or ensure the project manager collected, weekly certified payroll reports from the contractor and their subcontractors to confirm they paid laborers proper prevailing wages.
We consider this deficiency in internal controls to be a material weakness, which led to material noncompliance.
Cause of Condition
District staff were unaware of federal wage rate requirements. The District relied on the project manager to manage the project and verify the contractor and subcontractors submitted weekly certified payroll reports to the Washington State Department of Labor and Industries website before the District paid the contractor, but did not document this process. They did not know that this process, while sufficient for state requirements, does not meet federal requirements. Further, District staff were unaware of the requirement to collect certified payrolls reports each week.
Effect of Condition
Without adequate internal controls to ensure it 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 contractors and subcontractors did not pay prevailing wage rates to laborers working on the contracts.
The District did not collect all weekly certified payrolls for one contractor and their subcontractors.
Recommendation
We recommend the District establish internal controls to ensure compliance with federal wage rate requirements. This should include implementing effective monitoring processes to collect and review all weekly certified payroll reports from contractors and subcontractors.
District’s Response
The Clarkston School District welcomes the State Auditor’s Office review of federal wage rate requirements in our use of federal funds for the Grantham Elementary HVAC construction project. We agree with the auditor’s findings that our internal control structure was inadequate to ensure compliance with wage rate requirements.
The following internal control processes have been implemented effective May 2023.
1. Identify public works projects and other contracts that require compliance with federal wage rate requirements through regular communication with District administrators and maintenance/operations management staff.
2. Complete and enhance the Districts contracts checklists for agreements entered into with contractors, agencies or purchasing cooperatives for the contraction of public works projects.
3. Consult with ESD, OSPI, and SAO to assure proper and complete terms are included in agreement documentation.
4. Collect and review weekly Certified Payroll Reports from contractors and subcontractors upon commencement of applicable projects until completion.
5. Confirmation of receipt and review of Certified Payroll Reports shall be verified prior to vendor payments.
A contributing factor to this internal control weakness was turnover in key compliance positions during the time the contracts were being processed and construction was commencing.
This finding effectively carried over from the prior audit period September 1, 2021 through August 31, 2022, to the current audit period September 1, 2022 through August 31, 2023. The final invoices for this project were received by the District in March 2023. The finding was originally identified after March 2023 and responded to in May 2023. The opportunity had passed for the District to include prevailing wage clauses in the contract and collect weekly certified payroll from the contractor. The internal control processes listed above were put into place after the project was completed.
Auditor’s Remarks
We appreciate the District’s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the status of the District’s corrective action during our next audit.
Applicable Laws and Regulations
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.