Finding 973109 (2023-001)

Material Weakness
Requirement
N
Questioned Costs
-
Year
2023
Accepted
2024-05-14

AI Summary

  • Core Issue: The District lacked adequate internal controls to ensure compliance with federal wage rate requirements for a playground project, failing to include necessary provisions in the contract.
  • Impacted Requirements: Federal regulations mandate that contracts include prevailing wage clauses and require weekly certified payroll reports from contractors to confirm proper wage payments.
  • Recommended Follow-Up: Strengthen internal controls by clearly including federal wage provisions in contracts and implementing a process to collect and review all weekly certified payroll reports from contractors.

Finding Text

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 Superintendent of Public Instruction Pass-through Award/Contract Number: COVID 19, 84.425W – 459464 COVID 19, 84.425U – 138304 COVID 19, 84.425U – 137028 COVID 19, 84.425U – 140033 COVID 19, 84.425U – 142135 COVID 19, 84.425U – 142514 COVID 19, 84.425U – 144910 COVID 19, 84.425D – 140539 COVID 19, 84.425D – 120488 COVID 19, 84.425D – 135504 Known Questioned Cost Amount: $0 Prior Year Audit Finding: N/A 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 $2,122,577 of its ESF awards. This included $672,905 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), $1,438,589 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U) and $11,083 in the American Rescue Plan Elementary and Secondary School Emergency Relief – Homeless Children and Youth (ARP-HCY) subprogram (84.425W). The District spent $414,939 in program funds for a playground project. 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 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 During the 2023 school year, the District paid $414,939 to one contractor for a playground project. Our audit found the District did not have adequate internal controls to ensure compliance with federal wage rate requirements for this project. Specifically, the District did not: • Include the required federal 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 to be material weaknesses that led to material noncompliance. Cause of Condition Although the District was aware of the requirements and included a reference to prevailing wages in the contract, the contract language did not clearly specify that the contractor must comply with the federal wage requirements. District employees said they reviewed the Washington State Department of Labor and Industries website to confirm the contractor and subcontractors submitted weekly certified payroll reports. However, they did not retain documentation to demonstrate these were submitted prior to payment. Effect of Condition Without adequate internal controls to ensure it includes the federal 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. For the playground project, the District did not include federal prevailing wage provisions in the contract and did not collect six out of a total of six weekly certified payroll reports. During the audit, the District subsequently collected all weekly certified payrolls. Recommendation We recommend the District strengthen 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 from contractors and subcontractors. District’s Response The Mount Adams School District thanks the audit team for taking the time to fully consider all relevant details in this matter. The District agrees, as noted in the "Cause of Condition'' section above, the district was aware of the requirement to inform lower tier contractors of the prevailing wage requirements but neglected to specify to the general contractor if this was a state or federally funded contract. The general contractor was aware it was a federally funded project as evidenced by their setting up the project as a federal project in the Washington State Dept. of Labor and Industries (L&I) system. However, the District could not show where this was communicated to the contractor in writing. While certified weekly payrolls were checked in the L&I system each month, the District agrees it could not provide written documentation this occurred prior to issuing progress payments. The District disagrees that, during the audit, the District subsequently collected all weekly certified payrolls. The District uses the L&I prevailing wage system as the tool for all contractors to submit their weekly certified payrolls to the District. This system records all the required information to satisfy the federal prevailing wage rate requirements. The District elects to use its account in L&I system as the secure storage for all certified payrolls regardless if the project is state or federally funded. Of the $414,939 paid to the playground general contractor $27,177 was salaries and benefits applicable to Federal Wage Rate requirements. The remaining $387,762 were non-labor costs. All weekly certified payrolls were immediately available for audit upon auditor request and found to be present and submitted by the contractors in a timely manner. Auditor’s Remarks We thank the District for its assistance provided throughout our audit. As noted in the finding above and acknowledged in the District's response, the District did not document that certified payrolls were obtained by the District prior to payment. Our audit is conducted in accordance with the criteria established by the federal government and the pass-through agency, in this case OSPI. We reaffirm our finding and will review the condition 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. 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).

Categories

Subrecipient Monitoring Internal Control / Segregation of Duties Special Tests & Provisions Allowable Costs / Cost Principles Material Weakness Reporting

Other Findings in this Audit

  • 396661 2023-001
    Material Weakness
  • 396662 2023-001
    Material Weakness
  • 396663 2023-001
    Material Weakness
  • 396664 2023-001
    Material Weakness
  • 396665 2023-001
    Material Weakness
  • 396666 2023-001
    Material Weakness
  • 396667 2023-001
    Material Weakness
  • 396668 2023-001
    Material Weakness
  • 396669 2023-001
    Material Weakness
  • 396670 2023-001
    Material Weakness
  • 973103 2023-001
    Material Weakness
  • 973104 2023-001
    Material Weakness
  • 973105 2023-001
    Material Weakness
  • 973106 2023-001
    Material Weakness
  • 973107 2023-001
    Material Weakness
  • 973108 2023-001
    Material Weakness
  • 973110 2023-001
    Material Weakness
  • 973111 2023-001
    Material Weakness
  • 973112 2023-001
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
84.041 Impact Aid $4.57M
84.027 Special Education Grants to States $236,781
84.011 Migrant Education State Grant Program $218,714
84.060 Indian Education Grants to Local Educational Agencies $206,757
93.354 Covid 19 - Public Health Emergency Response: Cooperative Agreement for Emergency Response: Public Health Crisis Response $140,554
10.553 School Breakfast Program $130,024
84.425 Covid 19 - Education Stabilization Fund $129,653
84.334 Gaining Early Awareness and Readiness for Undergraduate Programs $106,178
84.365 English Language Acquisition State Grants $56,545
93.959 Block Grants for Prevention and Treatment of Substance Abuse $52,000
84.196 Education for Homeless Children and Youth $47,044
84.367 Supporting Effective Instruction State Grants (formerly Improving Teacher Quality State Grants) $43,314
10.555 National School Lunch Program $36,003
84.010 Title I Grants to Local Educational Agencies $29,998
84.184 School Safely National Activities $29,408
84.424 Student Support and Academic Enrichment Program $25,816
84.048 Career and Technical Education -- Basic Grants to States $14,000
84.173 Special Education Preschool Grants $10,472
10.665 Schools and Roads - Grants to States $9,635