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 84.425D-0120383; COVID-19 84.425U-0138282 and COVID-19 84.425U-0137240
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 fiscal year 2023, the District spent $612,352 of its ESF awards. This included $207,908 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $404,444 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U).
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 money 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 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 spent $556,889 for payments to one contractor to update the heating, ventilation and air conditioning system in its school to help 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 weekly certified payroll reports from its contractor or any subcontractors to confirm they paid laborers the proper prevailing wages.
We consider this deficiency in internal controls to be a material weakness, which led to material noncompliance.
Cause of Condition
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 know that this process, while sufficient for state requirements, did not meet federal requirements.
Effect of Condition
Without adequate internal controls that 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 contractor and subcontractors did not pay prevailing wage rates to laborers working on the contract.
Recommendation
We recommend the District develop internal controls that 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. Additionally, we recommend the District provide additional training to ensure staff overseeing compliance with federal programs are aware of all applicable requirements.
District’s Response
As stated in the “Cause of Condition” section, the district is aware of prevailing wage requirements, but the district does not typically use federal funds for construction projects. Nonetheless, the district reviewed weekly certified payroll reports from the vendors through the State L&I website, and through daily, in-person check-ins with onsite contractor supervisors as to who and where workers were onsite. In addition, the district received prior written approval from OSPI as to assurances, guidance and procedures related to intents, affidavits, and payments to vendors.
Auditor’s Remarks
We thank the District for its cooperation throughout the audit and the steps it is taking to address these concerns. 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.