Montesano School District No. 66
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 Superintendent of Public Instruction
Pass-through Award/Contract Number: N/A
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 $2,332,288 of its ESF awards. This included $535,952 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D) and $1,796,336 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). The District spent $327,435 in program funds for various improvements and repairs, with the majority of this being used for the Beacon Elementary Portables 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 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.
Description of Condition
During the school year, the District spent $327,435 for payments to seven contractors for the Beacon Elementary School portables project, as well as for the junior and senior high school heating, ventilation, and air conditioning project.
Our audit found the District did not have adequate internal controls for ensuring compliance with federal wage rate requirements.
Specifically, the District did not:
• Include the required federal wage rate provisions in the contracts
• Collect weekly certified payroll reports from three of the seven contractors to confirm they paid laborers the proper prevailing wages
We consider these deficiencies in internal controls to be a material weakness that led to material noncompliance.
Cause of Condition
District management and staff thought the language in the contract that stated the contractor would comply with all state and federal laws was sufficient to meet the contract requirements. Additionally, the District does not normally use federal funds on public works projects. As such, District staff were unfamiliar with federal wage rate requirements and did not establish an effective process to collect certified payroll for all contractors with construction contracts more than $2,000.
Furthermore, in the 2023 school year, the District had already executed all contracts and most work had been performed before it received the prior audit finding. As a result, it was too late for the District to correct the issue during the current audit period.
Effect of Condition
Without adequate internal controls to ensure it includes the wage rate clauses in its contracts and collects all weekly certified payroll reports, the District cannot demonstrate it complied with federal wage rate requirements. Additionally, because the District did not notify the contractors that the project was federally funded, the contractor submitted state certified payroll reports instead of the federal certified payroll reports. The District could also be liable for paying any additional wages if the contractor did not pay prevailing wage rates to laborers working on the contracts.
The District did not collect 12 out of a total of 76 weekly certified payroll reports. The District also did not include federal wage provisions in all seven contracts.
Recommendation
We recommend the District strengthen internal controls to ensure compliance with federal wage rate requirements. This should include inserting wage rate clauses into contracts and obtaining all weekly federal certified payroll reports from all contractors. 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
The district will be sure to include the Federal prevailing wage rate clauses in future contracts per Code of Federal Regulations (CFR) language for future projects that are federally funded in excess of $2,000. The district has recently participated in a training provided by the Department of Labor & Industries regarding prevailing wage requirements. In the coming months, the Superintendent and Business Manager will be creating a checklist for district use when we hire contractors to perform work for our district as well as a standard contract with language relating to prevailing wage requirements and source of funding.
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.
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).