SCHEDULE OF FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
Central Valley School District No. 356
September 1, 2022 through August 31, 2023
2023-002 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
COVID-19, 84.425W-0459044
COVID-19, 84.425W-0459641
COVID-19, 84.425D-0120411
COVID-19, 84.425U-0137146
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 $3,197,735 of its ESF awards. This included $1,112,743 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), $1,961,080 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U) and $123,912 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 $601,155 in program funds for improvements to its heating, ventilation and air conditioning systems at four school buildings.
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 $601,155 for payments to one contractor and their subcontractors to update the heating, ventilation and air conditioning system controls in four schools 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 not aware of federal wage rate requirements. The District relied on the project manager to verify the contractors and subcontractors submitted weekly certified payroll reports to the Washington State Department of Labor and Industries (L&I) website. Although District staff said they checked that weekly certified payroll reports were uploaded to the L&I system before the District paid the contractors, this process was not documented and they did not know that this process, while sufficient for state requirements, does not meet federal requirements. Further, District staff and the project manager did not know the District needed to obtain all certified payroll 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 three 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 District agrees with the State Auditor’s Office that we did not have adequate internal controls for ensuring compliance with federal prevailing wage rate requirements as noted. The District used the same process as noted in this Finding in the 2020-2021 audit which did not have any exceptions noted by the State Auditor’s Office.
In July 2023, the District ensured federal prevailing wage rate clauses were in any new contract entered into using federal funds and that weekly certified payroll reports were collected from contractors and subcontractors. Also, contracts before July 2023 were retroactively updated to include federal prevailing wage rate clauses.
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.