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FINDING 2022-008Subject: COVID-19 - Education Stabilization Fund - SpecialTests and Provisions - Wage Rate RequirementsFederal Agency: Department of EducationFederal Program: COVID-19 - Education Stabilization FundAssistance Listings Numbers: 84.425D, 84.425UFederal Award Numbers and Years (or Other Identifying Numbers): S425D200013, S425D210013,S425U210013Pass-Through Entity: Indiana Department of EducationCompliance Requirement: Special Tests and Provisions - Wage Rate RequirementsAudit Findings: Material Weakness, Other MattersCondition and ContextAn effective internal control system was not designed nor implemented at the School Corporationto ensure compliance with requirements related to the grant agreement and the Special Tests andProvisions - Wage Rate Requirements compliance requirement.Construction contracts in excess of $2,000 financed by federal assistance funds must pay wagesnot less than those established for the locality of the project (prevailing wage rates) by the Department ofLabor (DOL) to their laborers and mechanics. Nonfederal entities are to include in their constructioncontracts, subject to the Wage Rate Requirements, a provision that the contractor or subcontractor complywith these requirements and the DOL regulations. This would include a requirement to submit a copy ofthe payroll and statement of compliance to the entity for each week in which contract work was performed.The School Corporation was not aware of the Wage Rate Requirements when it entered intoagreements with two contractors providing services on HVAC projects. The necessary provision wasincluded in both of the contracts; however, a copy of the certified payrolls was not provided to the SchoolCorporation on a weekly basis as work was performed. The School Corporation received certified payrollswhen the contractors sent them an invoice for payment.INDIANA STATE BOARD OF ACCOUNTS29BLACKFORD COUNTY SCHOOLSSCHEDULE OF FINDINGS AND QUESTIONED COSTS(Continued)The lack of internal controls and noncompliance were systemic issues throughout the audit period.Criteria2 CFR 200.303 states in part:"The non-Federal entity must:(a) Establish and maintain effective internal control over the Federal award that providesreasonable assurance that the non-Federal entity is managing the Federal award incompliance with Federal statutes, regulations, and the terms and conditions of the Federalaward. These internal controls should be in compliance with guidance in 'Standards forInternal Control in the Federal Government' issued by the Comptroller General of theUnited States or the 'Internal Control Integrated Framework', issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). . . ."29 FR 5.5 states in part:"(a) The Agency head shall cause or require the contracting officer to insert in full in anycontract in excess of $2,000 which is entered into for the actual construction, alteration and/orrepair, including painting and decorating, of a public building or public work, or building or workfinanced in whole or in part from Federal funds or in accordance with guarantees of a Federalagency or financed from funds obtained by pledge of any contract of a Federal agency to makea loan, grant or annual contribution (except where a different meaning is expressly indicated),and which is subject to the labor standards provisions of any of the acts listed in ? 5.1, thefollowing clauses . . .(1) Minimum wages -(i) All laborers and mechanics employed or working upon the site of the work (orunder the United States Housing Act of 1937 or under the Housing Act of 1949 in theconstruction or development of the project), will be paid unconditionally and not lessoften than once a week, and without subsequent deduction or rebate on any account(except such payroll deductions as are permitted by regulations issued by theSecretary of Labor under the Copeland Act (29 CFR part 3)), the full amount of wagesand bona fide fringe benefits (or cash equivalents thereof) due at time of paymentcomputed at rates not less than those contained in the wage determination of theSecretary of Labor which is attached hereto and made a part hereof, regardless of anycontractual relationship which may be alleged to exist between the contractor and suchlaborers and mechanics . . .(3)(ii)(A) The contractor shall submit weekly for each week in which any contract workis performed a copy of all payrolls to the (write in name of appropriate federalagency) if the agency is a party to the contract, but if the agency is not such aparty, the contractor will submit the payrolls to the applicant, sponsor, or owner, asthe case may be, for transmission to the (write in name of agency). . . ."INDIANA STATE BOARD OF ACCOUNTS30BLACKFORD COUNTY SCHOOLSSCHEDULE OF FINDINGS AND QUESTIONED COSTS(Continued)2 CFR 200 Appendix II states in part:"In addition to other provisions required by the Federal agency or non-Federal entity; allcontracts made by the non-Federal entity under the Federal award must contain provisionscovering the following, as applicable. . . .(D) Davis-Bacon Act, as amended (40 U.S.C 3141-3148). When required by Federalprogram legislations, all prime construction contracts in excess of $2,000 awarded by non-Federal entities must include a provision for compliance with the Davis-Bacon Act(40 U.S.C. 3141-3144, and 3146-3148 as supplemented by Department of Laborregulations (29 CFR Part 5, 'Labor Standards Provisions Applicable to Contracts CoveringFederally Financed and Assisted Construction'). In accordance with the statue, contractsmust be required to pay wages to laborers and mechanics at a rate note less than theprevailing wages specified in wage determination made by the Secretary of Labor. Inaddition, contractors must be required to pay wages not less than once a week. . . ."CauseManagement had not designed or implemented a system of internal controls that would haveensured compliance with the grant agreement and the Special Tests and Provisions - Wage RateRequirements compliance requirement.EffectThe failure to design and implement an effective system of internal controls enabled noncomplianceto go undetected. Noncompliance with the grant agreement and the Special Tests and Provisions - WageRate Requirement compliance requirement could result in the loss of future federal funds to the SchoolCorporation.Questioned CostsThere were no questioned costs identified.RecommendationWe recommended that the School Corporation's management establish a system of internalcontrols, as well as appropriately and timely document adherence to required requirements to ensurecompliance with the grant agreement and the Special Tests and Provisions - Wage Rate Requirementcompliance requirement.Views of Responsible OfficialsFor the views of responsible officials, refer to the Corrective Action Plan that is part of this report.