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FINDING 2022-002Subject: COVID-19 - Education Stabilization Fund - SpecialTests and Provisions - Wage Rate RequirementsFederal Agency: Department of EducationFederal Program: COVID-19 - Education Stabilization FundAssistance Listing Number: 84.425DFederal Award Numbers and Years (or Other Identifying Numbers): S425D200013, S425D210013Pass-Through Entity: Indiana Department of EducationCompliance Requirement: Special Tests and Provisions - Wage Rate RequirementsAudit Findings: Material Weakness, Modified OpinionCondition and ContextAn effective internal control system, which would include segregation of duties, was not in place atthe School Corporation in order to ensure compliance with requirements related to the grant agreementand the Special Tests and Provisions - 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 had not designed, nor implemented a system of internal controls to ensurethat the wage rate requirements were met for a construction project. The School Corporation signed acontract with Heflin Industries to upgrade chillers and boilers. The total amount of the project was$2,176,500. The contract between the School Corporation and Heflin Industries did not include the requiredwage rate provisions clause. Additionally, certified payrolls were not submitted and maintained by theSchool Corporation for audit.The lack of internal controls and failure to maintain and provide adequate supporting documentationwere systemic issues throughout the audit period.INDIANA STATE BOARD OF ACCOUNTS17MONROE COUNTY COMMUNITY SCHOOL CORPORATIONSCHEDULE OF FINDINGS AND QUESTIONED COSTS(Continued)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 Farmwork', issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). . . ."29 CFR 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 ofwages and bona fide fringe benefits (or cash equivalents thereof) due at time ofpayment computed at rates not less than those contained in the wage determinationof the Secretary of Labor which is attached hereto and made a part hereof,regardless of any contractual relationship which may be alleged to exist between thecontractor and such laborers and mechanics. . . .(3) Payrolls and basic records. . . .(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 sucha party, the contractor will submit the payrolls to the applicant, sponsor, orowner, as the case may be, for transmission to the (write in name of agency).. . ."INDIANA STATE BOARD OF ACCOUNTS18MONROE COUNTY COMMUNITY SCHOOL CORPORATIONSCHEDULE 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 legislation, all prime construction contracts in excess of $2,000 awarded by nonFederal 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 statute,contractors must be required to pay wages to laborers and mechanics at a rate not lessthan the prevailing wages specified in a wage determination made by the Secretary ofLabor. In addition, contractors must be required to pay wages not less than once a week.. . ."CauseManagement had not designed nor 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 establish an effective internal control system and to retain and provide appropriatesupporting documentation prevented the determination of the School Corporation's compliance with theSpecial Tests and Provisions - Wage Rate Requirements compliance requirement.Questioned CostsThere were no questioned costs identified.RecommendationWe recommended that the School Corporation's management establish internal controls to ensurecompliance and comply with the grant agreement and the Special Tests and Provisions - Wage RateRequirements compliance requirement.Views of Responsible OfficialsFor the views of responsible officials, refer to the Corrective Action Plan that is part of this report.