Curlew School District No. 50Local Government

The District did not have adequate internal controls for ensuring compliance with federal wage requirements. 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 $482,225 of its ESF awards. This included $470,593 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U), and $11,632 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D). The District spent program funds for various improvements and repairs to its heating, ventilation and air conditioning (HVAC) system. 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 its 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 $470,593 for payments to three contractors for a project to update the HVAC system controls and repair insulation in the school 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: • Include the required wage rate provisions in the contracts • Collect weekly certified payroll reports from the 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 staff did not know about the federal wage rate contract clause requirement and that the District needed to obtain all certified payroll reports each week. 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. 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 contract. The District did not include federal wage rate provisions in its contracts and did not collect weekly certified payroll reports for the contractors. During the audit, the District subsequently collected all weekly certified payrolls. Recommendation federal wage rate requirements. This should include inserting wage rate clauses into contracts as well as implementing effective monitoring processes to collect and review all weekly certified payroll reports from contractors. Additionally, we recommend the District provide training to ensure staff overseeing compliance with federal programs are aware of all applicable requirements. District’s Response During the audit period there was a staffing turnover that led to this issue occurring. Going forward the District has implemented new internal controls and procedures to prevent the issue from reoccurring. 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).