Montesano School District No. 66

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).

CORRECTIVE ACTION PLAN FOR FINDINGS REPORTED UNDER UNIFORM GUIDANCE Montesano School District No. 66 September 1, 2022 through August 31, 2023 This schedule presents the corrective action the District is planning to take for findings included in this report in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Finding ref number: 2023-001 Finding caption: The District did not have adequate internal controls for ensuring compliance with federal wage rate requirements. Name, address, and telephone of District contact person: Sheila Baker, 502 E Spruce Avenue, Montesano, WA 98563, (360)249-3942 Corrective action the auditee plans to take in response to the finding: 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. Under normal operations we do not hire contractors using federal funds and our ESSER funds have now been totally expended. Anticipated date to complete the corrective action: May 2024

2022-001

2022-001 The District did not have adequate internal controls for ensuring compliance with 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: 84.425D-S425D210015 Known Questioned Cost Amount: $0 Background The objectives of the Education Stabilization Fund (ESF) program are to prevent, prepare for and respond to the COVID-19 pandemic. In fiscal year 2022, the District spent a total of $1,252,131 in federal funding under its ESF awards. This included $1,143,453 in the Elementary and Secondary School Emergency Relief Fund (ESSER II) subprogram (84.425D), and $108,678 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). Federal regulations require award recipients to establish and follow internal controls that ensure compliance with program requirements. These controls include understanding grant 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 money 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 contractor and subcontractor comply with those requirements and the Department of Labor?s regulations. This includes a requirement for the contractor and its subcontractor 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 The District hired one contractor for the purchase and installation of new heating ventilation and air conditioning systems to improve air quality and circulation to prevent the spread of COVID-19 in its combined junior and senior high school building. During the 2021-2022 school year, the District paid the contractor $116,587 from its ESSER II award for the project. Our audit found the District did not have adequate internal controls for ensuring compliance with prevailing wage rate requirements. Specifically, the District did not include the required prevailing wage rate clauses in the contract with the contractor. We consider this deficiency in internal controls to be a material weakness, which led to material noncompliance. The issue was not reported as a finding in the prior audit. 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. Effect of Condition Without adequate internal controls that ensure it includes the required prevailing wage rate clause in its contract, the District cannot demonstrate it complied with the 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. Recommendation We recommend the District develop internal controls that ensure compliance with federal wage rate requirements. This should include inserting the prevailing wage clauses into all public works contracts paid with federal funds. 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 projects that are federally funded in excess of $2,000. Auditor?s Remarks We appreciate the District?s commitment to resolve this finding and thank the District for its cooperation and assistance during the audit. We will review the corrective action taken during our next regular 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 5.5 ? Contract provisions and related matters establishes the requirements for the contracting officer to insert in full 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).

Montesano School District No. 66 September 1, 2021 through August 31, 2022 This schedule presents the corrective action planned by the District for findings reported in this report in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Finding ref number: 2022-001 Finding caption: The District did not have adequate internal controls for ensuring compliance with wage rate requirements. Name, address, and telephone of District contact person: Sheila Baker 502 E Spruce Avenue, Montesano, WA 98563 (360)249-3942 Corrective action the auditee plans to take in response to the finding: The Superintendent and/or the Business Manager will review all contractor/subcontractor contracts to verify the prevailing wage rate clause is included in federally funded contracts over $2,000. Anticipated date to complete the corrective action: April 25, 2023

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