Ridgefield School District No. 122

2021-001 The District did not have adequate internal controls for ensuring compliance with Davis-Bacon Act (prevailing wage rate) requirements. CFDA 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: 84.425U-0137070 & 84.425D-0120224 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 2021, the District spent a total of $400,949 in federal funding under its ESF awards, including $214,870 in the Elementary and Secondary School Emergency Relief Fund (ESSER I) subprogram (84.425D) and $186,079 in the American Rescue Plan Elementary and Secondary School Emergency Relief (ARP ESSER/ESSER III) subprogram (84.425U). The Davis-Bacon Act requires contractors and subcontractors that work on construction contracts in excess of $2,000 financed with federal financial assistance to pay laborers and mechanics prevailing wages?the wage rates the U.S. Department of Labor considers being similar to what local workers have been paid for similar projects. Prevailing wage rate requirements specify that the contract between the District and the prime contractor includes specific language to ensure contractors and subcontractors are paid at prevailing wage rates. Additionally, the District is required to collect certified payroll reports from contractors and subcontractors, which include copies of their payroll and signed ?Statement of Compliance.? Description of Condition The District hired one contractor to upgrade to touchless fixtures to prevent the spread of COVID-19 and ensure staff and students could safely return to District buildings. During the 2020-2021 school year, the District paid $177,000 from its ESSER I award to the contractor for work it performed on the project. The District did not have adequate internal controls to ensure compliance with federal wage rate requirements. Specifically, the District did not enter into a contract with the prime contractor that included prevailing wage rate clauses. Additionally, the District did not monitor to ensure staff collected all certified payroll reports from the contractor to confirm it paid laborers proper prevailing wages. We consider this deficiency in internal controls to be a material weakness, which lead to material noncompliance. The issue was not reported as a finding in the prior audit. Cause of Condition Due to the effects of the COVID-19 pandemic, it was crucial for the District to quickly improve District buildings by upgrading to touchless fixtures. The District typically contracts with a project manager to oversee construction projects to ensure compliance with contracting requirements and collecting weekly certified payroll. Since this was a small project, the District decided to oversee it instead of contracting with a project manager. However, the District employees who managed this project were not aware of wage rate requirements. Effect of Condition Without adequate internal controls, the District cannot demonstrate it complied with the Davis-Bacon Act requirements which could place the District at risk . The District could be liable for paying any additional wages if if the contractor did not pay prevailing wage rates to laborers working on the contract. For this project, the District was required to collect obtain a total of 19 weekly certified payroll reports. As the contractor had submitted all required payroll reports for the project to the Department of Labor and Industries, the District was subsequently able to collect them during our audit, but did not did not collect any of them. The District subsequently obtained all missing weekly certified reports during our audit. Recommendation We recommend the District develop internal controls to ensure compliance with federal wage rate requirements. This should include inserting prevailing wage clauses into contracts and implementing effective monitoring processes to ensure the District collects and reviews all certified payroll reports from contractors and subcontractors. District?s Response The Ridgefield School District prides itself on developing systems of strong internal controls to demonstrate stewardship of public resources. The District acknowledges that it did not include required language in its contract with the contractor hired to install the touchless fixtures about requirements to comply with federal prevailing wage requirements. At the time the project was initiated, it was critical for the District to implement health and safety measures as quickly as possible to mitigate the spread of COVID-19 in our buildings. The District rapidly employed this contractor to carry out this work in an effort to get students back into the buildings in December 2020. In the District?s haste to get this work done, it did not include this required language to communicate this to the contractor as required by the funding guidelines. It is important to note that the District has a well-established internal control process to check for compliance with state prevailing wage requirements. The Business Services Department requires proof of compliance prior to issuing payment to a vendor when state prevailing wage requirements apply. In the case of federal prevailing wages, the District did receive weekly-certified payrolls through the regular State prevailing wage system. The District was able to provide all certified payrolls to the Auditors during their audit to show compliance with this requirement. The District Maintenance Department is responsible for prevailing wage compliance and was monitoring the contractor?s submission of documents. However, this monitoring did not include verification that the District received a certified payroll for all weeks in which work was performed. The District subsequently performed this verification and determined that all documents were obtained from the contractor as required. The District also verified that the contractor paid the correct wage rate to employees, thus complying with federal and state prevailing wage requirements. The District communicated this to the Auditors and asked if they would review the documentation to prove that the District had indeed verified the correct wage rates were paid. The Auditors stated this was not within the scope of their audit to review. The Auditors contend that the omission of language in the District?s contract with the vendor informing the vendor of federal prevailing wage requirements constitutes both a material weakness in internal controls and material non-compliance with federal prevailing wage requirements. The District strongly disagrees that the omission of the sentence in the District?s contract with the vendor constitutes material non-compliance with a requirement to pay prevailing wages. The District contends that the intent of the prevailing wage federal requirement is that entities ensure the correct wages are paid to contracted employees. The District has verified that the contractor paid the correct wage rates to its employees on the project. The District also verified that all required documents were obtained from the vendor to determine compliance with federal prevailing wage requirements. The District does acknowledge that the internal controls need to be strengthened to ensure a thorough review is taking place over certified payrolls, all payrolls are being received, and the higher of state or federal wages are paid as appropriate. The District?s Business Services Department will work with the Maintenance Department to ensure staff are appropriately trained on these requirements and ensure the District is in compliance moving forward. Auditor?s Remarks We thank the District for its assistance provided throughout our audit. As noted in the finding above and acknowledged in the District?s response, the District did not have the controls in place to ensure compliance with applicable wage rate requirements. Specifically, we are referring to the inclusion of required language in a contract with the contractor or a complete process to monitor that certified payrolls were obtained by the District. Our audit is conducted in accordance with the criteria established by the federal government and the pass-through agency, in this case OSPI. We reaffirm our finding and will review the condition 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 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).

2021-001 The District did not have adequate controls for ensuring compliance with Davis-Bacon Act (prevailing wage rate) requirements. Paula McCoy, Executive Director of Business Services 510 Pioneer Street Ridgefield WA 98642 (360) 619-1307 Corrective action the auditee plans to take in response to the finding: The District acknowledges that it did not communicate to the contractor the federal prevailing wage requirements as required. However, the District disagrees that its lack of internal controls in this case constituted a material weakness resulting in non-compliance with program requirements. The District utilized the State of Washington?s Labor and Industries Portal for receiving weekly certified payrolls from the contractors. This is a statewide system used for all District projects to know whether a contract is complying with wage requirements. The District?s Maintenance Department maintains administrative access to this system, which includes the ability to see weekly certified payrolls submitted by contractors. For the project in question, the district received all weekly certified payrolls prior to the completion of the project, which the Auditor acknowledges. The certified payrolls are required to be submitted in order to determine if the contractor actually paid the correct state wages. If the correct state prevailing wages are paid, the Affidavit of Wages Paid is approved by the State of Washington. The District?s Maintenance Department monitors this approval process through the State Labor and Industries Portal so the District knows when it can authorize payment on the invoices. The District acknowledges it did not review the weekly certified payrolls to determine if the higher of state or federal wages were paid. Instead, the District?s review of the payrolls was focused on compliance with state requirements, as Washington?s state wages have historically been higher than federal wages. To validate this, the District went back and reviewed wages for the plumbing classifications for workers included on the project in our geographical region. The District confirmed that the state?s prevailing wages were higher than federal wages for the audit period. This verification also confirmed that the higher wages were paid to employees working on the project, demonstrating compliance with federal program requirements. We did share this information with the auditors and asked if they would like to review this information. The auditors declined this offer, stating that wage rate evaluation was not within the scope of their audit. This is a concern to the District, as the audit finding says the District was found to have materially not complied with federal prevailing wage requirements. The District has had a longstanding practice of requiring the Affidavit of Wages Paid to be approved prior to releasing payment to the contractor for any invoiced wage charges. When requested, the District provided the same certified payrolls received from the contractor through the State Labor and Industries Portal to the auditors. The District had all 19 certified payrolls in its possession almost a year before the audit started. The Auditors acknowledge in the finding they received all 19 certified payrolls from the District. The District acknowledges it did have a control deficiency with federal regulations; however, this deficiency could not have resulted in material non-compliance with program requirements with this specific project. This is because of the District?s controls that were in place to review prevailing wage compliance with state requirements. Additionally, the vendor did pay the appropriate wages to its employees, which was required under both state and federal law. To resolve the acknowledged control issues, we have worked with legal counsel to incorporate federal prevailing wage requirements into future contract language, along with other required federal certifications for our upcoming federally funded construction project. The District has also reviewed the federal requirements with our construction project management company and the Maintenance Department to ensure that both understand the requirements as it pertains to the expectations and documentation requirements. In addition, the District?s Business Services Department will review the next federally funded project documentation with the project manager to ensure it meets federal requirements. Anticipated date to complete the corrective action: March 1, 2022