Ripped from the Headlines

Transcription

1 How to Prepare for a Federal Audit Under the Uniform Grants Guidance Leigh Manasevit lmanasevit@bruman.com National Title I Conference February 2015 Ripped from the Headlines Texas School District Security Manager embezzled over $2.5 million by filing false invoices over a 5-year period Wisconsin School District employee created bogus purchase orders to use district funds for vacations and household items over a 13- year period New York SES providers falsified student attendance records and submitted claims for reimbursement for tutoring services they did not provide 2 Non-Compliance Findings Audit 1. OIG Audit 2. A-133 Audit Monitoring 3.Federal 4.State 3 1

2 Preparation is key to successful outcome Self assessment critical Required Self Assessment Identify potential trouble spots Review significant violations from other processes Review prior findings Conduct self assessment 5 Audit violations deemed significant by the U.S. Department of Education 6 2

3 1. Time Distribution 2. MOE 3. Supplement Not Supplant 4. Unallowable Expenses 5. Procurement Irregularity 6. Ineligible Students 7. Lack of Accountability for Equipment/Materials 8. Lack of Appropriate Record Keeping 9. Record Retention Problems 10.Late or No Submission of Required Reports, Inaccuracies, Inconsistence 11.Audits of Subrecipient Unresolved 12.Lack of Subrecipient Monitoring 13.Drawdown before funds are needed or more than 90 days after the end of funding period 14.Large Carryover Balances 15.Lack of valid, reliable or complete performance data 7 Evaluate Areas to be Examined 1. OIG Audit Notice of Audit: Correspondence 2. A-133 Audit Prior Audits (Findings) A-133 Compliance Supplement 8 Evaluate Areas to be Examined (cont.) 3. Monitoring ESEA Flexibility Monitoring; SASA Guide CrEAG; RDA Perkins IV Checksheets Request for documents Make a separate set of copies of all documents provided to ED 9 3

4 Remedy Problem Areas or Develop Corrective Action Plan [T]he independent public accountant determined that LAUSD staff had erroneously charged more than $84,000 to the Federal Teacher Incentive Fund grant... LAUSD reported to the independent public accountant that it implemented monitoring and review procedures, including a monthly tracking system for the program expenditures, biweekly budget meetings, and a review process for budget reports. Although we did not verify that the corrective actions were implemented, the actions should improve controls over the Federal Teacher Incentive Fund grant program expenditures and help ensure that errors of this type do not occur in the future. 10 Corrective Action Plan Critical have in place at time of visit, even if implementation will be in the future Specific Measurable Objectives Timelines Clear Lines of Responsibility 11 Logistics Secure Space Copy Machine 12 4

5 Audit Records Can the auditee refuse to provide the auditors with requested documents? GEPA 20 USC 1232(f) requires that ED and its representatives (which arguably includes single auditors) shall have access, for the purpose of audit examination, to any records maintained by a recipient that may be related, or pertinent to, grants UGG also provides audit access to records without qualifiers. If requested records are not provided, likely receive an audit limitation. 13 Communication with Staff Formal (governmental) inquiry Provide any information within personal knowledge No guessing No speculation No time to settle grudges No gossip 14 Identify Key Staff (Audit Committee) Audit Manager: Key contact for all questions, interview arrangements, documents requests, logistical arrangements Agency Leadership: Entrance, exit conference 15 5

6 Identify Key Staff (Audit Committee) Relevant Staff: Assure staff are prepared for interview Subject matter awareness Terminology/Definitions Time and Effort Necessary and Reasonable Inventory Familiarity with job description Familiarity with prior problem areas Familiarity with likely areas of inquiry 16 The Visit Entrance Conference Leadership Set positive tone Audit Manager Review process/logistics Request all interview requests go through manager Request periodic updates (especially problem areas) Do not wait for exit conference 17 The Visit Keep extra copy of all documents supplied!!! Debrief staff after interviews Clear up misunderstandings 18 6

7 Exit Conference Press for specifics If issues: Documents requested? List and send Potential noncompliance findings Review carefully If confirmed, develop corrective actions proactively 19 Next Steps OIG Audit, Single Audit Draft Audit Report Final Audit Report Final determination (ED, State Agency) Respond carefully at each level Problems always easier to resolve at earliest level 20 Next Steps ED can: Accept finding as is Accept finding but reduce or eliminate liability Reject finding Letter of final audit determination Establishes prima facie case 34 CFR

8 Review by ED ED accepts finding with $ liability Appeal to Office of Hearings and Appeals (OHA), 34 CFR Administrative Law Judges (ALJs) are independent Caution Time limits Other Rules of Procedure for Appeals 22 Review by ED ALJ Decision Appeal to Secretary 23 AUDIT DEFENSE AND RESOLUTION 24 8

9 Common Defenses Harm to the Federal interest Equitable offset Statute of limitations 25 Harm to the Federal Interest 34 CFR and Appendix A recipient that made an unallowable expenditure or otherwise failed to account properly for funds shall return an amount that is proportional to the extent of the harm its violation caused to an identifiable Federal interest associated with the program Harm Always Ineligible Beneficiaries Example: IDEA, Part B program funds for students without a disability Unauthorized activities Example: Migrant funds used for local agency staff to attend conference unrelated to Migrant program 27 9

10 Harm - Always (cont.) Fiscal Set-aside Example: SEA spends more than 10% on Perkins state leadership MOE Comparability Supplanting Excess cost Matching 28 Possible No Harm May argue no harm if: Did not obtain required prior approval Missing required time and effort documentation Missing evidence of procurement Caution: ED takes more limited view may require litigation 29 ALJ Decisions - Reconstruction Application of the New York State Department of Education, No R (April 21, 1994) After-the-fact affidavits and other pertinent documentation are admissible as evidence Consolidated Appeals of the Florida Department of Education, Nos. 29(293)88 & 33(297)88 (June 26, 1990) Accepted affidavits completed by supervisors years later as credible and useful evidence 30 10

11 Equitable Offset In effect, an equitable offset permits the substitution of any costs paid under the grant that are subsequently disallowed with otherwise allowable expenditures paid by the grantee, and thereby reduces or eliminates a liability due to ED. Application of Pittsburg Pre-School Community Council, Docket No R (May 16, 2012) 31 Statute of Limitations No recipient under an applicable program shall be liable to return funds which were expended in a manner not authorized by law more than 5 years before the recipient received written notice of a preliminary departmental decision. 20 USC 1234a(k); 34 CFR 81.31(c) For purposes of measuring the statute of limitations, funds are expended as of the date of obligation. Appeal of the State of Michigan, Docket No. 8(272)88, 6 (September 14, 1989) 32 Monitoring Findings Opportunity to Respond Generally, Corrective Actions No Liability 33 11

12 Uniform Grant Guidance Changes The auditor must report (for major programs): Significant deficiencies and material weaknesses in internal controls Significant instances of abuse Material noncompliance Known questioned costs > $25,000 Auditor will not normally find questioned costs for a program that is not audited as a major program NEW: But if auditor becomes aware of questioned costs > $25,000 for non-major program, must report 34 The Uniform Grant Guidance: 1) Right-sizes the footprint of oversight and single audit requirements 2) Focus audits where there is greatest risk of fraud, waste and abuse Makes single audits available online 2. Encourages a cooperative approach to audit resolution 3. Raises threshold to $750, Places focus on internal control deficiencies that have been identified as material weaknesses 36 12

13 Notice of Intent FR Compliance requirements will be streamlined 37 NPRM fr 7295 Proposed limiting audit review of internal controls in compliance supplement from 14 to 7 38 The Proposed Seven Deadly Sins 1. Activities Allowed or Unallowed 2. Allowable Costs (and Matching) 3. Cash Management (Minimizing time) 4. Eligibility 5. Reporting (financial and performance) 6. Subrecipient Monitoring 7. Requirements Unique to the Program 39 13

14 The Seven Controls Proposed to be Voted off the Island 1. Davis-Bacon 2. Inventory Management 3. MOE / Earmarking 4. Period of Availability of Funds 5. Procurement 6. Program Income 7. Real Property Acquisition 40 But who is responsible for oversight of these seven??? Pass-Through 41 No changes made at this time COFAR recommends further outreach 42 14

15 OMB / COFAR FAQ 8/14/14 Look to the 2015 Compliance Supplement on the streamlining of compliance requirements (P. 15) 43 Federal Agency Responsibility Cognizant agency for audit TA to auditees Quality control Advice to auditors Notice to auditors of audit deficiencies Coordinate management decisions 44 Federal agency, OIG or GAO may conduct additional audits at federal cost BRUSTEIN & MANASEVIT, PLLC 45 15

16 Auditor Selection Must follow procurement standards BRUSTEIN & MANASEVIT, PLLC 46 Audit Resolution Schedule of Prior Findings Corrective Action Plan Include reference numbers and fiscal year BRUSTEIN & MANASEVIT, PLLC 47 Schedule of Prior Findings Status of all findings in prior schedule Unless corrected Corrected findings note only corrective action taken Uncorrected Reason for recurrence Partial corrective action taken Additional corrective action planned BRUSTEIN & MANASEVIT, PLLC 48 16

17 Schedule of Prior Findings Auditee believes finding unwarranted Basis: No longer valid if: 2 years have passed and Pass through entity not following up and No management decision BRUSTEIN & MANASEVIT, PLLC 49 Corrective Action Plan Addresses each finding Separate from schedule of findings Name of contact person Corrective action planned Anticipated completion date If auditee disagrees Reasons BRUSTEIN & MANASEVIT, PLLC 50 Submission to Federal Audit Clearinghouse (FAC) Reporting package Financial statements Schedule prior findings Auditors report Corrective action plan Management letters BRUSTEIN & MANASEVIT, PLLC 51 17

18 Federal Agency Responsibilities Awarding agency responsibility Ensure completion of audits timely TA to auditees and auditors Follow up ensure corrective action Management decision Monitor corrective action Use CAROI 52 CAROI Cooperative Audit Resolution Oversight Initiative Developed with ED and pilot states Adopted by ED as standard audit resolution 53 CAROI Historically: Rejected by most other agencies Labor Agriculture Health Human Services 54 18

19 Uniform Grant Guidance Applies CAROI To all federal agencies Government wide policy 55 CAROI Audit and follow up that promotes prompt corrective action Improve communication Foster collaboration Promote trust Develop federal non federal agency understanding 56 CAROI (cont.) Basis Leadership commitment to program integrity Partnership, federal Non federal and auditors Focus Current conditions and cooperative action 57 19

20 CAROI (cont.) Message: Continued failure to correct unacceptable 58 CAROI (cont.) Prompt corrective action as shown by audits Federal agencies offer Past non- Appropriate relief compliance 59 QUESTIONS? 60 20

21 ~ Legal Disclaimer ~ This presentation is intended solely to provide general information and does not constitute legal advice. Attendance at the presentation or later review of these printed materials does not create an attorney-client relationship with Brustein & Manasevit. You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances