Grants Management: Legal Updates and Practice Tips North Carolina Office of State Budget & Management 1 Outline Background History of statutes and rules Issues and challenges Rules Overview Key changes from rules revision Agency Responsibilities Reporting Contracts Monitoring and oversight Noncompliance and sanctions OSBM Responsibilities Guidance and oversight Sanctions 2 Background 2004 Statutory requirements enacted to increase oversight of funds granted to non state entities Intent was to reduce incidences of fraud and misuse of funds Gave Budget Director authority to suspend entities Required OSBM to establish rules governing reporting, monitoring, suspension and recovery of funds Applicable statutes are in Article 6, Part 3 of the State Budget Act (G.S. 143C 6 21, 22, and 23) 3 1
Background 2005 OSBM adopted rules establishing reporting and other requirements called for in statute Rules focused heavily on annual reporting and auditing requirements Centralized reporting process/system (NCGrants) was put in place OSBM established and maintained Suspension of Funding List 4 Issues and Challenges Definitions in statute were unclear and not interpreted consistently across agencies Annual reports were often duplicative of other federal or program specific requirements OSBM and agency roles were unclear Majority of suspended entities were on suspension list due to missing reports and not misuse or fraud Reports were a check the box requirement and not useful for identifying risks or issues 5 Rules Overview 6 2
Rules Revision Applicable rules are in Title 9, Subchapter 03M of the NC Administrative Code (09 NCAC 03M) Significant rules revision completed in 2016 Primary goals of revision were to: Increase focus on reducing risk of fraud or misuse of state funds Clarify oversight roles and responsibilities of OSBM and agencies Improve tools to support agency monitoring and oversight of recipients Ensure reporting requirements are value added and not duplicative 7 Definitions Clarifies definitions and adopts new terminology to create greater consistency in interpretation and application of Rules Previous Rules Definition of grant and grantee unclear in statute and previous rules Resulted in inconsistent interpretation across agencies regarding which entities were subject to the rules Revised Rules Adopts terminology more commonly used in corresponding Federal regulations and guidance (e.g. recipient/subrecipient vs. grantee/subgrantee; state financial assistance vs. state grant funding) Adds definitions to clarify distinction between recipient of financial assistance and contractor with a purchase of service relationship Changes are consistent with OSBM s interpretation and application of requirements under prior rules 8 Reporting Previously recipients required to report annually in the NCGrants system, which was managed by OSBM Created confusion about roles and responsibilities of OSBM vs awarding agencies Reporting often duplicative of existing agency requirements Previous Rules Established three reporting thresholds and associated reporting requirements. Entities required to use forms provided by OSBM (through NCGrants) and to submit reports to the awarding agency and the State Auditor. Revised Rules Defines three reporting levels that are consistent with previously defined thresholds Reports are to be filed with the disbursing agency and not OSBM or the State Auditor, using the format and method specified by the agency Local governments, student financial aid, public assistance payments from Federal entitlement programs, and funds disbursed to contractors for purchase of service arrangements are exempted from requirements 9 3
Monitoring and Sanctions Majority of entities on Suspension of Funding List (SOFL) were due to unfiled reports in NCGrants Insufficient focus on agency monitoring throughout the award cycle Suspension process did not adequately prioritize high risk issues, such as suspected fraud or management deficiencies Previous Rules Required OSBM to work with agencies to determine noncompliance and maintain SOFL Noncompliance focused on reporting requirements Required State Budget Director to take administrative action when misuse of funds occurs Revised Rules Continues requirement for maintaining SOFL, but adds clarifying language that suspension includes noncompliance with any requirements of the rules or the terms of their contract Adds requirement for OSBM to develop guidelines for agency monitoring plans Clarifies that evidence of misuse of funds due to management deficiencies or criminal activity are to be reported to OSBM as soon as practical for suspension Clarifies that awarding agency is responsible for reporting criminal violations to the SBI and Attorney General 10 Agency Responsibilities 11 Primary Agency Responsibilities Reporting Register all State assistance programs and awards to non state entities to OSBM using NCGrants system Contracting Execute a contract with the recipient that complies with requirements in rules and statute Monitoring and Oversight Develop a monitoring plan for each State assistance program and perform monitoring and oversight functions Take appropriate administrative action upon determination of noncompliance with rules or terms of contract Internal Auditing Require agency internal auditors to conduct periodic audits of agency compliance with requirements of rules and statute 12 4
Key Definitions State financial assistance State funds disbursed as a grant, cooperative agreement, non cash contribution, food commodities, or direct appropriation to a recipient or subrecipient. State Funds any funds appropriated by the North Carolina General Assembly or collected by the State of North Carolina. State funds include federal financial assistance received by the State and transferred or disbursed to non State entities. Recipient a non State entity that receives State financial assistance directly from a State agency to carry out part of a State program, but does not include any non State entity subject to the audit and other reporting requirements of the Local Government Commission. Subrecipient a non State entity that receives State financial assistance from a recipient to carry out part of a State program; but does not include an individual that is a beneficiary of such program. Contractor an entity subject to the contractor requirements (Article 3, 3C, 3D, 3E, 3G, or 8 of Chapter 143 of the General Statutes). 13 Reporting Agencies must require reporting that meets minimum requirements in rule Agencies establish the reporting format and process Reports are submitted to and reviewed by the agency Minimum requirements are based on the level of funding received/expended during the entity s fiscal year: Level 1 (less than $25,000) Level 2 ($25,000 or greater, but less than $500,000) Level 3 ($500,000 or greater) 14 Reporting At least annually, all recipients shall provide certification that funds were used for the purposes for which awarded and an accounting of all funds Level II and III recipients must also report on activities and accomplishments Level III recipients must have a single or program specific audit prepared and completed in accordance with Generally Accepted Government Auditing Standards (Yellow Book) If the same information is already obtained through more frequent reporting, the agency does not need to require a separate annual report Reporting requirements should be specified in the recipient s contract 15 5
Contracts Contract terms required by statute or rule: Purpose and scope of the award Conflict of interest statement (statutory requirement) Statement of no overdue taxes (statutory requirement) Source of funds (such as federal or state) Records retention requirements Names of all parties to the terms of the contract Signatures binding all parties Duration of the contract Amount of the contract and schedule of payments (reimbursement basis preferred) 16 Contracts Contract terms required by statute or rule, cont d: Required reports and reporting deadlines Provisions for termination Specification that award is subject to appropriation of funds (statutory requirement) Requirement to revert unexpended funds upon termination of the contract Requirements of G.S. 143C 6 23, associated rules, and any other authorizing legislation (statutory requirement) Requirement to comply with rules and be subject to audit oversight by the State Auditor Clause addressing assignability and subcontracting 17 Monitoring and Oversight Agencies are required to: Develop a monitoring plan for each State assistance program, using a risk based approach Perform monitoring and oversight functions as specified in agency monitoring plans Monitor to ensure that funds used for authorized purposes in compliance with laws, regulations, and the provisions of contracts, and that performance goals are achieved Determine that reporting requirements have been met by the recipient in accordance with the recipient's contract Upon determination of noncompliance, take appropriate action as specified in rules 18 6
Noncompliance and Sanctions Management deficiencies or criminal activity leading to misuse of funds: Notify OSBM as soon as practical to place entity on SOFL; Report possible violations of criminal statutes involving misuse of State property to the State Bureau of Investigation, in accordance with G.S. 143B 920; Suspend payments until the matter has been fully investigated and corrected; and/or Terminate the contract and take action to retrieve unexpended funds/unauthorized expenditures Goal should be to minimize further risk to the State 19 Noncompliance and Sanctions Noncompliance issues that are not indicative of management deficiencies or criminal activity do not require immediate suspension Agencies should provide 60 days written notice to take corrective action If corrective has not occurred after 60 days, notify OSBM to place entity on SOFL and take appropriate action as follows: Suspend payments pending negotiation of a plan of corrective action Terminate the contract and take action to retrieve unexpended funds or unauthorized expenditures Offset future payments with any amounts improperly spent Agencies shall not disburse any State financial assistance to an entity that is on the Suspension of Funding List 20 Recovery of Funds Agencies are required to seek recovery of funds in the event a recipient or subrecipient: Is unable to fulfill the obligations of the contractual agreement Is unable to accomplish the purposes of the awards Is noncompliant with the reporting requirements Has inappropriately used funds Agencies should seek the assistance of the Attorney General if legal action is required Apparent criminal violations are to be reported to the OSBM, the Attorney General, and the State Bureau of Investigation 21 7
Recovery of Funds Statute also requires return of funds in the event: Funds are not encumbered by August 31 following the state fiscal year in which funds were appropriated Funds are unexpended at the time the entity dissolves, ceases operations, or discontinues implementation of the award Returned funds are to be credited to the fund from which they were appropriated Encumbered funds may be spent in accordance with the terms of the encumbrance All other funds are to remain unexpended until appropriated 22 OSBM Responsibilities 23 Guidance and Oversight Provide guidelines to agencies for developing monitoring plans and establishing reporting processes Monitor State agencies to ensure compliance with requirements Maintain NCGrants system to track programs and awards 24 8
Sanctions Maintain a Suspension of Funding list Validate agency requests to remove recipients from Suspension of Funding list Monitor State agencies to ensure compliance with requirements Upon discovery of misuse of funds, ensure awarding agency has taken appropriate action 25 Questions? 26 Questions Erin C. Matteson Assistant State Budget Officer NC Office of State Budget & Management erin.matteson@osbm.nc.gov 27 9