THE FUNDAMENTALS OF FEDERAL GRANTS MANAGEMENT AND AUDIT RESOLUTION Michael L. Brustein, Esq. mbrustein@bruman.com Brustein & Manasevit, PLLC Spring Forum 2016 1 If a non-federal entity violates the terms of the grant, what are the consequences? Recovery of funds? Imprisonment/fine? 2 Any false, fictitious, or fraudulent information, or the omission of any material fact, may subject me to criminal, civil, or administrative penalties for fraud, false statements, false claims or otherwise. 2 CFR 200.415 (citing 18 U.S.C. 1001) 3 1
RECOVERY OF FUNDS Cannot repay federal claims with federal dollars Will state legislatures, city councils, post secondary institutions bail you out? Don t forget about grant backs Treasury offset procedures (TOP) 4 CAN VIOLATING THE TERMS OF THE GRANT LEAD TO RECOVERY OF FUNDS? 5 Congress may fix the terms on which it disburses grants. A federal grant is much in the nature of a contract, in return for the federal funds the grantee agrees to comply with the federally imposed conditions. Pennhurst v. Halderman, 451 U.S. 1 (1981) 6 2
But New Jersey and Pennsylvania argued to the Supreme Court that USDE cannot recover misspent grant funds Bell v. New Jersey and Pennsylvania, 461 U.S. 773 (1983) 7 Federal auditors determined both states misspent Title I funds. 8 Supreme Court grantees misusing federal funds incur a debt to the Federal Government (citing Section 415 of GEPA) 9 3
Citing Pennhurst grantee chose to participate in the program, and as a condition of receiving the grant, gave an assurance that it would abide by the conditions of the grant 10 ARE CONTRACTORS/VENDORS SUBJECT TO THE TERMS OF THE GRANT? NO! See 2 CFR 200.330 (b)(5) 11 WHAT VIOLATIONS CAUSE HARM TO THE FEDERAL INTEREST? Non-federal entity made an unallowable expenditure Fail to properly account for funds 34 CFR 81.30 12 4
AN IDENTIFIABLE FEDERAL INTEREST INCLUDES: Serving only eligible beneficiaries Providing only authorized services Complying with fiscal requirements: Set-asides Excess costs MOE Comparability SNS Matching 13 AN IDENTIFIABLE FEDERAL INTEREST INCLUDES (cont.): Integrity of planning, application, record keeping, reporting requirements Maintaining accountability for use of funds 34 CFR 81.32 14 HOW IS A GRANT TERM VIOLATION DETERMINED? 1. OIG audit/investigation 2. Single audit 3. Federal program monitoring 4. Pass through monitoring o 34 CFR 81.30 15 5
Audit reports are recommendations to management! Management must decide to sustain, sustain in part, or reject the audit finding. 2 CFR 200.521 16 For federal awards to non-federal entity, the federal agency issues the management decision (e.g. Program Determination Letter) 2 CFR 200.521 (b) 17 For pass through agencies (State- Administered Programs), SEA makes management decision 2 CFR 200.521 (c) 18 6
In both instances, 180 days from date of final audit report 2 CFR 200.521 (d) 19 First audit under UGG must be submitted to audit clearinghouse by March 31, 2017 (EDGAR p. 216) 20 AUDITORS MUST REPORT: 1. Significant deficiencies and material weaknesses in internal controls 2. Material non-compliance with grant terms 3. Known questioned costs exceeding $25,000 for compliance requirements in major program o 2 CFR 200.516 21 7
ED does not concur! (EDGAR p. 229) 22 SEA must ensure subrecipients take timely and appropriate action to correct control weaknesses or instances of non-compliance 23 ED does not monitor SEA Audit Resolution Process of LEAs / PS Statewide single audits identify ineffective SEA oversight ED oversees resolution of SEA single audit findings that involve federal education programs 24 8
OIG looking at NC, MASS, ILL 25 The SEA must consider whether local audits necessitate adjustments to state s own records 2 CFR 200.331 (g) 26 TYDING AMENDMENTS (CARRYOVER PROVISIONS) Will dictate whether state returns funds to ED, or reallocates live dollars Note: 27 months of availability! 27 9
On fund recovery: Subrecipient returns disallowed expenditures OR Subrecipient contributes non-federal funds to federal activity 28 Does SEA expand its audit resolution activities for findings that are repeated for the same LEA for multiple years? ED-OIG/A09P0001 29 Do SEA management letters meet all requirements of UGG? Corrective actions required Time frames for follow-up Does SEA determine that the corrective actions are reasonable before approving them? ED OIG/A09P0001 30 10
The management decision should describe any appeal process available to the auditee Audit resolution appeal process should be codified 31 Federal Audit Resolution 34 CFR Part 81 (EDGAR) See 81.30-Basis for Recovery of Funds 32 Mitigating circumstances 34 CFR 81.33 The 90 Day Letter 33 11
BRUMAN RECOMMENDATION If disallowance under $200,000 use compromise of claim authority 34 CFR 81.36 If disallowance over $200,000 consider Mediation 34 CFR 81.13 CAROI 2 CFR 200.513 (c) 34 CAROI available for both pass through and federal audit resolution 35 Equitable offset now in jeopardy 36 12
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