when the auditor comes knocking what we’ve learned how to prepare nastid san diego, ca february...
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When the Auditor Comes KnockingWhat We’ve LearnedHow to Prepare
NASTID San Diego, CAFebruary 2014
Leigh M. Manasevit, Esq.
Brustein & Manasevit, PLLC
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Non-Compliance Findings – 4 Sources
1. OIG Audit
2. A-133 Audit
Monitoring
3.Federal
4.State
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Preparation
Key to successful outcome Self assessment - critical
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Self Assessment
Identify potential trouble spotsReview significant violations from other processes
Review prior findingsConduct self assessment
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Review of 27 OIG Audit Reports
$1,398,564 unallowable personnel costs Employee compensation charged to grants in which the
employee did not work on$826,183 unallowable non-personnel costs
Unnecessary or unreasonable to carry out the grant or not-for-program purposes
$810,055 unallowable non-personnel costsContracts were: missing required elements; unfulfilled;
not approved; or included expenditures that exceeded the contract amounts
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Review of 27 OIG Audit Reports (cont.)
$66,666,155 inadequately documented personnel costsTime and effort documentation (both semi-annual
certifications and PARs) were missing, incomplete, inaccurate, or untimely
$16,010,550 inadequately documented non-personnel costsMissing or inaccurate supporting documentation
$2,693,004 in lost or unaccounted for property Improper inventory control systems
$2,504,617 unallowable supplanting of Federal grant funds
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Review of 27 OIG Audit Reports (cont.)
Pervasive non-compliance issuesInadequate policies and procedures (34 times)No policies and procedures (15 times)Not understanding the regulations and guidance
(10 times)Policies in place, but not followed (5 times)
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Audit violations deemed “significant” by the U.S. Education Department
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Significant Violations
1. Time Distribution
2. MOE
3. Supplement, not supplant
4. Unallowable Expenses
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Significant Violations
5. Procurement Irregularity
6. Ineligible Students
7. Lack of Accountability for Equipment/Materials
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Significant Violations
8. Lack of Appropriate Record Keeping
9. Record Retention Problems
10.Late or no Submission of Required Reports, Inaccuracies, Inconsistence
11.Audits of Subrecipient Unresolved11
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Significant Violations
12.Lack of Subrecipient Monitoring
13.Drawdown before they 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
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Significant Violations – Specific to Title I
Equitable ServicesParental Involvement (including
notices)Skipping SchoolsSchool Allocations
SASA Monitoring Guide http://www2.ed.gov/programs/sif/sigmontool2012.pdf
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Evaluate Areas to be Examined
1. OIG Audit Notice of Audit: Correspondence
2. A-133 Audit Prior Audits (Findings)
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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
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Remedy Problem Areas
AND / OR
Develop Corrective Actions (Plans)
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Corrective Action Plan
Critical – in place at time of visit – even if implementation - FUTURE
Specific Measurable ObjectivesTimelinesClear Lines of Responsibility
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Example – Time and Effort
LEA – Self assessmentNumerous employees paid from program they previously (no longer) work on
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Example – Time and Effort (cont.)
Remedy and Corrective ActionChange payment sources to reflect current assignment
or Reassign employees back to prior program
ANDReimburse improperly charged program
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Example – Time and Effort (cont.)
Corrective Action Plan - FUTUREReview all employees (federally paid) to assure alignment –
Correct the misalignmentsAssign specific individual/office responsibility for future reviews
In-service training
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Example – Equitable Services
LEA self assessment
A. Private schools contract directly for Title II services
B. Consultation occurs late in the year
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Example – Title I Equitable Services
A. Corrective Action - Contracting Review all programs providing
equitable services funds Review all contracting processes Immediately cease allowing
• Privates to contract • Notice to private schools – Re:
contracting process
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Example – Title I Equitable Services (cont.)
In-service training for all program personnel involved
Assure all procurement for goods/services to private schools procured at LEA level
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Example – Title I Equitable Services (cont.)
B. Corrective Action - Consultation Assure consultation will begin early
in the year Plan schedule for following year Assure clear lines of authority to
schedule/conduct consultation
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Preparation for Visit
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Logistics
Secure SpaceCopy Machine
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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 A-133 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”
EDGAR 80.26(b)(5) also indicates audit access to records without qualifiers. • If requested records are not provided, likely receive an audit limitation.
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Communication with Staff
Formal (governmental) inquiryProvide any information within
personal knowledgeNo guessingNo speculation
No time to settle grudgesNo gossip
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Identify Key Staff(Audit Committee)
Audit Manager:Key contact for all questions, interview arrangements, documents requests, logistical arrangements
Agency Leadership:Entrance, exit conference
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Audit Manager - Role
Key contact for allQuestionsInterview arrangementsDocument requestsLogistical arrangements
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Relevant Staff Interviews - Preparation
Assure staff are prepared for interview
Subject matter awarenessKey terms•Time and Effort•Necessary and Reasonable•Inventory
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Relevant Staff Interviews - Preparation (cont.)
Familiarity with job descriptionFamiliarity with prior problem areas
Familiarity with likely areas of inquiry
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The Visit
Entrance ConferenceLeadership•Set positive tone
Audit Manager•Review process/logistics
Auditors generally appreciate prior organization
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The Visit
•Request all interview requests go through manager
•Arrange for copying•Keep extra copy of all docs supplied
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The Visit
Request periodic updates•Especially problem areas
Do not wait for exit conference•(Up to auditors)
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The Visit
Keep extra copy of all documents supplied!!!
Debrief staff after interviewsClear up misunderstandings
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Exit Conference
Press for specificsIf issues:
Documents requested?•List and send
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Exit Conference
Potential non compliance findings•Review carefully – •If confirmed
Develop corrective action proactively
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Next Steps
OIG AuditPoint SheetsDraft Audit ReportFinal Audit Report
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Next Steps
OIG AuditRespond carefully at each levelProblems always easier to resolve at earliest level
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For example: Alabama Audit
Cash Management FindingsDraft Audit Report - October 2011
Alabama Response: Policies and procedures, internal controls
Final Audit Report – February 2012Alabama Response: Disagreed with some
findings, but addressed OIG concerns; acknowledged Federal requirements; implemented corrective actions.
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For example: Alabama Audit
“With all these facts and circumstances, we find that the State has been willing to implement and to also require the prime recipients and subrecipients to implement corrective action that complies with the draw down, transfer, disbursement and maintenance of excess Federal grant funds and the internal control requirements applicable to Federal grant funds. Therefore, we do not request the State, prime recipients, or subrecipients to refund any of the Federal grant funds they have received . . . It is our determination that this finding is resolved.”
Program Determination Letter – May 2013
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Audit Recommendations Ultimately Decided by USED
Audit Recommendations in state administered programs addressed to SEA
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Next Steps
ED can: Accept finding as isAccept finding but•Reduce or eliminate liability
Reject findingLetter of final audit determination
•Establishes prima facie case• 34 CFR 81.34
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Examples:
ED Require SEA to recover $X from LEA Y
ED Require SEA to require LEA YTo support salary expenditures
ED to impose high risk status on SEA X due to LEA Y extensive non compliance
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Next Steps
AuditsLetter of final audit determinationAppeal
Office of Hearings and Appeals (ED)
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Harm to the Federal Interest 34 CFR 81.32 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 program…”
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Harm – Always
Ineligible BeneficiariesExample: Title I, Part C funds for non migrant students
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Harm – Always (cont.)
Unauthorized activitiesExample: Title II, Part A funds used to pay salary of regular Ed teacher (not CSR)
Example: Title I funds pay for attendance at a conference unrelated to teaching educationally disadvantaged students
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Harm Always (cont.)
FiscalSet-aside•Example: LEA spends less than 100% of its Title I parental involvement
MOEComparabilitySupplanting
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Possible:No Harm
LEA requires prior SEA approval for expenditure
LEA makes expenditure without approval
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Possible:No Harm- Prior Approval (cont.)
No harm possible if –Action was not intentional violationAction was isolated – not a patternExpenditure would have been granted if sought
Expenditure allowable under the program
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Possible:No Harm
LEA operates a schoolwide program
SW teachers must keep time and effort semi-annually
SW teachers fail to keep time and effort
LEA establishes by schedules
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Possible:No Harm
Teacher affidavitsAttendance sheetsSupervisory affidavitsThat teachers taught in the schoolwide full-time
No harm finding possible although time and effort violation
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Possible:No Harm
Caution: ED takes more limited view – may require litigation
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ALJ Decisions - Reconstruction
Application of the New York State Department of Education (April 21, 1995)After-the-fact affidavits and other
pertinent documentation are admissible as evidence.
Consolidated Appeals of the Florida Department of Education (June 26, 1990)Accepted affidavits completed by
supervisors years later as credible and useful evidence.
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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 09-20-R, May 16, 2012
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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.
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Monitoring Findings
Opportunity to respond GenerallyNo Liability
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Questions???
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