Transcript Recent Audit Developments

AEFFA Conference
October 2, 2012
Nashville, TN
Michael Brustein, Esq.
Tiffany R. Winters, Esq.
[email protected]
[email protected]
Brustein & Manasevit, PLLC
www.bruman.com
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The Effect of the
Potential New OMB
“Super Circulars” on
Federal Education
Programs
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Obama Executive Order 13563
“Regulatory Review”
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Advanced Notice of Proposed
Guidance
 February 28, 2012
 OMB announced reform effort to
 Strengthen oversight
 Align existing administrative requirements
 Better address ongoing and emerging risks to program
outcomes and integrity
 Goals include:
 Eliminate unnecessary and duplicative requirements
 Standardize information collection
 Adopt risk-based model for single audits
 Provide new administrative approaches for monitoring allocation
of Federal funds.
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OMB Advance Notice of Proposed
Rulemaking
 Comments Due Past Spring
 Notice of Proposed Rulemaking
 OMB said it would be released the end of August (clearly no).. So
when??
 Then Another Notice and Comment Period
 Final Rulemaking??? - TBD
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Council on Financial
Assistance Reform (COFAR)
10 members from largest grant
making agencies: HHS, AG, ED,
Energy, HS, HUD, DOL, DOT
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Expect Revisions to:
1) Cost Principles
 A-21
 A-87
 A-122
2) Administrative Principles
 A-110
 A-102
3) Federal Agency Audit Resolution
 A-50
4) Single Audit
 A-133
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Super Circular
Increase consistency
Decrease complexity
But allows for disparate treatment
depending on type of entity
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Section A. Reforms to Audit
Requirements
A-133 and A-50
Concentrating audit resolution and
oversight resources on higher dollar,
higher risk rewards.
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Single Audit Threshold Changes
a) Under $1 million in total federal
expenditures:
No single audit
Augmented pass-through role
b) Between $1 million and $3 million
More “focused” single audit
c) Over $3 million
Full single audit
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“Focused Single Audit”
($1 to $3 Million)
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Single auditors to review
2 Compliance Requirements
1) Allowable/Unallowable
2) Federal agency determines – but
priority on risk of improper payments, or
fraud, waste, abuse
(look to Compliance Supplement)
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“Full Single Audit” Over $3 Million
“Universal Compliance Requirements”
1.
2.
3.
4.
5.
6.
Allowable Costs
Eligibility
Reporting
Subrecipient Monitoring
Period of Availability of Federal Funds
Procurement Practices Comply with
Suspension/Debarment
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Will the shifting of Audit Thresholds
reduce burden on SEAs?
Or
 Increase burden on SEA for
monitoring and Limited Scope Audits
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Can SEA impose additional
compliance requirements??
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Streamlining the universal
compliance requirements in the
Circular A-133 Compliance
Supplement
 Emphasizing elements that address improper payments,
waste, fraud, abuse
 Larger sample sizes or lower levels of materiality
 Streamlining other elements
 Other compliance requirements would either be optional or have
smaller sample sizes and higher levels of materiality.
 Federal agencies could create their own program specific
requirements through compliance supplement process.
 ???
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Strengthening the guidance on
audit follow-up for Federal
awarding agencies
 Requiring agencies to designate a senior accountable
agency official to oversee the audit resolution process
 Require agencies to implement audit-risk metrics
 Encourages CAROI
 Encourages pro-active approach to resolving weaknesses
and deficiencies
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OMB proposes that single audits be
digitized into a searchable database
to support analysis of audit results by
pass-through entities
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Reducing Burden on PassThrough Agencies (SEA)
Federal Agencies to better coordinate
review of subrecipient internal controls
when 2 or more federal agencies
funding
If entity receives majority of Fed $
directly, not from pass-through, then
Federal Agency to conduct follow-up
on internal controls
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OMB wants pass-through to focus on
programmatic requirements of
subawards
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Section B. Reforms to Cost
Principles
A- 21, A-87 and A-122
Consolidation into single document!!
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Indirect Cost
OMB proposing a mandatory flat
indirect cost rate discounted from
recipient’s already negotiated rate
Reduce burden on time associated
with indirect cost calculation and
negotiation – reduce overall
indirect costs, more $ for program
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Indirect Cost
Discounted Rates
4 years with
minimal documentation, or raised
through negotiation with full
documentation
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Time and Effort
OMB seeking alternative mechanisms
to PARs
Grantee and OIG communities to
submit alternative mechanisms
New Guidance to CCSSO from
OCFO!!!
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Charging Certain Computing
Devices as Allowable Direct
Cost Supplies
 Explicitly include the cost of computing divisions not
otherwise subject to inventory controls (i.e. equipment
threshold) as allowable direct cost supplies.
 Documented in separate line item
 Not required to conduct more stringent inventory controls in
place for equipment!
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Equipment v. Supplies
Would new guidance actually
change equipment thresholds
set by auditors?
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Section C. Reforms to
Administrative Requirements
A-102, A-110 and A-89
Uniform set of administrative rules!
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Applicant’s Financial Risk
OMB recommends Agencies to consider
applicant’s financial risk prior to making
the award (for non-formula grants)
Indicators of Risk
Past financial performance
Past programmatic performance
Internal controls
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New Time and Effort
Guidance by OCFO!!
http://www2.ed.gov/policy/f
und/guid/gposbul/time-andeffort-reporting.html
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OMB Circular A-87:
Compensation for Personnel Services:
 If federal funds used for salaries, then time
distribution records are required.
 Must demonstrate - If employee paid with federal
funds, then employee worked on that specific
federal program/cost objective.
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Who must participate?
 Any employee who is working
on a federal program
◦
Not contractors
◦ All employees paid with
federal funds
◦ Some employees paid with
non-federal funds
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A-87: If employee works
100% on single cost objective
 Semi-Annual Certification
 Completed at least every six months
 Signed by a supervisor with knowledge or the
employee
 After-the-fact record (dated)
 Accounts for the total activity for which
employee compensated
 Must coincide with one or more pay periods
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A-87: If employee works
100% on single cost objective
 Semi-Annual Certification
 “This is to certify that Tiffany Winters has worked
100% of her time for the period July 1, 2011,
through December 31, 2011, on Title I Admin.”
Signature of employee: /s/
Date: January 5, 2012
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A-87: If employee works on
multiple cost objectives
Personnel Activity Reports
 After-the-fact record (dated)
 Accounts for the total activity for which employee compensated
 At least monthly
(unless substitute system)
 Signed by the employee

Must coincide with one or more pay periods
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A-87: PARs
 Personnel Activity Reports (PAR)
 “For the month of August 2012, I, Tiffany Winters, spent my
time 50% on Title I Program Services and 50% on non-federal
programs.”
Signature of Employee: /s/
Date: September 1, 2012
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WHAT IS A SINGLE
COST OBJECTIVE???
OCFO: “The criteria for whether an
employee may document time and effort
using a semiannual certification or must
fill out a monthly PAR can be confusing.
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What is a “Cost Objective”?
A-87 Definition: A function, organizational
subdivision, contract, grant or other cost
activity for which cost data are needed and for
which costs are incurred.
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Multiple activities or cost objectives
for which a PAR is required — that
is, if an employee works on
 More than one Federal award.
 A Federal award and a non-Federal award.
 An indirect cost activity and a direct cost activity.
 Two or more indirect activities that are allocated using
different allocation bases.
 An unallowable activity and a direct or indirect cost activity.
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Examples . . . .
 A Minimum Set-Aside or Maximum Cap:
 Title I- LEA Parent Involvement minimum (at
least 1%);
 Title III – Cap on administration (no more than
2%)
 Program services
 Title I program services
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OCFO Guidance
 It is possible for multiple programs to have the
same cost objective, which creates confusion over
whether the presence of a single cost objective or
being funded by multiple programs should
determine what time-and-effort documentation and
employee must complete.
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OCFO Guidance (cont.)
 It is possible to work on a single cost objective even
if an employee works on more than one Federal
award or on a Federal award and a non-Federal
award.
 The key to determining whether it is a single cost
objective is whether the employee’s salary and
wages can be supported in full from each of the
Federal awards on which the employee is
working or from the Federal award alone if the
employee’s salary is also paid with non-Federal
funds.
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OCFO Guidance Examples of Single
Cost Objectives:
Title I, Part A funds and State compensatory
education funds
 An LEA supports a supplemental math teacher to
serve low-achieving students with 50 percent Title
I, Part A funds and 50 percent State compensatory
education funds.
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OCFO Guidance Examples of
Single Cost Objectives:
Title I, Part A funds and local funds
 A teacher in a Title I schoolwide school is paid with
local funds to teach first grade in the morning to
decrease class size for reading and is paid with Title
I, Part A funds to teach a supplemental reading
recovery class in the afternoon. (The school has a
sufficient number of first-grade teachers to meet the
requirements of ESEA section 1114(a)(2)(B).)
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OCFO Guidance Examples of
Single Cost Objectives:
Title I, Part A funds and local funds (cont.)
 Because the part-time first-grade teacher is not needed in
order to provide the basic education program in the
schoolwide program school, her salary could be
supported with Title I, Part A funds, even though it is not.
 Similarly, her salary for providing reading recovery could
be supported with Title I, Part A funds.
 Both her functions, therefore, are fully supportable with
Title I, Part A funds, and the schoolwide program
constitutes a single cost objective.
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OCFO Guidance Examples of
Single Cost Objectives:
Funds under Sections 611 and 619 of the Individuals
with Disabilities Education Act (IDEA)
 A preschool special education teacher is funded with 50
percent IDEA section 611 funds and 50 percent with IDEA
section 619 funds.
 Teaching preschool special education is an allowable
activity under both IDEA sections 611 and 619.
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OCFO Guidance Examples of
Single Cost Objectives:
Title I, Part A funds and CEIS (comprehensive early
intervening services) funds under IDEA
 A teacher works with low-achieving students and is
supported with 60 percent Title I, Part A funds and 40
percent CEIS funds.
 Teaching low-achieving students is a single cost objective
because it can be fully supported under both Title I, Part A
and CEIS.
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OCFO Guidance Examples of
Single Cost Objectives:
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Title I, Part A funds and local funds
 An LEA supports an elementary school teacher with local funds
but pays her with Title I, Part A funds to provide after-school
tutoring for low-achieving students.
 Although the teacher could not be paid with Title I, Part A funds to
provide elementary education, the portion of her time spent on
after-school tutoring is easily separated from her teaching position
by her schedule.
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OCFO Guidance Examples of
Single Cost Objectives:
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ESEA Title VII, Part A formula grant funds and state/local
funds
 A high school math teacher’s regular salary is paid with State and
local funds. The teacher conducts an after-school support
program for Native American students in the school, and also
teaches at a summer academic camp for Native American
students in the school district; for both of these activities, he is
paid from Title VII, Part A funds.
 Although the teacher could not be paid with Title VII, Part A funds
to teach high school math, the portion that the teacher is paid
with Title VII, Part A funds is easily segregated from his daily
teaching schedule.
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OCFO Guidance Examples of
Single Cost Objectives:
State leadership funds under the Carl D. Perkins Career
and Technical Education Act of 2006 (Perkins IV) and
State funds
 A State curriculum specialist who develops new career and
technical education courses and initiatives is funded 50
percent with Perkins IV funds reserved under section
112(a)(2) for State leadership and 50 percent with State
general funds.
 Career and Technical Education curriculum development is
a single cost objective because it can be fully supported with
State leadership funds under Perkins IV.
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Bruman Game:
Why Are These
Examples WRONG?
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Semi-Annual Certification
Examples
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I, Justin Beiber, certify that I worked solely on the Federal
Grant program from January 1, 2012 to June 30, 2012.
Signature of Employee
____/s/______________
Date: September 1, 2012
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Semi-Annual Certification
Examples
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I, Taylor Swift, certify that I worked 100% of my time on Title
I,A Administration from January 1, 2012 to June 30, 2012.
Signature of Employee
____/s/______________
Date: June 20, 2012
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Semi-Annual Certification
Examples
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I, Julia Roberts, certify that I worked 100% of my time on Title
I,A program teaching class from January 1, 2012 to June 30,
2012.
Signature of District Superintendent
____/s/______________
Date: July 2, 2012
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Semi-Annual Certification
Examples
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January 1 through June 30, 2012
I, Barack Obama, certify that I worked solely on project, initiatives,
and issues which have implications and consequences based
and/or related to Federal programs and policies.
Signature of Employee
____/s/______________
Date: June 30, 2012
Signature of Supervisor
____/s/_______________
Date: August 2, 1012
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PAR Examples
I certify that for the month of December 2011 I, Lady Gaga, spent
my time working on the following programs:
Title I, Admin
State programs
100%
100%____
Total
200%
Signed: ___/s/____
January 5, 2012
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PAR Examples
I certify that for the month of August 2012 I, Michelle Obama,
spent my time working on the following programs:
Title I, Admin
State programs
20%
30%____
Total
50%
Signed: ___/s/____
September 10, 2012
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PAR Examples
Dear Employee:
Please sign the pre-populated form if accurate.
I certify that for the month of July 2012, Ashton Kutcher, spent my
time working on the following programs:
Title I, Admin
State programs
Total
75%
25%____
100%
Signed: ___/s/_______
August 5, 2012
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Substitute Systems and
OFCO Changes
Currently Used in North Carolina, Florida, Michigan and
California… Anyone Else?
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Substitute Systems Generally
OMB Circular A-87 authorizes the use of
substitute systems for allocating salaries and
wages.
ED must approve SEA’s system.
Can include:
 Random moment sampling
 Case counts
 Other quantifiable measures of employee
effort
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Substitute System Changes
 An SEA would be permitted to allow an LEA to use alternative
documentation through approved substitute system.
 For example, could use a teacher's course schedule (instead of
PARs) for an individual who works on multiple activities or cost
objectives
but
does so on a predetermined schedule.
 An individual documenting time and effort under the substitute
system would be permitted to certify time and effort on a
semiannual basis, provided certain requirements are met.
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Substitute Systems Changes
(cont.)
 The SEA must obtain from the LEA a management
certification certifying that:
 Only eligible employees will participate
 Sufficient controls to ensure that the schedules are
accurate
 The certification must disclose any known deficiencies
with the system or known challenges with implementing
the substitute system.
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New Substitute Systems
Requirements
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(1) System Guidelines
 To be eligible to document time and effort under the substitute
system, employees must –
 Currently work on a schedule that includes multiple activities
or cost objectives that must be supported by monthly
personnel activity reports;
 Work on specific activities or cost objectives based on a
predetermined schedule; and
 Not work on multiple activities or cost objectives at the exact
same time on their schedule.
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New Substitute Systems
Requirements (cont.)
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(2) Under the substitute system, in lieu of personnel activity
reports, eligible employees may support a distribution of their
salaries and wages through documentation of an established
work schedule that meets the standards under section (3).
An acceptable work schedule may be in a style and format
already used by an LEA.
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New Substitute Systems
Requirements (cont.)
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(3) Employee schedules must:
 Indicate the specific activity or cost objective that the
employee worked on for each segment of the employee’s
schedule;
 Account for the total hours for which each employee is
compensated during the period reflected on the employee’s
schedule; and
 Be certified at least semiannually and signed by the
employee and a supervisory official having firsthand
knowledge of the work performed by the employee.
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New Substitute Systems
Requirements (cont.)
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(4) Any revisions to an employee’s established schedule that
continue for a prolonged period must be documented and
certified.
The effective dates of any changes must be clearly indicated in
the documentation provided.
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New Substitute Systems
Requirements (cont.)
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(5) PARs must be used when there is a significant deviation.
Any significant deviations from an employee’s established
schedule, that require the employee to work on multiple activities
or cost objectives at the exact same time, including but not
limited to lengthy, unanticipated schedule changes, must be
documented by the employee using a personnel activity report
that covers the period during which the deviations occurred.
States should put forth guidelines and examples for what
constitutes a significant deviation from an employee’s
established schedule that would warrant an individual reverting
to a personnel activity report.
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Questions?
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