Transcript Recent Audit Developments

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Recent Audit and OMB
Developments
Michael Brustein, Esq.
[email protected]
Brustein & Manasevit, PLLC
Spring 2012 Forum
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Recent Audit Resolution
Developments
1. Shift of Focus from Compliance to Results
2. ED Monitoring – “Active Engagement”
3. Reshaping Policies without Congressional
Approval
4. OMB Reform Idea Package (RIP)
5. Back Peddling on Linkage of Obligations
Shift of Focus?
Compliance Versus Results
Audit Versus Monitoring
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Beltway “Noise”
Program Success Trumps All
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March 2, 2012 OSEP
Announcement:
Monitoring will shift from compliance
focus to one driven by results
change in mission?
*OSEP will not conduct verification
visits in 2012-2013
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Will OESE/OPE/OVAE follow?
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What about OIG?
Philadelphia
Detroit
Los Angeles
Camden
Houston
Kiryas Joel
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Camden, NJ Audit
March 2012
(A02K0014)
Designate Camden as High Risk
Impose Special Conditions
Appoint 3rd Party Servicer
Rescind Camden “Flexibilities” on
Schoolwide
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What about Single Audit?
Keep an eye on “Compliance Supplement”
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ED Monitoring
OIG Report # I13K0002
http://www2.ed.gov/about/offices/list/oi
g/aireports/i13k0002.pdf
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ED identified Grantees as –
“High Risk”
“At Risk”
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New ED Policy:
Discontinue “At Risk’
Formula Grantees: “Active Engagement”
Discretionary Grantees: “Evidence of
Risk”
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“Active Engagement” and “Evidence
of Risk” not High Risk but requires ED
action
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Of the 50 SEAs and 10 Territories:
4 are High Risk
20 are Active Engagement
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SEAs only formally notified if High Risk not
active engagement
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High Risk:
DC
Guam
VIDE
American Samoa
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Active Engagement:
CA
BIE
Marianas
FL
GA
HI
IL
LA
MI
MS
NJ
NY
PA
PR
TN
TX
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Risk Mitigation for
Discretionary Grants
More Frequent Reviews
On-site Visits
Special Conditions
High Risk Designation
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Reshaping Policies
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Is Congress on board?
“We Can’t Wait” Crusade!
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Obama taking advantage of
dysfunction in Congress to
reshape policies
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Congress Approval Rating Lower than
BP, Paris Hilton, and Hugo Chavez
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Query
If Congress is supposed to write the law, and ED is
supposed to enforce that law, why are so many
current policies undertaken without Congressional
authority?
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GEPA defines “regulation” to cover generally
applicable rules prescribed by the Secretary.
Sec. 437(a)
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All regulations must contain the statutory cite upon
which they are based.
Sec 437(b) of GEPA
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1965 ESEA
“Nothing in this Act shall authorize a
federal official to mandate, direct, or
control” a state’s, local educational
agency’s or school’s curriculum
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GEPA
No provision of any applicable
program shall be construed to
authorize any federal agency or
official to exercise any direction,
supervision or control over the
curriculum, program of instruction, or
selection of instructional materials
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Same provision in “Department of
Education Organization Act”
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Is the current reshaping of
policy consistent with ESEA,
GEPA, DEOA?
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RTT funds awarded to States that
committed to Common Core State
Standards Initiative
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NCLB Waivers contingent on adoption
of Common Core Standards or
endorsed by institutions of higher
education
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Obama Executive Order 13563
“Regulatory Review”
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“R.I.P”
OMB Advance Notice of
Proposed Rulemaking
Potential Rescission by
New Administration
7/1/13 Earliest
Effective Date
Delayed Effective
Date
Final Rule
Comment
Notice of Proposed
Change
Public Comment
Release of Advance
Notice 2/12
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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
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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Will the shifting of Audit Thresholds
reduce burden on SEAs?
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Single Audit Threshold
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)
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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Can SEA impose additional
compliance requirements??
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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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Federal Agencies to identify
“non-universal” elements, with
focus on preventing fraud,
waste, abuse
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CAROI
COFAR “encourages” federal
agencies to engage in CAROI
Collaborative approach envisioned
more as a mediation process between
agency and recipient with informal
assistance as needed
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Pass-Through Agencies
Attempt to reduce burden on passthrough (SEA)
Federal Agencies to better coordinate
review of subrecipient internal controls
when 2 or more federal agencies
funding
e.g. Philadelphia
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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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Increasing Threshold would increase
burden on SEA for monitoring and
Limited Scope Audits
???
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If single audits are effective tool to
obtain compliance, fewer audits would
put SEA at greater risk
???
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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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Indirect Cost
OMB proposing a mandatory flat
indirect cost rate discounted from
recipient’s already negotiated rate
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Indirect Costs
OMB – 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
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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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Brief Tutorial on:
FIFO – See Appendix
Tydings and Linkage –
See Appendix
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Linking Expenditures to Grant
Funds
Do Not Leave $ on the Table!
2 Separate Scenarios
A. The difficult one:
Liquidating obligations more than 90
days after the close of the obligation
period
B. The easier one:
Linking transactions to a grant
period after funds are no longer
available for obligation
“Roll
Forward”
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Late Liquidations
Within 1st 18 months after the close of
the obligation period
at discretion
of program office
After 1st 18 months, OCFO decision
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Roll Forward
Not up to program office or OCFO
ED Policy on valid obligation
1. A transaction giving rise to an
obligation within period of
availability
2. Linking of the transaction with
funds available during period of
availability
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Linking can occur long after funds are
no longer available for obligation
as long as clear documentation that
the transaction occurred during the
27-month Tydings period
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Process of “deobligating” and
“reobligating” is a valid method of
linkage if obligations are timely and the
adjustments are part of the normal
accounting practice and not
manipulative.
- Appeal of State of California
Doc. No. 12(122)83
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“The legally relevant question is when
the obligation arose, not in what
account the obligation may have been
initially recorded.”
- Appeal of State of California
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Deobligate/Reobligate
On 7/1/11, obligations could be
charged to FY 10 (3 months) FY 11
(15 months) or FY 12 (27 months)
If FY 09 obligations not yet liquidated,
and incurred during FY 10 Tydings
period, deobligate FY 12, then FY 11,
then FY 10
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Remember:
Obligations must be during a period of
availability
Must be for allowable costs (no
supplanting)
Not manipulative to avoid repayment
of lapsed funds
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Questions?
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