Transcript Slide 1
“New Federal
Initiatives on
Enforcement”
NACTEI
Pre-Conference
May 16, 2006
Palm Springs, CA
Michael Brustein
Brustein & Manasevit
3105 South Street, NW
Washington, DC 20007
[email protected]
1
SEAs must use a risk-based plan to assess
and monitor all LEAs to ensure that they
have systems in place to properly account
for, and adequately document and support,
claims submitted for reimbursement.
-OIG
2
SEAs must ensure that monitoring teams
include financial personnel to look at
financial issues and check for
compliance with financial requirements.
-OIG
3
Significant Cultural Shift at
ED to “Internal Controls”
4
Definition of “internal Controls”
An integral component of organization’s
management that provides reasonable
assurance of:
1. Effectiveness & Efficiency of operations
2. Reliability of reporting
3. Compliance with applicable laws and
regulations
-GAO
5
States and locals scheduled for
monitoring from now on can expect
much closer examinations of financial
records
6
Such financial records must detail:
1. Flow of funds to locals
2. Audit findings and corrective action plans
3. Procurement, distribution, equipment
-James Evans
OCFO
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OCFO Subject to:
1. Improper Payments Information Act
2. Federal Managers Financial Integrity Act
Holds ED managers legally accountably for
internal controls of federal programs
8
OCFO now assesses the risk that
federal funds are being spent
erroneously.
OCFO ensures effective internal
controls are in place and adhered
to at the state and local level
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Issues
How long did the transfer take from
state to local?
How does the state document the
obligations over the 27 months?
Are carryover provisions implemented
correctly?
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How well does the state
monitor corrective action
plans developed in response
to audits?
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Equipment
16 of 17 states and districts visited
did not maintain accurate
equipment inventory
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Equipment
OCFO will select a piece of
equipment from inventory list and
then see if they can find it.
13
Procurement
11 of 17 states visited lacked
adequate controls over the
processing and payment of vendor
invoices
14
2006 OIG Workplan
1) SEA monitoring of LEAs
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Audits
Corrective action plans to address audit
findings in the A-133 single audit reports were
either unavailable for review, improperly
prepared, or prepared in an untimely manner
(8)
Management and internal control letters
addressing A-133 and financial statement
audit reports were unavailable for review (2)
No documentation provided to indicate that A133 audits had been conducted or copies
were not available for review (2)
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Procurement & Disbursement
Controls
Inadequate controls over purchase orders (13)
Inadequate controls over processing and payment of
vendor invoices (11)
Lack of adequate controls over the distribution of Title
I finds by SEA and/or LEA (10)
Inadequate controls over funds distribution
documents (FDDs) and P638 draw down forms (4)
Inadequate controls over SEA/LEA contracts issued
to vendors (3)
Inadequate controls over travel advances and travel
payment vouchers (3)
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Procurement & Disbursement
Controls cont…
Inadequate documentation to demonstrate proper
application of indirect cost principles (2)
Lack of documentation for the approval function in
an automated procurement system (2)
Lack of supporting documentation for journal
entries (2)
Lack of documented competitive bidding process
(1)
Lack of documentation to support use of Title I
funds for payroll (1)
Inadequate controls over the purchase card
process (1)
Student lunch applications used for eligibility not
complete (1)
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Equipment
Title I equipment inventory not available (16)
Lack of adequate controls to account for
location and custody of Title I equipment (7)
No property tags on equipment (3)
The capitalization threshold for Title I
equipment exceeds $5,000 (2)
Inadequate procedures for recording the
transfer of Title I equipment (2)
Inadequate controls to ensure that Title I
funds are not used to purchase equipment for
the exclusive use of other programs (1)
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A-133 Common Audit
Findings
1. Cash Management
Minimize time elapsing between
drawing down federal cash and
disbursing it.
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2. Property records 80.32(d)(1)
Make sure all required data elements are
maintained
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Description of the property
Identification number
Source of property
Who holds the title
Acquisition date
Cost
Percent of federal participation
Location of the property
Use & condition of the property
Ultimate disposition
Date of disposal
Sale price
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3. Equipment Inventory
Inventory all equipment purchased
with federal funds at least once
every two years
Control system to safeguard
against loss or damage
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4. Noncompetitive Procurement
If contracts awarded on a sole
source basis, prepare a written
justification, e.g.
emergency
no responses to solicitation
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5. Obtain Prior
Written Approval
If grant agreement states that an
administrative act requires prior
approval, make sure you get it in
writing from the grantor agency.
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6. Timely Accurate
Financial &
Performance Reports
Late or inaccurate reports are a “red
flag” of weakness in the system –
often invites greater scrutiny.
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7. Cost Transfers
Shifts of costs between programs invites
audit scrutiny.
-Supplanting
-Allocability
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8. Time & Effort
Reports
This is the most frequently cited
violation.
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THE KEY:
Aligning Effort and
Funding
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Audit inquiries may commence
with focus on funding side (federal
grants received) or effort side
(payroll distribution records or
P.D.’s)
29
Attendance Records are
NOT the Equivalent of
Effort Records
30
A-87 / A-21
Distribution of salaries must be
based on payrolls documented in
accord with the generally accepted
practices of the agency.
31
There is no single best
method for documenting
the distribution of effort
.
32
But the method must recognize the
principle of “after-the-fact”
confirmation, so that charges to a
grant reflect actual charges.
Budgets do not reflect actual
charges.
33
Confirmation must be done by
employee under A-87 or
“responsible person with suitable
means of verification” under A-21
34
While charges may be made initially
on the basis of estimates before the
services are performed, changes in
the work activity must be entered
into the payroll distribution system.
35
Where employees are expected to
work solely on a single cost objective,
salaries must be supported by semiannual certification signed by
employee or supervisor.
36
Where employees work on
more than one cost objective,
use either PARS or substitute
systems
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Elements of PARS
1. After the fact distribution of actual
activity of each employee
2. Account for total activity for which
employee is compensated
3. Prepared at least monthly
4. Signed by the employee
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Questions on
Time and Effort
Is the distinction between single or
multiple cost objectives based on how
employees are paid?
NO!
39
Questions on
Time and Effort cont…
If employee is paid with nonfederal funds, but
effort is counted toward a match, are T/E
records required?
YES!
40
Questions on Time and
Effort cont…
What if the employee works only a
brief time on an activity unrelated to
the federal cost objectives?
41
If deviations between budget
estimates and actual costs are
less than 10% are adjustments
required?
42
Questions on
Time and Effort cont…
If the employee works on an activity that
is allowable under more than one
program, must the time be allocated?
NO!
43
Substitute Systems
1. Lamar Alexander Guidance 1992
2. The Florida, North Carolina,
Michigan Models
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Substitute Systems
1. Account for actual effort weekly for
2.
3.
4.
5.
three representative months;
Actual effort is within 10% of projected
effort;
Regardless of deviation, adjustments
required;
Then account for effort weekly for two
representative months;
Adjustments required.
45
Substitute Systems
1. ED approves SEA process
2. SEA approves LEA process
3. LEA may use substitute system
even if SEA does not
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Consequences for
Legally Deficient System
47
Reconstruction of Documents
Not a substitute for contemporaneous
records
But often accepted by OALJ on
appeal
48
Reconstruction
Affidavits of employees with first hand
knowledge
Work product
Calendars
Schedules
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Where to Find Federal Education Grants
Management Requirements
Program Rules: www.ed.gov
Statutes
Regulations
Guidance
General Education Provisions Act (GEPA):
http://straylight.law.cornell.edu/uscode/html/uscode2
0/usc_sup_01_20_10_31.html
Education Department General Administrative
Regulations (EDGAR):
http://www.ed.gov/policy/fund/reg/edgarReg/edgar.ht
ml
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Where to Find Federal Education Grants
Management Requirements
Office of Management & Budget Circulars
http://www.whitehouse.gov/omb/circulars/
OMB Circulars A-21, A-87, A-122 Cost
Principles
OMB Circular A-133 Single Audit
OMB Circular A-133 Compliance Supplement
Note – for audits performed after June 30,
2004, must look at 2004 AND 2005
Supplements
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Federal Cost Principles
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Federal Cost Principles
A-21 Educational
Institutions
A-87 State, Local &
Indian Tribal
Governments
A-122 Non-Profit
Organizations
48 CFR pt. 31 For-Profit
Organizations
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Cost Principles: Basic
Guidelines
All Costs Must Be:
Necessary
Reasonable
Allocable
Legal
under state and local law
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Cost Principles:
Basic Guidelines
In addition, all costs must:
Conform
with federal law & grant
terms
Consistently treated
In accordance with GAAP
Not included as match
Net of applicable credits
Adequately documented
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Basic Guidelines (cont.)
Adequately documented
Amount of funds under grant
How the funds are used
Total cost of the project
Share of costs provided by other sources
Records that show compliance
Records that show performance
Other records to facilitate an effective
audit
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A-87, Attachment B–
Selected Items of Costs
43 specific costs detailed
Listed in alphabetical order
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EDGAR Overview
Education Department General Administrative
Regulations: 34 CFR pts. 74-99
Part 74: Admin. of Grants to Institutions of
Higher Ed, Hospitals, and other Nonprofit
Organizations
Part 75: Direct Grant Programs
Part 76: State-Administered Programs
Part 77: Definitions
Part 80: Uniform Administrative Requirements
for Grants and Cooperative Agreements to
State and Local Governments
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Financial Management
34 CFR 80.20 & 34 CFR 74.21
Fiscal control and
accounting procedures
must be sufficient to:
Prepare
reports
Trace funds to a level
of expenditure
adequate to show
funds spent properly
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Matching/Cost Sharing
34 CFR 80.24 & 34 CFR 74.23
Costs must be allowable under the grant
Includes:
Grantee
expenditures (cash
contribution)
Donations (in-kind contribution)
Must be verifiable from records
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Program Income
34 CFR 80.25 & 34 CFR 74.24
Income directly generated by a grant
supported activity or earned only as a result
of the grant agreement, includes income
from:
Fees for services performed
Use of property acquired under grant
Sale of commodities or items fabricated
under a grant agreement
Payments of principal and interest on
loans made with grant funds
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Program Income – cont.
Royalties
Generally, revenue from:
Royalties
License fees
Patents
Is not considered program income unless
specifically identified in the grant
agreement
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Use of Program Income
Deducted from total allowable costs and
used for allowable expenses
Added to the total grant award and used
for allowable expenses
Used to meet cost sharing or matching
requirements
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Changes to Approved Budget
34 CFR 80.30 & 34 CFR 74.25
Must report deviations from
budget and program plans
Must request prior approval:
Change in scope or
objective
Change in key personnel
Authority to bring in 3rd party
contractor
Certain budget transfers
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EDGAR Part 80.36
Procurement
Competition 80.36(c). All procurement
transactions must be conducted with
full and open competition.
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Equipment
34 CFR 80.32 & 34 CFR 74.34
Title vests in the grantee
May use for other
projects as long as no
interference
Must ensure adequate
maintenance
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Equipment (cont.)
Property acquired under the grant must be
recorded in an inventory management system
Property records (description, serial number or
other ID, title info, acquisition date, cost,
percent of Federal participation, location, use
and condition, and ultimate disposition)
Physical inventory (at least every two years)
Control system to prevent loss, damage, theft
(all must be investigated)
67
Disposition
When no longer needed:
Property
may be used for other activities
currently or previously supported with
federal funds
Otherwise, must dispose according to
regulations
34 CFR 80.32(e)
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Copyrights
34 CFR 80.34 & 34 CFR 74.36
Grantee may copyright work that was
developed for or purchased under federal
grant
Federal government may reproduce,
publish, or otherwise use the copyright in
any work developed under the grant
Federal government does not need to pay
royalties
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Record Retention
34 CFR 80.42 & 34 CFR 74.53
Must retain records that show:
Amount of funds under by grant or subgrant
How the state or subgrantee uses funds
Total cost
Share of costs provided from other sources
Compliance with program requirements
Other records to facilitate and audit
Federal: 3 years
Statute of limitations: 5 years
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Cash Management
Requirements
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Period of Availability
34 CFR 80.23 & 34 CFR 74.28
Tydings Amendment
Does
not apply to all grants
Funds are available to state for 27 months:
15 months under the grant award
(July 1, 2005 – September 30, 2006)
Plus 12 months
(October 1, 2006 – September 30, 2007)
State may limit period of availability!
Check award notice
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Definition of Obligation Under
Federal Law
Acquisition of Property
Date of binding
written commitment
Personal Services
by Employee
When services
are performed
Personal Services
by Contractor
Date of binding
written commitment
Travel
When travel is taken
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Liquidations
Federal regulations: Must liquidate all obligations
within 90 days after the end of the period of
availability
Example:
Period of availability: July 1 – September 30
Liquidation period ends: December 30
ED may extend this deadline
State may limit the period!
Check award notice
74
“Lapsing” of Perkins
Funds
Sclafani September 2, 2005 memo
75
Supplement,
Not Supplant
76
Supplement Not Supplant
Cannot use federal funds to pay for
services, staff, programs, or materials that
would otherwise be paid with state or
local funds
Always ask: “What would have happened
in the absence of federal funds?”
77
Supplement Not Supplant
(cont.)
A-133 Compliance Supplement presumes
supplanting in 3 situations:
1. Used federal funds to provide services the
SEA or LEA is required to make available
under other federal, state or local laws
2. Used federal funds to provide services the
SEA or LEA provided with state or local funds
in the prior year
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Supplement Not Supplant
(cont.)
Presumption may be
rebutted:
If SEA or LEA
demonstrates it
would not have
provided the
services with state
or local funds if
the federal funds
were not available
79
Questions???
80
This presentation is intended solely to
provide general information and does not
constitute legal advice. Attendance at the
presentation or later review of these printed
materials does not create an attorney-client
relationship with Brustein & Manasevit. You
should not take any action based upon any
information in this presentation without first
consulting legal counsel familiar with your
particular circumstances.
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