Corrective Action PlansDrafting 101

Bonnie Little Graham, Esq.bgraham@bruman.com Jenny Segal, Esq.jsegal@bruman.com

Brustein & Manasevit, PLLCFall Forum 2013

Intro[N]ewly purchased items of equipment were not consistently entered into the property tracking system or, if entered, some of the items of equipment remained in the warehouses undelivered, were delivered to an incorrect location, or were misplaced or stolen. As of 1998, VIDE began to implement the corrective actions necessary to revamp its property management system as well as to correct other deficiencies in its administration of Federal grant programs. Progress was slow. As a result, VIDE was designated as a “high-risk” grantee and special conditions were imposed. Later, ED and VIDE entered into a compliance agreement that permitted VIDE to continue to receive funding while it implemented a structured plan to correct the administrative and programmatic deficiencies.

Application of U.S. Virgin Islands Dept. of ED, Docket No. 05-04-R (Jan. 24, 2011).

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Agenda

1. When are corrective action plans necessary?2. What needs to be in a corrective action plan?3. Can the State/grantee require a corrective

action plan from locals/subgrantees?4. Can I use grant funds to pay for corrective

actions?5. How are corrective actions enforced?6. Can I appeal required corrective actions?

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WHEN ARE CORRECTIVE ACTION PLANS NECESSARY?

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Identifying Noncompliance

• Monitoring by ED or grantee• OIG audit• A-133 single audit• Performance data• Financial data• Internal review

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Corrective Action Needed

• Program Determination Letters• OIG Audit Report• Single Audit Report• Grant Award Notification – special conditions• Monitoring report• Self Assessment

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WHAT NEEDS TO BE IN A CORRECTIVE ACTION PLAN?

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Corrective Action Plan, ExampleAudit Finding:•LEA did not maintain adequate time and effort documentation, questioned related costs• Auditors selected 261 payroll expenditures at four LEAs• 61 (23 percent) were inadequately documented

Audit Recommendation:•Provide documentation in support of questioned costs, or return the funds to ED•Ensure training to all staff regarding federal requirements

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Corrective Action Plan, ExampleSEA Response:•Concurred with finding and recommendations•Asked to initiate audit resolution procedures regarding the questioned payroll expenditures•Provided plan for technical assistance and training to all LEAs regarding how to properly document time and effort (not only those reviewed by OIG)

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Corrective Action Plan, ExampleTimeline:•February 18, 2011 – Draft OIG Audit Report•March 4, 2011 – SEA Response to Audit Report•April 11, 2011 – Final OIG Audit Report•May 9, 2011 – SEA provides ED with plan for corrective action•September 12, 2012 – SEA provides evidence of corrective actions•September 28, 2012 - Final Determination by ED• “No further corrective actions are required.”

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Corrective Action Plans

• Objective/activity (measurable)• Timeline• Identify person responsible• Budget• Data• Deliverables

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Corrective Action PlansExampleMonitoring Review by ED•Finding: SEA’s current monitoring instrument and monitoring reports do not address adequately Title III use of funds and supplement not supplant issues. SEA does not distinguish that Title III funds should supplement the level of Federal, State and local public funds. Consequently, LEAs were supplanting Title III funds and using Title III funds for unallowable costs.

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Activity / Implementation

Steps

Responsible Staff

Deliverables Due Date

SEA must ensure that its Title III monitoring activities focus on compliance with Title III fiscal and programmatic requirements, particularly in the area of ensuring LEAs are not supplanting Title III funds.

[Include position title], English Learner Office will make revisions to instrument;[Position title], Federal Program Office will implement revised instrument and provide necessary training

Revised monitoring plan; Revised monitoring instrument; Evidence of training and implementation.

11/30/13- updated draft monitoring instrument provided for review; 1/31/14-legal reviews; 3/31/14-federal program office includes revised doc; 8/31/14- train SEA program reviewers and LEAs

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Corrective Action PlansExample• Significant issues; general grants

management and administration• Financial Management• Procurement• Inventory Management• Time and Effort

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Activity / Implementation

Steps

Responsible Staff

Deliverables Due Date

1. Hire outside consultant to conduct Risk Assessment, create compliant grants policies and procedures and training materials.2. Staff Grants Compliance Office.3. New processes for position coding.4. Implement time and effort forms and protocols.5. Deploy new Enterprise Resource Planning system.

[Position title, task assigned]Core group of staff identified and tasked with implementing corrective actions.

1. RFP; Selected Contractor2. Draft Risk Assessment, Input3. Final Risk Assessment4. List of policies5. Policies (draft, final)6. Detailed procedures (draft, final)7. Related forms8. Training materials9. Evidence of training10. Adjustments to policies, procedures

May 2010- RFP; Oct 2010- Vendor selected; Nov 2010-Contract;July 2010- Draft Risk Assessment;Sept 2010- Final Risk Assessment;July 2011- Draft policies…

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Audit or Monitoring Review Scheduled?

Critical – CAP in place at time of visit, even if implementation will be in the FUTURE

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Example – Time and Effort

•LEA – Self assessment•Numerous employees paid from program they previously (no longer) work on

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Example – Time and Effort (cont.)•Remedy and Corrective Action•Change payment sources to reflect

current assignment or

•Reassign employees back to prior program

AND

•Reimburse improperly charged program

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Example – Time and Effort (cont.)

•Corrective Action Plan - FUTURE• Review all employees (federally paid) to

assure alignment • Correct the misalignments• Assign specific individual/office

responsibility for future reviews• In-service training

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Corrective Action Plan

• Over-promise• Under-promise• Unrealistic timeframe• Does not address the issue

Correcting noncompliance can be a lengthy process, measured in years rather than months

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CAN THE STATE/GRANTEE REQUIRE A CAP FROM LOCALS/SUBGRANTEES?

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Authority

• EDGAR 80.40; 74.51• Grantees are responsible for managing the day-to-day

operations of grant and subgrant supported activities. Grantees must monitor grant and subgrant supported activities to assure compliance with applicable Federal requirements and that performance goals are being achieved. Grantee monitoring must cover each program, function or activity.

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Authority• EDGAR 80.12; 74.14• A grantee or subgrantee may be considered “high risk” if:• History of unsatisfactory performance• Is not financially stable• Has management system that does not meet EDGAR

standards• Has not conformed to terms and conditions of

previous awards• Is otherwise not responsible

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CAN I USE GRANT FUNDS TO PAY FOR CORRECTIVE ACTIONS?

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Paying for Corrective Actions• Allowable?• Necessary and reasonable

• Legal expenses required in the administration of Federal programs are allowable.

• Costs related to cooperative audit resolution are allowable

• Allocable?• Activity is allowable under multiple programs, agency has

discretion in determining which programs may be charged. 34 C.F.R. 76.760• Agency can make “business decision” regarding what

combination of funds would be applied to a function or activity that benefits two or more programs. Implementation Guide for OMB Circular A-87, Q&A 2-16

• Example: Cross-cutting grants management policies and procedures manual

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HOW ARE CORRECTIVE ACTIONS ENFORCED?

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Enforcement - EDWhenever the Secretary has reason to believe that any recipient of funds under any applicable program is failing to comply substantially with any requirement of law applicable to such funds, the Secretary may—•withhold further payments under that program,•issue a complaint to compel compliance through a cease and desist order of the Office, •enter into a compliance agreement with a recipient to bring it into compliance• take any other action authorized by law with respect to the recipient.Any action, or failure to take action, by the Secretary under this section shall not preclude the Secretary from seeking a recovery of funds

•GEPA, 20 USC 1234c

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Enforcement - Grantees

• Withholding approval of application• Withholding of funds• Reimbursement with special conditions• High risk designation

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Compliance Agreement

Pros• Continue to receive

federal funding• Clear requirements and

deadlines

Cons• Heightened federal

oversight• Deadlines• Inflexible• Expensive

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Withholding of funds• Withholding: • Reasonable notice of intent to withhold and opportunity for

a hearing with an impartial hearing officer. 20 U.S.C. 1232c(b)(2); 20 U.S.C. 1234d(b).

• Withhold until satisfied there is no longer a failure to comply.

• Suspending:• SEA must provide notice to the subgrantee and allow it 15

days to show cause why the suspension should not take effect. 20 U.S.C. 1232c(b)(2).

• If the subgrantee does not show cause, SEA may suspend funds for 60 days

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Reimbursement with Special Conditions• ED and Grantees have discretion to impose special conditions• Grantees are responsible for ensuring all expenditures are lawful

(including subgrantees’ expenditures) and for ensuring all findings of noncompliance are resolved. 34 CFR 80.40(a).

For example: SEA could reimburse 80% of each Federal draw upon receipt of the summary reports and detailed lists, and then reimburse the remaining 20% after sampling certain expenditures and verifying detailed supporting documentation (such as time and effort documentation supporting payroll charges and requisition requests, purchase orders, contracts, receiving documents, invoices and canceled checks for non-payroll charges).

Is this reimbursement scheme “withholding”?See Maryland OIG Audit Report

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High Risk Designation• After placing the grantee/subgrantee on high risk, special

conditions or restrictions that correspond to the high risk condition must be imposed. Such special conditions or restrictions may include:• Payment on a reimbursement basis;• Withholding authority to proceed to the next phase until receipt of

evidence of acceptable performance within a given funding period;• Requiring additional, more detailed financial reports;• Additional project monitoring;• Requiring the grantee or subgrantee to obtain technical or

management assistance; or• Establishing additional prior approvals.

• 34 CFR 80.12• 34 CFR 74.14

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CAN I APPEAL REQUIRED CORRECTIVE ACTIONS?

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Appeal

• Disallowance v. Corrective action• GEPA permits an appeal of a

disallowance decision• No appeal of corrective actions

• A-133, _.315(c) “If the auditee does not agree with the audit findings or believes corrective action is not required, then the corrective action plan shall include an explanation and specific reasons.”

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Appeal – Disallowance Impact of Corrective Action on Recovery Amount

• Compromise authority: In certain circumstances, ED may compromise the amount claimed under GEPA if the grantee/subgrantee demonstrates “the practice that resulted in the disallowance decision has been corrected and will not recur.” 34 C.F.R. 81.36

• Grantback: In certain circumstances, ED may offer a grantback of up to 75% of the recovered funds if the “practices or procedures of the recipient that resulted in the violation have been corrected.” 20 U.S.C. 1234h(a).

• Equitable offset: Remedy available to grantees and subgrantees to prevent the recovery of sustained audit liabilities. Case law establishes that evidence of appropriate corrective actions is an equitable factor in support of the application of equitable offset.

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THE “SUPER” CIRCULAR ON CORRECTIVE ACTIONS

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Cooperative Audit Resolution

• “Federal agencies offering appropriate amnesty for past noncompliance when audits show prompt corrective action has occurred.”

• Corrective Action means action taken by the auditee that:• Corrects identified deficiencies;• Produces recommended improvements; or• Demonstrates that audit findings are either invalid

or do not warrant auditee action

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For example…• After significant audit findings in 2008 (for the audit period

2004-2006), the SEA and LEA began working with ED to address systemic internal control issues highlighted in the audit report.

• The final Program Determination Letter was issued in March 2013. All questioned costs were barred by statute of limitations.

• Many findings were fully resolved, although some corrective actions were still required to address specific audit concerns:• Proof that LEA properly codes employee activities as

supplemental or regular work activities and only charged Title I for insurance benefits of regular work duties;

• Evidence of trained employees responsible for allocating salaries between programs

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For example…• ED issued a Program Determination Letter regarding three single

audits with monetary determinations of $2.6 million and required corrective actions:• Improved policies and procedures and strengthened internal controls

to: (1) maintain adequate documentation to support disbursement of federal funds; (2) procedures for obtaining quotes for procurements; (3) documentation supporting procurements. Training on procedures.• Lack of procurement documentation an issue for several years

• Procedures and internal controls to prevent unallowable expenditures, including improper payments and overpayments and to promptly collect amounts due.• Problem escalating in the three audit reports

• Policies and procedures and internal controls regarding subrecipient monitoring for the 21st Century Community Learning Centers Program.• Grantee argued formal monitoring procedures are “best practice”

only

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Questions?

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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, PLLC. You

should not take any action based upon any information in this presentation without first consulting legal counsel

familiar with your particular circumstances.

Disclaimer

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