when the auditor comes knocking -- what we’ve learned and how to prepare bonnie l. graham, esq....

WHEN THE AUDITOR COMES KNOCKING --WHAT WE’VE LEARNED ANDHOW TO PREPARE

Bonnie L. Graham, [email protected] Brustein & Manasevit, PLLCFall Forum 2013

Non-Compliance Findings

Audit1.OIG Audit2.A-133 AuditMonitoring3.Federal4.State

2Brustein & Manasevit, PLLC

Preparation

•Key to successful outcome •Self assessment - critical


Self Assessment

• Identify potential trouble spots• Review significant violations

from other processes• Review prior findings• Conduct self assessment


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 costs

Contracts were: missing required elements; unfulfilled; not approved; or included expenditures that exceeded the contract amounts


Review of 27 OIG Audit Reports (cont.)

• $66,666,155 inadequately documented personnel costs• Time and effort documentation (both semi-annual

certifications and PARs) were missing, incomplete, inaccurate, or untimely

• $16,010,550 inadequately documented non-personnel costs• Missing 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


Review of 27 OIG Audit Reports (cont.)

• Pervasive non-compliance issues• Inadequate 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)


Audit violations deemed “significant” by the U.S. Education Department


Brustein & Manasevit, PLLC 9

1. Time Distribution2. MOE3. Supplement Not

Supplant4. Unallowable

Expenses5. Procurement

Irregularity6. Ineligible Students7. Lack of Accountability

for Equipment/Materials

8. Lack of Appropriate Record Keeping

9. Record Retention Problems

10.Late or No Submission of Required Reports, Inaccuracies, Inconsistence

11.Audits of Subrecipient Unresolved

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

Evaluate Areas to be Examined

1. OIG Audit• Notice of Audit: Correspondence

2. A-133 Audit• Prior Audits (Findings)• A-133 Compliance Supplement


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


Remedy Problem Areas

AND / OR

Develop Corrective Actions (Plans)


Corrective Action Plan

Critical – in place at time of visit – even if implementation - FUTURE

•Specific Measurable Objectives•Timelines•Clear Lines of Responsibility


PREPARATION FOR VISIT


Logistics

•Secure Space•Copy Machine


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.


Communication with Staff

•Formal (governmental) inquiry•Provide any information within personal knowledge• No guessing• No speculation

•No time to settle grudges•No gossip


Identify Key Staff(Audit Committee)

•Audit Manager:•Key contact for all questions, interview arrangements, documents requests, logistical arrangements

•Agency Leadership:•Entrance, exit conference


Identify Key Staff(Audit Committee)

• Relevant Staff: • Assure staff are prepared for interview• Subject matter awareness

• Terminology/Definitions• Time and Effort• Necessary and Reasonable• Inventory

• Familiarity with job description• Familiarity with prior problem areas• Familiarity with likely areas of inquiry


The Visit• Entrance Conference

• Leadership•Set positive tone

• Audit Manager•Review process/logistics•Request all interview requests go through manager

•Request periodic updates (especially problem areas)•Do not wait for exit conference


The Visit

•Keep extra copy of all documents supplied!!!

•Debrief staff after interviews•Clear up misunderstandings


Exit Conference•Press for specifics• If issues:

•Documents requested?•List and send

•Potential noncompliance findings•Review carefully – •If confirmed, develop corrective actions proactively


Next Steps

•OIG Audit, A-133 Audit•Draft Audit Report•Final Audit Report•Final determination (ED, State Agency)

•Respond carefully at each level•Problems always easier to resolve at earliest level


For example: Alabama Audit

Cash Management Findings•Draft Audit Report - October 2011

• Alabama Response: Policies and procedures, internal controls

•Final Audit Report – February 2012• Alabama Response: Disagreed with some findings, but addressed OIG concerns; acknowledged Federal requirements; implemented corrective actions.


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


Next Steps

•ED can: •Accept finding as is•Accept finding but

•Reduce or eliminate liability•Reject finding

•Letter of final audit determination• Establishes prima facie case

•34 CFR 81.34


Review by ED•ED accepts finding with $ liability•Appeal to Office of Hearings and Appeals (OHA), 34 CFR 81.37

•Administrative Law Judges (ALJs) are independent

•Caution – •Time limits•Other Rules of Procedure for Appeals


Review by ED

•ALJ Decision –•Appeal to Secretary


AUDIT DEFENSE AND RESOLUTION


Common Defenses

•Harm to the Federal interest•Equitable offset•Statute of limitations


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 with the program . . . ”


Harm – Always

•Ineligible Beneficiaries•Example: IDEA, Part B program funds for students without a disability

•Unauthorized activities•Example: Migrant funds used for local agency staff to attend conference unrelated to Migrant program


Harm - Always (cont.)•Fiscal

• Set-aside• Example: SEA spends more than 10% on Perkins state leadership

• MOE• Comparability• Supplanting• Excess cost• Matching


Possible No Harm

May argue “no harm” if:•Did not obtain required prior approval•Missing required time and effort documentation•Missing evidence of procurement

Caution: ED takes more limited view – may require litigation


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.


Equitable OffsetIn 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


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.


Resolution Strategies

•CAROI•Compromise•Settlement•Litigation


Monitoring Findings

•Opportunity to Respond •Generally, Corrective Actions•No Liability


Disclaimer

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.


when the auditor comes knocking -- what we’ve learned and how to prepare bonnie l. graham, esq....

Documents

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brustein manasevit

audit monitoring

oig audit notice of

oig audit reports

audit violations

pllc fall forum

audit prior audits findings