The Colorado Audit
A Case Study in Audit Resolution
Bonnie Little, Esq.
blittle@bruman.com
Brustein & Manasevit, PLLC
Fall Forum 2011
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Amount in Dispute
 $23,962,000
in unsupported
personnel costs charged to
Federal grants
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Draft Audit Report
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Draft Audit Report
 Audit
limited to CDE’s
methodology for allocating
personnel costs to Federal
education grants
 Audit
covered the two-year
period July 1, 2007 through June
30, 2009
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CDE’s Time Distribution System
 Colorado
Personnel Payroll System
◦ “CERT” defined as “cost center for
which time is charged for expense”
◦ CDE employee compensation is
allocated to various state and federal
funding sources according to the
employee’s CERT code(s)
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OIG Review

OIG interviewed 8 CDE employees
◦ “CDE’s documentation for reporting employee
activity met only three of the four standards for
personnel activity reports”




Prepared monthly
Signed by the employee
Accounted for total activity
BUT, did not reflect “after-the-fact” distribution of
actual activity of each employee
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OIG Review
 “[W]e
concluded that the timesheets
we reviewed reflected the normal
payroll reporting practices that are
used throughout CDE.”

Employees reported their time based on
predetermined allocation percentages
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OIG Review
OIG noted that timesheets are not
submitted in time to impact the payroll
 Accordingly, any adjustments would need
to be made after the pay date

◦ CDE informed the auditors that
 only one employee performs the payroll-related
adjustments
 “not possible to process the number of monthly
adjustments that would be required”
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OIG Draft Finding
 $23,962,000
inadequately supported
personnel costs
◦ OIG questioned all CDE personnel costs
charged to Federal funds during fiscal years
2008 and 2009
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OIG Recommendations
Provide documentation based on actual
work performed supporting the costs
 Make necessary adjustments for personnel
costs that were charged to Federal grants
and do not meet OMB Circular A-87
requirements
 Work with ED to determine appropriate
approach to account for personnel costs
 Develop and implement policy and
procedures for a compliant system
 Provide training for all CDE employees,
supervisors, and managers

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CDE Response

CDE concurs with the draft finding, but…
◦ Employees working on single cost objective
satisfied OMB Circular A-87 requirements
◦ Actual effort for the vast majority of
employees working on multiple cost
objectives aligned with budgeted effort over
each12-month period
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CDE Response
 Agreed to do the reconstruction
◦ Based on interviews with supervisors and
employees, determined actual effort and
reconstructed documentation supporting
personnel costs for the two fiscal years
 Agreed
to make any necessary
adjustments based on actual effort
 Agreed to develop a new methodology
and provide training
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Final Audit Report
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OIG Final Audit Report
$23,962,000 in unsupported costs
◦ “We commend CDE for initiating timely
corrective action in response to the audit’s
finding and recommendations.”
◦ “The actions that CDE describes … would
appear to address our finding, but the
Department will ultimately make this
determination.”
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CDE Response
Corrective actions:
 CDE developed and implemented a fully
compliant time distribution system.
◦ Provided new policy, instructions, and
“frequently asked questions”

CDE conducted mandatory training
◦ Provided training materials and attendance
sheets
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CDE Response
Reconstruction

Employees and supervisors reviewed
notes, calendars, work product, email and
other documentation to determine an
accurate breakdown of their effort during
the two-year period
◦ If an employee was no longer available,
supervisors with first-hand knowledge attested
to the employee’s actual effort
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CDE Response

Through reconstruction, CDE
documented actual effort to support
98% of the personnel costs

$525,591 - unsupported effort
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CDE Response
Equitable Offset accounts for the remaining
funds at issue
 CDE identified 3 employees that CDE could
have paid using federal funds, but instead
used state funds
◦ Employees worked on allowable activities under
IDEA, but were charged to state funds
◦ Job descriptions, affidavits, salary information
◦ Salaries totaled $620,811
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ED Final Determination
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ED Final Determination
 Sustain
finding, require corrective
actions
◦ “The methodology that CDE used to allocate
personnel costs paid with Federal funds did
not comply with the requirements for time
distribution systems contained in [OMB
Circular A-87].”
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ED Final Determination
 “[W]e
cannot accept the affidavits
CDE provided as evidence of how
employees who work on multiple
programs actually allocated their
work among those programs.”
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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.
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ED Final Determination

To sustain a prima facie case for
recovering funds, ED must provide
sufficient evidence that funds were
misspent

Could not establish a prima facie case
based on OIG’s judgmental sample of 8
employees
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ED Final Determination

Footnote 7:
◦ “However, because we find that the affidavits
are not legally sufficient to support a prima
facie case for recover of funds, we do not ask
that CDE return any funds based on the
difference in allocations as determined by the
affidavits and the actual allocations made to
the grant programs.”
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ED Final Determination

Reviewed CDE’s new policies and
determined that they “generally appear
sufficient to establish an effective system”
◦ Clarifying questions:
 Are predetermined percentages populated on the form,
and then adjusted based on actual effort?
 Do the percentages entered affect funds paid to
employees, or must supervisors inform the finance office
if adjustments are needed?
 How and when are adjustments made to payroll records
to reflect variances from budget estimates?
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ED Final Determination

Other concerns
◦ Sign-in sheets indicated that not all employees
received training on the new system
◦ FY 2010 single audit stated “a few employees
are continuing to report time based on the
budgeted allocation rather than actual
allocations.”
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ED Final Determination
$23,942,000
$0
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