Corrective Action Plans
Frequently Asked Questions
Bonnie Little Graham
bgraham@bruman.com
Jenny Segal
jsegal@bruman.com
Brustein & Manasevit, PLLC
Fall Forum 2012
[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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Intro
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1. When are corrective action plans necessary?
2. Can the state/grantee require a corrective action plan from
locals/subgrantees?
3. What needs to be in a corrective action plan?
4. How are corrective actions enforced?
5. Can I appeal required corrective actions?
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Agenda
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WHEN ARE CORRECTIVE ACTION
PLANS NECESSARY?
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•
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•
•
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Monitoring by ED or grantee
OIG audit
A-133 single audit
Performance data
Financial data
Internal review
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Identifying Noncompliance
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•
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•
•
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Program Determination Letters
OIG Audit Report
Single Audit Report
Grant Award Notification – special conditions
Monitoring report
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Corrective Action Needed
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CAN THE STATE/GRANTEE REQUIRE A
CAP FROM LOCALS/SUBGRANTEES?
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• EDGAR 80.40
• 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
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Authority
• EDGAR 80.12
•
•
•
•
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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
• Special condition or restriction may include:
• Payment on a reimbursement basis,
• Withholding authority to proceed to next phase until receipt of
evidence of acceptable performance,
• Requiring additional, more detailed financial reports,
• Additional project monitoring,
• Requiring technical or management assistance, OR
• Establishing additional prior approvals
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• A grantee or subgrantee may be considered “high risk” if:
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WHAT NEEDS TO BE IN A CORRECTIVE
ACTION PLAN?
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•
•
•
•
•
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Objective (measurable)
Timeline
Identify person responsible
Budget
Data
Deliverables
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Corrective Action Plans
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Responsible
Party
Deliverable
Ensure compliance with SEA’s LEA [name or
Documentation
application process for
evidencing that LEA used
title]
Federal education funds,
SEA-provided application
including using SEA’s
tools and submitted its
application tools, meeting all
application for funds and
SEA deadlines and following
any amendments in
SEA’s amendment procedures.
accordance with SEA’s
Obtain the signature under
application process and
penalty of perjury of the
deadlines. Signature
Superintendent, or highestunder penalty of perjury
ranking administrative
by the Superintendent or
position at LEA, on all LEA
highest-ranking
applications for Federal
administrative position at
education funds submitted to
LEA affirming that the
submitted application(s)
SEA.
is true and correct.
Due Date
Consistent
with SEA
published
deadlines
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Activity
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Example:
• Implement a comprehensive system of internal controls
that reasonably ensure: (1) obligations and costs are in
compliance with applicable state and federal rules; (2)
funds, property, and other assets are safeguarded against
waste, loss, and unauthorized use or misappropriation; and
(3) revenues and expenditures are properly recorded and
accounted for.
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• Noncompliance: Insufficient internal controls
• Goal of corrective actions:
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A. Assess current level of controls over federal funds to
determine if they are appropriate for level of risk.
• 1. Establish an Assessment Team to oversee the assessment
process.
• Assessment Team will be responsible for:
•
•
•
•
reviewing audit reports, monitoring reports, independent
consultant reports, etc. to determine what additional
assessments need to be done for federal programs
ensuring assessment objectives are clearly communicated
ensuring the assessment is carried out in a thorough,
effective and timely manner
identifying and ensuring adequate funding and resources are
made available
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Example – Corrective Actions
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Example (cont.)
• 2. Evaluate the entity’s control environment
Ensure all areas of authority are clearly defined
Ensure authority and responsibility are appropriately delegated
Ensure employees have access to appropriate training
Ensure employees have necessary skills to perform all job
functions
• Ensure management has resources to appropriately evaluate,
counsel, compensate and discipline employees
• 3. Identify internal and external risks that may prevent the
organization from meeting its objectives.
• Review prior single audit report, OIG audit reports, internal
audit findings to identify common problems, deficiencies, and
risks
• Analyze identified risks for their potential effect on federal
programs
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•
•
•
•
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4. Evaluate existing policies and procedures related to control
activities to ensure agency objectives are met.
• Ensure proper segregation of duties
• Ensure there are adequate physical controls over assets
• Ensure actions require appropriate authorization
• Ensure appropriate controls over information systems
(e.g., general controls, application controls)
5. Ensure staff has access to timely and accurate information on
entity policies, as well as state and federal requirements.
6. Evaluate entity’s monitoring procedures.
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Example (cont.)
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B. Based on the assessment, implement new controls or
re-design existing controls as appropriate.
1. Document the results of the assessment, including a
complete description of the current controls.
2. Prepare a report of recommended changes. Report will
address current areas of weaknesses and recommend
improvements.
3. Entity will review the report and make a final decision on
the recommendations.
C. Establish a strategic plan for future monitoring and
assessment activities, including entity self-assessments,
internal audit reviews, and direct testing.
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Example (cont.)
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For each corrective action, include:
• Completion date
• Measurable objective
• Responsible person/office
• Confirmation underlying problems resolved
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Example
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• 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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Corrective Action Plan
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HOW ARE CORRECTIVE ACTIONS
ENFORCED?
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Whenever 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 1235c
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Enforcement
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Cease and Desist Order
• Describes the factual and legal basis for ED’s belief that the
recipient is failing to comply substantially with a requirement of
law; and
• Contains a notice of hearing at least 30 days after service of the
complaint
• Recipient may defend against the complaint
• Order is issued
• Report in writing stating its finding of fact; and
• Order requiring cease and desist from the practice, policy or
procedure which resulted in the violation.
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• ED may issue a complaint to a recipient that:
• Secretary may:
• Withhold amount payable
• Submit to Attorney General to enforce
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• 20 USC 1234e
• Discretionary authority
• Before entering into the agreement, hearing determines
compliance is not feasible until a future date
• A compliance agreement under this section shall contain—
• (1) an expiration date not later than 3 years from the date
of the written findings under subsection (b)(2) of this
section, by which the recipient shall be in full compliance
with the applicable requirements of law, and
• (2) those terms and conditions with which the recipient
must comply until it is in full compliance.
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Compliance Agreements
• GEPA, 20 USC 1234f
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Compliance Agreement
• Continue to receive
federal funding
• Clear requirements and
deadlines
Cons
• Heightened federal
oversight
• Deadlines
• Inflexible
• Expensive
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Pros
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Enforcement
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• Withholding of funds
• Reimbursement with special conditions
• High risk designation
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Withholding of funds
• Reasonable notice of intent to withhold and opportunity for a
hearing with an impartial hearing officer. 20 U.S.C. 1232c(b)(2).
• Withhold until state is satisfied there is no longer a failure to
comply.
• Suspending:
• Must provide notice to the grantee/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 grantee/subgrantee does not show cause, may suspend
funds for 60 days
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• If ED/state determines a grantee/subgrantee has substantially
not complied with an applicable Federal requirement, it may
suspend or withhold payments. 34 C.F.R. § 80.43(a).
• Withholding:
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Reimbursement with Special
Conditions
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 (Examples of such
documentation could include: time and effort documentation
supporting payroll charges and requisition requests; purchase
orders; contracts; receiving documents; invoices; canceled checks
for non-payroll charges).
Is this reimbursement scheme “withholding”?
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• SEAs 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).
• Discretion to impose special conditions.
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High Risk Designation
• 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.
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• After placing the subgrantee on high risk, the grantee must
impose special conditions or restrictions that correspond to
the high risk condition. Such special conditions or restrictions
may include:
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CAN I APPEAL REQUIRED CORRECTIVE
ACTIONS?
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• Disallowance v. Corrective Action
• GEPA permits an appeal of a
disallowance decision
• No appeal of corrective actions
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Appeal
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Disallowance decision:
• Compromise of claims under GEPA
• Claim is for $200,000 or less, or
• Difference between the amount of the claim and the
amount agreed to be returned is less than $200,000,
• And
• The collection of the amount by which the claim is
reduced under the compromise would not be practical
or in the public interest, and
• The practice that resulted in the disallowance decision
has been corrected and will not occur.
• 34 CFR 81.36
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Appeal
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EXAMPLES
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• In one jurisdiction ED issued 70 Page PDL, which determined all
findings were either:
• 1. Resolved and closed because ED had received sufficient
documentation that corrective action was already in place; or
• 2. Required further corrective action:
• Please note that corrective action is required for some of
these audit findings, as well as audit findings not specifically
addressed in this PDL. [ED] will continue to work with [you]
to implement corrective actions required by this PDL.
• Emphasized the importance of:
• 1. Producing records at the time they are requested by the
auditors and complying with the requirements in 76.730(e) of
EDGAR to keep records “to facilitate an effective audit;”’ and
• 2. Working with ED (not being adversarial).
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For example…..
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For example….
• MOE: Review MOE calculation methodologies and update; use
audited data; and complete MOE calculations in a timely manner
and communicate data to LEAs to ensure timely completion of A133 audits.
• Is audited data required?
• Subrecipient Monitoring: Process for identifying “high risk”
grantees under EDGAR 80.12; conduct fiscal monitoring (cannot
rely solely on A-133 audits).
• Comparability: Develop and implement an indicator for
monitoring comparability and integrate this indicator into
protocols for subrecipient monitoring.
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• A second jurisdiction received a 76 page PDL regarding two
single-audits. Did not demand recovery of any funds, but
mandated several corrective actions, such as:
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For example… Philadelphia
• Revise its inventory policies and procedures to include
items, such as cell phones, PDA’s, and digital cameras,
which are easily pilfered and sought after, and develop
a process to ensure that all items receive a property
code and that property transfers are properly
recorded.
• PDL sustained auditors’ recommendation.
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• OIG Audit Report:
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• Policies to inventory items with an acquisition cost of
$500 or more “failed to meet these requirements”
because they did not specifically address controls to
avoid loss or theft of “particularly susceptible items”
such as PDAs, cell phones, and digital cameras.
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For example… Philadelphia
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Colorado OIG Audit Report:
• Document or return $24 million in personnel costs
• Adjust charges, as necessary, based on actual effort
• Work with the Department to determine the most appropriate
approach to account for personnel costs, including
consideration of alternate methods allowed for under OMB
Circular A-87
• Develop and implement enhanced policy and procedures for
the system that was determined
• Provide training for all CDE employees, supervisors, and
managers on how to properly record and certify personnel
costs to be paid with Federal education funds
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For example… Colorado
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CDE stated that it would:
• Provide the Department with its new methodology for
recording employee effort, which will not use predetermined
allocations to charge personnel costs.
• Expects its new methodology for recording employee effort to
be fully operational on July 1, 2010. It will develop separate
policy manuals for supervisors and employees covering the
new methodology.
• Train supervisors and employees on its new methodology for
recording employee effort to ensure conformance before it
becomes effective on July 1, 2010.
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For example… Colorado
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• We commend CDE for initiating timely corrective actions in
response to the audit’s finding and recommendations. The
actions that CDE describes in its comments, in response to our
recommendations, would appear to address our finding, but
the Department will ultimately make this determination.
• PDL: We find that the policies and procedures provided
generally appear sufficient to establish an effective system to
account for the distribution of effort for employees’ who work
on multiple programs, however we have questions regarding
implementation …
• Single audit findings!
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For example… Colorado
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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.
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Disclaimer
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