Corrective Action Plans
Drafting 101
Bonnie Little Graham, Esq.
bgraham@bruman.com
Jenny Segal, Esq.
jsegal@bruman.com
Brustein & Manasevit, PLLC
Fall Forum 2013
[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. 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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Agenda
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WHEN ARE CORRECTIVE ACTION
PLANS NECESSARY?
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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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• Program Determination Letters
• OIG Audit Report
• Single Audit Report
• Grant Award Notification – special conditions
• Monitoring report
• Self Assessment
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Corrective Action Needed
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WHAT NEEDS TO BE IN A CORRECTIVE
ACTION PLAN?
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Corrective Action Plan,
Example
Audit Finding:
• 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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• LEA did not maintain adequate time and effort
documentation, questioned related costs
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Corrective Action Plan,
Example
• 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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SEA Response:
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Corrective Action Plan,
Example
•
•
•
•
•
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
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Timeline:
• “No further corrective actions are required.”
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•
•
•
•
•
•
Objective/activity (measurable)
Timeline
Identify person responsible
Budget
Data
Deliverables
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Corrective Action Plans
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Corrective Action Plans
Example
• 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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Monitoring Review by ED
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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.
Responsible
Staff
[Include position
title], English
Learner Office
will make
revisions to
instrument;
[Position title],
Federal Program
Office will
implement
revised
instrument and
provide necessary
training
Deliverables
Due Date
Revised
monitoring plan;
Revised
monitoring
instrument;
Evidence of
training and
implementation.
11/30/13updated draft
monitoring
instrument
provided for
review;
1/31/14-legal
reviews;
3/31/14-federal
program office
includes revised
doc; 8/31/14train SEA
program
reviewers and
LEAs
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Activity /
Implementation
Steps
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Corrective Action Plans
Example
• Financial Management
• Procurement
• Inventory Management
• Time and Effort
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• Significant issues; general grants
management and administration
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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.
Responsible
Staff
[Position title,
task assigned]
Core group of
staff identified
and tasked
with
implementing
corrective
actions.
Deliverables
Due Date
1. RFP; Selected
Contractor
2. Draft Risk
Assessment, Input
3. Final Risk
Assessment
4. List of policies
5. Policies (draft, final)
6. Detailed procedures
(draft, final)
7. Related forms
8. Training materials
9. Evidence of training
10. Adjustments to
policies, procedures
May 2010RFP; Oct
2010Vendor
selected;
Nov 2010Contract;
July 2010Draft Risk
Assessment;
Sept 2010Final Risk
Assessment;
July 2011Draft
policies
…
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Activity /
Implementation
Steps
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Critical – CAP in place at time of
visit, even if implementation will be
in the FUTURE
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Audit or Monitoring Review
Scheduled?
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Example – Time and Effort
•Numerous employees paid from
program they previously (no
longer) work on
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•LEA – Self assessment
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Example – Time and Effort (cont.)
• Remedy and Corrective Action
or
• Reassign employees back to prior
program
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• Change payment sources to reflect
current assignment
AND
• Reimburse improperly charged
program
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Example – Time and Effort
(cont.)
• 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 - FUTURE
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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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CAN THE STATE/GRANTEE REQUIRE A
CAP FROM LOCALS/SUBGRANTEES?
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• 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
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• 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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Authority
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CAN I USE GRANT FUNDS TO PAY FOR
CORRECTIVE ACTIONS?
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Paying for Corrective Actions
• Allowable?
• 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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• Necessary and reasonable
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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 1234c
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Enforcement - ED
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•
•
•
•
Withholding approval of application
Withholding of funds
Reimbursement with special conditions
High risk designation
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Enforcement - Grantees
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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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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); 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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• Withholding:
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Reimbursement with Special
Conditions
• ED and Grantees have discretion to impose 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 (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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• 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).
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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
• 34 CFR 74.14
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• 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:
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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
• 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
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Appeal – Disallowance
• 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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Impact of Corrective Action on Recovery Amount
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THE “SUPER” CIRCULAR ON
CORRECTIVE ACTIONS
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Cooperative Audit Resolution
• 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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• “Federal agencies offering appropriate amnesty
for past noncompliance when audits show
prompt corrective action has occurred.”
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• 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…
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For example…
• 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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• ED issued a Program Determination Letter regarding three single
audits with monetary determinations of $2.6 million and required
corrective actions:
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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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