Brustein & Manasevit, PLLC
RECENT AUDIT
DEVELOPMENTS:
THE “SUPERCIRCULAR”
Michael Brustein, Esq.
mbrustein@bruman.com
Brustein & Manasevit, PLLC
www.bruman.com
Spring Forum 2013
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Federal Education Audit Resolution
Key Events
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2013
Super Circular NPRM
2009
ARRA ($101 billion Cash Infusion)
2002
NCLB Provides Statutory Base to CAROI
Risk Management (High Risk Designations)
2001
1996
1995
1989
Birth of CAROI (FL / PA)
Rewrite of A-87
Appeal of New York (Equitable Remedies)
1988
GEPA Amended (Due Process / OALJ)
1986
1984
1980
Appeal of California (Tydings / Linkage)
Single Audit Act
U.S. Education Department Established
1978
Inspector General Act
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Why “Supercircular”???
1. Greater simplicity
2. Greater consistency
3. Obama Executive Order on
Regulatory Review
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Greater “simplicity” means elimination
of several compliance elements in the
Compliance Supplement
• 14 requirements reduced to 7,
eliminating:
•
1. Equipment Management
2. MOE/Ear-Marking
3. Procurement
4. Program Income
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• The elimination of the compliance
requirements from A-133 will place the
burden on “Pass-Through” agencies
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Key Requirements Retained
• Allowable Costs
• Eligibility
• Cash Management
• Reporting
• Subrecipient Monitoring
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What is covered?
1. Administrative Requirements (A-
102, A-110)
2. Cost Principles (A-87, A-21, A-122)
3. Audit Requirements (A-133)
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Who is covered?
• All non-federal entities expending
federal awards
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When is it effective?
• NPRM – 2/1/13
• Close of comment period 06/02/13
• Analysis of public comment
• Final regulation (2 CFR) – not likely
before 1/1/14
• EDGAR revisions – within one year of
final regulation ?
• Effective date of 7/1/14 is doubtful
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Might EDGAR be inconsistent with
Supercircular?
• Yes, but federal agencies applying
more restrictive requirements need
OMB approval
Section _.108
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• Agencies can request special tests for
A-133 items removed (e.g., equipment
management, period of availability of
funds)
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If program statute differs from
Supercircular,
statute governs
Section _.106
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SO WHAT IS NEW?
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Federal agencies must evaluate risks to
the program posed by each applicant
Focus now on risk!
a) Financial stability
b) Management system
c) History of performance
d) Generally available information
e) Single audits
f) Capacity to implement programs
Section _.205
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Following risk analysis, agencies may
impose conditions on grantee
Section _.205
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Performance Expectations
• Agencies must include in the award
indication of timing and scope of expected
performance – as related to outcomes
intended to be achieved by the program
Section _.404
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Pass-Through Agency may impose
“supplemental requirements”
Section _.501(c)(4)
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Pass-Through Monitoring shall include:
a) Analyzing financial and
programmatic reports
b) Ensure subrecipients take timely
and appropriate corrective action
c) Issue management decision on A133 finding at subgrantee level
Section _.501(c)(5)
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Monitoring Tools of Pass-Through
a) On-site reviews
b) Provide training and technical
assistance
c) Arrange for “Agreed Upon
Procedures”
Section _.501(c)(5)
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Risk Factors for Pass-Through Monitoring
a) Results of previous audits
b) New subrecipients
c) New personnel or substantially
changed system
d) Extent of federal monitoring
Section _.501(c)(6)
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Cash Management
• Recipients shall maintain advances of
federal funds in interest bearing
accounts unless…
a) Recipient receives less than
$120,000 in federal $ per year
b) Interest will not exceed $500
c) Bank requires minimum balance
Section _.502(e)(3)(k)
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Inventory Management
• Equipment definition same
a) Acquisition cost of $5,000
b) Useful life greater than one year
Section _.503(d)
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Inventory Management
• Use/Management/Disposition
• Same as EDGAR 80.32
Section _.503(d)
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“Costs of Computing Devices” = “Supplies”
But
 When no longer needed for any other
federally sponsored project, recipient may
a) Retain them
b) Sell them
 But compensate federal government if per
unit value exceeds $5000
But
 Conflicts with C-31(6)
total aggregate
value of $5000 (unused)
Section _.503(e) and Section _ .620
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Cost Shifting
• Grantee cannot shift cost from one
award to another to overcome
shortfall, unless costs are allowable
under both awards
Section _.607(c)
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Cost Allocation – Cost Sharing
• If a cost benefits two or more projects
in a proportion that can be easily
determined, then cost should be
allocated on the proportional benefit
Section _.607(d)
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Cost Allocation – Cost Sharing
• If proportion cannot be easily
determined then allocate on any
reasonable documented basis
Section _.607(d)
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Set-Asides
• If program statute contains reserves or
limitations, amount not used cannot be
charged to other federal awards
Section _.611
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Administrative Costs –
Direct Charging of Administrative Costs
• Salaries of administrative and clerical staff
should be treated as indirect, unless
a) Services are integral to project, and
b) Individuals can be specifically
identified, and
c) Costs are explicitly set out in budget,
and
d) Costs not recovered as indirect
Section _.615(d)
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Indirect Costs
• A federally approved negotiated rate
shall be accepted by all federal
agencies
Section _.616(c)(1)
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Indirect Costs
• Pass-through entities must abide by
the federally recognized indirect cost
rate negotiated between the federal
agency and subrecipient
(restricted vs. unrestricted)
Section _.501(c)(1)(D)
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Indirect Costs
• But if no such rate exists, the pass-
through must negotiate the rate, or a
de minimis indirect cost rate equal to
10% of total modified direct costs to
small entities. (But what about
restricted rates? Most LEAs have
restricted rates in single digits.)
Section _.616(e)
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Time and Effort Management
• Eliminate reference to PARs
• Now “Certified Reports”
• Reports may be electronic
• Semi-Annual for single cost objective -
same
Section _.621 C-10(9)
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Time and Effort Management
• After the fact, unless mutually
satisfactory alternative approved by
awarding agency
• Certification periods cannot exceed 12
months
• Activities may be expressed as
percentages
Section _.621 C-10(9)
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Time and Effort Management
• Certified Reports on 2 or more cost
objectives certified by employee or
individual responsible for verification
Section _.621 C-10(9)
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Time and Effort Management
• No additional support other than
certification is necessary
Section _.621 C-10(9)
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Time and Effort Management
• Substitute systems may be used if
approved by cognizant agency
• Federal agencies are encouraged to
approve alternative proposals based
on outcomes
Section _.621 C-10(9)(F)
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Time and Effort Management
• Awarding agencies may approve
“blended funding” where multiple
programs involved, and
“performance-oriented metrics” are
used
Section _.621 C-10(9)(F)
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Cost Principles
Changes
• Costs for services of counsel (inhouse or Bruman) for administrative
proceedings (OALJ) may not be
charged if the ALJ imposes a
“monetary penalty.” Legal expenses
are allowable if the proceeding is
resolved by consent or compromise.
Section _.621 C-14(2)
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Cost Principles
Changes
• Cost of Meetings
• Costs from meetings and
conferences “beyond the recipient
entity” are allowable
Section _.621 C-32
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Cost Principles
Changes
• Travel Costs
• Grantee must retain documentation
a) Participation of individual is
necessary to the federal award
b) Costs are reasonable and consistent
with entity’s established travel policy
Section _.621 C-53(2)
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Cost Principles
Changes
Travel
 If no institutional travel policy, GSA
rates apply
- 48 CFR 31.205-46(a)
Section _.621 C-53(2)(C)
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Single Audits
• Single Audit threshold is raised from
$500,000 in federal annual
expenditures to $750,000
Section _.701(a)
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Audit Follow-Up
• Federal awarding agencies shall use
“cooperative audit resolution
mechanisms” to improve federal
program outcomes through better
audit resolution, follow-up and
corrective action
Section _.713(c)(5)
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Cooperative Audit Resolution
• Improve communication, foster
collaboration, promote trust, and
develop understanding between
auditor and auditee
Appendix I - Definitions
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Cooperative Audit Resolution
• This approach is based upon “Federal
agencies offering appropriate amnesty
for past noncompliance when audits
show prompt corrective action”
Appendix I - Definitions
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Agency Determination Letters
• The federal agency or pass-through
entity may request additional
information from auditee as a way of
mitigating disallowed costs
Section _.714(a)
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Time Requirements
• The federal agency or pass-through
shall make the determination within six
months of the acceptance of the audit
report
Section _.714(d)
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Audit Findings
Revises definition of “major program” to
focus audits on material issues
• The auditor shall report known questioned
costs greater than $25,000 for major programs
• If not a major program (auditor normally will
not find questioned costs) but if auditor
becomes aware of questioned costs greater
than $25,000 for non-major programs – must
report
Section _.714(a)
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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.