Audit Resolution Under the
Uniform Grant Guidance
Presented by
Michael Brustein, Esq.
mbrustein@bruman.com
Jennifer Castillo, Esq.
jcastillo@bruman.com
Brustein & Manasevit, PLLC
Fall Forum 2014
The Uniform Grant Guidance:
1) “Right-sizes the footprint of oversight and
single audit requirements”
2) Focus audits where there is greatest risk of
fraud, waste and abuse
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HOW???
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1. Makes single audits available online
2. Encourages a cooperative approach to audit
resolution
3. Raises threshold to $750,000
4. Places focus on internal control deficiencies
that have been identified as material
weaknesses
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Internal control
deficiencies
remain a
moving target
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OMB / COFAR have not finalized guidance on
oversight of single audit vs. pass-through
responsibility
Who is responsible for which internal controls?
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Notice of Intent
2-28-12
77 fr 11780
Compliance requirements
will be “streamlined”
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Audit focus should be on
•
•
•
•
•
•
•
Allowable costs / activities
Eligibility
Reporting
Selection of subs
Monitoring
Cash management
Procurement
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NPRM
2-1-13
78 fr 7295
• Proposed limiting audit review of
internal controls in compliance
supplement from 14 to 7
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The Proposed Seven Deadly Sins
1.
2.
3.
4.
5.
6.
7.
Activities Allowed or Unallowed
Allowable Costs (and Matching)
Cash Management (Minimizing time)
Eligibility
Reporting (financial and performance)
Subrecipient Monitoring
Requirements Unique to the Program
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The Seven Controls Proposed to be
Voted off the Island
1.
2.
3.
4.
5.
6.
7.
Davis-Bacon
Inventory Management
MOE / Earmarking
Period of Availability of Funds
Procurement
Program Income
Real Property Acquisition
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But who is responsible for
oversight of these seven???
Pass-Through
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And where will the resources come
from?
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Final Guidance
“While most commenters were in favor of the
proposed reduction of the number of types of
compliance requirements in the compliance
supplement, many voiced concern about the
process that would implement such changes”
– 78 CFR 78608
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• No changes made at this time
• COFAR recommends further
outreach
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May 2014 Compliance Supplement
Silent
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OMB / COFAR FAQ
8/14/14
Look to the 2015 Compliance
Supplement on the streamlining
of compliance requirements
(P. 15)
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• While final chapter is yet to be written, we
recommend every non-federal entity has
fundamental understanding of the following
four legal authorities
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1. Uniform Guidance – Subpart F
2. Compliance Supplement
3. Generally Accepted Government Auditing
Standards (Yellow Book)
4. EDGAR / GEPA Enforcement Provisions
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UNIFORM GUIDANCE SUBPART F
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Federal Agency Responsibility
• Cognizant agency for audit
– TA to auditees
– Quality control
– Advice to auditors
– Notice to auditors of audit deficiencies
– Coordinate management decisions
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Federal Agency Responsibilities
• Awarding agency responsibility
– Ensure completion of audits – timely
– TA to auditees and auditors
– Follow up – ensure corrective action
– Management decision
– Monitor corrective action
– Use CAROI
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CAROI
• Cooperative Audit Resolution Oversight
Initiative
–Developed with ED and pilot states
–Adopted by ED as standard audit
resolution
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CAROI
Historically:
Rejected by most other agencies
Labor
Agriculture
Health Human Services
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Uniform Grant Guidance Applies
CAROI
• To all federal agencies
• Government wide policy
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CAROI 200.25
• Audit and follow up that promotes
prompt corrective action
• Improve communication
• Foster collaboration
• Promote trust
• Develop federal – non federal agency
understanding
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CAROI (cont.)
• Basis
– Leadership commitment to program
integrity
– Partnership, federal
• Non federal and auditors
– Focus
• Current conditions and cooperative
action
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CAROI (cont.)
• Message:
– Continued failure to correct unacceptable
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CAROI (cont.)
• Prompt corrective action as shown by audits
–Federal agencies offer
–Appropriate relief
Past noncompliance
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CAROI (cont.)
• Federal agency responsibilities 200.513
– Use CAROI to improve outcomes
• Audit resolution
• Follow up
• Corrective action
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CAROI (cont.)
Management Decision
 Audit finding sustained or not sustained
 Reasons for decision
 Expected action
Repayment?
 Corrective action
 Appeal available
 6 months of filing with Federal Audit Clearing House
(FAC)
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The Office of Management and
Budget (OMB) A-133 Compliance
Supplement
What is it?
Who does it apply to?
• Expend more than $500k ($750k under
Uniform Grant Guidance)
• Covers 150 major programs
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Why is the Compliance
Supplement important?
How is the Document Organized?
• Part 1 – Background, Purpose, and
Applicability
• Part 2 – Matrix of Compliance
Requirements
• Part 3 – Compliance Requirements
• Part 4 – Agency Program Requirements
• Part 5 – Clusters of Programs
• Part 6 – Internal Control
• Part 7 – Guidance for Auditing Programs
Not Included in the Compliance
Supplement
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Part 4: Agency Program
Requirements
The most useful portion for federal education
grant recipients is the agency- specific section
on the Department of Education
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Example: Title I, Part A of the ESEA
I. Program Objectives: The objective of this
program is to improve the teaching and
learning of children who are at risk of not
meeting challenging academic standards
and who reside in areas with high
concentrations of children from low-income
families.
II.Program Procedures
I. Describes ESEA flexibility, Sources of
Governing requirements, availability of
other program information
III.Compliance Requirements
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Example: CAREER AND
TECHNICAL EDUCATION—BASIC
GRANTS TO STATES (Perkins IV)
Program Objectives: Perkins IV provides
grants to States and outlying areas to
develop the career, technical, vocational,
and academic skills of secondary students
and postsecondary students …
I. Program Procedures:
II. Compliance Requirements:
I.
Matching, Level of Effort, Earmarking
I. Level of Effort – Maintenance of Effort
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Example: 21 Century Learning
Centers
I. Program Objectives: The objective of this
program is to establish or expand
community learning centers that provide
students with academic enrichment
opportunities along with activities designed
to complement the students’ regular
academic program.
II. Program Procedures:
I. ESEA Flexibility is Referenced
II. Source of Governing Requirement
III. Availability of other Program Information
III. Compliance Requirements
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PART 6: Internal Control
Five Components of Internal Control that
should reasonably assure compliance with
the requirements of Federal laws,
regulations and program compliance
requirements
•
•
•
•
•
Control Environment
Risk Assessment
Control Activities
Information and Communication
Monitoring
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2014 Compliance
Supplement
Changes from the 2013 Version
What are the next steps
for the Compliance
Supplement?
The GAO Yellow Book
Generally Accepted Government
Auditing Standards
Who does it apply
to?
• Single auditors
• OIG auditors
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Why is the Yellow Book Important?
“We conducted this audit in accordance with generally
accepted government auditing standards. Those
standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based
on our audit objective.” LAUSD OIG Audit report
Noncompliance with the auditing standards may
result in failure to establish prima facie case (case
dismissed!)
 Colorado / Houston PDLs
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Auditor Findings
How Often is the Yellow Book
Updated and How is it Organized?
• Yellow book last updated in 2011
• Organization
– Financial audits
– Attestation engagements
– Performance audits
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High Standards for Auditors
High Standards for Auditors
Continued…
Conceptual Framework for
Independence
Assess condition or activity for
threats to independence
Threat identified?
No
Proceed
Yes
Is threat related to a nonaudit
service?
No
Yes
Is the nonaudit service specifically
Yes
prohibited in GAGAS paragraphs
3.36 or 3.49 through 3.58?
No
Assess threat for significance
Is threat significant?
No
Proceed
Yes
Identify and apply safeguard(s)
Assess safeguard(s)
effectiveness
Is threat eliminated or reduced to
an acceptable level?
Yes
No
Document nature of threat and
any safeguards applied
Proceed
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Independence
impairment; do
not proceed
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Important Provisions
What may cause finding?
Internal control deficiencies
Fraud and illegal acts
Abuse
Violations of contracts or grant agreements
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What happens when an auditors
identify findings?
•Condition
•Effect
•Cause
•Criteria
•Recommendation
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EDGAR GEPA Audit Resolution and
Enforcement
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ED Programmatic Components (OCFO,
OESE, OSERS, OPE, OCTAE)
• Review all external audits (OIG and Single
Audits)
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• Audits are recommendation to
management
• Management sustains or rejects audit
findings
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• Management sustains audit liability in a
Program Determination Letter (PDL)
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Audit Violations Deemed Significant
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Significant Violations
1. Time Distribution
2. MOE
3. Supplement, Not Supplant
4. Unallowable Expenses
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Significant Violations
5. Procurement Irregularity
6. Ineligible Students
7. Lack of Accountability for
Equipment/Materials
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Significant Violations
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
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Significant Violations
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
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Triggers EDGAR / GEPA
Procedures
34 CFR Part 81
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AUDIT DEFENSE AND RESOLUTION
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Common Defenses
• Harm to the Federal interest
• Equitable offset
• Statute of limitations
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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 program…”
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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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Equitable Offset
In 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
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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.
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Disclaimer
This presentation is intended solely to provide general
information and does not constitute legal advice or a legal
service. This presentation does not create a client-lawyer
relationship with Brustein & Manasevit, PLLC and, therefore,
carries none of the protections under the D.C. Rules of
Professional Conduct. Attendance at this presentation, a later
review of any printed or electronic materials, or any follow-up
questions or communications arising out of this presentation
with any attorney at Brustein & Manasevit, PLLC 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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