UNIFORM GUIDANCE: WHAT ARE THE SPECIFIC AUDIT REQUIREMENTS AND HOW DO YOU AVOID NON-COMPLIANCE?

Transcription

1 UNIFORM GUIDANCE: WHAT ARE THE SPECIFIC AUDIT REQUIREMENTS AND HOW DO YOU AVOID NON-COMPLIANCE? The views and opinions expressed in this presentation are those of the authors and do not necessarily reflect those of CASBO.

2 Objective oidentify the compliance requirements subject to audit oprovide an introduction and understand what the auditors are looking for. ohow to prepare for the audit to avoid compliance findings. Presented by Andrew Park, CPA & Brandon Harrison, CPA

3 What s Wrong with Federal Compliance Findings? o#1 Questioned Costs Subject reimbursement from unrestricted sources financial burden o#2 Subject to additional scrutiny from the administering Federal Agency or pass-through agency more audits o#3 Subject to financial sanctions may lose future funding for continued non-compliance loss of jobs & elimination of program(s) o#4 Always about 1.5 to 2 pages on the audit report per finding governing board may negatively portray management

4 Introduction What are the compliance requirements? A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles C. Cash Management D. Reserved* E. Eligibility F. Equipment and Real Property Management G. Matching, Level of Effort, Earmarking H. Period of Performance I. Procurement and Suspension and Debarment J. Program Income K. Reserved* L. Reporting M. Subrecipient Monitoring N. Special Tests & Provisions

5 Introduction (Continued) Where are the compliance requirements found? Annual Compliance Supplements Found here: ompliance_supplement_2016 Also found in the Code of Federal Regulations Title 2, Subtitle A, Chapter II, Part 200 & Title 2, Subtitle A, Chapter I, Part 180

6 Activities Allowed or Unallowed owhat is the compliance requirement? Describes what you can do with Federal award Completely different from what COSTS are allowed and unallowed Often associated with program costs oactivities Allowed or Unallowed requirement is essentially the backbone of most cost driven Federal program overy specific to each of the program! oexample: Grant awarded to build nuclear weapons. Under the Activities Allowed or Unallowed we are making sure that awarded entities are only engaged with building nuclear weapons and not boats or airplanes.

7 Activities Allowed or Unallowed (Continued) osuggested Preparations: Most Important Know your program and the intent of the program (legislation) This should help you understand and anticipate the types of activities allowed Often found in grant agreements, memorandum of understanding, Part 4 of OMB Circular A-133 (for select programs) Obtain a knowledge of what activities are specifically unallowed

8 Activities Allowed or Unallowed (Continued) ounderstand conditionally allowed activities that are otherwise unallowed. Ex: Construction related activities unallowed unless approved by granting agency (Head Start)

9 Allowable Costs/Cost Principles owhat is the compliance requirement? This compliance requirement establishes guidance on what types of costs that can be incurred to administer a federal program by a non-federal entity (school districts, colleges, cities, counties, etc.). Guidance regarding Allowable Costs/Cost Principles are contained in: 2 CFR Part through 2 CFR Part Requires written procedure per 2 CFR Part (b)(7).

10 Allowable Costs/Cost Principles (Continued) ogeneral Guideline of Allowable Costs are as follows: 1. Be necessary and reasonable for proper and efficient performance and administration of Federal award 2. Able to allocate to Federal awards 3. Be authorized or not prohibited under State or Local laws or regulations Ex: (Hypothetical) Federal and State law allow the sale of medical marijuana, but local ordinances prohibit the sale

11 Allowable Costs/Cost Principles (Continued) 4. Conform to any limitations or exclusions set forth by Federal law, conditions of Federal award, or other governmental regulations 5. Be consistent with policies, regulations, and procedures that apply uniformly to both Federal award and other activities Ex: Governmental agency cannot charge a higher indirect cost to a Federal program just because it s a federal program. 6. Be accorded consistent treatment. A cost may not be assigned to Federal award as a direct cost if any other costs incurred for same circumstances have been allocated as indirect

12 Allowable Costs/Cost Principles (Continued) 7. Costs are in accordance with GAAP 8. Not be included as a cost or used to meet cost sharing or matching requirement of any other Federal award 9. Be the net of all applicable credits 10.Be adequately documented Need to have supporting documents! Transfers without sufficient supporting documents are automatically considered questioned costs.

13 Allowable Costs/Cost Principles (Continued) ostepping back a little bit. Review of some of the common criteria that tends to be overlooked Reasonable & Necessary Necessary cost is defined as a cost that must be incurred in order for non-federal entity to operate the program What are some of the questions asked to determine if costs are reasonable and necessary: What is the objective? How does the cost contribute to achieving the objective? Is the cost recognized as ordinary and necessary for the operation? Could the program operate without incurring the cost? Would a prudent person find the cost to be reasonable under the circumstance? Would a taxpayer deem the cost to be reasonable in correlation to the objective? Is the cost charged at a fair rate and is it cost effective? Does the cost deviate significantly from established practices (unjustifiably higher)? Could the District defend this purchase to the State, media, and auditors?

14 Allowable Costs/Cost Principles (Continued) What is not a reasonable cost? Extraordinary costs that are not necessary to administer the Federal Program Ex: Taking Business Class flights to conferences Paying anything beyond the market rate for comparable services Ex: Paying auditing $1,000/hour Transactions outside of established procedures of the Governmental unit that may increase the costs incurred Ex: Transactions with known local gang members to outfit the local police departments with assault weapons.

15 Allowable Costs/Cost Principles (Continued) Allocable A cost must be assigned to the program that directly receives the benefit of the cost Ex: Allocable cost is the salaries and benefits of cafeteria workers. Cafeteria workers costs are directly allocable to the Child Nutrition Program since the program receives the direct benefit Ex: The District receives a single invoice for monthly electricity bill. The District has no method of identifying how much electricity was used by the Child Nutrition program. As a result, electricity cannot be allocated directly to the program. When costs cannot be allocated, costs can be charged as overhead costs or indirect costs (uniformly applied to all programs).

16 Allowable Costs/Cost Principles (Continued) Treated Consistently Cost must be applied as either a direct or an indirect cost throughout all Federal programs. EX: Maintenance and Operation cannot be directly charged to the Child Nutrition Program if the cost is charged as an indirect cost to all other Federal programs Additional risk may be attributed if the Program produces an operating surplus.

17 Allowable Costs/Cost Principles (Continued) ocomponents/types of Costs Direct and Indirect Costs odirect Costs Defined as costs that can be identified specifically with a particular final cost objective Typical direct costs include: Compensation Cost of materials Capital expenditures, including equipment Travel expenses incurred specifically to carry out the award Generally speaking, for a cost to be classified as a direct cost, a reasonable person should be able to directly link the costs being associated with a Federal award without thinking about what other activities they benefit. Ex: Special Education: Cost of psychological evaluation for severe mental disability

18 Allowable Costs/Cost Principles (Continued) oindirect Costs are defined as: Costs incurred for a common or joint purpose benefiting more than one objective (program) Ex: Accounting Department Salaries common/joint costs for multiple programs and not just one single program Not readily assignable to the cost objective (program) specifically benefitted Ex: Electricity Edison invoices the District using a single invoice on a monthly basis Impossible to assign this cost to specific program Ex: Custodial/Janitorial payroll single janitor services all sites/departments ant the District with no specific assignments.

19 Allowable Costs/Cost Principles (Continued) oindirect costs are generally pooled and an allocation plan is used to equitably allocate the cost across all cost objectives (programs) using a rate. Emphasis is placed on equitability unless there are other legal restrictions imposed on the program For School Districts, California Department of Education obtained certification from USDE for its State-wide indirect cost allocation plan. ohow do we know if indirect costs charged to the program are allowable? Double Dipping would automatically constitute a questioned costs with indirect cost Ex: Program is direct charged for it s portion of an expenditure, but the same expenditure is also included in the indirect cost pool where a portion of the same expenditure will be charged as an indirect cost using an approved indirect cost rate.

20 Allowable Costs/Cost Principles (Continued) oindirect Cost Allocation Plan includes 2 components: 1. Form ICR on SACS (Determines IC Rate) 2. CSAM Procedure 915 Indirect Cost (Determines application of IC Rate)

21 Allowable Costs/Cost Principles (Continued) oform ICR Systematic method for CDE to determine the District s Indirect Cost Rate Indirect cost rate is applied to the a pooled cost to derive the allowable indirect cost to be applied to a Federal program The indirect cost rate determined per Form ICR is applied two years later Ex: Rate determined per SAC on 14/15 s Form ICR will be applied in during 16/17 Numbers are auto -filled as Districts upload their GL information into the SACS software.

22 Allowable Costs/Cost Principles (Continued) ocsam Procedure 915 Indirect Cost General calculation of indirect costs to be charged: Determine cost pool by taking total direct costs of the award less any excluded costs Apply indirect cost rate to cost pool Indirect Cost = (Direct Cost Pool Excluded Cost) x Indirect Cost Rate Calculation of indirect costs to be charged in terms of SACS: Add Object Codes Excluded 5100 (Sub -agreements for Services) First $25,000 for each sub -agreements should be charged to 5800 object code (included as part of the pool). Exclude Object Codes 6000s and 7000s Apply indirect cost rate to the determined cost pool and derive indirect cost.

23 Allowable Costs/Cost Principles (Continued) Common Problems Direct costs cannot be allocated to the program(s) charged Costs are not reasonable Costs charged to the program was charged as both indirect and direct costs. Not in accordance to GAAP (Incorrect Accruals)

24 Cash Management owhat is the compliance requirement? The primary objective is to minimize the time elapsed between federal funds requested and disbursement Federal government does not want non-federal entities to request payment and hold on to federal funds. 2 Applicable Scenarios 1. Reimbursements Basis Governmental entity must spend the funds in order to request reimbursement from the administering agency Costs must be paid using entity s funds before reimbursement is requested 2. Advanced Funds Minimize the time between the transfer of funds and disbursements Entity must have procedure/policy in place to minimize the time between funding and disbursement Requires written procedures per 2 CFR Part (b)(1)

25 Cash Management (Continued) ointerest on idle/advanced federal funds Interest earned on idle Federal Funds must be remitted to either the pass-through entity or administering Federal Agency $500 can be kept to cover administrative costs Interest earned must be remitted annually. 2 CFR Part (b)(9)

26 Cash Management (Continued) Common Problems Advanced funds remain idle at the entity for an extended amount of time No procedure to minimum time elapsed between funds received and disbursement Requested reimbursements are not properly supported by matching expenditures Interests earned on idle/advanced funds are not tracked/calculated and/or remitted

27 Eligibility What is the requirement? Eligibility compliance requirement is very unique to each Federal program Essentially, the eligibility requirement executes the intent of the program/legislation by specifically identifying the criteria of the intended beneficiaries Some of the common program seen in School Districts: Child Nutrition Program Cluster Income based eligibility Head Start & Child Care Program Income based eligibility Title I, Part A Poverty based eligibility & others

28 Eligibility (Continued) otype of Eligibility Requirements Eligibility for Individuals Ex: Child Care Programs Eligibility for Group of Individuals or Area of Service Delivery Ex: Title I, Part A: School Attendance Areas with poverty rate of 35% Eligibility for Subrecipients

29 Eligibility (Continued) owhat are the auditors looking for? Supporting documents to ensure correct eligibility determinations were made Re-perform calculation, as necessary Verify information used to determine eligibility determinations Special considerations for computer systems used in eligibility determination Perform necessary audit procedures to determine if computer systems used in eligibility determination produces consistent and accurate results following eligibility criteria unique to the program. Emphasis on internal controls

30 Equipment and Real Property Management What is the requirement (Equipment Management)? Applicable to equipment acquisitions using Federal Funds ($5,000 or more) Must be insured Must be pre-approved by awarding agency or pass-through entity Physical inventory must be taken at least once every 2 years.

31 Equipment and Real Property Management (Continued) General Requirements Equipment acquired must be used for the original program until the program no longer needs it. If no longer needed, equipment must be used in other federal programs sponsored by the same federal agency followed by other federal agency. Equipment acquired can be made available for use on other program if the use will not interfere with the program originally acquired for The following records must be kept: Description Manufacturer s serial number, model number, or other identification number Source of the equipment, including the award number Holder of title (Federal or Non-Federal entity) Acquisition date Information pertaining to the percentage of Federal participation Location and condition Unit acquisition Disposition Information Sale price and method used to determine fair market price

32 Equipment and Real Property Management (Continued) Physical inventory must be taken and reconciled with equipment records at least once every two years Adequate safeguards to prevent loss, damage, or theft Adequately maintained and serviced Equipment with FMV of $5,000 or more is no longer needed, it can retained or sold. If retained, compensation must be made to the original Federal Awarding Agency If sold, proceeds must be sent back to the Federal Awarding Agency Equipment with FMV of $5,000 or less No further obligation

33 Equipment and Real Property Management (Continued) Common Problems with Equipment Records for federally acquired equipment insufficient Records not maintained Physical inventory not performed at minimum required interval

34 Equipment and Real Property Management (Continued) What is the requirement (Real Property Management)? Applicable to property acquired using Federal Funds Dictates how real property should be used Dictates how real property should be disposed of

35 Equipment and Real Property Management (Continued) General Requirements Title to the real property must remain with the recipient Written approval must be obtain from the Federal Awarding Agency for the use of real property in other federal programs if the property is no longer needed for the purpose of the original program Must obtain approval for disposition of property from the Federal Awarding Agency if the property is no longer needed Federal agency may request recipient to transfer title to the Federal Governmental Recipient may be direct to sell the property with proceeds going to the Federal Awarding Agency Recipient may be permitted to retain title and use the property for other purposes, but Federal Awarding Agency must be compensated at the current FMV of the property.

36 Matching, Level of Effort, Earmarking What is the requirement (Matching)? Requirements to provide contributions of a specified amount or percentage to match Federal Awards Matching is usually provided using non -Federal funds Synonymous with cost sharing Matching may be in the form of allowable costs incurred or in-kind contributions (from nonfederal sources) Matching requirements vary widely and are very unique to each federal program Legislation/Regulations Provisions of contract or grant

37 Matching, Level of Effort, Earmarking (Continued) Criteria for Acceptable Matching Verifiable from the entity s records Not included as contributions for other federal programs, unless allowed (rare to never) Necessary and reasonable Allowed under applicable cost principles Not paid from other Federal program, unless allowed (rare to never) Provided in approved budget when required Conforms with other laws, regulations and provisions of contracts or grant agreements

38 Matching, Level of Effort, Earmarking (Continued) What is the requirement (Level of Effort)? Three Components Requirement to provide a specified level of service to be provided from period to period Requirement to provide a specified level of expenditures from non-federal or Federal sources for a specified level of services to be provided from period to period Requirement for Federal Funds to supplement instead of supplant Level of Effort requirements vary widely and are very unique to each federal program Legislation/Regulations Provisions of contract or grant

39 Matching, Level of Effort, Earmarking (Continued) owhat is the requirement (Earmarking)? Generally a requirement that specify the minimum and/or maximum amount or percentage of the program funds that must be used or set aside for specific activities Earmarking requirements vary widely and are very unique to each federal program Legislation/Regulations Provisions of contract or grant

40 Matching, Level of Effort, Earmarking (Continued) owhat are we required to do? Matching Review matching calculation and verify consistency and accuracy of underlying records to ensure that program specific matching requirements are met Ensure that matching funds meet the basic criteria for acceptable matching Level of Effort Review District s calculation and supporting documents and ensure level of effort has been met. Earmarking Identify earmarking (set aside or reserves) requirements and verify if the District is able to demonstrate that the earmarking requirements have been met.

41 Period of Performance owhat is the requirement? Specifies time period that a non -Federal entity can obligate its Federal award Definition of Obligation mean orders placed for property or services, contracts and subawards made, and similar transactions Applies to the beginning as well as ending period of granting periods. Cannot spend before or after granting period.

42 Period of Performance (Continued) Period of availability is very specific to each Federal program Regulation or Legislation Provisions of Contract or Grant Application of the requirement Generally, testing will be emphasized on transactions taking place towards the beginning and at the end or after the granting period This approach may eliminate the requirement s applicability to a lot of Federal program that are reappropriated on an annual basis

43 Procurement and Suspension and Debarment owhat is the requirement (Procurement)? 2 CFR Part through Non-Federal Entity must use own documented procedures 2 CFR Part (a) Non-federal entity must maintain written standards of conduct covering conflict of interest 2 CFR Part (c)(1) Non-federal entity must have written procedures for procurement transactions (solicitation) 2 CFR Part (c) Non-federal entity must have a written method for conducting technical evaluations of proposal (competitive proposals) 2 CFR Part (d)(1) Select Items from the Federal Procurement Standards: Must avoid unnecessary or duplicative items Effort must be made to utilize small businesses, minority owned, and women-owned firms Contracts must be awarded to responsible contractors capable of performing the terms and conditions of the contracts Perform cost or price analysis Retain documentation of the basis of contractor selection

44 Procurement and Suspension and Debarment (Continued) Non-federal entity must use one of the following methods of procurement 2 CFR Part : Micro-purchases (acquisitions below $3,500) Small purchases (acquisitions from $3,501 to $150,000) Sealed bids Competitive proposal Non-competitive proposal (Sole source)

45 Procurement and Suspension and Debarment (Continued) owhat is the requirement (Suspension & Debarment)? 2 CFR Part Non-Federal entities are prohibited from contracting with parties that are suspended or debarred under covered transactions Covered transactions include procurement for goods and services as well as nonprocurement transactions. What are non-procurement transactions that are included as covered transactions? Grants Cooperative Agreements Scholarships Fellowships Contracts assistance Loans Loan Guarantees Subsidiaries Insurances Payments for specified uses Donation agreements Subcontracts in a procurement transactions awarded by recipients of covered non-procurement transactions are also subjected to this requirement When a non-federal entity enters into a covered transaction with an entity at a lower tier, the non-federal entity must verify that the entity is not suspended or debarred

46 Procurement and Suspension and Debarment (Continued) Feds do not want grantees to engage in business transactions with questionable parties! How does the entity comply with the Suspension and Debarment requirement? 3 Methods 1. Checking the System for Award 2. Collecting a certification from the entity 3. Adding a contract clause or condition with that entity

47 Procurement and Suspension and Debarment (Continued) What are the auditors looking for? Determine if there is a procedure in place to identify transactions that meet the covered transaction criteria Review sample vendors that are subject to this requirement and verify the presence of vendor certification Review procurement contracts and verify the presence of additional clause Review evidence that the entity is verifying vendors on the SAM database.

48 Program Income owhat is this requirement? Definition of Program Income - Means gross income earned by the recipient that is directly generated by a supported activity or earned as a result of the award Program Income include the following: Fees for services performed Income from the use or rental of real or personal property acquired under federal program Proceeds from the sale of commodities or items fabricated under an award License fees and royalties on patents and copyrights Interest on loans made with award funds

49 Program Income (Continued) Program is NOT interest earned on idle federal funds and proceeds from the sale of federally acquired equipment and property Program income earned from the administration of a Federal program will be retained by the grantee and must be used in one or more of the following manner: Added to program budget and used for program objectives Used to finance the non-federal share of costs based (used for matching) Deducted from program costs Some Federal awards will specify how program income needs to be used. If not stated, default to the 3 above.

50 Program Income (Continued) What are the auditors looking for? Determine if program income is generated consistent with established criteria Identify how program income is being used by the non-federal entity: Matching Offsetting expenditures Added to the program Determine if program income was recorded accurately (emphasis on internal controls)

51 Reporting What is this requirement? 2 CFR Part to Reporting requirements are very unique to each of the Federal awards Broken down into 3 separate categories: Financial Reporting Report program related financial information expenditure report Monitoring and Program Performance Reporting Report program administration related information which indicate performance of program administration Reporting on Real Property (rare to never)

52 Reporting (Continued) owhat are the auditors looking for? Understand how reports are prepared How is it compiled? Where is the source information coming from? For all reports, our primary objective is to ensure the integrity of the information used in the reports Emphasis on accuracy and completeness of the information reported Emphasis on internal controls Ensure compliance with reporting timelines Ensure entity complies with reporting deadline

53 Subrecipient Monitoring 1. Identify Award and Applicable Requirements 2. Evaluate Risks 3. Perform Monitoring Activities

54 Subrecipient Monitoring (Continued) oidentify Award and Applicable Requirements oclearly identify to the subrecipient o The grant at the time of awarding o Award letter or grant contract o All requirements imposed by the LEA on the subrecipient so that the Federal award is used in accordance with Federal statutes o Any additional requirements that the LEA imposes on the subrecipient in order for LEA to meet its own responsibility for the Federal award o Obtain DUNS number from subrecipient prior to award

55 Subrecipient Monitoring (Continued) Subrecipient award documentation (grant contract) must include the following data elements: ofederal award identification osubrecipient name osubrecipient's unique entity identifier ofederal Award Identification Number (FAIN) o Federal award date of awarding by the Federal agency osubaward Period of Performance Start and End Date ocfda Number and Name oamount of Federal Funds Obligated ofederal award project description oname of Federal awarding agency, pass-through entity, and LEA contact information oidentification of whether the award is R&D oindirect cost rate for the Federal award

56 Subrecipient Monitoring (Continued) oevaluate Risks o Evaluate each subrecipient s risk of noncompliance for purposes of determining the appropriate subrecipient monitoring related to the subaward o Subrecipient sprior experience with the same or similar subawards o Results of previous audits including whether or not the subrecipient receives a Single Audit o Has the program been audited as part of a Single Audit? o Whether the subrecipient has new personnel or new or substantially changed systems o The extent and results of Federal awarding agency monitoring o Has the program been subject to an audit or review by State or Federal agents?

57 Subrecipient Monitoring (Continued) omonitoring Activities o Monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, complies with the terms and conditions of the subaward, and achieves performance goals o Review financial, performance, and special reports o Following-up and ensuring action on all deficiencies noted through observations or on-site reviews o Consider whether the results of the subrecipient's audits, on-site reviews, or other monitoring indicate conditions that necessitate adjustments to LEA s records

58 Subrecipient Monitoring (Continued) omonitoring Activities o Verify that the subrecipient receives a Single Audit o A Single Audit is required if the subrecipient has federal expenditures exceeding $750,000 o Issuing a management decision for subrecipient audit findings o Consider taking enforcement action against noncompliant subrecipients o Temporarily withhold cash payments pending correction of the deficiency o Disallow all or part of the cost of the activity or action not in compliance o Wholly or partly suspend or terminate the Federal award o Withhold further Federal awards for the project or program

59 Special Tests and Provisions What is this requirement? Special Tests and Provisions are very specific to each Federal program Compliance requirements under Special Tests and Provisions are generally outside of the scope of 13 compliance requirements already covered. Must understand the details of the requirement to develop e a procedure to test the requirement May need to consider visiting associated Code of Federal Regulations to fully understand the requirements

60 Special Tests and Provisions (Continued) ocommonly encountered Special Tests and Provisions oparticipation of Private School Children (USDE Cross Cutting) oschoolwide Programs (USDE Cross Cutting) ocomparability (USDE Cross Cutting) oidentifying Schools and LEAs Needing Improvement (USDE Cross Cutting) overification of Free and Reduced Price Applications (Child Nutrition Program Cluster) oneeds Assessment (Title II, Part A)

61 The End! Questions??? Value The Difference