Leigh M. Manasevit, Esq. Brustein & Manasevit, PLLC lmanasevit@bruman

1. When the Auditor Comes KnockingWhat We’ve LearnedHow to PrepareNASTIDSan Diego, CAFebruary 2014 Leigh M. Manasevit, Esq. Brustein & Manasevit, PLLC lmanasevit@bruman.com

2. Non-Compliance Findings – 4 Sources • OIG Audit • A-133 Audit Monitoring 3.Federal 4.State

3. Preparation • Key to successful outcome • Self assessment - critical

4. Self Assessment • Identify potential trouble spots • Review significant violations from other processes • Review prior findings • Conduct self assessment

5. Review of 27 OIG Audit Reports • $1,398,564 unallowable personnel costs • Employee compensation charged to grants in which the employee did not work on • $826,183 unallowable non-personnel costs • Unnecessary or unreasonable to carry out the grant or not-for-program purposes • $810,055 unallowable non-personnel costs • Contracts were: missing required elements; unfulfilled; not approved; or included expenditures that exceeded the contract amounts

6. Review of 27 OIG Audit Reports (cont.) • $66,666,155inadequately documented personnel costs • Time and effort documentation (both semi-annual certifications and PARs) were missing, incomplete, inaccurate, or untimely • $16,010,550 inadequately documented non-personnel costs • Missing or inaccurate supporting documentation • $2,693,004 in lost or unaccounted for property • Improper inventory control systems • $2,504,617 unallowable supplanting of Federal grant funds

7. Review of 27 OIG Audit Reports (cont.) • Pervasive non-compliance issues • Inadequate policies and procedures (34 times) • No policies and procedures (15 times) • Not understanding the regulations and guidance (10 times) • Policies in place, but not followed (5 times)

8. Audit violations deemed “significant” by the U.S. Education Department

9. Significant Violations • Time Distribution • MOE • Supplement, not supplant • Unallowable Expenses

10. Significant Violations • Procurement Irregularity • Ineligible Students • Lack of Accountability for Equipment/Materials

11. Significant Violations • Lack of Appropriate Record Keeping • Record Retention Problems • Late or no Submission of Required Reports, Inaccuracies, Inconsistence • Audits of Subrecipient Unresolved

12. Significant Violations • Lack of Subrecipient Monitoring • Drawdown before they are needed or more than 90 days after the end of funding period • Large Carryover Balances • Lack of valid, reliable or complete performance data

13. Significant Violations – Specific to Title I • Equitable Services • Parental Involvement (including notices) • Skipping Schools • School Allocations SASA Monitoring Guide http://www2.ed.gov/programs/sif/sigmontool2012.pdf

14. Evaluate Areas to be Examined • OIG Audit • Notice of Audit: Correspondence • A-133 Audit • Prior Audits (Findings)

15. Evaluate Areas to be Examined (cont.) • Monitoring • ESEA Flexibility Monitoring; SASA Guide • CrEAG; RDA • Perkins IV Checksheets • Request for documents Make a separate set of copies of all documents provided to ED

16. Remedy Problem Areas AND / OR Develop Corrective Actions (Plans)

17. Corrective Action Plan Critical – in place at time of visit – even if implementation - FUTURE • Specific Measurable Objectives • Timelines • Clear Lines of Responsibility

18. Example – Time and Effort • LEA – Self assessment • Numerous employees paid fromprogram they previously (no longer) work on

19. Example – Time and Effort (cont.) • Remedy and Corrective Action • Change payment sources to reflect current assignment or • Reassign employees back to prior program AND • Reimburse improperly charged program

20. Example – Time and Effort (cont.) • Corrective Action Plan - FUTURE • Review all employees (federally paid) to assure alignment – • Correct the misalignments • Assign specific individual/office responsibility for future reviews • In-service training

21. Example – Equitable Services • LEA self assessment • Private schools contract directly for Title II services • Consultation occurs late in the year

22. Example – Title I Equitable Services • Corrective Action - Contracting • Review all programs providing equitable services funds • Review all contracting processes • Immediately cease allowing • Privates to contract • Notice to private schools – Re: contracting process

23. Example – Title I Equitable Services (cont.) • In-service training for all program personnel involved • Assure all procurement for goods/services to private schools procured at LEA level

24. Example – Title I Equitable Services (cont.) • Corrective Action - Consultation • Assure consultation will begin early in the year • Plan schedule for following year • Assure clear lines of authority to schedule/conduct consultation

25. Preparation for Visit

26. Logistics • Secure Space • Copy Machine

27. Audit Records • Can the auditee refuse to provide the auditors with requested documents? • GEPA 20 USC 1232(f) requires that ED and its representatives (which arguably includes A-133 auditors) “shall have access, for the purpose of audit examination, to any records maintained by a recipient that may be related, or pertinent to, grants” • EDGAR 80.26(b)(5) also indicates audit access to records without qualifiers. • If requested records are not provided, likely receive an audit limitation.

28. Communication with Staff • Formal (governmental) inquiry • Provide any information within personal knowledge • No guessing • No speculation • No time to settle grudges • No gossip

29. Identify Key Staff(Audit Committee) • Audit Manager: • Key contact for all questions, interview arrangements, documents requests, logistical arrangements • Agency Leadership: • Entrance, exit conference

30. Audit Manager - Role • Key contact for all • Questions • Interview arrangements • Document requests • Logistical arrangements

31. Relevant Staff Interviews - Preparation • Assure staff are prepared for interview • Subject matter awareness • Key terms • Time and Effort • Necessary and Reasonable • Inventory

32. Relevant Staff Interviews - Preparation (cont.) • Familiarity with job description • Familiarity with prior problem areas • Familiarity with likely areas of inquiry

33. The Visit • Entrance Conference • Leadership • Set positive tone • Audit Manager • Review process/logistics • Auditors generally appreciate prior organization

34. The Visit • Request all interview requests go through manager • Arrange for copying • Keep extra copy of all docs supplied

35. The Visit • Request periodic updates • Especially problem areas • Do not wait for exit conference • (Up to auditors)

36. The Visit • Keep extra copy of all documents supplied!!! • Debrief staff after interviews • Clear up misunderstandings

37. Exit Conference • Press for specifics • If issues: • Documents requested? • List and send

38. Exit Conference • Potential non compliance findings • Review carefully – • If confirmed • Develop corrective action proactively

39. Next Steps • OIG Audit • Point Sheets • Draft Audit Report • Final Audit Report

40. Next Steps • OIG Audit • Respond carefully at each level • Problems always easier to resolve at earliest level

41. For example: Alabama Audit Cash Management Findings • Draft Audit Report - October 2011 • Alabama Response: Policies and procedures, internal controls • Final Audit Report – February 2012 • Alabama Response: Disagreed with some findings, but addressed OIG concerns; acknowledged Federal requirements; implemented corrective actions.

42. For example: Alabama Audit “With all these facts and circumstances, we find that the State has been willing to implement and to also require the prime recipients and subrecipients to implement corrective action that complies with the draw down, transfer, disbursement and maintenance of excess Federal grant funds and the internal control requirements applicable to Federal grant funds. Therefore, we do not request the State, prime recipients, or subrecipients to refund any of the Federal grant funds they have received . . . It is our determination that this finding is resolved.” • Program Determination Letter – May 2013

43. Audit Recommendations Ultimately Decided byUSED • Audit Recommendations in state administered programs addressed to SEA

44. Next Steps • ED can: • Accept finding as is • Accept finding but • Reduce or eliminate liability • Reject finding • Letter of final audit determination • Establishes prima facie case • 34 CFR 81.34

45. Examples: • ED Require SEA to recover $X from LEA Y • ED Require SEA to require LEA Y • To support salary expenditures • ED to impose high risk status on SEA X due to LEA Y extensive non compliance

46. Next Steps • Audits • Letter of final audit determination • Appeal • Office of Hearings and Appeals (ED)

47. 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…”

48. Harm – Always • Ineligible Beneficiaries • Example: Title I, Part C funds for non migrant students

49. Harm – Always (cont.) • Unauthorized activities • Example: Title II, Part A funds used to pay salary of regular Ed teacher (not CSR) • Example: Title I funds pay for attendance at a conference unrelated to teaching educationally disadvantaged students

50. Harm Always (cont.) • Fiscal • Set-aside • Example: LEA spends less than 100% of its Title I parental involvement • MOE • Comparability • Supplanting