Stuff I didn't really want to hear

1
"Stuff I didn't really want to hear"
A Programmatic Look At Fiscal Monitoring
Ted Davis, Manager, Career Technical Education
(CTE) Grants MIS, Arizona Department of
Education
2
An Increased Focus On Audit

• No one in Washington seems to be talking about
  the Cooperative Audit Resolution and Oversight
  Initiative CAROI any more.
• The Office of Inspector General (OIG) is
  conducting its own audits of eligible recipients
  and specific federal programs.
• The Office of the Chief Financial Officer (OCFO),
  the U.S. Department of Education, is conducting
  assessments of state Title I and III fiscal
  monitoring.

3
Issues Related to The A -133 Single Audits

• Questions related to the quality or value of the
  A133 audits.
• The realization that smaller federal programs are
  not being audited.
• Schools or districts that expend less than the
  500,000.
• Programs like Perkins, under the risk
  provisions of the A-133 guidelines, are being
  passed over for audit.

4
Related to Audit Is Fiscal Progam Monitoring

• The first warning signs of a new, additional
  audit concern surfaced in 2005.

The OIG cited the failure of Louisiana, Colorado,
Idaho and Florida to adequately conduct fiscal
program monitoring activities.

• In 2006 the Arizona Department of Education was
  cited for inadequate fiscal program monitoring of
  two of its flow-through programs.

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OCFO Issues -

• From the Office of the Chief Financial Officer,
  USDOE¹
• 249 Findings
• 48 - Related to procurement and distribution
• 38 - Equipment controls
• 9 - Audit issues
• Inadequate guidance related to recipient
  corrective plans of action.
• Inadequate follow-through on corrective plans of
  action.
• Reports not timely, inadequate or could not be
  found.

¹Fiscal Components of Title I III Monitoring
and a Summary of Recent Findings, James Evans,
Managing Federal Education Grants Fall Forum,
Nov. 30, 2006.
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What Auditors Are Finding In Arizona

• Labor distribution (Time Effort Issues)
• Eligibility Comparability (NCLB-Title I
  Issues)
• Documentation of transactions, cash management,
  allocations, schoolwide plans, comparability
  reports, etc
• Procurement
• Supplanting

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Forecasted Changes To EDGAR OMB Circular A-133

• EDGAR rule making, which should go into effect in
  federal FY 2007, will affect direct/discretionary
  grant administration, including
• Pre-award review requirements of applicant
  administrative capability and financial
  responsibility.¹
• Financial management.
• Cash management.
• Time accounting (time effort).
• Property management.

¹ Cost Allocation Confessions ,Ted Mueller,
Indirect Cost Group, OCFO Presentation, Dec.1,
2006 Brustein Manasevits Fall Forum
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Audit Program Montoring Overlap

• Compliance with the provisions of your
  grant/program regulations and your approved grant
  application.
• Procurement.
• Property management.
• Time effort reporting/documentation.
• Grant period issues When may costs be charged
  to a grant are they charged to the correct
  grant-year, etc.?

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Can A State Conduct A Program-Specific Audit?

• Yes, even if the recipient has had a A133 Audit.
• It includes recipients who expended less than
  500,000.
• Section 230(b)(2) of A-133 and Attachment B,
  Section 4.c.of OMB Circular A-87 make the costs
  of agreed-upon procedures engagements on LEAs
  and other subgrantees allowable if expenditures
  are below the 500,000 threshold.

• Two Conditions
• The scope is restricted to mainly
  program-specific requirements, rather than
  organization-wide ones.
• The state must arrange and pay for the
  agreed-upon procedures engagements.

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Why Program Monitoring?

• It includes programs that often are not audited
  such as the Perkins vocational programs.
• Fiscal program monitoring is required per
• 34 CFR 80.40
• OMB Circular A-133, Section 400(d)(3)
• OMB Circular A-133, Section M, Subrecipient
  Monitoring, Compliance Requirements

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A State's Programmatic Preference Should Be -

• Monitoring First
• Audit When you are out of other options

A Recipient's 1st Choice Should Also Be
Monitoring...

• Lowers risk of questioned costs having to
  return
• Greater flexibility

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Monitoring Challenges (State)

• Many professional educational staff freak .
• The basic answers include
• Staff training
• A well designed monitoring guide
• Recipient training
• CTE director meetings
• ACTEaz
• Other venues..

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Monitoring Challenges (Recipient)

• Pay Attention!! Ask your counterparts that are
  being monitored, What are they looking at?
• Attend any training the state is offering.
• CTE director meetings
• ACTE (state and national)
• NACTEI, AEFFA, Thompson Pub., Brustein or other
  vendor, Federal workshops, AASBO

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Monitoring Challenges (Recipient)

• Review the areas being monitored in your state.
• If you dont already have procedures in place
  relative to those areas being monitored, set
  something up then ask Does this cut it?
• You want to have something in place wherever
  there is a risk for questioned costs that would
  result in the state asking for back
• A finding that asks you to change something beats
  the heck out of one that asks for back

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Who Should Be Monitored 1st - Risk Analysis

• Recipients who fail to submit their required
  A-133 audits to the ADE.
• Recipients (under 500,000 in federal funds) who
  fail to submit their required financial statement
  audits per your states law.
• Recipients that consistently fail to file their
  financial completion reports on time.
• Recipients that consistently fail to file
  programmatic required reports on time.
• Program staff identified concerns.
• In response to concerns raised by recipient
  employees, board members, parents, etc.
• Check out EDGAR 34 CFR 80.12 I talks about
  risk.

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Fiscal Montoring Should Focus On Areas With
The Greatest Risk For Questioned Costs

• Compliance with the provisions of your
  grant/program regulations and your approved grant
  application.
• Grant period issues Costs be charged to the
  correct grant and year no obligations until
  grant substantially approved, etc.
• Procurement.
• Property management.
• Time effort reporting/documentation.

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The Recipient's Approved Grant/Plan
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What The Monitor Will Look At...

• Did the recipient perform those grant activities
  identified in their approved application?
• Did they submit reports required by the grant,
  such as

• Mid-year and final narrative progress reports?
• Financial completion reports?
• Performance measures reports?
• Etc.?
• Did costs and expenditures appear to be allowable
  under the allowable costs provisions of the Act
  or regulations applicable to the actual grant and
  the appropriate OMB Circular (A-87 for K-12
  programs) ?

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What The Monitor Will Look At...(Cont.)

• Did the recipient buy only items identified in
  its approved equipment/capital list?
• Can the expenditure be traced back to the
  property management system through a requisition,
  the claim, the schools/districts general
  ledger, etc.?
• Do expenditures included on the grants fiscal
  completion report track back to the correct
  revenue accounts, the general ledger, etc.?
• Were costs coded correctly, relative to their
  approved use in the approved grant and USFR
  coding guidelines?
• Etc.

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What The Monitor Will Look At...(Cont.)
Grant Period -

• Did the recipient have an approved or
  substantially approved grant in place before they
  began to obligate grant funds?
• Were expenditures charged to the correct fiscal
  year?
• EDGAR - 34 CFR 76.707 76.708.
• Some states have statutes that allow for the
  prepayment of certain expenses.

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What A Recipient Should Do?

• Review your own plan at least quarterly It
  says what your district agreed to do and it is
  hanging out there for an auditor to see, so
  follow it or change it
• Your budget
• Your performance measures targets
• Plan to amend your plan at least twice
• Program modifications
• Compare planned expenditures to actual
• Check with your business manager and/or
  accounting clerk to insure that your plan and
  expenditures appear reasonable and coded to the
  right cost lines

Covering Your Tush
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What A Recipent Should Do? (Cont.)

• Ask questions
• Review your requested and actual expenditures
  for equipment, training and other services
• Document changes/amendment and the reason for
• If your state BG specialist tells you to can do
  something without an amendment
• Confirm the change in writing email is fine
• Dont just rely on a verbal approval
• Send a email that says something like Per our
  discussion I am buying XXX with my unobligated
  equipment funds. If I misunderstood you or I
  need to do something else to document the change
  please let me know as soon as possible, etc.
• Most state email systems allow you to request a
  confirmation that an email was received, opened
  and assumed read. USE THE OPTIONS

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What A Recipient Should Do? (Cont.)

• Keep SEPARATE notebooks for your plan, equipment
  acquisition, staff, etc.
• Your Approved Plan Notebook should contain
• A copy of your approved plan
• Any amendments
• Emails related to change
• Communication with your BG specialist
• Changes documented by email
• Anything else you feel is important
• Make sure someone else in CTE in your district
  knows where this stuff can be found

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Property/Equipment Management
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Property/Equipment Management - What The Monitor
Should Look For...

• Does the recipient have a capital asset list that
  meets the requirements of your states law?
  (State Law vs. 34 CFR 80.32 of EDGAR)
• Equipment costing 5,000 or more with a useful
  life of one year or more.
• Addresses all the mandatory required
  information
• Location
• ID information (tag, serial number, etc.)
• Does the recipient maintain a stewardship list
  for items costing less than 5,000? (State Law
  vs. 34 CFR 80.20(b)(3) EDGAR)

Arizonas system, the Uniform System of
Financial Records for Arizona School Districts
(USFR) defines equipment subject to stewardship
laws, to be equipment costing over 1,000 and
less than 5,000.
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Property/Equipment Management - What The Monitor
Should Look For...
34 CFR 80.20(b)(3) EDGAR
(3) Internal control. Effective control and
accountability must be maintained for all grant
and subgrant cash, real and personal property,
and other assets. Grantees and subgrantees must
adequately safeguard all such property and assure
that it is used solely for authorized purposes.
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Property/Equipment Management - What The Monitor
Should Look For...

• Did the recipient adequately document the
  acquisition of the asset?
• Can you physically locate selected items of
  equipment?
• Does the equipment appear to be being used for
  the purposes for which it was acquired and in the
  federal program that paid for its purchase?
• Is there documentation to support the requirement
  that a physical inventory is conducted every 2 or
  3 years, per the EDGAR or your states
  requirements?
• Did the recipient dispose of assets in accordance
  with your states law or administrative
  guidelines?

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Property/Equipment Management - So What Should A
Recipient Do?

• Document, document, document
• Dont totally rely on your business office or
  procurement office.
• Use the low tech approach
• Keep a 3 Hole Binder for each fiscal year in
  your office.
• Keep copies of your purchase documentation.
• The requisition to buy.
• Receiving documents.
• Claim.
• Etc.
• Maintain your own listing of equipment and where
  it is located.
• Most districts have an automated
  inventory/stewardship system reconcile it to
  your notebook at least three times a year.

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Property/Equipment Management - So What Should A
Recipient Do?

• Have your own equipment check-out procedures and
  logs if you lend equipment out
• Be sure to note when an item is lost, disposed
  of, transferred or ripped off

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Procurement
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Procurement - Not For Amateurs

• Monitors need training. The training should
  cover
• Their states basic requirements, relative to
• Any existing guidance that relates to schools
• The basics, i.e.
• Where the rules can be found online at, their
  states procurement office professional groups
  like the American Association of School Business
  Officials (AASBO)
• Your states auditor general staffs online
  resources guidance, the audit guide they will
  use, etc.

32
Procurement - Cont.

• Procurement consortiums.
• What is the threshold above which multiple verbal
  quotes are required written quotes quotes vs.
  written proposals (where price is not the primary
  factor), etc.
• Ask to see a copy of the recipients procurement
  rules.
• Etc.

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Procurement - Cont.

• The monitors goal
• An educated referral to the monitors financial
  program staff when there is a perceived concern.

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Procurement - Cont.

• Recipients need training. The training should
  cover
• Their states basic requirements, relative to
• Any existing guidance that relates to schools
• The basics, i.e.
• Where the rules can be found online at their
  states procurement office professional groups
  like the American Association of School Business
  Officials (AASBO)
• Your states auditor general staffs online
  resources guidance, the audit guide they will
  use, etc.

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Procurement - Cont.

• Procurement consortiums.
• What is the threshold above which multiple verbal
  quotes are required written quotes quotes vs.
  written proposals (where price is not the primary
  factor), etc.
• Etc.
• Use your regular local directors meetings,
  professional development workshops, etc. to
  provide procurement training to your grant
  recipients.

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Procurement - Cont.
Compliance with procurement rules is really the
responsibility of a recipients business manager
or procurement official, but it pays to know the
basics

• You may have a new business manager, not familiar
  with your states rules.
• A basic understanding of the rules helps keep the
  recipient from violating his or her institutions
  rules
• Requesting a conference speaker without a clear
  understanding of when quotes or bids are
  required
• Obligating your agency relative to a service,
  buying a piece of equipment, supplies, repairs,
  etc. in violation of the procurement rules

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Time Effort (Personnel Costs)
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Time Effort - The Basics

• Not one approved approach to time and effort
  reporting/allocations.
• Employee costs can often represent a major
  program cost that are material to many grants.
• Document, document, document.

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Time Effort - The Basics

• Whatever approach you use it should be
• Reasonable
• Allocable to the grant
• Consistently treated
• In line with the recipients own salary and the
  recipients accounting policies
• Only charged to one source (no duplicate charges)
• Documented, documented, documented

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Time Effort - The Basics

• The simplest situation is present when an
  employee works on a single program for the entire
  period funds are budgeted for.
• A periodic certification that the employee works
  solely on that program, signed by the employee or
  supervisory official having first-hand knowledge
  of the work performed by the employee, would meet
  audit requirements.
• The certifications need to be done at least
  semi-annually. (A-87 Attachment B (h)(3)).

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Time Effort - The Basics
Multiple Activities or Cost Objectives

• When you have staff working on
• More than one federal award
• A federal and a non-federal award
• More than one allocated indirect activity
• You need personnel activity reports or equivalent
  documentation or a statistical sampling system or
  other substitute system that has been approved by
  the cognizant federal agency.

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Time Effort - The Basics
Multiple Activities or Cost Objectives, Cont.

• Budgeted doesnt cut it
• You must adjust budgeted to actual at least
  quarterly
• OMB Circular A-87 allows for reasonable budgeted
  charges on estimates, if they can be shown to be
  within 10 of actual
• Document, document, document
• Smarter in the long run to just do actual time
  effort reporting?

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Time Effort - The Basics
Multiple Activities or Cost Objectives, Cont.

• Must meet personnel activity reporting standards
  
• Must reflect an after-the-fact distribution of
  the employees actual activity.
• Must account for the Total Activity for which the
  employee is being compensated.
• Must be prepared at least monthly and must
  coincide with one or more pay periods.
• Must be signed by the employee.
• The employees position/job description should
  support salary costs being paid from the grant?

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Time Effort - The Basics

• Is There A Way Out Of A Finding In This Area If
  I Havent Been Keeping Time Effort Records?
• There is always credible alternative
  documentation.
• Remember Audit Standards of Evidence GAO
  Standards, Sections 7.48-7.60.
• A lot of after-the-fact work to document staff
  time. A lot would depend on how much money is
  involved

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Monitoring Follow-up - For the Monitor

• An OCFO (USDOE Financial Chief) state finding
  inadequate follow-up procedures.
• Monitors need
• Basic follow-up procedures
• By desk audit, phone, email, revisit the
  reasonable approach depends on the finding or
  issue.
• More extreme schedule a program-specific audit.
• The state program staff may place a letter of
  concern in the recipients A-133 audit folder
  and send a copy to the recipients current
  contracted A-133 audit firm, in the hopes that
  they will review your concern under the Risk
  provisions on the A-133 guidelines.

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Monitoring Follow-up - For the Recipient

• Anticipate possible findings and attempt to
  formulate your corrective action and monitoring
  response in advance of a monitoring finding.
• Actually implement changes that you promise in
  response to a monitoring finding. If problems
  pop up, contact your state staff contact as soon
  as possible and work something out.
• Monitoring visits can result in questioned
  costs and a requirement that you must return
  funds. You dont want a monitoring finding that
  the state has given you some wiggle room on to
  turn into a questioned cost because you failed to
  implement your agreed-to corrective action.

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Your Library -
LEA Eligible Recipients

• Program law applicable regulations.
• Your school, district or college guidelines
  related to
• State financial reporting requirements.
• State and local procurement requirements.
• State and local inventory and personal property
  control requirements.
• K-12, OMB Circular A-87.
• College or university, OMB Circular A-21 ( When
  the college is the Tech Prep fiscal agent).
• Nonprofits, OMB Circular A-122.
• The consolidated audit requirements OMB
  Circular A-133.

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Your Library - Cont.

• OMB Circular A-133 the Cross Cutting Section and
  Your Program-Specific Compliance Supplement
• EDGAR (34 CFR 74 99)
• Your State Financial Reporting Instructions for
  Schools/Colleges
• Whatever Audit Compliance Questionnaire your
  state auditors utilize when they audit school
  districts or supply to contracted audit firms
  doing recipient A-133 audits
• Your states education code of law
• Recent state legislation related to your program

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On-Line Resources -

• Federal Program Offices http//www.ed.gov
• Perkins Act http//www.ade.az.gov/cte/download
  s/PerkinsIV081206.pdf
• OMB Circulars http//www.whitehouse.gov/omb/cir
  culars
• EDGAR http//www.ed.gov/policy/fund/reg/edgarReg
  /edgar.html
• Title 15, Current Bills, etc. ALIS
  www.azleg.state.az.us
• Auditor General http//www.auditorgen.state.a
  z.us/manuals_schooldistrict.htm
• OIG Website www.ed.gov (Click on Offices,
  left-hand column, then select Offices of
  Inspector General, home-page.

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Questions
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Contact Information -

• Ted Davis
• Arizona Department of Education
• Career Technical Education Section
• Phoenix, AZ
• 602-542-5349
• ted.davis_at_azed.gov

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EDGAR - 34 CFR 80.12 "Risk"
53
Arizona Documents That Affect Arizona's
Monitoring Activities..