LSC Compliance Update: Ongoing and Emerging Trends top ten... · • LSC conducts oversight through...

LSC Compliance Update:Ongoing and Emerging Trends

Management Information ExchangeTraining: Financial Essentials

Chicago, ILSeptember 23, 2016

Shay BraceyFiscal Compliance Analyst III,

Office of Compliance and Enforcement

Presenter

• LSC conducts oversight through a variety of methods including, but not limited to, reporting requirements and onsite program reviews.

• LSC reviews can vary in scope and duration, but most of OCE’s visits include both legal and fiscal compliance components. Types of OCE Visits include:

• Compliance Review (“CR”)• Follow-up Review (“FUR”) • Focused Fiscal Review (“FFR”)• Focused Review (e.g., Intake)• Technical Assistance Review (“TAR”) (i.e., Training)• Technology Initiative Grant Review (TIG) (2013 onward)• 1610 Review (1610) (i.e., Program Integrity)• Capability Assessment Visit (“CAV”)• Complaint Investigations• A-50 Follow-up

OCE Compliance Reviews

• Evolution of the Typical OCE Onsite Visit – CR

• What has changed?

• Summer 2011 – Expanded fiscal review to include assessment of fiscal internal controls.

• Two Fiscal Compliance Analyst on every Compliance Review.

• Why?

• Fiscal Oversight Task Force Report to the Board of Directors, July 28, 2011.

OCE Oversight – The Recent Past and Present

OCE Oversight – The Present and Future

OCE Oversight – The Present and Future

• Recommendations of the FOTF included that LSC:

• Institute a “cradle-to-grave” approach to grants management and fiscal oversight.

Fiscal Oversight Task Force Report, page 13.

• Expand the scope of grantee reviews (both prior to and after awarding funds) to place a greater emphasis on the existence and design of internal controls and administrative processes regarding financial management and program compliance.

Fiscal Oversight Task Force Report, page 17.

OCE Oversight – The Recent Past and Present

• Recommendations of the FOTF included that LSC:

• Increase the focus given to evaluating grantees adherence to the guidance and expectations established in the Accounting Guide for LSC Recipients.

Fiscal Oversight Task Force Report, page 17.

Fiscal Compliance

What is Fiscal Compliance?What is reviewed during a Compliance Review visit?

What is Fiscal Compliance?

In addition to being in accordance with the LSC Act, regulations, and guidelines, Fiscal Compliance is having adequate internal controls.

Fiscal Compliance

Review of Fiscal Compliance takes placebefore & after receiving a grant from LSC.

Fiscal Compliance

Before receiving an LSC grant

Review of ApplicationCurrent Special Grant Conditions

Capability Assessment Visits

Fiscal Compliance

After receiving an LSC Grant

Compliance ReviewsDesk Review of Audited Financial Statements

Review of PAI & Fund Balance Waiver Requests

Fiscal ComplianceCompliance Reviews

Document Request Letter

Indirect cost allocation methodologyFunding sources and codes

Segregation of financial dutiesMonthly trial balance

Time and attendance recordsBudget and variance report

Payroll registerChart of accounts

Cumulative general ledgerCash Disbursements/Receipts register

What is LSC looking for?

Compliance with the LSC regulations and adequate internal controls.

Policies + Interviews + Testing

Are there written policies?

Written policies is an important component of internal controls because…

Are the policies communicated to staff?

Does the accounting documentation reflect the written procedures. 45 CFR Part 1609

45 CFR Part 161045 CFR Part 1612 45 CFR Part 1614 45 CFR Part 1627

Cash receipts Cash Disbursements Payroll Bank reconciliations, etc.

What are the policies?

What do you do? Can you explain the

process? Are you familiar with LSC

regulations?

Use of non-LSC Funds/Transfer of LSC Funds/Program Integrity

Prohibited Political Activities Restrictions on Lobbying and Certain

Other Activities Timekeeping Requirement Private Attorney Involvement Subgrants and Membership Fees or Dues Fee Generated Cases Attorney Fees Cost Standards and Procedures Recipient Fund Balances Bonding of Recipients Technology Initiative Grants (TIGs)

Cash Disbursements – Checks Cash Disbursements – Electronic

Transactions Cash Disbursements – Credit/Debit Cards Property Procurement Legal Consultants/Contact Services Travel Cash Receipts Petty Cash Client Trust Accounts Electronic Banking Bank Reconciliation Procedures Personnel and Payroll General Segregation of Duties

Two Areas of Review Regulations + Internal Controls

Regulatory

Regulations with a fiscal component:• 1608 – Prohibited Political Activities

Regulatory

45 CFR 1608 Prohibited Political Activities

Accounting Policies and ProceduresGeneral Ledgers

Cash Receipts and Disbursements JournalChart of Accounts

Regulatory

Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases

Regulatory

45 CFR 1609 Fee-generating cases

Cost Allocation PolicyTime Records

Cash Receipts JournalCash Disbursement Journal

Regulatory

Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,

program integrity

Regulatory

45 CFR 1610 Use of non-LSC funds, transfers of LSC funds, program integrity

Chart of AccountsCash Receipts and Disbursement Journals

Donor Notification LettersNon-LSC grant agreements

Regulatory

Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,

program integrity• 1612 – Restrictions on lobbying and certain other

activities

Regulatory

45 CFR 1612 Restrictions on lobbying and certain other activities

Operating Policies & Procedures ManualCash Disbursement Records

Time Records

Regulatory

Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,

program integrity• 1612 – Restrictions on lobbying and certain other

activities• 1614 – Private attorney involvement

Regulatory

45 CFR 1614 Private attorney involvement

Audited Financial StatementsSubgrant agreements

Attorney/Paralegal TimesheetsPrivate attorney contracts

Regulatory

Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,

program integrity• 1612 – Restrictions on lobbying and certain other

activities• 1614 – Private attorney involvement• 1627 – Subgrants and membership fees or dues

Regulatory

45 CFR 1627 Subgrants and membership fees or dues

Audited financial statementsSample transactions

Trial BalanceCash Disbursements Journal

Regulatory

Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,

program integrity• 1612 – Restrictions on lobbying and certain other

activities• 1614 – Private attorney involvement• 1627 – Subgrants and membership fees or dues• 1628 – Recipient fund balances

Regulatory

45 CFR 1628 Recipient fund balances

Audited Financial StatementsAccounting Policies & Procedures

Waiver Request LetterLSC Approval Letter

Regulatory

Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,

program integrity• 1612 – Restrictions on lobbying and certain other

activities• 1614 – Private attorney involvement• 1627 – Subgrants and membership fees or dues• 1628 – Recipient fund balances• 1629 – Bonding of recipients

Regulatory

45 CFR 1629 Bonding of recipients

Evidence of coverageInsurance Binder / Policy

Regulatory

Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,

program integrity• 1612 – Restrictions on lobbying and certain other

activities• 1614 – Private attorney involvement• 1627 – Subgrants and membership fees or dues• 1628 – Recipient fund balances• 1629 – Bonding of recipients• 1630 – Cost standards and procedures

Regulatory

45 CFR 1630 Cost standards and procedures

Accounting Policies & ProceduresGeneral Ledgers

Cost Allocation Methodology

Regulatory

Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,

program integrity• 1612 – Restrictions on lobbying and certain other

activities• 1614 – Private attorney involvement• 1627 – Subgrants and membership fees or dues• 1628 – Recipient fund balances• 1629 – Bonding of recipients• 1630 – Cost standards and procedures• 1635 – Timekeeping

Regulatory

45 CFR 1635 Timekeeping

Timekeeping codes for cases, matters, and supporting activity

Employee HandbookOrganizational Chart

Internal Controls

Qualities of adequate internal controls:

Documented/written policies, which are current, approved by governing body, and accessible by staff.

Segregation of financial duties

Internal Control Review

Cash DisbursementsProperty & ProcurementElectronic Banking Bank ReconciliationsPersonnel and PayrollCredit CardEmployee Reimbursements & TravelCash ReceiptsPetty CashContract ServicesClient Trust Accounts

Compliance Guidance

IMPORTANT!!

Program Letter 16-7 Fiscal Management Issues

• Reasonable and Necessary Expenses:

Only costs “reasonable and necessary for the performance of the grant or contract” should be charged to the LSC

grant.

LSC “No-nos”

LSC “No-nos”

Compliance Guidance

IMPORTANT!!

Program Letter 16-7Fiscal Management Issues

• Salary and Benefits for Executive Directors and Senior Staff

Compliance Guidance

IMPORTANT!!

Program Letter 16-7 Fiscal Management Issues

• Derivative Income

Derivative Income resulting form an activity supported in whole or in part with funds from LSC must be allocated and

recorded in the same proportion that the funds were expended.

Compliance Guidance

IMPORTANT!!

Program Letter 16-7Fiscal Management Issues

• Responsibilities of Financial Oversight Committee or Committees

Compliance Guidance

IMPORTANT!!

Program Letter 16-7Fiscal Management Issues

• Internal Controls and Accounting Guide Concerns

Segregation of DutiesApproval of Expenses

Reporting of Special One-Time Grants (e.g. TIG and PBI)

Compliance Guidance

IMPORTANT!!

Program Letter 16-7 Fiscal Management Issues

• Bank Statement Reconciliations

Other LSC GuidanceProgram Letter 16-1

PAI Cost Allocation and Fees Paid to Other Professionals

Program Letter 16-1: PAI Cost Allocation and Fees Paid to Other Professionals

• What fees paid to other professionals can be counted toward the PAI requirement?

• When can recipients NOT count fees paid to other professionals toward the PAI requirement?

Program Letter 16-1: PAI Cost Allocation and Fees Paid to Other Professionals

• Fees paid to other professionals• Incurred by recipient in furtherance of its own case =

may allocate fee to PAI IF 50% or less of market rate• If more than 50% of market rate, may not be

allocated to PAI• Incurred by PAI case handler = may allocate full cost

of fee IF • Recipient pays the other professional itself; or• Recipient reimburses PAI case handler

Cost Allocation vs. Allowability of Costs

• Can allocate costs to PAI if they:• Meet relevant requirements of 45 CFR Part 1614• Are incurred specifically to carry out PAI activities

• Costs are allowable as expenses of the LSC grant if they:

• Are reasonable, necessary, and allocable to the grant• Are actually incurred in the performance of the grant

• Costs may be both allowable under the LSC grant *and* allocable to the PAI requirement if they meet all of the characteristics listed above

Program Letter 16-1: PAI Cost Allocation and Fees Paid to Other Professionals

Example 1:

A recipient represents a party in a divorce. The recipient asks Accountant A to review the opposing party’s financial disclosures to the court because they are relatively complex. Accountant A agrees to do the review at a discounted rate of 25% of his standard rate, which is market rate for the area. The recipient may pay the fee and allocate it to PAI because

• Accountant A is an “other professional;” and• The fee is 50% or less of prevailing local market rate

for the service provided.

Program Letter 16-1: PAI Cost Allocation and Fees Paid to Other Professionals

Example 2:

A recipient represents a party in a different divorce case. The recipient asks Accountant B to review the opposing party’s financial disclosures to the court because they are relatively complex. Accountant B also agrees to do the review at a discounted rate; however, Accountant B only discounts his rate to 75% of the prevailing local market rate. The recipient may pay the fee, but may not allocate the cost to PAI because:

• The fee is more than 50% of the prevailing local market rate for the service provided.

Program Letter 16-1: PAI Cost Allocation and Fees Paid to Other Professionals

Example 3:

A private attorney represents a party in another divorce case. The private attorney also asks Accountant B to review the opposing party’s financial disclosures. Accountant B also agrees to do the review at the same discounted rate he offered the recipient: 75% of the prevailing local market rate. The recipient may pay the fee and allocate the cost to PAI because:

• The case is being handled by a private attorney

Other LSC GuidanceProgram Letter 16-3

Procurement Policy Drafting Guidance for LSC Recipients

ELEMENTS OF AN EFFECTIVE PROCUREMENT POLICY

Effective policies typically address:

Competition – How are potential vendors identified, evaluated and selected?

Negotiating Terms – What are the parties’ rights and obligations during the transaction?

Documentation – How is best value verified?

Internal Controls – How can equal opportunity for potential vendors be increased and wasteful, fraudulent, and abusive purchases be reduced?

COMPETITION

Using a competitive process promotes best value, checks improper influence and nepotism, improves bargaining power, and bolsters funder and public confidence.

Cornerstones of Effective competitive procurement policy:

Transparency Policy is accessible to employees and potential business partners Internal controls ensure vendors have equal opportunity to compete

Objectivity Use of standardized vendor identification, evaluation and selection process Use of pre-determined, objective criteria to identify, evaluate and select vendors Defined approval system Conflicts of interest policy

* Competition requirements should be tailored *

COMPETITION

To promote transparency and objectivity in competition, organizations may consider addressing the following in their procurement policies:

How will you identify vendors?

Certification of best value Price comparison Requests for Information (RFI) Requests for Quotes (RFQ) Request for Proposals (RFP) Sole Sourcing

How will you select vendors?

• Justify selection• Conditional selection

How will you evaluate vendors?

• Evaluation plan• Evaluation team• Evaluation rules• Evaluation criteria

What level of competition will you require?

• Increase competition requirements as estimated cost, risk, or profile of purchase increases

• Tie competition to type of purchase being made

NEGOTIATING TERMS

Effective procurement policies require contracts to be legally sufficient and in a form appropriate for the transaction

Legal Sufficiency refers to contract’s enforceability in the event of a dispute.

Contract Form refers to the general appearance, structure, and substance of the contract.

DOCUMENTATION

Documenting purchases is important for verifying best value and for auditing purposes.

Effective procurement policies typically address:

Level of Documentation Required Increase documentation required as cost, risk, or profile of purchase

increases Tie documentation to purchase being made

Purchasing Record Typically include purchasing authority, purchase approvals, competition-

related documents, contract negotiations, signed contracts, invoices, orders forms, etc.

INTERNAL CONTROLSEffective internal controls minimize risk of fraud, waste,

and abuse.Internal controls to consider include:

• Written procurement policy• Segregation of duties• Purchasing authority• Purchasing approvals• Budget review• Purchase planning and needs

assessment• Competition thresholds• Sole Sourcing• Advertising business opportunities• Quote/Bid thresholds• Evaluation criteria• Evaluation terms

• Evaluation rules• Documentation• Legal review of terms• Vendor background checks• Designating purchasing personnel• Work before contract• Quality control• Reporting• Training program • Signature authority• Fraud response plan

QUESTIONS ??

Contact Information:

Shay Braceybraceys@lsc.gov

202-295-1518

LSC Compliance Update:Ongoing and Emerging Trends

Management Information ExchangeTraining: Financial Essentials

Chicago, ILSeptember 23, 2016