1

Agenda

1. Pre Site Visit Information Request

2. OFCO Monitoring

3. EDGAR Requirements

4. Contract Administration

5. Regulatory vs. Non-regulatory Guidance

2

Richard Rasa (OIG)May 2, 2007

OIG FY 2008 Workplan will include Audits of the Perkins Program at Federal, State, and Local levels

3

James Evans (OFCO)May 1, 2007

Districts have inadequate internal controls Single audit process has weaknesses

4

Troy Justesen:

“Align OVAE Monitoring

with the rest of the Department”

5

OCFO Monitoring Objectives Conduct a Risk Analysis of Erroneous

Payments in Education Programs

Review the Adequacy of Internal Controls

6

What is the definition of Internal Controls? US Government Accountability Office (GAO)

definition…

An integral component of an organization’s management that provides reasonable assurance that the following objectives are being achieved: - effectiveness and efficiency of operations,- reliability of reporting, and- compliance with applicable laws and regulations

7

Summary of Last Year’s OCFO Findings Procurement and Disbursement Controls (120

Findings, 48%) Controls over Equipment (95 Findings, 38%) Audits (22 Findings, 9%) Drawdown and Disbursement of Title I Funds (12

Findings, 5%)

8

Procurement and Disbursement Controls

Inadequate controls over purchase orders Inadequate controls over processing and payment

of vendor invoices Inadequate controls over contracts with vendor

and service providers

9

Controls Over Equipment

Accurate equipment records not maintained on a current basis

Lack of adequate controls to account for location and custody of equipment

Inadequate process for conducting regular physical inventory of equipment

10

Audits Corrective action plans to address audit findings

in the A-133 single audit reports were either unavailable for review, inadequately prepared, or not timely

Management and internal control letters addressing A-133 and financial statement audit reports were unavailable for review

Inadequate guidance provided to LEAs on form and content of corrective action plans

11

Drawdown and Disbursement of Funds

SEA did not ensure timely drawdown and application of Federal funds to the grant year that resources were intended to support

Inadequate monitoring of LEAs application

12

OCFO FY-2007 Review Process Criteria for review

-Recent audit findings

-Findings from recent monitoring reports

-Program Office review schedule

-Consideration of other risk factors

OCFO review may be scheduled

-Concurrent with Program Office site visit

-Independently

13

SEA / LEA Responsibilities Under EDGAR

State-administered programs

14

State-administered programs

Part 76 applies Applicant applies to SEA Can be formula or discretionary, or combination,

but typically formula SEA approves application

15

State-administered programsSubpart B and Subpart C

Subpart B – “How a State Applies for a Grant” General state application State plan definition Multi-year state plans Required certifications Plans (including subgrant applications) as public documents Amendments to state plans

Subpart C – “How a Grant Is Made to a State” an must meet statutory and regulatory requirements Opportunity for hearing before plan disapproved Notification of grant award

16

State-administered programsSubpart D

“How to apply to the State for a Subgrant” – highlights: Application procedures General application requirements (GEPA) Notice requirement Joint application and projects Public availability

17

State-administered programsSubpart E

“How a Subgrant is Made to an Applicant” – highlights: State procedures for reviewing applications Disapproval (opportunity for hearing) SEA hearing procedures

18

State-administered programsSubpart F

“What Conditions Must Be Met by the State and Its Subgrantees” –highlights: Allowable costs Indirect cost rates Evaluation Construction Participation of Students Enrolled in Private Schools Other requirements

19

State-administered programsSubpart G—IMPORTANT– ED FOCUS!!

“What Are the Administrative Responsibilities of the State and Its Subgrantees” –highlights: Compliance with statutes, regulations, state plan,

and applications State or subgrantee directly administers or

supervises the admin of each project Fiscal control and fund accounting procedures

required

20

State-administered programsSubpart G— (cont’d)

When a state may begin to obligate funds “Substantially approvable” Good examples of timing in EDGAR (76.703)

When obligations are made When certain subgrantees may begin to obligate funds

“Substantially approvable” Carryover Reports Records Privacy

21

State-administered programsSubpart G— (cont’d)

Use of funds – more than one program may assist a single activity (with sufficient accounting system)

State must have procedures to ensure compliance****

Reviewing and approving apps, technical assistance, evaluating projects, “other administrative responsibilities” to ensure compliance

Subgrantee hearing opportunities (when required)

22

State-administered programsSubpart I

“What Procedures Does the Secretary Use to Get Compliance?” Cross reference to GEPA, including:

Recovery of funds Withholding Cease and desist Other proceedings

Judicial review Cooperation with audits

23

How to Carry Out Requirements? Programmatic requirements Fiscal/administrative requirements: rule for state-

administered programs: State and local agencies must use fiscal control and fund

accounting procedures that will ensure the proper disbursement of, and accounting for, federal funds

HOW??

Threshold systems

24

Threshold System Requirements for Recipients of Federal Grants

Financial Management Systems (internal controls, cash management and payment)

Procurement Systems Inventory Management Systems

Overarching concept: Internal Controls Requirements for systems:

Primarily EDGAR and A-87 ED may issue guidance or regulations on internal

controls – clarity needed! ED monitoring threshold systems – check EDGAR and

monitoring documents

25

Important Concept: Distinction between Subgrantee and Contractor

Subgrantees mandated by statute (typically direct grantees are prohibited from making subgrants – 75.708)

Can have an entity that is both in different contexts

A-133 outlines basic rules

26

Difference between Subgrantee (subrecipient) and Contractor (vendor)

Subgrantee (A-133): Determines who is eligible to participate in a federal

program; Has its performance measured against whether the

objectives of the federal program are met; Is responsible for programmatic decision making; Is responsible for complying with federal program

requirements; and Uses the federal funds to carry out a program as

compared to providing goods or services for a program.

27

Difference between Subgrantee (subrecipient) and Contractor (vendor)

Vendor (A-133): Provides the goods and services within normal business

operations; Provides similar goods or services to many different

purchasers; Operates in a competitive environment; Provides goods or services that are ancillary to the

operation of the federal program; and Is not subject to compliance requirements of the federal

program.

28

Difference between Subgrantee (subrecipient) and Contractor (vendor)

Why does this matter? Clean audit trail (make it easy for auditors!) VERY different responsibilities depending on

classification of entity Likely an increased focus as result of increased

contracting by SEAs and LEAs

29

Timeframes Applicable to Federal Funds

30

Typically July 1st

Pre-award Grant Start Post-award Close-outPlanning

Period of Availability Begins IF

Application Approved or Substantially Approvable

Typically September

30th for State as a

Whole

Typically December 30th for

State as a Whole

Liquidate Funds & File FSRs

Time to Obligate

Funds (Period of Availability)

31

ObligationsDefinition

Period of Availability

Linking Obligations to FundsCost Allocation

32

Obligations: Definition

Obligation = Transaction that requires payment

33

Obligations: DefinitionAcquisition of Property Date of binding

written commitment

Personal Services

by Employee

When services

are performed

Personal Services

by Contractor

Date of binding

written commitment

Travel When travel is taken

34

Obligations: Period of Availability

Every grant has a “period of availability” = period in which grantee can obligate funds Therefore, must be able to relate all costs to a

specific transaction that occurred during the period of availability

Substantial difference between discretionary and formula funds

35

Obligations: Period of Availability

Grantees and subgrantees may begin to obligate funds when: Statutory start date (typically July 1st)

AND Awarding agency approves application; or Awarding agency determines application is

“substantially approvable” Reimbursement subject to final approval

36

Obligations: Period of Availability Tydings Amendment

Allows extra year to obligate funds Does not apply to all grants

Under Tydings, funds are available for 24-27 months: 12-15 months under the grant award

(July 1, 2006 – September 30, 2007) Plus 12 months

(October 1, 2007 – September 30, 2008)

37

Obligations: Carryover Under Tydings,

unobligated funds can usually be “carried over” from first year Statute may impose

limitations on carryover

38

Obligations: Linking In order to have a valid “obligation” there must be:

A transaction giving rise to an obligation within the period of availability; and

A “linking” of the transaction with funds that were available during the period of availability

“Linking” a transaction to particular grant funds can occur after the period of availability ends Method of linking varies from state-to-state SEA may link transactions for LEA

39

Obligations: Linking

“Linking” example from Tydings grant: Transaction occurs on August 1, 2005 Available funds include:

2003-2004 Funds (became available 7/1/03) 2004-2005 Funds (became available 7/1/04) 2005-2006 Funds (became available 7/1/05)

40

Obligations: Linking vs. Allocation Linking

Accounting flexibility that applies to programs with multiple open grant years (e.g., Tydings)

Allocation Legal requirement that applies to all grants Basic Rule: can only charge in proportion to the value

received by the program

41

Linking vs. Allocation (cont.) Obligation = professional development

conference on August 1, 2005 Available grants:

Title I, Part A (FY 03-04, 04-05, 05-06) Title II, Part A (FY 03-04, 04-05, 05-06) Title V, Part A (FY 03-04, 04-05, 05-06)

42

Bottom Line: Why is This Important?

Must be able to document that all transactions relate to timely obligation

Date of transaction Payee Invoice number Purchase order number Amount of transaction Accounts debited and credited

43

LiquidationsDrawdown

Payment

Cash Management

44

Liquidation: Definition

Liquidation = Settle an obligation by paying funds

45

Liquidations: Timeline Must liquidate all obligations within 90 days

after the end of the period of availability Example:

Period of availability: July 1 – September 30 Liquidation period ends: December 30

State may impose shorter deadline on LEAs ED may extend this deadline

But only to liquidate valid & timely obligations

46

Payments: Drawdown by State Drawdowns by states are governed by the

Cash Management Improvement Act (CMIA) Applies to all federal funds transferred to states

Goal of CMIA is to improve the transfer of federal funds between the federal government and the states

47

Payments: Drawdown by State If advance payment authorized, must

minimize payout time Subpart A

3-day rule Subpart B

“As close as administratively feasible”

48

Payments: Drawdown by State State Liability for Interest

Incurred if funds are not spent within 24 hours of drawdown

Accrues from the day funds are credited to state account until the day funds are paid out

Federal Liability for Interest Incurred if state must use own funds to pay valid,

authorized obligation Accrues from day state pays its own funds until the day

federal funds are credited to state account

49

Payments: Drawdown by Non-State Grantee & Subgrantee

EDGAR authorizes 3 methods for transferring funds from ED to a non-state grantee:

1. Advance

2. Reimbursement

3. Working Capital Advance

50

Payments: Drawdown by Non-State Grantee & Subgrantee Advance payment

Must be willing and able to maintain procedures to minimize the time elapsing between transfer and disbursement in accordance with CMIA guidelines

Must return interest earned on advances May keep up to $100/year for administrative expenses

51

Payments: Drawdown by Non-State Grantee & Subgrantee As a condition of

drawing down advance funds from GAPS, grantee must agree to disburse funds within 3 business days

52

Payments: Drawdown by Non-State Grantee & Subgrantee Grantees must

monitor subgrantee to ensure timely payments

53

Drawdown by Non-State Grantee & Subgrantee

Reimbursement Preferred method if

subgrantee does not satisfy requirements for advances

54

Drawdown by Non-State Grantee & Subgrantee If grantee does not satisfy the requirements for

advances but reimbursement is not feasible: Advance limited funds for initial period

State practice: 30 days State practice: advance for specific cost, e.g., payroll

After that, reimbursement

May not use if grantee simply unwilling to minimize time

55

Bottom Line: Why is This Important? OIG report criticizing

ED for insufficient monitoring of excessive drawdowns (a sign of potential cash management problems)

56

Contract Administration

57

Contract Administration All contracts supported with federal funds must

contain certain required provisions: Remedies for breach, sanctions, penalties Termination for cause and convenience Compliance with federal statutes and executive orders Reporting requirements Patent rights Copyrights Access by federal agency, Comptroller General of US to

records of contractor Retention of records for 3 years after final payment

58

Contract Administration SEA/LEAs in state-admin

program: must ensure POs/contracts include clauses required by Fed stat or executive orders

Direct grant programs: must maintain a contract administration system that ensures contractors perform in accordance with the terms, conditions, and specifications of the contract

59

Contract Administration As a practical matter (RECENT FOCUS BY

ED!!!): Must have written contracts (purchase order ok) Contract should include clearly defined deliverables

Description of services to be performed or goods to be delivered

Description of dates when services will be performed or goods delivered

Description of locations where services will be performed or goods delivered

Description of number of students/teachers/etc. to be served (if applicable)

60

Contract Administration (cont.) As a practical matter (cont.)

Must have written invoice Description of services performed or goods delivered Description of dates services were performed or goods

delivered Description of location services were performed or goods

delivered Description of students/teachers/etc. served (if applicable

Invoice should be reviewed & approved before payment Segregation of duties Documented approvals

61

Contract Administration (cont.) As a practical matter (cont.)

Through performance-based monitoring, ED/SEAs increasingly likely to determine if contracting expenditure is “worthwhile”

Make sure to retain documents that demonstrate a contracted service was programmatically permissible, as well as necessary, reasonable, allocable, and legal (and other applicable requirements)

62

Monitoring and Enforcement

63

Retooling of Monitoring Documents

ED significantly revised program monitoring documents More rigorous More specific New attention to:

SEA monitoring of subrecipients Fund allocation requirements Procurement Equipment and inventory management

64

Subrecipient Monitoring

Driven by ED capacity issues Increased focus by ED – an “overarching

requirement” OIG auditing subrecipient monitoring

65

Subrecipient monitoring From Title I ED monitoring document:

An established cycle of monitoring; Monitoring policies and procedures; Data collection instruments (interview guides, document review

checklists); A sample of letters to local education agencies (LEAs),

checklists, forms, etc.; A process for identification of ‘high risk’ grantees; A process for follow-up/verification of implementation of

required corrective actions; and Monitoring reports, corrective actions from the LEAs visited as

part of the onsite review.

66

Subrecipient monitoring

Monitoring should be broad, both programmatic and fiscal

Cross-cutting monitoring teams most effective

Should be risk-based No specific guidelines, developed by ED,

but factors to consider

67

Subrecipient monitoring Risk-based – factors to examine:

Volume and experience with federal funds Audit Lapsed funds Financial health Performance measurements Assessments of internal controls Changes in the operating environment

Good resource: Guide to Opportunities for Improving Grant Accountability http://www.epa.gov/oig/dwg/reports/dwg-grants.pdf.

68

Enforcement tools GEPA, EDGAR, statutes have enforcement tools Remedies for Existing Violations (GEPA):

Withhold payments Cease and desist order Compliance Agreement “any other action” authorized by law

Regardless, ED can always seek to recover funds for misexpenditures

69

High-risk grantees (80.12)

State may designate LEA as “high-risk” under “awarding agency” authority

Remember the MIT is assessing risk. MIT has extensive experience with high-risk grantees

70

Special Conditions

If special conditions, must notify in writing:

Nature of the special conditions Reasons for imposing them Corrective actions that must be taken before removed

and the time allowed for corrective actions Method of requesting reconsideration

71

Issue:

Which promulgations by OVAE are legally binding?

72

Issue:

Does reliance on a guidance letter, email, or telephone call constitute a

safe harbor?

73

Hierarchy of Legal Authority Perkins Statute Perkins Regulations EDGAR Guidance in the Fed. Reg. Guidance on the Web State Plan Guide OVAE Emails OVAE Telephone Calls OVAE Monthly Calls

74

If uncertain that guidance is binding, consider the 90 day

letter.

75

The 90 Day Letter34 CFR 81.33-

A State or LEA that has made an unallowable expenditure is not required to return the funds

if the violation was caused by erroneous guidance from ED.

76

The guidance must be provided in response to a specific request from the recipient to the Asst.

Secretary.

77

What are “Regulations”? Formally promulgated rules in the Federal

Register General Applicability Based on GEPA

78

“The Secretary is authorized to prescribe such rules and regulations as the Secretary determines necessary, or appropriate to administer and manage the functions of the Department.”

-20 U.S.C. 3474

GEPA

79

What if Regulation Conflicts with

Perkins?

ALJ may not invalidate regulations.

-34 CFR 81.5

But no such prohibition on guidelines

80

Evolution of Perkins Regs. 63 VEA Program/Fiscal 68 VEA Program/Fiscal 76 VEA Program 84 Perkins Program/Negotiated

Rulemaking 90 Perkins Program/Negotiated

Rulemaking 94 Regs. Repealed 98 Perkins III No Regs.

81

Congress did not require negotiated rulemaking in Perkins

IV, as in NCLB, IDEA, HEA, because Congress did not

envision regulations for Perkins

82

Role of ED is circumscribed under

Perkins IV

83

ED cannot mandate SEA/LEA to incur costs not paid for under Act

– Sec. 8(a)

84

ED not authorized to approve or certify academic / technical

content standards or achievement standards

- Sec. 8(c)

85

SEA responsible for determining rigorous

content- Sec. 8(e)

86

Indicators of performance shall be established by the state with input from locals

-Sec. 113(b)(2)(E)

87

Role of Secretary limited to reaching agreement on % or

numbers of students who attain state adjusted levels of

performance

-Sec. 113(b)(3)(A)

88

The Secretary may issue regs. “only to extent necessary to

administer and ensure compliance with the specific

requirements of the Act.”

-Sec. 318

89

And how is OVAE responding to these

limitations?

90

OVAE– ED will issue non-regulatory

“Questions and Answers” guidance.

91

The OVAE Q & A issued in January, 2007 to the

October 6, 2006 Questions-

“This Document is advisory only”

92

Some states formally requested that ED issue regs on content,

achievement, performance standards.

93

“The Secretary is considering whether to issue regulations requiring states to agree to adjusted performance levels under the

Perkins Act that are the same as the State’s AMOs or targets for graduation rate under

ESEA.”

-January ’07 Justesen Memo to OMB

94

February 14, 2007 FR

OVAE invited comment on 06-07 CAR, included math, reading

assessments, graduation rates.

95

Be Mindful:1/25/07 FR change to

EDGAR -34 CFR 76.720

96

A state must submit reports in a manner prescribed by the

Secretary.

97

Failure to submit reports as prescribed constitutes a failure under Section 454 of GEPA to

comply substantially.

98

RESOURCES: 2 BOOKS The Tech Prep Guide to Perkins IV

CORD 1-800-231-3015 Ext. 328

Perkins Act of 2006: The Official Guide ACTE http://iweb.acteonline.org/Purchase/ProductDetai

l.aspx?Product_code=BPERKINS06

99

QUESTIONS???

100

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