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2014 G.A.I.N.S.Federal Compliance

IssuesPresented by

Tim Ray, CPA, CGFMFederal Compliance Coordinator

Georgia Department of AuditsEducation Audit Division

Where We’ve BeenWhere We AreWhere We’re GoingQ&A

Overview

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FY 12 Audit Results◦65 Federal Compliance Findings 30 Activities Allowed or Unallowed and Allowable Costs/Cost Principles

4 Cash Management 4 Eligibility 10 Equipment and Real Property Management

Where We’ve Been

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FY 12 Audit Results◦65 Federal Compliance Findings 3 Matching, Level of Effort, Earmarking

2 Period of Availability of Funds 6 Procurement and Suspension and Debarment

Where We’ve Been

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FY 12 Audit Results◦65 Federal Compliance Findings 2 Program Income 7 Reporting 6 Special Tests and Provisions

Where We’ve Been

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FY 12 Audit Results◦134 Federal Management Letter Comments (MLCs)

Where We’ve Been

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Majority of Findings and Management Letter Comments result of deficiencies in Internal Control.◦Usually there’s noncompliance associated

with the Internal Control deficiency.

Where We’ve Been

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What’s the difference between the level of deficiency for a finding and a MLC?◦MLC - A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis.

Where We’ve Been and Where We Are

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What’s the difference between the level of deficiency for a finding and a MLC?◦Finding – 2 types 1- A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a Federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

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What’s the difference between the level of deficiency for a finding and a MLC?◦Finding – 2 types 2- A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis.

Where We’ve Been and Where We Are

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Who is Responsible for Internal Controls for a Federal Program?◦Program managers?◦Program staff?◦Finance personnel?

Where We’ve Been and Where We Are

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Numerous Deficiencies for Time and Effort◦OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, Attachment B.8.h states: Support of salaries and wages. These

standards regarding time distribution are in addition to the standards for payroll documentation.

Where We’ve Been and Where We Are

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Time and Effort◦OMB Circular A-87, Cost Principles for State, Local

and Indian Tribal Governments, Attachment B.8.h(3) states: Where employees are expected to work solely on a single Federal award or cost objective, charges for their salaries and wages will be supported by periodic certifications that the employees worked solely on that program for the period covered by the certification. These certifications will be prepared at least semi-annually and will be signed by the employee or supervisory official having first hand knowledge of the work performed by the employee.

Where We’ve Been and Where We Are

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Time and Effort◦OMB Circular A-87, Cost Principles for State, Local

and Indian Tribal Governments, Attachment B.8.h(4) states: Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports or equivalent documentation which meets the standards in subsection (5) unless a statistical sampling system (see subsection (6)) or other substitute system has been approved by the cognizant Federal agency. Such documentary support will be required where employees work on:

Where We’ve Been and Where We Are

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Time and Effort◦OMB Circular A-87, Attachment B.8.h(4)

{cont’d} states: (a) More than one Federal award, (b) A Federal award and a non-Federal

award, (c) An indirect cost activity and a direct cost

activity, (d) Two or more indirect activities which are

allocated using different allocation bases, or (e) An unallowable activity and a direct or

indirect cost activity.

Where We’ve Been and Where We Are

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Time and Effort◦OMB Circular A-87, Attachment B.8.h(5) states:

(5) Personnel activity reports or equivalent documentation must meet the following standards: (a) They must reflect an after-the-fact

distribution of the actual activity of each employee,

(b) They must account for the total activity for which each employee is compensated,

(c) They must be prepared at least monthly and must coincide with one or more pay periods, and

(d) They must be signed by the employee.

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Time and Effort◦ OMB Circular A-87, Attachment B.8.h(5) {cont’d} states:

(e) Budget estimates or other distribution percentages determined before the services are performed do not qualify as support for charges to Federal awards but may be used for interim accounting purposes, provided that: (i) The governmental unit's system for establishing the

estimates produces reasonable approximations of the activity actually performed;

(ii) At least quarterly, comparisons of actual costs to budgeted distributions based on the monthly activity reports are made. Costs charged to Federal awards to reflect adjustments made as a result of the activity actually performed may be recorded annually if the quarterly comparisons show the differences between budgeted and actual costs are less than ten percent; and

(iii) The budget estimates or other distribution percentages are revised at least quarterly, if necessary, to reflect changed circumstances.

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Time and Effort◦What does all this in addition to mean? Feds want to ensure that charges are allocable to the program.Charges made to cost objective in accordance with relative benefits received.

Where We’ve Been and Where We Are

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Procurement and Suspension and Debarment◦2 parts Procurement Suspension and Debarment

Where We’ve Been and Where We Are

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Suspension and Debarment◦Requirements set forth in 2 CFR part 180. Non-Federal entities (School Districts) are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred or whose principals are suspended or debarred.

Where We’ve Been and Where We Are

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Suspension and Debarment Contract

An agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit known as consideration.

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Suspension and Debarment Contract

A voluntary, deliberate, and legally binding agreement between two or more competent parties. Generally have to do with employment, sale or lease, or tenancy.

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Suspension and Debarment◦Requirements set forth in 2 CFR part 180. Parties Principals

These two elements have been included in the CFR.

FY 2013 first year Principles included in OMB Compliance Supplement.

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Suspension and Debarment OMB released a Q&A on testing principals.

Not required to report audit findings based solely on tests for principals.

States this is not a new requirement. 2014 Compliance Supplement will provide additional guidance for future years.

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Suspension and Debarment◦Requirements set forth in 2 CFR part 180. “Covered transactions” include those procurement contracts for goods and services awarded under a nonprocurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000.

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Suspension and Debarment◦Requirements set forth in 2 CFR part 180. All nonprocurement transactions entered into by a recipient (i.e., subawards to subrecipients), irrespective of award amount, are considered covered transactions, unless they are exempt as provided in 2 CFR section 180.215.

Where We’ve Been and Where We Are

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Suspension and Debarment◦Requirements set forth in 2 CFR part 180. When a non-federal entity (School District) enters into a covered transaction with an entity at a lower tier, the non-federal entity must verify that the entity and its principals, as defined in 2 CFR section 180.995 and agency adopting regulations, are not suspended or debarred or otherwise excluded from participating in the transaction.

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Suspension and Debarment◦ 2 CFR part 180.995

Principal means— (a) An officer, director, owner, partner, principal

investigator, or other person within a participant with management or supervisory responsibilities related to a covered transaction; or

(b) A consultant or other person, whether or not employed by the participant or paid with Federal funds, who— (1) Is in a position to handle Federal funds; (2) Is in a position to influence or control the use of those

funds; or, (3) Occupies a technical or professional position capable

of substantially influencing the development or outcome of an activity required to perform the covered transaction.

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Suspension and Debarment◦This verification may be accomplished by

(1) checking the Excluded Parties List System (EPLS) maintained by the General Services Administration (GSA) (Note: EPLS is no longer a separate system; however, the OMB guidance and agency implementing regulations still refer to it as EPLS) and available at https://www.sam.gov/portal/public/SAM/),

(2) collecting a certification from the entity, or (3) adding a clause or condition to the covered

transaction with that entity.

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Suspension and Debarment◦What happens if I do business with an excluded person in a covered transaction? If as a participant you knowingly do business with an excluded person, the Federal agency responsible for your transaction may disallow costs, annul or terminate the transaction, issue a stop work order, debar or suspend you, or take other remedies as appropriate.

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Suspension◦Temporary status, suspended person given opportunity to contest the suspension and have it lifted.

Debarment◦Imposed for a specified period that a person is not presently responsible.

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Where to find CFRhttp://www.gpo.gov/fdsys/

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Where to find CFR

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Federal Programs Overview◦1) U.S. Code – Congress passes legislation in the form of a Public Law or authorizing statute that creates the grant program.Provides Federal agencies and grantees information about the public need that should be addressed and what types of programs and activities are allowable under the program.

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Federal Programs Overview◦2) Code of Federal Regulations (CFR) – Administrative law that interprets how U.S. Code should be executed (two parts derived from OMB circulars). A) Cross-cutting administrative rules – “Cross-cutting” means that the rules apply to all grants (OMB Circular A-102 [34 CFR 80]). Sets forth the rules on how grantees should manage a federal grant.

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Federal Programs Overview◦2) Code of Federal Regulations (CFR) – Administrative law that interprets how U.S. Code should be executed (two parts derived from OMB circulars).B) Cross-cutting cost principles – informs grantees how they are allowed to spend their Federal funds (OMB Circular A-87 [2 CFR 225).

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Federal Programs Overview◦3) Federal Agency and Program Regulations.Provides grantees more information on what rules apply to the Federal agency and any particular program under that agency. Regulations may vary from program to program under the same Federal agency.

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Federal Programs Overview◦4) Grant terms and conditions.Awarding agency (including GDOE) can supplement any of the above guidance when making an award. Additional requirements will be outlined in the award documents.

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Federal Programs Overview OMB Circular A-21, Cost Principles for Educational Institutions (2 CFR 220)

OMB Circular A-50, Audit Followup OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments (2 CFR 225)

OMB Circular A-89, Catalog of Federal Domestic Assistance

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Federal Programs Overview OMB Circular A-102, Uniform Administrative

Requirements for Grants and Cooperative Agreements to State and Local Governments (various CFRs – by Federal agency)

OMB Circular A-110, Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals and Other Non-Profit Organizations (2 CFR 215)

OMB Circular A-122, Cost Principles for Non-Profit Organizations (2 CFR 230)

OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations

Where We Are and Where We’re Going

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Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200)◦Supercircular◦Omnicircular◦Megacircular

Where We’re Going

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Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200)◦October 2011 – OMB created the Council on Financial Assistance Reform (COFAR). Comprised of representatives from Federal grant making agencies who were tasked to recommend grant policies and revisions to OMB.

Where We’re Going

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Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200)◦COFARs first priority was to issue proposed grant reform guidance that targets waste, fraud and abuse and reduces administrative burden. March 26, 2012 issued an advanced notice of proposed grant reform guidance.

Where We’re Going

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Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200)◦On February 1, 2013 OMB issued “Proposed OMB Uniform Guidance for Federal Financial Assistance”. COFAR requested more comments on the proposed guidance.

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Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200)◦On December 26, 2013 OMB issued final grant reform. Represents the biggest change in guidance since the Single Audit Act of 1984.

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Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200)◦Effective/applicability date (2 CFR 200.110) Federal agencies must implement the

requirements to be effective by December 26, 2014 (FY 15).

Audit requirements will apply to audits of fiscal years beginning on or after December 26, 2014 (FY 16).

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Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200)◦Effective/applicability date (2 CFR 200.110) Administrative requirements and cost

principles will apply to new awards and to additional funding (funding increments) to existing awards made after December 26, 2014.

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Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200)◦Effective/applicability date (2 CFR 200.110) Existing Federal awards will continue to be

governed by the terms and conditions of the Federal award, except for Audit requirements.

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Factors to be aware of in 2 CFR 200◦Focuses on stronger internal control for

personal services (time and effort) documentation – the #1 audit finding.

◦Provides for consistent treatment of cost - Limits allowable costs to make the best use of Federal funds.

◦Sets conditions to limit departures from approved indirect cost rates.

◦Encourages effective, modern operating environment for IT.

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Recommendations for 2 CFR 200◦Study the new rules. This is the most expansive grant reform since the Single Audit Act of 1984.

◦Make sure that your costs are reasonable and allowable - study the new items of costs.

◦Review your procurement policies - more restrictions on sole sourcing.

◦Work with GDOE to develop the best strategy for meeting the new requirements particularly in the human services area.

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Additional resources◦COFAR https://cfo.gov/cofar/

◦OMB Policy Statements http://www.whitehouse.gov/omb/grants_docs Contains crosswalks and text

comparisons between previous and new guidance.

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Contact Information404-657-5146

raytd@audits.ga.gov