Agenda

1. Agenda • Pre Site Visit Information Request • OFCO Monitoring • EDGAR Requirements • Contract Administration • 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-out Planning Typically September 30th for State as a Whole Typically December 30th for State as a Whole Period of Availability Begins IF Application Approved or Substantially Approvable Liquidate Funds & File FSRs Time to Obligate Funds (Period of Availability)

31. Obligations Definition Period of Availability Linking Obligations to FundsCost Allocation

32. Obligations: Definition • Obligation = Transaction that requires payment

33. Obligations: Definition

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. Liquidations Drawdown 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: • Advance • Reimbursement • 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