Are You Prepared for a Federal Program Audit: What You Need to Know

1. Are You Prepared for a Federal Program Audit: What You Need to Know Dr. Ronny Beard, Superintendent Rhonda Crass, CISD Legal Counsel David Johnson, CFO Dr. Nancy K. Vaughan, Compliance Officer

2. Are You Ready For A Federal Audit? • With the increase in federal funding comes an increased risk. • Many schools will be subjected to a federal programs audit next year. • You need to be aware of what they will look for. • This is what we learned from our Federal Programs Audit.

3. Current Conditions in Texas • In the “New Era of Accountability” TEA is no longer responsible for the intense monitoring of public school compliance with state and federal grant programs. • The Texas Legislature removed TEA from that role in 2002. • Because of this, Texas schools are at risk; “Few schools in Texas would be completely compliant if subjected to an audit of the detail Cleburne ISD was subjected to.” Ron Rowell, Senior Director, TEA. • Today, concerned citizens groups are responsible for an increased number of investigations across Texas and now the USDE will audit schools as well.

4. Audit Conditions • CISD received no prior warning from TEA that they were coming; you may or may not. • There was no time to prepare (as with DEC) • We were instructed to NOT create documents (as was allowed with DEC) • No outside help was allowed (as with DEC) • The audit was time Consuming and expensive (nearly two years and over $.5M in legal fees alone, not counting the $362,00 sent back to TEA)

5. Audit Results • Little of the $362,000 that was disallowed by the TEA audit was for blatant misuse. Most was due to lack of processes and weak internal controls. • While $362,000 might not break your school, this amount was only what was disallowed for a small portion of the total files for one year. • TEA recommended that a much more rigorous audit of all federal programs be performed for the past five years but thankfully, that did not occur. • Our estimates are that well over $2 Million would have been disallowed and required to be repaid if those audits would have been performed.

6. Audit Results • CISD was reclassified as a high-risk grantee as a result of the audit in September. • A high risk grantee is placed on a “soft” hold requiring significant documentation prior to reimbursement from federal programs. • This also led auditors to perform a high-risk audit which is much more extensive than the normal school audit. • The TEA response to our first high-risk audit is included in your handout; READ IT!

7. Audit Findings • Audit findings were alarming because of the high level of detail . • Example #1: All employees whose salaries are paid partially or in whole by any grant funds are required to sign and date a semi-annual certification form two times per year stating they are aware of the source of their salary and that all of their duties comply with program requirements. (Ours is included in your packet) • All employees funded in part or in full by a grant program are required to have signed and dated job descriptions in their file prior to their first day of work. • All salaries not justified with these forms were disallowed ($177,000+ of the $362,00 returned)

8. Audit Findings • Example #2: Invoices lacking the substantial detail required to justify the expending of federal funds were disallowed. (The first of quarterly invoices contained the explanation, but the remaining 3 invoices were disallowed because they referred to invoice #1 for the detail) Each invoice is required to provide sufficient evidence of program compliance.

9. Audit Findings • Example #3: $267.00 was advanced to a teacher to attend an approved staff development. She returned receipts for $259.00 and returned the $8 in difference to the school, but the returned funds were not posted to the correct account so the $8 was returned to TEA. (See attached travel reconciliation form.)

10. Audit Expectations • TEA auditors expect to find all of the documentation needed to support federal program expenditures in place when they arrive and preferably in the accounting office. • They will not allow you to replace or create documents to justify previously expended funds. • Job Descriptions for every position partially or fully funded by any federal program were expected to be located both in personnel files and aggregated in a separate file.

11. Audit Expectations • Dates for all expenditures must be well within the grant period. Last minute expenditures of Title funds were disallowed. You must prove that expenditures impacted student achievement during the grant period, not before or after.) • All expenditures for training, travel, materials and supplies must be supported by reference to the specific curriculum to be impacted by the expense. (Lesson Plans, TEKS, etc.) • All expenditures must be supported by CIPs or DIPS

12. New Era of Accountability • Though TEA no longer monitors regularly, they are very interested that districts remain current and compliant. • Everyone at TEA has been completely supportive of our pursuit to gain compliance with all state and federal guidelines. • If you have questions after this meeting, I would encourage you to call and ask TEA for support or guidance.

13. Other Issues of Concern • The Texas Constitution- Pay Attention • Watchdog groups are especially interested in compliance. • Article III, Sections 51-53 of the Texas Constitution: you cannot gift or loan public funds. • We all know this, but to what detail do you track it? • Teacher, Student, Administrator, Board Travel implications.

14. Gifting and Loaning Public Funds • Do you have a system in place that will insure that you will have the receipts to justify all travel advances? • If receipts are returned for less than was advanced, do you require reimbursement and, do you maintain receipts for all reimbursements? • What about board travel and student travel? Does your policy tie you to the state travel standard? If so, do you follow it?

15. Schools are Political Subdivisions • School employees are not considered employees of the State and, therefore, not required to follow the state travel requirements unless your board policy ties you to it. • Local School Boards have the authority to establish a travel policy for the district including board members, school employees, and students.

16. Policy Decisions • For Board Travel, there is no statutory limit, only the requirement that it be reasonable and necessary unless your policy ties you to state rates. • Travelallowances are not allowed with federal funds and (though very common with district administrators) very difficult to defend with local funds. Be careful. • If your policy (DEE Local) does not specifically say “Travel costs that exceed the state rate will be taken out of local funds” you are likely violating your policy often.

17. Policy Decisions • How do you insure that employees return receipts to justify expenses? We give them 30 days and if they do not provide them, we take it out of the next check. • Do sponsors have to provide receipts for student meal money? No “that is unreasonable” Rita Chase. It is sufficient to require students to sign that they received the money.

18. Conclusion • Every district in the state is out of compliance to some degree. • Most board members (and many administrators) believe their “low risk” annual audit monitors all aspects of fiscal responsibility and thus, assume that a “clean” annual audit is evidence of compliance with all fiscal issues. • Your “low risk” audit does not monitor compliance with Federal and State program guidelines. • This leaves you vulnerable!! • Are you ready?