OIG Audits Does Program Success Trump Program Compliance? Should We Even Be Concerned with Audits or Program Monitoring

1. Presented by Michael Brustein, Esq. Brustein & Manasevit PLLC Fall Forum 2011 OIG AuditsDoes Program Success Trump Program Compliance? Should We Even Be Concerned with Audits or Program Monitoring?

2. “Michael’s presentation is designed to scare you.” • “Focus is on program success.” • Phil Maestri, RMS • April 27, 2011 Brustein & Manasevit, PLLC Spring Forum • October 5, 2011 AEFFA Meeting in Charleston, SC

3. Is the balance shifting? Program Compliance Program Success

4. Is Risk Management Compatible with Innovation? Risk Management Innovation • Inventory Management • Cash Management • Time & Effort Reporting • Procurement Control • Silo Smashing • Transferability • Substitute Systems • Administrative Consolidation • Waivers

5. “Hyperfocus on compliance is an ineffective way to run an SEA.” - Deborah Gist, Superintendent RIDE July 2011

6. “We need to get out of the way.” - Cindy Hill, Wyoming Superintendent of Instruction July 2011

7. “Special education began as a civil rights issue and there needed to be a focus on compliance back then, but that focus on compliance has remained constant, while the rest of the world has changed. I would rather be judged by OSEP on the real important issues.” - Ed Steinberg, Colorado Director of Special Ed August 2011

8. So how many audits excused noncompliance because of program success?

9. How important is compliance? • Section 441 of GEPA • Each program must be administered in accordance with all applicable statutes, regulations, program plans, and applications.

10. “In enacting GEPA, Congress made clear its intention that States return misused funds.” • U.S. Supreme Court Bell v. N.J. 461 U.S. 773 (1983)

11. “Legislation enacted pursuant to the spending power is much in the nature of a contract; in return for federal funds, the states agree to comply with federally imposed conditions.” • U.S. Supreme Court Pennhurst State School v. Halderman 451 U.S. 1 (1981)

12. What types of audit violations are deemed “significant” by the U.S. Education Department?

13. The Department must establish a “prima facie” case for recovery of funds so that the PDL can stand on its face unless contradicted by other evidence.

14. The PDL must include an analysis of the harm to the federal interest.

15. Examples of Harm: • See page 139 of EDGAR

16. “A judgmental sample of eight employees” does not sustain a prima facie case. • Appeal of Colorado September 30, 2011

17. Types of Violations that are “significant” • Time Distribution • MOE • Supplement, not supplant • Over-Allocating • Unallowable Expenses

18. Types of Violations that are “significant” (cont.) • Illegal Procurement Practices • Serving Ineligible Students • Lack of Accountability for Equipment/Materials • Obligations Beyond Period of Availability • Matching Violations

19. Types of Violations that are “significant” (cont.) • Excess Cost • Lack of Appropriate Record Keeping • Record Retention Problems • Late or No Submission of Required Reports • Allocations Improperly Approved

20. Types of Violations that are “significant” (cont.) • Unresolved Audits of Subrecipients • Lack of Subrecipient Monitoring • Drawdowns before they are needed or more than 90 days after the end of funding period • Large Carryover Balances • Discrepancies in Reports Filed

21. Types of Violations that are “significant” (cont.) • Errors in Student Per Pupil Expenditures • Title I Comparability • Lack of valid, reliable or complete performance data

22. If you think program success trumps OIG Audit findings on match, listen to Susan Kelley.

23. If you think OIG findings on time and effort can be defeated by evidence of program success, consider: • Houston: $238 million • Philadelphia: $123 million • Detroit: $49 million • Colorado: $23 million • Kiryas Joel: $191,124* * one public school serving 123 students, 6,000 students in private school

24. Why are time and effort findings so prevalent? • Listen to Kristen Cowan’s presentation!

25. Is OMB waking up to a new reality on time and effort?

26. Does “program success” fare better with A-133 audits or federal/state monitoring?

27. Who would you prefer as a dinner guest? • OIG Investigator • OIG Auditor • A-133 Auditor • Federal Program Monitor • State Program Monitor

28. Program Determination Letters (PDL) can be based on any information • 34 CFR 81.30 (b)

29. Does the A-133 Single Audit process strike the right balance between success and compliance?

30. The effectiveness of the Single Audit process is uneven at best. • Section 305 of A-133 – Auditor Selection • Compare State Auditor General/ Legislative Auditor (Florida, Georgia, Louisiana) to private firms

31. Private audit firms develop and protect long-term client relationships, sometimes to detriment of public • Rosslyn, NY

32. Is there a fundamental conflict when the auditee pays the auditor? • Does this create incentives for the auditor to render a favorable opinion?

33. Would mandatory audit rotation (limiting the number of consecutive years that a firm could audit the books) be helpful? • GAO mandatory audit rotation may not be the most efficient way of strengthening auditor independence and audit quality

34. Would audit costs rise under audit rotation because of the added time to understand auditee’s programs?

35. Audit Costs • Auditees cannot charge to federal grants audit costs if audit is not conducted in accordance with A-133 - Section 230

36. What about “quality” of A-133 Audits? • Compare OIG Audits to A-133 Audits on T/E and Supplanting

37. Are “pass through” agencies educating subgrantees on the requirements of A-133?

38. Recommendation: • Until Congress repeals Section 441 of GEPA, OMB rewrites A-87 and A-21, and USDE disregards the current “Compliance Supplement,” Compliance trumps Program Success.

39. This presentation is intended solely to provide general information and does not constitute legal advice or a legal service.  This presentation does not create a client-lawyer relationship with Brustein & Manasevit, PLLC and, therefore, carries none of the protections under the D.C. Rules of Professional Conduct.  Attendance at this presentation, a later review of any printed or electronic materials, or any follow-up questions or communications arising out of this presentation with any attorney at Brustein & Manasevit, PLLC does not create an attorney-client relationship with Brustein & Manasevit, PLLC.  You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances.