Recent Audit Developments: The SuperCircular - PowerPoint PPT Presentation

Title: Recent Audit Developments: The SuperCircular


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Recent Audit DevelopmentsThe SuperCircular

• Michael Brustein, Esq.
• mbrustein_at_bruman.com
• Brustein Manasevit, PLLC
• www.bruman.com
• Spring Forum 2013

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Super Circular NPRM
2013
ARRA (101 billion Cash Infusion)
2009
2002
NCLB Provides Statutory Base to CAROI
2001
Risk Management (High Risk Designations)
1996
Birth of CAROI (FL / PA)
Federal Education Audit Resolution Key Events
Rewrite of A-87
1995
1989
Appeal of New York (Equitable Remedies)
1988
GEPA Amended (Due Process / OALJ)
1986
Appeal of California (Tydings / Linkage)
Single Audit Act
1984
U.S. Education Department Established
1980
1978
Inspector General Act
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Why Supercircular???

• Greater simplicity
• Greater consistency
• Obama Executive Order on Regulatory Review

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• Greater simplicity means elimination of several
  compliance elements in the Compliance Supplement
• 14 requirements reduced to 7, eliminating
• Equipment Management
• MOE/Ear-Marking
• Procurement
• Program Income

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• The elimination of the compliance requirements
  from A-133 will place the burden on
  Pass-Through agencies

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Key Requirements Retained

• Allowable Costs
• Eligibility
• Cash Management
• Reporting
• Subrecipient Monitoring

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What is covered?

• Administrative Requirements (A-102, A-110)
• Cost Principles (A-87, A-21, A-122)
• Audit Requirements (A-133)

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Who is covered?

• All non-federal entities expending federal awards

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When is it effective?

• NPRM 2/1/13
• Close of comment period 06/02/13
• Analysis of public comment
• Final regulation (2 CFR) not likely before
  1/1/14
• EDGAR revisions within one year of final
  regulation ?
• Effective date of 7/1/14 is doubtful

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Might EDGAR be inconsistent with Supercircular?

• Yes, but federal agencies applying more
  restrictive requirements need OMB approval

Section _.108
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• Agencies can request special tests for A-133
  items removed (e.g., equipment management, period
  of availability of funds)

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If program statute differs from Supercircular,
statute governs
Section _.106
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So what is new?
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Federal agencies must evaluate risks to the
program posed by each applicantFocus now on risk!

• Financial stability
• Management system
• History of performance
• Generally available information
• Single audits
• Capacity to implement programs

Section _.205
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Following risk analysis, agencies may impose
conditions on grantee
Section _.205
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Performance Expectations

• Agencies must include in the award indication of
  timing and scope of expected performance as
  related to outcomes intended to be achieved by
  the program

Section _.404
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Pass-Through Agency may impose supplemental
requirements
Section _.501(c)(4)
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Pass-Through Monitoring shall include

• Analyzing financial and programmatic reports
• Ensure subrecipients take timely and appropriate
  corrective action
• Issue management decision on A-133 finding at
  subgrantee level

Section _.501(c)(5)
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Monitoring Tools of Pass-Through

• On-site reviews
• Provide training and technical assistance
• Arrange for Agreed Upon Procedures

Section _.501(c)(5)
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Risk Factors for Pass-Through Monitoring

• Results of previous audits
• New subrecipients
• New personnel or substantially changed system
• Extent of federal monitoring

Section _.501(c)(6)
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Cash Management

• Recipients shall maintain advances of federal
  funds in interest bearing accounts unless
• Recipient receives less than 120,000 in federal
  per year
• Interest will not exceed 500
• Bank requires minimum balance

Section _.502(e)(3)(k)
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Inventory Management

• Equipment definition same
• Acquisition cost of 5,000
• Useful life greater than one year

Section _.503(d)
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Inventory Management

• Use/Management/Disposition
• Same as EDGAR 80.32

Section _.503(d)
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Costs of Computing Devices Supplies

• But
• When no longer needed for any other federally
  sponsored project, recipient may
• Retain them
• Sell them
• But compensate federal government if per unit
  value exceeds 5000
• But
• Conflicts with C-31(6) total aggregate value of
  5000 (unused)

Section _.503(e) and Section _ .620
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Cost Shifting

• Grantee cannot shift cost from one award to
  another to overcome shortfall, unless costs are
  allowable under both awards

Section _.607(c)
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Cost Allocation Cost Sharing

• If a cost benefits two or more projects in a
  proportion that can be easily determined, then
  cost should be allocated on the proportional
  benefit

Section _.607(d)
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Cost Allocation Cost Sharing

• If proportion cannot be easily determined then
  allocate on any reasonable documented basis

Section _.607(d)
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Set-Asides

• If program statute contains reserves or
  limitations, amount not used cannot be charged to
  other federal awards

Section _.611
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Administrative Costs Direct Charging of
Administrative Costs

• Salaries of administrative and clerical staff
  should be treated as indirect, unless
• Services are integral to project, and
• Individuals can be specifically identified, and
• Costs are explicitly set out in budget, and
• Costs not recovered as indirect

Section _.615(d)
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Indirect Costs

• A federally approved negotiated rate shall be
  accepted by all federal agencies

Section _.616(c)(1)
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Indirect Costs

• Pass-through entities must abide by the federally
  recognized indirect cost rate negotiated between
  the federal agency and subrecipient
• (restricted vs. unrestricted)

Section _.501(c)(1)(D)
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Indirect Costs

• But if no such rate exists, the pass-through must
  negotiate the rate, or a de minimis indirect cost
  rate equal to 10 of total modified direct costs
  to small entities. (But what about restricted
  rates? Most LEAs have restricted rates in single
  digits.)

Section _.616(e)
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Time and Effort Management

• Eliminate reference to PARs
• Now Certified Reports
• Reports may be electronic
• Semi-Annual for single cost objective - same

Section _.621 C-10(9)
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Time and Effort Management

• After the fact, unless mutually satisfactory
  alternative approved by awarding agency
• Certification periods cannot exceed 12 months
• Activities may be expressed as percentages

Section _.621 C-10(9)
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Time and Effort Management

• Certified Reports on 2 or more cost objectives
  certified by employee or individual responsible
  for verification

Section _.621 C-10(9)
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Time and Effort Management

• No additional support other than certification is
  necessary

Section _.621 C-10(9)
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Time and Effort Management

• Substitute systems may be used if approved by
  cognizant agency
• Federal agencies are encouraged to approve
  alternative proposals based on outcomes

Section _.621 C-10(9)(F)
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Time and Effort Management

• Awarding agencies may approve blended funding
  where multiple programs involved, and
  performance-oriented metrics are used

Section _.621 C-10(9)(F)
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Cost Principles Changes

• Costs for services of counsel (in-house or
  Bruman) for administrative proceedings (OALJ) may
  not be charged if the ALJ imposes a monetary
  penalty. Legal expenses are allowable if the
  proceeding is resolved by consent or compromise.

Section _.621 C-14(2)
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Cost Principles Changes

• Cost of Meetings
• Costs from meetings and conferences beyond the
  recipient entity are allowable

Section _.621 C-32
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Cost Principles Changes

• Travel Costs
• Grantee must retain documentation
• Participation of individual is necessary to the
  federal award
• Costs are reasonable and consistent with entitys
  established travel policy

Section _.621 C-53(2)
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Cost Principles Changes

• Travel
• If no institutional travel policy, GSA rates
  apply
• - 48 CFR 31.205-46(a)

Section _.621 C-53(2)(C)
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Single Audits

• Single Audit threshold is raised from 500,000 in
  federal annual expenditures to 750,000

Section _.701(a)
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Audit Follow-Up

• Federal awarding agencies shall use cooperative
  audit resolution mechanisms to improve federal
  program outcomes through better audit resolution,
  follow-up and corrective action

Section _.713(c)(5)
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Cooperative Audit Resolution

• Improve communication, foster collaboration,
  promote trust, and develop understanding between
  auditor and auditee

Appendix I - Definitions
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Cooperative Audit Resolution

• This approach is based upon Federal agencies
  offering appropriate amnesty for past
  noncompliance when audits show prompt corrective
  action

Appendix I - Definitions
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Agency Determination Letters

• The federal agency or pass-through entity may
  request additional information from auditee as a
  way of mitigating disallowed costs

Section _.714(a)
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Time Requirements

• The federal agency or pass-through shall make the
  determination within six months of the acceptance
  of the audit report

Section _.714(d)
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Audit Findings

• Revises definition of major program to focus
  audits on material issues
• The auditor shall report known questioned costs
  greater than 25,000 for major programs
• If not a major program (auditor normally will not
  find questioned costs) but if auditor becomes
  aware of questioned costs greater than 25,000
  for non-major programs must report

Section _.714(a)
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• Disclaimer
• This presentation is intended solely to provide
  general information and does not constitute legal
  advice. Attendance at the presentation or later
  review of these printed materials 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.