Corrective Action Plans Frequently Asked Questions

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Corrective Action PlansFrequently Asked Questions

• Leigh Manasevit, Esq.
• lmanasevit_at_bruman.com
• Bonnie Little Graham, Esq.
• bgraham_at_bruman.com
• Jenny Segal , Esq.
• jsegal_at_bruman.com
• Brustein Manasevit, PLLC
• www.bruman.com
• Spring Forum 2013

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Intro

• Newly purchased items of equipment were not
  consistently entered into the property tracking
  system or, if entered, some of the items of
  equipment remained in the warehouses undelivered,
  were delivered to an incorrect location, or were
  misplaced or stolen. As of 1998, VIDE began to
  implement the corrective actions necessary to
  revamp its property management system as well as
  to correct other deficiencies in its
  administration of Federal grant programs.
  Progress was slow. As a result, VIDE was
  designated as a high-risk grantee and special
  conditions were imposed. Later, ED and VIDE
  entered into a compliance agreement that
  permitted VIDE to continue to receive funding
  while it implemented a structured plan to correct
  the administrative and programmatic deficiencies.
  
• Application of U.S. Virgin Islands Dept. of ED,
  Docket No. 05-04-R (Jan. 24, 2011).

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Agenda

• When are corrective action plans necessary?
• What needs to be in a corrective action plan?
• Can the state/grantee require a corrective action
  plan from locals/subgrantees?
• Can I use grant funds to pay for corrective
  actions?
• How are corrective actions enforced?
• Can I appeal required corrective actions?

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When are corrective action plans necessary?
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Identifying Noncompliance

• Monitoring by ED or grantee
• OIG audit
• A-133 single audit
• Performance data
• Financial data
• Internal review

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Corrective Action Needed

• Program Determination Letters
• OIG Audit Report
• Single Audit Report
• Grant Award Notification special conditions
• Monitoring report

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What needs to be in a corrective action plan?
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Corrective Action Plans

• Objective/activity (measurable)
• Timeline
• Identify person responsible
• Budget
• Data
• Deliverables

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For example
Activity Responsible Party Deliverable Due Date
Ensure compliance with SEAs application process for Federal education funds, including using SEAs application tools, meeting all SEA deadlines and following SEAs amendment procedures. LEA Director of Federal Programs name, contact info Documentation evidencing that LEA used SEA-provided application tools and submitted its application for funds and any amendments in accordance with SEAs application process and deadlines, including budgets and signed assurances. Signature under penalty of perjury by the Superintendent or highest-ranking administrative position at LEA affirming that the submitted application(s) is true and correct. Consistent with SEA published deadlines
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Corrective Action Plan

• Over-promise
• Under-promise
• Unrealistic timeframe
• Does not address the issue
• Correcting noncompliance can be a lengthy
  process, measured in years rather than months

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Can the state/grantee require a CAP from
locals/subgrantees?
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Authority

• EDGAR 80.40(a)
• Grantees are responsible for managing the
  day-to-day operations of grant and subgrant
  supported activities. Grantees must monitor
  grant and subgrant supported activities to assure
  compliance with applicable Federal requirements
  and that performance goals are being achieved.
  Grantee monitoring must cover each program,
  function or activity.

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Authority

• EDGAR 80.12(a)
• A grantee or subgrantee may be considered high
  risk if
• Has a history of unsatisfactory performance
• Is not financially stable
• Has management system that does not meet EDGAR
  standards
• Has not conformed to terms and conditions of
  previous awards
• Is otherwise not responsible

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Can I use grant funds to pay for corrective
actions?
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Paying for Corrective Actions

• Allowable?
• Necessary and reasonable
• Legal expenses required in the administration of
  Federal programs are allowable.
• Costs related to cooperative audit resolution are
  allowable
• Allocable?
• Activity is allowable under multiple programs,
  agency has discretion in determining which
  programs may be charged. 34 C.F.R. 76.760
• Agency can make business decision regarding
  what combination of funds would be applied to a
  function or activity that benefits two or more
  programs. Implementation Guide for OMB Circular
  A-87, QA 2-16
• Example Cross-cutting grants management
  policies and procedures manual

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How are corrective actions enforced?
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Enforcement - ED

• Whenever the Secretary has reason to believe that
  any recipient of funds under any applicable
  program is failing to comply substantially with
  any requirement of law applicable to such funds,
  the Secretary may
• withhold further payments under that program,
• issue a complaint to compel compliance through a
  cease and desist order of the Office, 
• enter into a compliance agreement with a
  recipient to bring it into compliance
•  take any other action authorized by law with
  respect to the recipient.
• Any action, or failure to take action, by the
  Secretary under this section shall not preclude
  the Secretary from seeking a recovery of funds 
• GEPA, 20 USC 1235c

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Enforcement - Grantees

• Withholding approval of application
• Withholding of funds
• Reimbursement with special conditions
• High risk designation

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Compliance Agreement

• Pros

• Cons

• Continue to receive federal funding
• Clear requirements and deadlines

• Heightened federal oversight
• Deadlines
• Inflexible
• Expensive

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Withholding of Funds

• Withholding
• Reasonable notice of intent to withhold and
  opportunity for a hearing with an impartial
  hearing officer. 20
  U.S.C. 1232c(b)(2) 20 U.S.C. 1234d(b).
• Withhold until satisfied there is no longer a
  failure to comply.
• Suspending
• SEA must provide notice to the subgrantee and
  allow it 15 days to show cause why the suspension
  should not take effect. 20 U.S.C. 1232c(b)(2).
• If the subgrantee does not show cause, SEA may
  suspend funds for 60 days.

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Reimbursement with Special Conditions

• ED and Grantees have discretion to impose special
  conditions
• Grantees are responsible for ensuring all
  expenditures are lawful (including subgrantees
  expenditures) and for ensuring all findings of
  noncompliance are resolved. 34 CFR 80.40(a).
• For example SEA could reimburse 80 of each
  Federal draw upon receipt of the summary reports
  and detailed lists, and then reimburse the
  remaining 20 after sampling certain expenditures
  and verifying detailed supporting documentation
  (such as time and effort documentation supporting
  payroll charges and requisition requests,
  purchase orders, contracts, receiving documents,
  invoices and canceled checks for non-payroll
  charges).
• Is this reimbursement scheme withholding?

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High Risk Designation

• After placing the grantee/subgrantee on high
  risk, special conditions or restrictions that
  correspond to the high risk condition must be
  imposed. Such special conditions or restrictions
  may include
• Payment on a reimbursement basis
• Withholding authority to proceed to the next
  phase until receipt of evidence of acceptable
  performance within a given funding period
• Requiring additional, more detailed financial
  reports
• Additional project monitoring
• Requiring the grantee or subgrantee to obtain
  technical or management assistance or
• Establishing additional prior approvals.
• 34 CFR 80.12(b)

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Can I appeal required corrective actions?
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Appeal

• Disallowance vs. Corrective action
• GEPA permits an appeal of a disallowance decision
• No appeal of corrective actions
• A-133, _.315(c) If the auditee does not agree
  with the audit findings or believes corrective
  action is not required, then the corrective
  action plan shall include an explanation and
  specific reasons.

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Appeal Disallowance

• Impact of Corrective Action on Recovery Amount
• Compromise authority In certain circumstances,
  ED may compromise the amount claimed under GEPA
  if the grantee/subgrantee demonstrates the
  practice that resulted in the disallowance
  decision has been corrected and will not recur.
  34 C.F.R. 81.36(a).
• Grantback In certain circumstances, ED may offer
  a grantback of up to 75 of the recovered funds
  if the practices or procedures of the recipient
  that resulted in the violation have been
  corrected. 20 U.S.C. 1234h(a).
• Equitable offset Remedy available to grantees
  and subgrantees to prevent the recovery of
  sustained audit liabilities. Case law
  establishes that evidence of appropriate
  corrective actions is an equitable factor in
  support of the application of equitable offset.

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The Super Circular on corrective actions
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Cooperative Audit Resolution

• Federal agencies offering appropriate amnesty
  for past noncompliance when audits show prompt
  corrective action has occurred.
• Corrective Action means action taken by the
  auditee that
• Corrects identified deficiencies
• Produces recommended improvements or
• Demonstrates that audit findings are either
  invalid or do not warrant auditee action

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For example

• In one jurisdiction, ED issued a 70 Page PDL
  which determined all findings were either
• 1. Resolved and closed because ED had received
  sufficient documentation that corrective action
  was already in place or
• 2. Required further corrective action
• Please note that corrective action is required
  for some of these audit findings, as well as
  audit findings not specifically addressed in this
  PDL. ED will continue to work with you to
  implement corrective actions required by this
  PDL.
• Emphasized the importance of
• 1. Producing records at the time they are
  requested by the auditors and complying with the
  requirements in 76.730(e) of EDGAR to keep
  records to facilitate an effective audit and
• 2. Working with ED (not being adversarial).

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For example

• A second jurisdiction received a 76 page PDL
  regarding two single-audits. PDL did not demand
  recovery of any funds, but mandated several
  corrective actions, such as
• MOE Review MOE calculation methodologies and
  update use audited data complete MOE
  calculations in a timely manner and communicate
  data to LEAs to ensure timely completion of A-133
  audits.
• Is audited data required?
• Subrecipient Monitoring Process for identifying
  high risk grantees under 80.12 conduct fiscal
  monitoring (cannot rely solely on A-133 audits).
• Comparability Develop and implement an
  indicator for monitoring comparability and
  integrate this indicator into protocols for
  subrecipient monitoring.

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For example . . . Colorado

• OIG We commend CDE for initiating timely
  corrective action in response to the audits
  finding and recommendations. The actions that CDE
  describes in its comments, in response to our
  recommendations, would appear to address our
  finding, but the Department will ultimately make
  this determination.
• PDL We find that the policies and procedures
  provided generally appear sufficient to establish
  an effective system to account for the
  distribution of effort for employees who work on
  multiple programs, however we have questions
  regarding implementation . . .
• Single audit findings!

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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.