recent audit developments: the “supercircular”

RECENT AUDIT DEVELOPMENTS:THE “SUPERCIRCULAR”

Michael Brustein, [email protected] & Manasevit, PLLCwww.bruman.com Spring Forum 2013

1Brustein & Manasevit, PLLC

2

Super Circular NPRM2013

ARRA ($101 billion Cash Infusion)

2009

2002

2001

1996

1989

1988

1986

1980

1978

NCLB Provides Statutory Base to CAROI

Risk Management (High Risk Designations)Birth of CAROI (FL / PA)

Appeal of New York (Equitable Remedies)

GEPA Amended (Due Process / OALJ)

Appeal of California (Tydings / Linkage)

U.S. Education Department Established

Inspector General ActFed

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l E

du

cati

on

Au

dit

Reso

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Key

Even

ts

Brustein & Manasevit, PLLC

1995

Rewrite of A-87

1984

Single Audit Act

Why “Supercircular”???

1. Greater simplicity

2. Greater consistency

3. Obama Executive Order on Regulatory Review


• Greater “simplicity” means elimination of several compliance elements in the Compliance Supplement

• 14 requirements reduced to 7, eliminating:1. Equipment Management2. MOE/Ear-Marking3. Procurement4. Program Income


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


Key Requirements Retained

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


What is covered?

1. Administrative Requirements (A-102, A-110)

2. Cost Principles (A-87, A-21, A-122)

3. Audit Requirements (A-133)


Who is covered?

•All non-federal entities expending federal awards


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


Might EDGAR be inconsistent with Supercircular?•Yes, but federal agencies applying more restrictive requirements need OMB approval

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Section _.108


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


If program statute differs from Supercircular, statute governs

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Section _.106


SO WHAT IS NEW?


Federal agencies must evaluate risks to the program posed by each applicantFocus now on risk!

a) Financial stability

b) Management system

c) History of performance

d) Generally available information

e) Single audits

f) Capacity to implement programs

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Section _.205


Following risk analysis, agencies may impose conditions on grantee

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Section _.205


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

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Section _.404


Pass-Through Agency may impose “supplemental requirements”

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Section _.501(c)(4)


Pass-Through Monitoring shall include:

a) Analyzing financial and programmatic reports

b) Ensure subrecipients take timely and appropriate corrective action

c) Issue management decision on A-133 finding at subgrantee level

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Section _.501(c)(5)


Monitoring Tools of Pass-Through

a) On-site reviews

b) Provide training and technical assistance

c) Arrange for “Agreed Upon Procedures”

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Section _.501(c)(5)


Risk Factors for Pass-Through Monitoringa) Results of previous audits

b) New subrecipients

c) New personnel or substantially changed system

d) Extent of federal monitoring

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Section _.501(c)(6)


Cash Management

•Recipients shall maintain advances of federal funds in interest bearing accounts unless…

a) Recipient receives less than $120,000 in federal $ per year

b) Interest will not exceed $500

c) Bank requires minimum balance

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


Inventory Management

•Equipment definition same

a) Acquisition cost of $5,000

b) Useful life greater than one year

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Section _.503(d)


Inventory Management

•Use/Management/Disposition•Same as EDGAR 80.32

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Section _.503(d)


“Costs of Computing Devices” = “Supplies”

ButWhen no longer needed for any other federally sponsored project, recipient may

a) Retain themb) Sell them

But compensate federal government if per unit value exceeds $5000

ButConflicts with C-31(6) total aggregate value of $5000 (unused)

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


Cost Shifting

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

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Section _.607(c)


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

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Section _.607(d)


Cost Allocation – Cost Sharing

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

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Section _.607(d)


Set-Asides

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

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Section _.611


Administrative Costs – Direct Charging of Administrative Costs• Salaries of administrative and clerical staff should be treated as indirect, unless

a) Services are integral to project, and

b) Individuals can be specifically identified, and

c) Costs are explicitly set out in budget, and

d) Costs not recovered as indirect

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Section _.615(d)


Indirect Costs

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

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Section _.616(c)(1)


Indirect Costs•Pass-through entities must abide by the federally recognized indirect cost rate negotiated between the federal agency and subrecipient

(restricted vs. unrestricted)

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


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.)

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Section _.616(e)


Time and Effort Management

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

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Section _.621 C-10(9)



•After the fact, unless mutually satisfactory alternative approved by awarding agency

•Certification periods cannot exceed 12 months

•Activities may be expressed as percentages

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Section _.621 C-10(9)



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

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Section _.621 C-10(9)



•No additional support other than certification is necessary

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Section _.621 C-10(9)



•Substitute systems may be used if approved by cognizant agency

•Federal agencies are encouraged to approve alternative proposals based on outcomes

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Section _.621 C-10(9)(F)



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

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Section _.621 C-10(9)(F)


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.

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Section _.621 C-14(2)


Cost Principles Changes•Cost of Meetings

•Costs from meetings and conferences “beyond the recipient entity” are allowable

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Section _.621 C-32


Cost Principles Changes

•Travel Costs• Grantee must retain documentation

a) Participation of individual is necessary to the federal award

b) Costs are reasonable and consistent with entity’s established travel policy

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Section _.621 C-53(2)


Cost Principles Changes

TravelIf no institutional travel policy, GSA

rates apply

- 48 CFR 31.205-46(a)

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


Single Audits

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

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Section _.701(a)


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

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Section _.713(c)(5)


Cooperative Audit Resolution

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

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Appendix I - Definitions


Cooperative Audit Resolution

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

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Appendix I - Definitions


Agency Determination Letters

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

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Section _.714(a)


Time Requirements

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

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Section _.714(d)


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

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Section _.714(a)


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.


recent audit developments: the “supercircular”

Documents

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supercircularmichael

audit requirements

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restrictive requirements

supplemental requirements

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