Advanced Financial and Grants Management:

Federal Audits&

Common Pitfalls and Issues

Session Objectives

Learn about Federal audits and how to prepare

Learn about common audit pitfalls and issues

What is an Audit

Examines a Corporation program or activity1. Financial Audits

• Audits of costs incurred on grants and contracts, indirect costs, and internal controls

2. Performance Audits• Audits of economy and efficiency of programs

– Measure achievement of desired results or benefits

Office of Inspector General

OIG – Who are They?

• Office of Inspector General = OIG or IG• Independent organization• The Inspector General has the authority to:

– Have access to all Corporation documents and records– Subpoena documents– Administer oaths– Have direct and prompt access to the Chief Executive

Officer • Debar and obtain reimbursement of funds from

AmeriCorps programs that have been found to have committed serious violations of program requirements

OIG – What’s their Mission?

• Conducts & supervises – audits – investigations

• Works to prevent and detect fraud, waste, and abuse

• Promotes economy, efficiency and effectiveness

• Keeps the CEO and Congress informed about problems and deficiencies

Who Performs an OIG Audit?

Auditors:– OIG Staff

OR– OIG Representative - Independent Public

Accounting Firm (IPA) selected by the OIG

All audits are managed by an OIG Audit Manager regardless of who is performing the audit

How are OIG Audits Selected?

• Risk-based process on the basis of a range of factors

• Annual OIG Audit Plan– Legislatively mandated audits – Discretionary audits– Corporation requested audits

What’s the OIG Audit Process?

1. Notification Letter in writing

2. Entrance Conference • To provide audit scope and objectives

3. Survey Phase (planning phase) • To obtain grantee’s background, mission,

resources, responsibilities, key personnel, operating systems and controls

What’s the OIG Audit Process?

4. Develop the Audit Program• A set of procedures for auditors to follow

5. Field Work• Auditors complete the audit following the

procedures in the audit program

6. Exit Conference• A verbal briefing of auditor’s findings work with the

opportunity to confirm information, ask questions, and obtain clarifying information

What’s the OIG Audit Process?

7. Draft Report• Issued to the auditee and Corporation officials a

request to provide written comments in 30 days

8. Corporation & Grantee Response• The Corporation and Grantee each respond in writing to

the draft report and comments are published in the final report

9. Final Report• Issued after reviewing auditee’s and Corporation’s

comments with complete description of findings and recommendations for corrective action

Audit Resolution Process

• Corporation management (Office of Grants Management, or its representative) works with the grantee to determine if the audit findings are founded

• OGM prepares a Management Decision based on grantee input and works with OIG management to agree on proposed corrective actions needed

• OGM takes action to improve operations or correct deficiencies identified in the Final Audit Report

– Corrective action required to be completed within 1 year

The Auditors are Coming, What Should I Do?

• Locate all grant records and A-133 reports

• Be familiar with the grant provisions and regulations

• Check financial and program records to ensure there is support for all costs and compliance with all AmeriCorps grant provisions and Federal regulations

The Auditors are Coming, What Should I Do?

• Ensure written policies and procedures are in place to comply with Federal regulations

• Accounting systems should:

– record operating costs separately from grant costs

– record costs separately for each grant

Common Pitfalls and Issues

Member Eligibility

Findings: Lack of documentation of Participant’s• Age • Criminal record/sex offender check if working with vulnerable

populations• Citizenship

Consequences: • May disallow all payments (any stipends/living allowances, health

and child care benefits, or participant reimbursements)• May disallow Education Awards for AmeriCorps participants• May terminate grant or be disbarred depending on the extent and

severity of findings• May disallow all Federal funds if all or most of the participants are

undocumented or ineligible

Member Eligibility

Preventive Actions: • Document how eligibility was confirmed

• Understand and document program specific participant requirements for eligibility

• Conduct appropriate National Service Criminal History Checks

• Understand requirements for Staff & Participants with involvement with children or vulnerable populations

• Customize member contracts if necessary to exclude working with vulnerable populations

• Create written policies and procedures that clearly outline the requirements for eligibility, documentation, screening, and maintaining records

• Initiate necessary reviews for deciding eligibility with final signoff for “hiring”

• Incorporate internal controls that include a review of decisions and documentation by the Project Director

AmeriCorps MembersFindings:• Member timesheets not signed by both member and supervisor

• Member timesheet does not add up to the number required to earn an Education Award for that term of service

• Members start serving before they sign the contract

• Members start serving before the grant award period

Consequences: • May disallow all payments (any stipends/living allowances, health and

child care benefits, or participant reimbursements)

• May disallow Education Awards for AmeriCorps participants

• Member hours served prior to grant or before signing contract may not be counted towards education award or term of service

AmeriCorps Members

Preventive Actions:• Complete service log daily and submit in a timely manner• Document only hours served, do not include lunch or breaks as

service hours• Record hours according to the activities performed (direct

service, training or fundraising), and record these hours in separate columns

• Check the math! All totals should be mathematically correct• Member and site supervisor must sign and date all service logs• Sites must maintain a file with the original service logs• Never use whiteout to make corrections• Use a permanent means to document all time, i.e., never use

pencils or erasable pen• Periodically do a random check of member timesheets

MatchFindings:• Match requirement not met• Cash and in-kind amounts were not supported by adequate

documentation or not verifiable by grantee’s records• In-kind contributions were not supported with after-the-fact

documentation (promissory note is not acceptable)• Other Federal funds were used as match without

authorization• Match claimed was not necessary to operate grant• Match amounts were unreasonable or excessive• Match was inadequately supported to determine if it was

allowable and allocable• Match was not related to a cost included in the approved

budget• Match covered expenses incurred outside of the grant award

period

Match

Consequences: • May disallow match causing minimum match to not be met• May disallow some Federal funds if minimum match cannot be met• May decide to audit all match or question all match if unable to

confirm if match is reasonable or allocable

Preventive Actions:• Ensure documentation is adequate for all match• Review all match to ensure it is necessary and reasonable • Followup on promises to provide in-kind and obtain documentation• Obtain written approval from other Federal agency to its funds• Request budget amendments to include new sources of match• Determine if costs are allowable – ask questions, don’t risk it!• Know the regulatory and other match requirements

– AmeriCorps § 45 CFR 2521

Match Basics

The same requirements apply to match and direct costs so that all costs must be:

• reasonable • allocable• allowable • provided consistent treatment• expensed in the accounting system • supported by adequate & appropriate documentation

1. Document the basis for determining value of personal services, material, equipment, building, and land

2. Obtain written acknowledgement of the contribution including:

Name and signature of donor Date and Location of donation Detailed description of item/service Estimated value of contribution, how value

was determined, who made the determination

Was the contribution obtained with Federal funds

*** Keep a copy of the receipt in your files ***

Documenting In-Kind Contributions

Sample In-Kind Contribution Form

See Handout

Time & Attendance – StaffFindings: • Inadequate documentation to support salary expenses• Staff allocating time to more than one grant were not keeping

timesheets that show actual time spent on each grant• Lack of proper timekeeping systems • No timesheets or activity reports maintained or retained• No reconciliation between estimates and actual time• Non-compliance with OMB requirements• Salaries and wages charged to the grant:

– On the basis of budgeted amounts instead of actual after-the-fact time

– Based on estimates– Unsigned or unapproved timesheets by employee or

supervisor– Time not allocated among activities

Time & Attendance – Staff

Consequences: • May disallow entire claim for salary for all staff over the

course of the entire grant• Unmet match requirement

Preventive Actions:• Use timesheets that align with the payroll period that reports

all activities of the employee, both on the grant and other projects

• Implement procedures whereby all timesheets are reviewed and approved by a supervisor before sent to payroll

• Reconcile budgeted salaries to actual time spent on the grant• Know the regulatory and other requirements

Common Pitfalls & Issues7 Main Areas:

1. Member Eligibility

2. Member Files & Records

3. Member Costs

4. Match

5. Reports

6. Administrative Areas

7. General Management See Handout

Auditor RecommendationsOIG Recommendations• Disallow expenses, which may result in

– repayment of Federal funds– disallowed match funds causing minimum match

to not be met. • Disallow education award, which may result in

– a pro-rated education award, – the grantee/subgrantee repaying the amount of

disallowed education award already used by the member

– the member not being allowed to use his/her education award.

AmeriCorps Self-Checks

Do member files contain all required eligibility documentation?• Citizenship, age, parental consent, HS diploma/GED,

background check, documented compelling reason for early exit

Do member contracts comply with grant requirements?• Work description, service location, evaluations, entry & exit

forms [see AmeriCorps provisions for complete list]

Have required member mid-term and exit evaluations been prepared, discussed, signed and filed?

Do the hours reported in WBRS agree with the member timesheets?

Are member timesheets signed by both member and supervisor?

CaliforniaVolunteers and the OIG Audit

• Audit Period = January 1, 2001 through March 31, 2004

• 10 subgrantees audited

– 8 of these had findings

• Final Corporation Management Decision

– Federal Questioned Costs: Disallowed $383,723 of the $1,041,476 (37%)

– Education Awards: Disallowed $53,588 of the $414,260 (13%)

– Match Costs: Disallowed $3,425,099 of the $8,694,506 (39%) [$3,422,854 due to administrative error]

• Website: www.cncsig.gov/PDF/AuditReports/fy05/05-24.pdf

CaliforniaVolunteers and the OIG Audit

Member Costs Questioned:• Questioned excess member benefits paid to members after exiting

• Questioned living allowance and fringe questioned for members due to: – missing file

– no citizenship documents

– terminated member

– no citizenship documents

• Questioned living allowances paid to non-members

• Questioned living allowance for member paid while working another job, questioning living allowance and fringe

• Questioned overclaimed living allowances for members

• Unsupported member hours

CaliforniaVolunteers and the OIG Audit

Other Grant Costs Questioned: • Administrative costs due to salaries that could not be supported• Claimed costs on FSR exceeded general ledger costs for living

allowances and fringe• Travel costs paid in excess of allowed California state rate for grant

staff • Unallocable non-salary administrative costs• Unallowable costs for

– direct costs, fringe benefits, member support costs, mileage, meals, exceeding consultant rate, late fees, administrative costs, overclaimed costs

• Match and in-kind costs with – no documentation– inadequate documentation– unreasonable – missing files

CaliforniaVolunteers and the OIG Audit

Member Education Awards Questioned:

• No HS diploma documentation

• Insufficient hours

• No member records

• No citizenship documents

• No age verification

• Exited for nonqualifying compelling reasons

• Missing files

Prepare now,

so you don’t have

to pay later!

Surviving an OIG Audit

A-133 Audits

A-133 Audits

• Ensures consistency and uniformity among Federal agencies for the audit of non-Federal entities expending Federal grant awards

• Required annually for entities expending $500,000 or more of Federal funds during its fiscal year

• Audit must be performed by an independent Certified Public Accountant

• Cost of audit should be recorded as an administrative (indirect) cost

A-133 Audits

If an A-133 audit is required, an independent auditor must audit your organization to assess:

– The reliability and accuracy of your organization’s financial statements and financial position

– The adequacy of your organization’s internal control structure

– Your organization’s compliance with applicable laws and regulations that may materially affect your financial statements

A-133 Corrective Action Plans

If an A-133 audit report identifies findings, your organization must develop a Corrective Action Plan for each finding to include:

• The reference numbers the auditor assigns to audit findings • Name of Contact Person Responsible for corrective action• Corrective Action Planned or Taken• Anticipated Completion Date

If your organization 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

www.whitehouse.gov/omb/circulars/a133/a133.aspx#c

Submit A-133 Reports

• Submit A-133 audit report to: – Federal Clearinghouse– CaliforniaVolunteers

• Submit to CaliforniaVolunteers:– One copy of the reporting package when the schedule

of findings and questioned costs disclosed audit findings relating to CNCS Federal awards that the CaliforniaVolunteers provided

Fraud

What is Fraud?

An intentional misrepresentation of facts made by an individual to deprive

another of something of value

OR

Larceny by trickery

Common Fraud Areas

Misuse of grant funds

Timesheet fraud

Embezzlement

Theft

Misuse of Grant funds

Non-grant related expenditures during a time when CNCS grant is the only funding source

Receipts for what appears to be non-grant expenditures being charged to the grant

Funds drawn down on unoccupied member slots

Unauthorized personnel expenses charged against the grant

Misuse of Grant funds

Drawdown of all or most of the grant funds well before the end of the program year

Documents not signed or dated

Changing or falsifying documents

Preparing documents the night before an inspection, site visit, or audit

Timesheet Fraud

Documents that appear to have all been prepared at the same time

Hours claimed are not reasonable and/or allowable

Members hand carry timesheet from sites to program office

Member time not charged to correct grant when hosting multiple programs with multiple grants

Other logged hours do not match timesheets

Staff percentage of time charged to two or more programs in greater than 100%

Embezzlement No secondary endorsements on checks when required

Members and staff are not being paid or checks bounce

Double payments or payments to ghost individuals

Frequent use of white out, pen and ink changes, or strikeouts

Missing documents or using copies instead of originals

Funds missing with no sign of break-in or burglary

Theft

Purchasing items not used by the organization

Receipts for items that cannot be traced to a valid purchase receipt

Property and controlled, inventoried, or missing

Charge card purchases not monitored

Excessive mileage claimed for travel to project sites

Mailing, telephone, or supply costs increase suddenly

Red Flags – Employees

Personal problems or pressures

Dramatic lifestyle changes (increases or excesses)

Close relationship with suppliers or vendors

Does not take vacation or sick leave

Reluctance to share information

Fraud & Your Responsibility

Per AmeriCorps grant provisions, General Provisions, Section V.C.

The Office of Inspector General.– The OIG is available to offer assistance to

AmeriCorps grantees that become aware of suspected criminal activity in connection with the AmeriCorps program

– Grantees should immediately contact OIG when they first suspect that a criminal violation has occurred

CaliforniaVolunteers must report issues to the OIG when issues are brought to its attention by grantees

OIG HotlineOIG HotlineReport suspected fraud, waste, or abuseReport suspected fraud, waste, or abuse

All Information is confidentialAll Information is confidential

You can remain anonymousYou can remain anonymous

1-800-452-82101-800-452-8210oror

hotline@cncsig.govhotline@cncsig.govWebsite: Website: www.cncsig.gov

CaliforniaVolunteers Monitoring

• Desk Reviews– Member File Reviews– Fiscal Desk Reviews– Program Desk Reviews

• Followup Audits

• Site Visits– Program Visits– Fiscal Visits

Questions?Questions?