Financial Compliance

NC DPI

Monitoring & Compliance Section

October 21, 2013

Objectives

Attendees will gain an understanding of the following:• NC DPI’s Monitoring & Compliance Section

– Roles– Contact information

• Financial accountability and compliance requirements, especially as they apply to receipt of federal grants– Audited Financial Statements – Internal Controls

• Financial Noncompliance

Monitoring & Compliance Section

What is the role of Monitoring & Compliance Section related to charter schools?Provide quality support to charter schools and their stakeholders through timely and accurate oversight and monitoring of charter school grants, programs and related initiatives.

Under what authority does Monitoring and & Compliance operate?34 CFR 80.40 - Grantees (DPI) must monitor grant and subgrant supported activities to assure compliance with applicable Federal requirements.

Monitoring & Compliance Section

Oversight activities include (but are not limited to) the following:• Fiscal monitoring• 21st Century Community Learning Center grants bond

compliance• Administrative Cost Limitation compliance• Carryover Limitation compliance• Audit resolution• GS 143C-6-23 compliance• DUNS and SAM compliance• Technical Assistance• Charter School Financial Guide

Monitoring & Compliance Section

What is fiscal monitoring?Review and analysis of the charter school’s activities to ensure Federal awards are used for authorized purposes in compliance with laws, regulations, and the provisions of contracts or grant agreements.

What are some examples?• On-site reviews

– Time and Effort– Budget vs. Expenditure– Equipment– Contracted Services– Written Policies and

Procedures• Desk reviews

Fiscal Expectations

What is the expectation for fiscal responsibility for charter schools?• Charter schools are required to meet generally accepted

standards of fiscal management. (NC Gen. Stat. 115C-238.29G(a)(2)).

• Charter schools receiving federal funds must comply with applicable statutes, regulations, and approved applications; and must use Federal funds in accordance with those statutes, regulations, and applications.

Legislation, Statutes & Guidance

• Federal– No Child Left Behind Act of 2001 (NCLB)– Education Department of General Administrative Requirements

(EDGAR)– General Education Provisions Act (GEPA)– OMB Circulars

• A-133• A-87

• North Carolina General Statute (GS115C-238.29A – GS115C-238.29K)

• North Carolina State Board of Education (SBE) Policy

Federal Grants

Types of Grants• Formula

– Allotted to all eligible applicants per a prescribed formula

• Discretionary– Competitive grants

Federal Funding Sources

• Child Nutrition• IDEA Title VI-B (PRC 060)

• Title I (PRC 050)

• Federal Grants Available Through DPI

Compliance Requirements• Allowable Costs• Budget

– Due by June 30th

– In format specified in grant application

• DUNS number and SAM registration (Exhibit A)

• Conflict of Interest Policy (Exhibit B)• Cash Management Improvement

Act (CMIA) • Audited Financial Statements• Record Retention• Contracts

– Inclusion of state language (GS115C-238.29H)

• Administrative Cost Limitations• Carryover Limitations• Equipment Disposition• Documentation (Exhibit D)

– Audit– Monitoring

• Monitoring– Federal agencies– DPI Monitoring and Compliance

Section fiscal monitoring– DPI Program monitors– Office of State Budget and

Management (OSBM)– Office of the State Auditor

(OSA)

Financial Statements

North Carolina Education Law requires an annual audit in accordance with:

• GS 115C-238.29F(f)(1) The school is subject to the financial audits, the audit procedures, and audit requirements adopted by the State Board of Education for charter schools. These audit requirements may include the requirements of the School Budget and Fiscal Control Act.

• Generally Accepted Auditing Standards (GAAS) • Generally Accepted Government Auditing Standards (GAGAS)

Financial Statements

Responsibilities: • Coordinate audit firm selection process • Contract with selected independent auditor according to

standard procurement guidelines• Respond to audit findings and develop and implement

corrective action plans to resolve identified issues • Ensure audits are submitted to the Local Government

Commission (LGC) by October 31st

– LGC will analyze financial data from audit reports, and submitted report approved will forward report to the pass through entity (DPI)

– DPI Monitoring & Compliance staff:• Reviews all audits to identify and track findings and corrective action, • Follows up on all proposed responses and corrective action plans to

verify implementation

Financial Statements

Financial Statement Red Flags:• Low or negative cash balance• Accounts receivable remain constant throughout year without

decrease• Payroll tax liabilities constant or increase• Current & Long Term Debt excessively high• Fund Balance decline or negative• Operating expenses higher than budget• Student count decline

Financial Statements

Most Common Audit Findings• Absence of Conflict of Interest Policy • Absence of Required Language on Contracts

– No indebtedness of any kind shall constitute an indebtedness of the State or its political subdivisions, and no indebtedness of the charter school shall involve or be secured by the faith, credit, or taxing power of the State or its political subdivisions.

• Internal Control Deficiencies– Segregation of Duties*– Procurement - suspension and debarment – Review and signoff– Claims in excess of eligible cost– Costs claimed lacked supporting documentation

Internal Controls

What is Internal Control?

A process effected by an entity’s board, management and personnel designed to provide reasonable assurance regarding the achievement of certain objectives.

What are the objectives of internal controls?• Reliable financial reporting, • Effective and efficient operations, • Compliance with applicable laws and regulations, and• Safeguarding assets against theft and unauthorized use,

acquisition, or disposal

Internal Controls

Basic Internal Control Principles:• Built into framework of operations• Effected by the people in your school• Include cost / benefit analysis• Provide reasonable assurance, not absolute

Internal Control Components

5 Key Components

of Internal Control

4) In

form

atio

n &

Com

mun

icat

ion

Flow

4) Information &

Com

munication Flow

4) Information & Communication Flow

1) Control

Environment

2) Risk Assessment

3) Control Activities

5) Monitoring

Internal Control Components

1. Control EnvironmentGoal is to set the tone for the organization so management and employees have similar attitudes towards compliance• Competent management• Clearly defined organizational structure• Adequate supervision• Good relationship with oversight agencies (like DPI)

Internal Control Components

2. Risk AssessmentGoal is to be able to identify and assess the threat that an event, action, or non-action will adversely affect the school’s ability to achieve its business objectives and strategies.

Internal Control Components

3. Control ActivitiesGoal is to develop an internal control system that helps ensure management’s directives are carried out throughout the organization. • Documentation• Approvals/authorization• Transactions• Appropriate reporting• Segregation of Duties• Ensuring assets are safeguarded• Tracing

Internal Control Components

4. Information and Communication:Goal is for management to determine the answers to the following:• What information is necessary?• At what point will it be collected?• What techniques will be used for collection?• Who is responsible for collection?• How will it be used?

Internal Control Components

5. Monitoring

Goal is for monitoring to be both internal and external, occur on a regular, consistent basis utilizing policies and procedures as the benchmark to evaluate the effectiveness of the internal controls system and to be able to identify and report deficiencies.

Financial Noncompliance

• G.S.115C-238.29G - Causes for nonrenewal or termination include “failure to meet generally accepted standards of fiscal management”

• SBE Policy TCS-U-006 - further defines the “standards of fiscal management” under which a charter school is held accountable.

Financial Noncompliance

Financial Noncompliance:• Failure to respond to requests for data (UERS or other).• Showing signs of financial insolvency or weakness.• Having material audit findings which remain unresolved.• Receiving NSF notifications from the State Treasurer’s office.• Having a declining student count

Financial Noncompliance

What are three stages of noncompliance for charter schools?• LEVEL 1 = Cautionary Stage (30days)

Minimal level warning to encourage immediate compliance.• LEVEL 2 = Probationary Stage (30days)

State funds may be allotted on a monthly basis.• LEVEL 3 = Disciplinary Stage (10 days)

10 days to respond to noncompliance issues. Last step before recommendation revocation of charter.

Monitoring & Compliance Section Contact Information

• Leigh Ann Kerr, Assistant Director, School Business Services; LeighAnn.Kerr@dpi.nc.nc.gov ; (919)807-3553

• Curtis Terry, Fiscal Analyst;

Curtis.Terry@dpi.nc.gov ; (919)807-3720

• Keisha Davis, Fiscal Monitor;

LaKeisha.HallDavis@dpi.nc.gov ; (919)807-3682

• Karen Frazier, Fiscal Monitor;

Karen.Frazier@dpi.nc.gov ; (919)807-3738

• Gene Bruton, Accountant (Single Audit, DUNS/SAM, Certification);

Gene.Bruton@dpi.nc.gov ; (919)807-3726

Resources

• NC Department of Public Instruction Financial and Business Services– http:www.ncpublicschools.org/fbs

• US Department of Education Guidance– http://www2.ed.gov/policy/landing.jhtml

• Office of Budget and Management– OMB Circular A-87, Attachment B– OMB Circular A-133

• OMB Circulars/Cost Principles– http://www.ncpublicschools.org/fbs/finance/federal/