Thompson Publishing Group, Inc. Audio Conference June 6, 2006 Troubleshooting Subrecipient Monitoring: Review of Pass-Through Entity Responsibilities

Transcription

1 What is Monitoring? A definition from the Department of Health and Human Services Grants Policy Directive: Monitoring - A process whereby the programmatic and business management performance aspects of a grant are reviewed by collecting and assessing information from reports, audits, site visits, and other sources.

2 A. Basic Monitoring Requirements Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments (Office of Management and Budget Circular A-102 Common Rule) Sec. _.40 Monitoring and reporting program performance. (a) Monitoring by grantees. Grantees are responsible for managing the day-to-day operations of grant and sub grant supported activities. Grantees must monitor grant and sub grant 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. Office of Management and Budget Circular A-110 Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals and Other Nonprofit Organizations. 51 Monitoring and reporting program performance. (a) Recipients are responsible for managing and monitoring each project, program, sub award, function or activity supported by the award. Recipients shall monitor sub awards to ensure sub recipients have met the audit requirements as delineated in. 26.

3 Office of Management and Budget Circular A-133 Audits of States, Local Governments and Nonprofit Organizations _ 400 (d) Pass-through entity responsibilities. A pass-through entity shall perform the following for the Federal awards it makes: (1) Identify Federal awards made by informing each subrecipient of CFDA title and number, award name and number, award year, if the award is R&D, and name of Federal agency. When some of this information is not available, the pass-through entity shall provide the best information available to describe the Federal award. (2) Advise subrecipients of requirements imposed on them by Federal laws, regulations, and the provisions of contracts or grant agreements as well as any supplemental requirements imposed by the pass-through entity. (3) Monitor the activities of subrecipients as necessary to ensure that Federal awards are used for authorized purposes in compliance with laws, regulations, and the provisions of contracts or grant agreements and that performance goals are achieved. (4) Ensure that subrecipients expending $300,000 ($500,000 for fiscal years ending after December 31, 2003) or more in Federal awards during the subrecipient's fiscal year have met the audit requirements of this part for that fiscal year. (5) Issue a management decision on audit findings within six months after receipt of the subrecipient's audit report and ensure that the subrecipient takes appropriate and timely corrective action. (6) Consider whether subrecipient audits necessitate adjustment of the pass-through entity's own records. (7) Require each subrecipient to permit the pass-through entity and auditors to have access to the records and financial statements as necessary for the pass-through entity to comply with this part.

4 Office of Management and Budget Circular A-133 Compliance Supplement 2006 Edition Part 3 Compliance Requirements M. SUBRECIPIENT MONITORING Compliance Requirements A pass-through entity is responsible for: - Award Identification - At the time of the award, identifying to the subrecipient the Federal award information (e.g., CFDA title and number, award name, name of Federal agency) and applicable compliance requirements. - During-the-Award Monitoring - Monitoring the subrecipient s use of Federal awards through reporting, site visits, regular contact, or other means to provide reasonable assurance that the subrecipient administers Federal awards in compliance with laws, regulations, and the provisions of contracts or grant agreements and that performance goals are achieved. - Subrecipient Audits - (1) Ensuring that subrecipients expending $300,000 ($500,000 for fiscal years ending after December 31, 2003 as provided in OMB Circular A-133, as revised) or more in Federal awards during the subrecipient s fiscal year have met the audit requirements of OMB Circular A-133 (the revised circular is available on the Internet at and that the required audits are completed within 9 months of the end of the subrecipient s audit period, (2) issuing a management decision on audit findings within 6 months after receipt of the subrecipient s audit report, and (3) ensuring that the subrecipient takes timely and appropriate corrective action on all audit findings. In cases of continued inability or unwillingness of a subrecipient to have the required audits, the pass-through entity shall take appropriate action using sanctions. - Pass-Through Entity Impact - Evaluating the impact of subrecipient activities on the pass-through entity s ability to comply with applicable Federal regulations. During-the-Award Monitoring Following are examples of factors that may affect the nature, timing, and extent of during-the-award monitoring: - Program complexity - Programs with complex compliance requirements have a higher risk of non-compliance. - Percentage passed through - The larger the percentage of program awards passed through the greater the need for subrecipient monitoring. - Amount of awards - Larger dollar awards are of greater risk.

5 - Subrecipient risk - Subrecipients may be evaluated as higher risk or lower risk to determine the need for closer monitoring. Generally, new subrecipients would require closer monitoring. For existing subrecipients, based on results of during-the-award monitoring and subrecipient audits, a subrecipient may warrant closer monitoring (e.g., the subrecipient has (1) a history of non-compliance as either a recipient or subrecipient, (2) new personnel, or (3) new or substantially changed systems). Monitoring activities normally occur throughout the year and may take various forms, such as: - Reporting - Reviewing financial and performance reports submitted by the subrecipient. - Site Visits - Performing site visits at the subrecipient to review financial and programmatic records and observe operations. - Regular Contact - Regular contacts with subrecipients and appropriate inquiries concerning program activities. Agreed-upon procedures engagements A pass-through entity may arrange for agreed-upon procedures engagements for certain aspects of subrecipient activities, such as eligibility determinations. Since the passthrough entity determines the procedures to be used and compliance areas to be tested, these agreed-upon procedures engagements enable the pass-through entity to target the coverage to areas of greatest risk. The costs of agreed-upon procedures engagements is an allowable cost to the pass-through entity if the agreed-upon procedures are performed for subrecipients below the A-133 threshold for audit (currently at $300,000 and increases to $500,000 for fiscal years ending after December 31, 2003) for the following types of compliance requirements: activities allowed or unallowed; allowable costs/cost principles; eligibility; matching, level of effort, earmarking; and reporting (OMB Circular A-133 (.230(b)(2)). Source of Governing Requirements The requirements for subrecipient monitoring are contained in the 31 USC 7502(f)(2)(B) (Single Audit Act Amendments of 1996 (Pub. L )), OMB Circular A-133 (.225 and.400(d)), A-102 Common Rule (.37 and.40(a)), and OMB Circular A-110 (.51(a)), Federal awarding agency program regulations, and the terms and conditions of the award. Audit Objectives 1. Obtain an understanding of internal control, assess risk, and test internal control as required by OMB Circular A (c). 2. Determine whether the pass-through entity properly identified Federal award information and compliance requirements to the subrecipient, and approved only allowable activities in the award documents.

6 3. Determine whether the pass-through entity monitored subrecipient activities to provide reasonable assurance that the subrecipient administers Federal awards in compliance with Federal requirements. 4. Determine whether the pass-through entity ensured required audits are performed, issued a management decision on audit findings within 6 months after receipt of the subrecipient s audit report, and ensures that the subrecipient takes timely and appropriate corrective action on all audit findings. 5. Determine whether in cases of continued inability or unwillingness of a subrecipient to have the required audits, the pass-through entity took appropriate action using sanctions. 6. Determine whether the pass-through entity evaluates the impact of subrecipient activities on the pass-through entity. Suggested Audit Procedures - Internal Control 1. Using the guidance provided in Part 6 - Internal Control, perform procedures to obtain an understanding of internal control sufficient to plan the audit to support a low assessed level of control risk for the program. 2. Plan the testing of internal control to support a low assessed level of control risk for subrecipient monitoring and perform the testing of internal control as planned. If internal control over some or all of the compliance requirements is likely to be ineffective, see the alternative procedures in.500(c)(3) of OMB Circular A- 133, including assessing the control risk at the maximum and considering whether additional compliance tests and reporting are required because of ineffective internal control. 3. Consider the results of the testing of internal control in assessing the risk of noncompliance. Use this as the basis for determining the nature, timing, and extent (e.g., number of transactions to be selected) of substantive tests of compliance. Suggested Audit Procedures Compliance (Note: The auditor may consider coordinating the tests related to subrecipients performed as part of Cash Management (tests of cash reports submitted by subrecipients), Eligibility (tests that subawards were made only to eligible subrecipients), and Procurement (tests of ensuring that a subrecipient is not suspended or debarred) with the testing of Subrecipient Monitoring.) 1. Gain an understanding of the pass-through entity s subrecipient procedures through a review of the pass-through entity s subrecipient monitoring policies and procedures (e.g., annual monitoring plan) and discussions with staff. This should include an understanding of the scope, frequency, and timeliness of monitoring activities and the number, size, and complexity of awards to subrecipients.

7 2. Test award documents and agreements to ascertain if: (a) at the time of award the passthrough entity made subrecipients aware of the award information (e.g., CFDA title and number, amount of award, award name, name of Federal agency) and requirements imposed by laws, regulations and the provisions of contract or grant agreements; and (b) the activities approved in the award documents were allowable. 3. Review the pass-through entity s documentation of during-the-award monitoring to ascertain if the pass-through entity s monitoring provided reasonable assurance that subrecipients used Federal awards for authorized purposes, complied with laws, regulations, and the provisions of contracts and grant agreements, and achieved performance goals. 4. Review the pass-through entity s follow-up to ensure corrective action on deficiencies noted in during-the-award monitoring. 5. Verify that the pass-through entity: a. Ensured that the required subrecipient audits were completed. For subrecipients that are not required to submit a copy of the reporting package to a pass-through entity because there were no audit findings (i.e., because the schedule of findings and questioned costs did not disclose audit findings relating to the Federal awards that the pass-through entity provided and the summary schedule of prior audit findings did not report the status of audit findings relating to Federal awards that the passthrough entity provided, as prescribed in OMB Circular A (e)), the pass-through entity may use the information in the Federal Audit Clearinghouse (FAC) database (available on the Internet at as evidence to verify that the subrecipient had no audit findings and that the required audit was performed. This FAC verification would be in lieu of reviewing submissions by the subrecipient to the pass-through entity when there are no audit findings. b. Issued management decisions on audit findings within 6 months after receipt of the subrecipient s audit report. c. Ensured that subrecipients took appropriate and timely corrective action on all audit findings. 6. Verify that in cases of continued inability or unwillingness of a subrecipient to have the required audits, the pass-through entity took appropriate action using sanctions. 7. Verify that the effects of subrecipient noncompliance are properly reflected in the passthrough entity s records. 8. Verify that the pass-through entity monitored the activities of subrecipients not subject to OMB Circular A-133, using techniques such as those discussed in the Compliance

8 Requirements provisions of this section with the exception that these subrecipients are not required to have audits under OMB Circular A-133. Note: The suggested audit procedures above for internal control and compliance testing may be accomplished using dual-purpose testing.

9 B. Requirements Regarding High-risk Grantees OMB Circular A-102 Common Rule Sec. 12 Special grant or subs grant conditions for high-risk grantees. (a) A grantee or sub grantee may be considered high risk if an awarding agency determines that a grantee or sub grantee: (1) Has a history of unsatisfactory performance, or (2) Is not financially stable, or (3) Has a management system which does not meet the management standards set forth in this part, or (4) Has not conformed to terms and conditions of previous awards, or (5) Is otherwise not responsible; and if the awarding agency determines that an award will be made, special conditions and/or restrictions shall correspond to the high risk condition and shall be included in the award. (b) Special conditions or restrictions may include: (1) Payment on a reimbursement basis; (2) Withholding authority to proceed to the next phase until receipt of evidence of acceptable performance within a given funding period; (3) Requiring additional, more detailed financial reports (4) Additional project monitoring; (5) Requiring the grantee or sub grantee to obtain technical or management assistance; or (6) Establishing additional prior approvals. (c) If an awarding agency decides to impose such conditions, the awarding official will notify the grantee or sub grantee as early as possible, in writing, of: (1) The nature of the special conditions/restrictions; (2) The reason(s) for imposing them; (3) The corrective actions which must be taken before they will be removed and the time allowed for completing the corrective actions and (4) The method of requesting reconsideration of the conditions/restrictions imposed. OMB Circular A Special award conditions. If an applicant or recipient: (a) has a history of poor performance, (b) is not financially stable, (c) has a management system that does not meet the standards prescribed in this Circular, (d) has not conformed to the terms and conditions of a previous award, or (e) is not otherwise responsible, Federal awarding agencies may impose additional requirements as needed, provided that such applicant or recipient is notified in writing as to: the nature of the additional requirements, the reason why the additional requirements are being imposed, the nature of the corrective action needed, the time allowed for completing the corrective actions, and the method for requesting reconsideration of the additional requirements imposed. Any special conditions shall be promptly removed once the conditions that prompted them have been corrected.

10 C. Financial Reporting Requirements Affecting Sub recipient Monitoring OMB Circular A-102 Common Rule Sec. 41 Financial reporting (a) General. (1) Except as provided in paragraphs (a) (2) and (5) of this section, grantees will use only the forms specified in paragraphs (a) through (e) of this section, and such supplementary or other forms as may from time to time be authorized by OMB, for: (i) Submitting financial reports to Federal agencies, or (ii) Requesting advances or reimbursements when letters of credit are not used. (2) Grantees need not apply the forms prescribed in this section in dealing with their sub grantees. However, grantees shall not impose more burdensome requirements on sub grantees. (3) Grantees shall follow all applicable standard and supplemental Federal agency instructions approved by OMB to the extend required under the Paperwork Reduction Act of 1980 for use in connection with forms specified in paragraphs (b) through (e) of this section. Federal agencies may issue substantive supplementary instructions only with the approval of OMB. Federal agencies may shade out or instruct the grantee to disregard any line item that the Federal agency finds unnecessary for its decision making purposes. (4) Grantees will not be required to submit more than the original and two copies of forms required under this part. (5) Federal agencies may provide computer outputs to grantees to expedite or contribute to the accuracy of reporting. Federal agencies may accept the required information from grantees in machine usable format or computer printouts instead of prescribed forms. (6) Federal agencies may waive any report required by this section if not needed. (7) Federal agencies may extend the due date of any financial report upon receiving a justified request from a grantee. (b) Financial Status Report (1) Form. Grantees will use Standard Form 269 or 269A, Financial Status Report, to report the status of funds for all non-construction grants and for construction grants when required in accordance with Sec (e)(2)(iii). (2) Accounting basis. Each grantee will report program outlays and program income on a cash or accrual basis as prescribed by the awarding agency. If the Federal agency requires accrual information and the grantee s accounting records are not normally kept on the accrual basis, the grantee shall not be required to convert its accounting system but shall develop such accrual information through and analysis of the documentation on hand. (3) Frequency. The Federal agency may prescribe the frequency of the report for each project or program. However, the report will not be required more frequently than quarterly. If the Federal agency does not specify the frequency of the report, it will be submitted annually. A final report will be required upon expiration or termination of grant support.

11 (4) Due date. When reports are required on a quarterly or semiannual basis, they will be due 30 days after the reporting period. When required on an annual basis, they will be due 90 days after the grant year. Final reports will be due 90 days after the expiration or termination of grant support.

12 C. Financial Reporting Requirements Affecting Sub recipient Monitoring OMB Circular A-102 Common Rule (cont.) (c) Federal Cash Transactions Report (1) Form. (i) For grants paid by letter or credit, Treasury check advances or electronic transfer of funds, the grantee will submit the Standard Form 272, Federal Cash Transactions Report, and when necessary, its continuation sheet, Standard Form 272a, unless the terms of the award exempt the grantee from this requirement. (ii) These reports will be used by the Federal agency to monitor cash advanced to grantees and to obtain disbursement or outlay information for each grant from grantees. The format of the report may be adapted as appropriate when reporting is to be accomplished with the assistance of automatic data processing equipment provided that the information to be submitted is not changed in substance. (2) Forecasts of Federal cash requirements. Forecasts of Federal cash requirements may be required in the Remarks section of the report. (3) Cash in hands of sub grantees. When considered necessary and feasible by the Federal agency, grantees may be required to report the amount of cash advances in excess of three days needs in the hands of their sub grantees or contractors and to provide short narrative explanations of actions taken by the grantee to reduce the excess balances. (4) Frequency and due date. Grantees must submit the report no later than 15 working days following the end of each quarter. However, where an advance either by letter of credit or electronic transfer of funds is authorized at an annualized rate of one million dollars or more, the Federal agency may require the report to be submitted within 15 working days following the end of each month. (d) Request for advance or reimbursement (1) Advance payments. Requests for Treasury check advance payments will be submitted on Standard Form 270, Request for Advance or Reimbursement. (This form will not be used for draw downs under a letter of credit, electronic funds transfer or when Treasury check advance payments are made to the grantee automatically on a predetermined basis.) (2) Reimbursements. Requests for reimbursement under non-construction grants will also be submitted on Standard Form 270. (For reimbursement requests under construction grants, see paragraph (e)(1) of this section.) (3) The frequency for submitting payment requests is treated in Sec (b)(3). (e) Outlay report and request for reimbursement for construction programs (1) Grants that support construction activities paid by reimbursement method. (i) Requests for reimbursement under construction grants will be submitted on Standard Form 271, Outlay Report and Request for Reimbursement for Construction Programs. Federal agencies may, however, prescribe the Request for Advance or Reimbursement form, specified in Sec (d), instead of this form. (ii) The frequency for submitting reimbursement requests is treated in Sec (b)(3).

13 (2) Grants that support construction activities paid by letter of credit, electronic funds transfer or Treasury check advance. (i) When a construction grant is paid by letter of credit, electronic funds transfer or Treasury check advances, the grantee will report its outlays to the Federal agency using Standard Form 271, Outlay Report and Request for Reimbursement for Construction Programs. The Federal agency will provide any necessary special instruction. However, frequency and due date shall be governed by Sec (b) (3) and (4). (ii) When a construction grant is paid by Treasury check advances based on periodic requests from the grantee, the advances will be requested on the form specified in Sec (d). (iii) The Federal agency may substitute the Financial Status Report specified in Sec (b) for the Outlay Report and Request for Reimbursement for Construction Programs. (3) Accounting basis. The accounting basis for the Outlay Report and Request for Reimbursement for Construction Programs shall be governed by Sec (b)(2). OMB Circular A Financial reporting. (a) The following forms or such other forms as may be approved by OMB are authorized for obtaining financial information from recipients. (1) SF-269 or SF-269A, Financial Status Report. (i) Each Federal-awarding agency shall require recipients to use the SF-269 or SF-269A to report the status of funds for all non-construction projects or programs. A Federal awarding agency may, however, have the option of not requiring the SF-269 or SF-269A when the SF-270, Request for Advance or Reimbursement, or SF-272, Report of Federal Cash Transactions, is determined to provide adequate information to meet its needs, except that a final SF-269 or SF-269A shall be required at the completion of the project when the SF-270 is used only for advances. (ii) The Federal-awarding agency shall prescribe whether the report shall be on a cash or accrual basis. If the Federal awarding agency requires accrual information and the recipient s accounting records are not normally kept on the accrual basis, the recipient shall not be required to convert its accounting system, but shall develop such accrual information through best estimates based on an analysis of the documentation on hand. (iii) The Federal-awarding agency shall determine the frequency of the Financial Status Report for each project or program, considering the size and complexity of the particular project or program. However, the report shall not be required more frequently than quarterly or less frequently than annually. A final report shall be required at the completion of the agreement. (iv) The Federal awarding agency shall require recipients to submit the SF-269 or SF-269A (an original and no more than two copies) no later than 30 days after the end of each specified reporting period for quarterly and semi-annual reports, and 90 calendar days for annual and final reports. Extensions of reporting due dates may be approved by the Federal awarding agency upon request of the recipient. (2) SF-272, Report of Federal Cash Transactions. (i) When funds are advanced to recipients the Federal-awarding agency shall require each recipient to submit the SF-272 and, when necessary, its continuation sheet, SF-272a. The Federal-awarding agency shall use this report to monitor

14 cash advanced to recipients and to obtain disbursement information for each agreement with the recipients. (ii) Federal awarding agencies may require forecasts of Federal cash requirements in the Remarks section of the report. (iii) When practical and deemed necessary, Federal awarding agencies may require recipients to report in the Remarks section the amount of cash advances received in excess of three days. Recipients shall provide short narrative explanations of actions taken to reduce the excess balances. (iv) Recipients shall be required to submit not more than the original and two copies of the SF calendar days following the end of each quarter. The Federal awarding agencies may require a monthly report from those recipients receiving advances totaling $1 million or more per year. (v) Federal awarding agencies may waive the requirement for submission of the SF-272 for any one of the following reasons: (1) When monthly advances do not exceed $25,000 per recipient, provided that such advances are monitored through other forms contained in this section; (2) If, in the Federal awarding agency s opinion, the recipient s accounting controls are adequate to minimize excessive Federal advances; or, (3) When the electronic payment mechanisms provide adequate data. (b) When the Federal awarding agency needs additional information or more frequent reports, the following shall be observed. (1) When additional information is needed to comply with legislative requirements, Federal awarding agencies shall issue instructions to require recipients to submit such information under the Remarks section of the reports. (2) When a Federal awarding agency determines that a recipient s accounting system does not meet the standards in. 21, additional pertinent information to further monitor awards may be obtained upon written notice to the recipient until such time as the system is brought up to standard. The Federal-awarding agency, in obtaining this information, shall comply with report clearance requirements of 5 CFR part (3) Federal awarding agencies are encouraged to shade out any line item on any report if not necessary. (4) Federal awarding agencies may accept the identical information from the recipients in machine-readable format or computer printouts or electronic outputs in lieu of prescribed formats. (5) Federal awarding agencies may provide computer or electronic outputs to recipients when such expedites or contributes to the accuracy of reporting.

15 OMB Circular A Audit costs (b) Unallowable costs. A non-federal entity shall not charge the following to a Federal award: (1) The cost of any audit under the Single Audit Act Amendments of 1996 (31 U.S.C et seq.) not conducted in accordance with this part. (2) The cost of auditing a non-federal entity which has Federal awards expended of less than $300,000 per year and is thereby exempted under. 200(d) from having an audit conducted under this part. However, this does not prohibit a pass-through entity from charging Federal awards for the cost of limited scope audits to monitor its sub recipients in accordance with. 400(d)(3), provided the sub recipient does not have a single audit. For purposes of this part, limited scope audits only include agreed-upon procedures engagements conducted in accordance with either the AICPA s generally accepted auditing standards or attestation standards, that are paid for and arranged by a passthrough entity and address only one or more of the following types of compliance requirements: activities allowed or un-allowed; allowable costs/cost principles; eligibility; matching, level of effort, earmarking; and, reporting.