1 Uniform Guidance and Internal Controls
2016 ISNA Annual Meeting November 3, 2016
2 Contact Information Ryan Preston – Director of Audit Services for Schools and Townships W. Tyler Michael, CPA – Director of Audit Services for Schools and Townships – Phone – (317)
3 Uniform Guidance Effective for federal grants received after December 26, 2014 Direct –vs – Passed-Through Pass-through must tell you when a grant received falls under the uniform guidance DOE has indicated that no funding was provided under this until 7/1/15 (10/1/15 for Child Nutrition Cluster)
4 Uniform Guidance (Continued)
SEFA changes Schools input the same information into Gateway Look of SEFA will change (SBOA chose to implement immediately) The following will now appear on the face of the SEFA instead of the notes Amounts provided to Subrecipients Amounts from Loan and Loan Guarantee Programs Amounts of Noncash Awards (i.e. commodities for NSLP)
5 Uniform Guidance (Continued)
Other Reporting changes Section III findings are now required to include a statement of cause and must indicate a related finding number if it is repeated from the prior audit report. Views of the responsible official must be included in all findings. Summary Schedule of Prior Audit Findings must include both Section II and Section III findings (changed from only Section III)
6 Uniform Guidance (continued)
Changes to Audit Requirements Beginning for July 1, 2015 to June 30, 2017 audit period Amount of federal expenditures required for a Single Audit is $750,000 (Changed from $500,000) Percentage of coverage is 20% (changed from 25%) for low-risk and 40% (changed from 50%) for high-risk auditees Criteria for determining risk is less dependent on auditor judgement.
7 2015 Compliance Supplement
During the period covered by the 2015 supplement, non-Federal entities will have Federal awards expended that are subject to requirements from OMB Circulars and the Uniform Guidance. Part 3.1 will be used for Federal awards made prior to Part 3.2 will be used for Federal awards made on or after
8 2015 Compliance Supplement (continued)
Some changes noted in Part 3.2 Allowable Cost/Cost Principles Indirect Costs – outlines special procedures that must be performed if there indirect costs Ways to recover (1) Rate (either calculated or the De Minimis rate of 10%); (2) Allocated or billed Must have documentation how Indirect costs were applied: (1) Agreement (Negotiated Rate); (2) De Minimis rate (10% of Modified Total Direct Costs Base); (3) Cost allocation plan (allocated or billed) Negotiated rates must be accepted by all federal awarding agencies Entities may use the De Minimis rate (10%) if they have never had a negotiated rate; allowed to be used indefinitely; must calculated modified total direct costs (excludes equipment, capital expenditures, rental costs, scholarships, etc.)
9 USDA Guidance for Indirect Costs
Memo and Manual - Definitions for both direct and indirect costs, including the proper classification of costs and discussion on the treatment of certain typical costs in the NSLP and SBP. Direct costs are discussed because direct and indirect costs are complementary; An overview of the Federal cost principles and explanation that all costs (direct or indirect) paid with funds from the nonprofit school food service account must be allowable. The guidance provides criteria that will aid an SFA in determining allowable costs and includes relevant examples; Information on how a school district’s general fund recovers indirect costs from the nonprofit school food service account. This includes appropriate application of the indirect cost rate and the requirements for the SFA to determine the rate; Considerations for the SFA when assessing indirect costs charged to the nonprofit school food service account. This information includes how an SFA should address errors and the billing of previous years’ indirect costs; and An overview of how the indirect cost rate is developed as relevant background information for SFAs. The information includes a discussion on appropriate uses of restricted or unrestricted indirect cost rates and adjustment of the rates.
10 2015 Compliance Supplement (continued)
Some changes noted in Part 3.2 (continued) Cash Management All non-Federal entities must establish written procedures to minimize the time elapsing between the transfer of funds and disbursement of funds Any interest earned in excess of $500 must be submitted to HHS at least quarterly CFR (b) – “The school food authority shall limit its net cash resources to an amount that does not exceed 3 months average expenditures for its nonprofit school food service or such other amount as may be approved by the State agency in accordance with §210.19(a).”
11 2015 Compliance Supplement (continued)
Some changes noted in Part 3.2 (continued) Equipment and Real Property Management Property records must be maintained; Physical inventories must be completed every two years; A control system must be developed to ensure adequate safeguards to prevent loss, damage, or theft; Adequate maintenance procedures must be developed to keep property in good condition.
12 2015 Compliance Supplement (continued)
Some changes noted in Part 3.2 (continued) Procurement and Suspension and Debarment Must have their own documented procurement procedures that at least meet the minimum procurement standards in 2 CFR Must conduct all procurement transactions in a manner providing full and open competition Can only use the micro-purchase and small purchase methods for procurements that meet applicable criteria of 2 CFR (a) and (b) Must use one of the three methods when an acquisition exceeds the simplified acquisition threshold: (1) Sealed bid method; (2) Competitive proposals method; (3) Noncompetitive proposals method
13 USDA Requirement for Prepaid Student Meal Accounts
Memo SP To address the need for SFAs to institute and communicate a meal charge policy Either the State or SFA should pass a meal charge policy to allow students to charge all types of reimbursable meals, offer alternate meals, impose limits on charges, or denial of meals. Policy may be uniform or vary for different grade levels. Policy must also include how delinquent meal charges will be collected. Students, Parents, and applicable school staff must be informed about the requirements of the policy. Deadline for Policy and Communication is July 1, 2017. Memo SP Memo SP
14 USDA Requirement for Prepaid Student Meal Accounts (continued)
Memo SP Clarifies the process of designation of delinquent debt that has been determined to be uncollectible as bad debt. Delinquent Debt – payment overdue, but there is a reasonable expectation and efforts made to collect amount owed. “SFAs must make reasonable efforts to collect unpaid meal charges classified as delinquent debt and the cost of these efforts is an allowable use of NSFSA funds.” Bad Debt – Determination made that further collection efforts are useless or too costly. 2 CFR – NSFSA resources may not be used to cover costs related to bad debt. Therefore, operating losses from bad debt must be restored using non-Federal funds. Memo SP Unpaid Meal Charges: Guidance and Q&A
16 Internal Control Requirements of the Statute
IC (e) – “The internal control standards and procedures shall be developed to promote government accountability and transparency.” (g) – Any time after June 30, 2016, the School Board shall be able to ensure that (1) the minimum internal control standards have been adopted. (2) shall ensure that “personnel” have received training on the minimum internal control standards. (c) – As used in this section, "personnel" means an officer or employee of a political subdivision whose official duties include receiving, processing, depositing, disbursing, or otherwise having access to funds that belong to the federal government, state government, a political subdivision, or another governmental entity.
17 Control Environment Establish a culture within the School system that internal control activities are important and beneficial for the overall administration of the School Corporation. Pass a local ethics policy Create a confidential reporting system for employees and citizens to report fraud and abuse School Board evaluate and pass policies recommended by administration that address the internal control risks identified School Board and Administration establish a organizational chart and define duties for each position. Administration create a basic plan for recruiting, hiring, and retaining qualified employees. Administration develop formal evaluation system to assess employee performance of their internal control responsibilities.
18 Risk Assessment For each objective:
Determine and Evaluate the likelihood a risk would cause the objective to fail. Things to consider include complexity of the activity; susceptibility to fraud; amount of judgement involved; size and volume activity Determine the proper response to the risks identified. Examples include accept the risk; eliminate processes to avoid the risk; institute control activities; comply with statutorial requirements that address risks Determination and Evaluation must be performed on a continual basis. Administration should consider whether changes involving the objective create new risks that weren’t considered in the initial evaluation.
19 Control Activities For each risk identified for the objective:
Administration should develop procedures to minimize the risk. Administration should consider both prevention and detection procedures Administration need to consider the ability to segregate duties when developing control activities. If duties can not be segregated, then administration should develop compensating activities. Examples would include additional levels of review; random review of selected transactions. In extremely small schools administration should consider the necessity to involve School Board as a level of review. Administration may use a computerized system with built in control activities. School Board may formalize the procedures developed by the Administration into policies that are required to be followed by school employees.
20 Information and Communication
Administrators should develop a chain of communication and/or written policies to provide employees with information concerning their duties and responsibilities. Administration should develop procedures to pass along rules and regulations to applicable employees concerning their duties and responsibilities. For example, ensure employees have information contained in applicable grant agreements, statutes (and amendments), School Bulletin articles, etc. Administration should encourage employees to provide feedback on control activities that are instituted. Administration should develop a system to document external communications and share the relevant information with applicable employees. For example, if the ECA Treasurer sends a question to the SBOA about ECA issues, then there should be procedures in place that the information provided is shared with applicable ECA employees. Administration should develop procedures to ensure information provided to the public is accurate and timely. For example, develop deadlines and cross checking requirements for federal grant expenditure reports, ECA SA-5 reports, etc.
21 Monitoring Administration could perform periodic checks/tests to ensure that employees are performing control activities established. In addition, document and correct any deficiencies noted in the internal control system. Determine which control activities can be also utilized as a monitoring function. For example, reviewing a claims docket to ensure the claims and approvals were included for accuracy and compliance with statute could be a control activity and reviewing it to ensure the proper employee completed the control activity could be a monitoring function. Establish a regular discussion between the School Board and the Administration to go over any control weaknesses and determine appropriate corrective action.