Renee Messing, CPA, Partner Clifton Gunderson

1. Stimulus Grant Compliance and ARRA ReportingUnderstanding and Managing the Grant Compliance Process Renee Messing, CPA, Partner Clifton Gunderson

2. ARRA Overview • Signed into law on February 17, 2009 • Total cost $788 billion (tax cuts and spending) Immediate Goals: • Create new jobs and save existing ones • Spur economic activity and invest in long-term growth • Foster unprecedented levels of accountability

3. ARRA Accountability Mechanisms • Recipient Section 1512 reporting • U.S. Government Accountability Office (GAO) state and local reviews • Federal agency reviews • State ARRA audits and reviews • Federal Single Audit

4. ARRA’s Impact to the Single Audit • Significant impact expected for 2010 and 2011 year end audits. • Accountability and transparency are key features • QCR’s built into OMB Guidance with results to be placed on Recovery.gov • Auditees are significantly affected by Section 1512 reporting. • Recovery Act Transparency Board (RATB) established to monitor activity and look for fraud, waste and abuse • Interest in single audits increased by federal agencies and Congress

5. ARRA’s Impact to the Single Audit (continued) • OMB has issued guidance to federal agencies. • Data reporting requirements • Standard elements – will have to be reported within 10 days of each calendar quarter • Davis Bacon • Notify of wage rate requirements • Domestic sourcing • Section 1605 of the Recovery Act prohibits use of ARRA funds for construction unless all iron, steel and goods are produce in US

6. Other ARRA Guidance • Guidance issued by ED: • Guidance on the State Fiscal Stabilization Fund Program (April 2009) • Guidance on the Maintenance-of-Effort Requirements in the State Fiscal Stabilization Fund Program (May 2009) • OMB ARRA Guidance

7. State Fiscal Stabilization Fund Program • Purpose • Stabilize budgets to minimize / avoid reductions in education • Exchange for state’s commitment to advance essential educational reforms • Two components: • Education Stabilization Fund (CFDA 84.394) • Government Services Fund (CFDA 84.397)

8. State Fiscal Stabilization Fund Program • New Guidance: Guidance for Grantees and Auditors – State Fiscal Stabilization Fund Program found at www.ed.gov/programs/statestabilization/applicant.html • Provides guidance on: • Use the funds / prohibitions for use of funds • Pre-award costs and related documentation requirements • Maintenance of Effort • Recordkeeping, documentation, and reporting requirements

9. President’s Memo 4/6/10 • http://edocket.access.gpo.gov/2010/pdf/2010-8226.pdf • Administration committed to transparency in tracking recovery dollars and to elimination of waste, fraud, and abuse by recipients

10. President’s Memo 4/6/10 • Called for federal agencies to intensify efforts • More timely reporting of noncompliant prime recipients to OMB • Detailed actions to respond to instances of noncompliance

11. President’s Memo 4/6/10 • Stated potential enforcement actions could include: • Terminating awards • Pursuing suspension and debarment • Reclaiming funds • Initiating or implementing punitive actions

12. Improper Payments • Improper Payments Elimination and Recovery Act • Signed 7/22/10 • Designed to cut waste, fraud and abuse due to improper payments • Public website to track progress in reducing improper payments • RATB implementing an expanded fraud mapping tool

13. Planning the Single Audit Auditor shall: • Perform audit of financial statements under GAGAS – the yellow book. • Obtain understanding and test internal controls of major programs. • Perform tests to determine if entity complied with laws and regulations of major programs. • Determine status of prior year audit findings.

14. Planning for the Single Audit • Applicable to entities who spent in excess of $500,000 in federal funds during fiscal year. • Early identification is critical, including identifying ARRA funds • ARRA should be separate awards • May have revised terms and conditions • Expenditures should be tracked separately – even if the agency has not identified a new CFDA number

15. Planning for the Single Audit • Auditee is responsible for Schedule of Expenditures of Federal Awards (SEFA). • In Wisconsin, when federal single audit applies, state single audit also must be conducted and a Schedule of Expenditures of State Awards (SESA) must be prepared. • Applies regardless if funding received directly or indirectly. • Does not apply to vendor relationships.

16. SEFA Auditee is responsible for identifying: • All federal award received and expended by federal program by federal agency; • ARRA monies required to be reported separately (even if the CFDA number is the same; • Clusters of programs; • CFDA title and number; • Award number and year; • Federal agency • Name of pass-through agency, as applicable The SEFA is necessary for the auditor to begin its planning process.

17. SEFA • CFDA numbers: • Required to be provided by Federal Agencies. • Existing programs, may use previous number. • For new programs or those with significant changes, may be assigned new numbers.

18. CFDA.GOV

19. CFDA.gov

20. CFDA.GOV • Source to search for CFDA numbers • Link to recovery site • Source for information on specific ARRA programs • Identify objectives, uses and restrictions, eligibility requirements, reporting and related programs • Link to compliance supplement

21. http://www.whitehouse.gov/omb/circulars/

22. Compliance Supplement • 2010 Compliance supplement • Incorporates guidance from previous supplements and addendum • Updated part VII • Low risk auditee status • Extensions • Loans • Major program determination

23. Compliance Supplement • New guidance being issued continuously. • Auditors and grantees, more than ever, will have to use multiple sources to determine compliance requirements.

24. http://www.whitehouse.gov/omb/memoranda_default

25. Planning for the Single Audit Applies to both direct or indirect federal funding: • Recipient, a subrecipient, or a vendor? • Single Audit applies to recipients and subrecipients. • Does not apply to vendors.

26. Subrecipient versus Vendor Subrecipient characteristics: • Determines who is eligible to receive assistance; • Performance measured to determine if program objectives met; • Responsibility for programmatic decision making; • Responsibility for adherence to program compliance requirements; and • Uses funds to carry out a program as compared to providing goods/ services for a program of the pass-through entity.

27. Subrecipient versus Vendor (continued) Vendor characteristics: • Provides goods/services within normal operations; • Provides similar goods/services to many different purchasers; • Operates in competitive environment; • Provides goods/services that are supplementary to operation of Federal program; and • Not subject to compliance requirements of Federal program.

28. Major Program Determination • Federal programs subject to testing of internal controls and compliance tests. • Auditor performs risk-based approach as outlined in section .520 of OMB Circular A-133. • Approach considers: • Current and prior audit experience • Oversight by federal or pass-through agencies • Inherent risk of the program

29. Major Program Determination(continued) • Major program determination impacted: • ARRA monies higher risk. Generally will not be low risk Type A. • If ARRA monies are part of Cluster, the Cluster must still be audited as high risk even if Cluster was audited in previous year.

30. Major Program Determination (continued) Step 1: • Identify larger programs – “Type A”: • Larger of $300,000 or a percentage of total awards expended • All other programs are considered “Type B”

31. Major Program Determination (continued) Step 2: • Identify low risk “Type A” programs • Low risk Type A requirements: • Audited in one of two most recent audits • No audit findings in most recent audit period • Federal agency did not request it be treated as high risk • Other factors: Oversight by federal agency, inherent risk of the program, phase of the program in its life cycle, changes in personnel, etc. • New guidance surrounding ARRA requires stimulus monies to be high risk. • If program does not meet low risk requirements, considered high risk.

32. Major Program Determination (continued) • Type A program which is otherwise low risk – even a de minimus amount of ARRA would not support low risk • Exception – ALL must be met • Program or cluster had ARRA in prior audit period • Program or cluster was audited as a major program in prior period • ARRA expenditures are less than 20% of the program or cluster expenditures • Auditor has followed guidance and program or cluster is otherwise low-risk

33. Major Program Determination (continued) Step 3: • Determine high risk Type B programs • High risk considerations: • Current and prior audit experience • Internal control structure - centralized vs decentralized • Prior audit findings • Oversight exercised by federal agencies • Inherent risk of the program • Percentage of total federal awards Note: Other than prior audit findings, generally no single criteria would automatically cause Type B programs to be considered high risk.

34. Major Program Determination (continued) Step 4: • Designate the following as major programs: • All high-risk Type A programs • Set number of high-risk Type B • Option 1: ½ of high risk type B’s, but not more than number of low risk Type A’s • Option 2: 1 high-risk type B fore each low-risk Type A • Additional programs to meet percentage of coverage rule

35. Percentage of Coverage Rule • Low Risk Auditee: 25% • 2 preceeding years single audit performed • Unqualified opinions • No material weaknesses in internal control over financial reporting • No findings in type A programs • High Risk Auditee: 50%

36. Auditing Major Programs For each major program: • Identify program requirements that are relevant and significant to the program. • For each major program, must test: • Internal control over compliance • Compliance

37. Compliance Supplement • Issued by the OMB to assist auditors in performing the required audits. • Allows Federal Agencies to communicate items they believe are important to grants. • Provides guidance in determining: • Compliance requirements relevant to the grant; • Audit procedures to be performed. • Additional guidance issued for ARRA programs • Effective tool for grant managers to review compliance requirements

38. Activities Allowed or Unallowed Allowable Costs/Cost Principles Cash Management Davis-Bacon Act Eligibility Equipment and Real Property Management Matching, Level of Effort, and Earmarking Period of Availability Procurement, Suspension, and Debarment Program Income Real Property Acquisition/Relocation Assistance Reporting Subrecipient Monitoring Special Tests and Provisions Compliance Requirements

39. Direct and Material • Does the compliance requirement apply? • Will noncompliance have a material impact on the major program?

40. Activities Allowed or UnallowedAllowable Costs/Cost Principles • Is the activity/cost being charged to the program: • Allowed under program regulations? • In accordance with applicable cost principle circular? • No ARRA funds may be used or casino/gaming, aquarium, zoo, golf course or swimming pool

41. Cash Management • Reimbursement • Costs must be paid prior to reimbursement. • Advanced • Time elapsing between transfer of funds to disbursement of funds must be minimized.

42. Davis Bacon Act • All laborers/mechanics employed to work on construction contracts > $2,000 financed must be paid prevailing wage rates.

43. Eligibility • Only certain individuals or groups of individuals are qualified to obtain benefits/services. • Unique to each program.

44. Equipment and Real Property Management • Property acquired must be used for its intended purpose. • Equipment records should be maintained. • Physical inventory every two years. • Safeguarded. • Disposition instructions for real property.

45. Matching, Level of Effort, and Earmarking • Matching • Required to provide contributions of a specified amount. • Level of Effort • Required to maintain a specified level of service, or a specified level of expenditures from other sources, or funds are to supplement, not supplant, other funding sources. • Earmarking • Requirements to specify a min or max amount on specified activities.

46. Period of Availability of Federal Funds • Required to use federal funds within a specified time period. • ARRA – spending timeframe very tight on some of the funding.

47. Procurement and Suspension and Debarment • Procurement • States/subrecipient of states: Adhere to state purchasing laws. • Other: Must comply with A-102 Common Rule or OMB Circular A-110. • Suspension and Debarment • Prohibited from contracting with suspended or debarred parties - applies to transactions greater than $25,000. • Auditee is required to either check EPLS website, get certification, or include clause in contract. • ARRA prohibits use of funds unless all of the iron, steel, and manufactured goods are produced in the US

48. Program Income • Income that is directly generated by the federally funded project. • May be used in one of three methods: • Deducted from outlays; • Added to project budget; or • Used to meet matching requirements.

49. Real Property Acquisition and Relocation Assistance • Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 • Provides for equitable treatment of persons displaced by federally-assisted programs from homes, businesses, or farms. • Requires independent appraisals, determination of replacement housing assistance, rental assistance, etc.

50. Reporting • Three types of reports • Financial • Performance • Special • ARRA section 1512 applies • OMB has issued multiple guidance documents • Continuous correction period • Audit procedures focus on last quarter – award number and amount, ARRA funds received, ARRA expenditures