Fiscal Monitoring

1. Fiscal Monitoring OCFS Bureau of Compliance

2. What is fiscal monitoring? • Fiscal Monitoring is a limited scope review of an organization’s transactions, accounts and records made for the purpose of rendering a judgment whether the limited sample of transactions reviewed are consistent with contract terms, and representative of actual cost as supported by books and records of the organization • It is a risk assessment function that can help determine whether a fiscal audit is necessary.

3. What is a contract audit? • Contract audit is a comprehensive and independent examination of an organization’s transactions, accounts, records, made for the purpose of obtaining reasonable assurances that all material expenditures claimed for reimbursement were consistent with contract terms and representative of actual cost, as supported by the books and records of the organization

4. Why fiscal monitoring is important? • Monitoring has a significant deterrent effect. If contractors know that their fiscal records and transactions will be reviewed exercise more care in the preparation of their claims, they will be less likely to commit fraud or other improper activities. • Fiscal monitoring can actually improve programmatic aspects of the contract because it helps ensure that funds are used effectively, and only for programmatic purposes.

5. Helps identify contractors at risk so assistance can be provided before they fail. • There is a significant risk of fraud, which can result in loss of funds, which in turn can negatively impact the organization and result in bad publicity for OCFS. • Failure to properly monitor programs can result in audit disallowance. • Failure to properly monitor programs could result in an audit finding by the Office of the State Comptroller.

6. What are the two types of fiscal monitoring • On-site Fiscal monitoring: this involves a visit to the agency’s administrative offices/program operations to conduct interviews and review records. • Administrative Monitoring (Desk Audit): this involves the agency to submit copies of supporting documentation (e.g. payroll payouts, cancelled checks etc.) to substantiate all of the expenses claimed on vouchers.

7. Advantages • Advantages of on-site monitoring include: • Availability of original source documentation • The ability to observe program operations. • Read availability of staff to answer questions and provide additional documentation that might be necessary.

8. Advantages • Advantages of a desk audit include: • This type of monitoring does not present the time pressures that often accompany on-site monitoring visits.

9. On-Site Monitoring Procedures • Personal Services – Salaries: Generally, monitoring efforts should always include a review of personal services (salaries) expenditures.

10. On-Site Monitoring Procedures • Payroll Taxes – Reimbursement paid to programs is based on gross salaries paid by the program to its employees. If the agency failed to remit federal and state taxes withheld from employees’ salaries to the appropriate tax authorities there should be a disallowance in the amount of taxes withheld from the salaries of OCFS funded employees, but not remitted.

11. On-Site Monitoring Procedures • Fringe Benefits – If fringe benefits are claimed based on actual expenses, verify the accuracy of the claimed amount by reviewing cancelled checks and invoices.

12. Potential Findings • No-Show Employees • “Double Dipping” • No Time sheets or inaccurate timesheets • Improper allocation • Payroll taxes not paid

13. Contractual Expenditures • Contractual expenses should be verified through examination of source documentation such as cancelled checks and invoices.

14. Potential Findings • Issuing a check payable to cash, to a employees personal business or to a shell company or themselves. • Legitimate invoices that have already been paid, are paid again. • Invoices without phone numbers. • Frequent use of PO Boxes, suite addresses, of residential addresses.

15. Potential Findings (continued) • Sequentially-numbers invoices. • Invoices not on company letterhead.

16. Contractual / Consultants • The contractual / consultants category is highly susceptible to abuse. Contracts are sometimes awarded based on personal relationships rather than to consultants who are the most qualified and / or the most price competitive.

17. Potential Findings • Contracts awarded based on personal relationships • Consultant / contractor not qualified. • Excessive pricing. • Kickbacks. • Little or no work preformed. • Consultants perform work that should be performed by employees. • Improper classification of employees as consultants.

18. Travel Expenses • Travel expenses should be traced back to receipts and cancelled checks to confirm their legitimacy. Exercise caution in accepting credit card statements as proof of expenses given the lack of detail provided by these documents. Where possible limit travel reimbursement to state rates. The use of per-diems is recommended.

19. Potential Findings • Travel expenses claimed based on advance rather than actual expenditures. • Unnecessary Travel • Personal travel expense charged to program. • Travel expenses exceed approved rates • Misuse of petty cash account to reimburse insufficiently-documented staff travel.

20. Equipment • Equipment purchased with OCFS funds for programmatic purposes, are sometimes used for administrative purposes, sometimes by people who are not assigned to work on the funded program. It is important that the program account for the equipment and the manner in which it is being used.

21. Supplies Expenditures • Supplies expense should be reasonable given the size and nature of the program. This expense area is susceptible to many of the same fraud and irregularities found in other categories. If supply cost are allocated the monitor should review the allocation method to judge its appropriateness.

22. Rent, Utilities and Other Expenditures • When rent and utility cost are allocated the monitor should evaluate the appropriateness of the allocation methodology. Rent and utilities are typically allocated based on square footage used. If reimbursing on a lease, review the lease to determine that the cost are reasonable. Expenses claimed should be traced back to invoices and cancelled checks (as with other expenditures)

23. Other Tidbits • Time Records – Program should maintain accurate time records for all OCFS funded employees. These records must included: • Period covered • Full signature of employee • Full signature of supervisor

24. Other Tidbits (continued) • Consultant / Contractual Services – If consultant services are being reimbursed with OCFS funds there must be a written agreement on file for each consultant. The agreement must included: • Outline of work to be performed • Rate of pay • Duration of service

25. Other Tidbits (continued) • Bank Statement Reconciliation – Bank account statements must be reconciled monthly by someone other that the fiscal officer or persons who sign the checks. Reconciled statements should be signed and dated to document that they were reconciled.

26. Other Tidbits (continued) • Cash receipt / disbursement journals – Agencies receiving OCFS funds must maintain an accounting system which permits separate identification of receipt and expenditure of these funds. This should include a cash receipts journal listing all funds received, including source and amount and a cash disbursements journal listing all funds disbursed, including payee and amount.

27. Other Tidbits (continued) • Shared Cost – State Finance Law and GAAP require that any expenses incurred over more that one funding source or program must be charged proportionately and the method of allocation must be documented. • Someone other than the fiscal officer should verify receipt of goods (sign for delivery)

28. Other Tidbits (continued) • Petty Cash - Invoices or receipts with a brief description of expenditures should be maintained to document petty cash expenditures. Petty cash disbursement documentation should include: • Date • Payee • Purpose • Approved by • Received by

29. Other Tidbits (continued) • Shared Cost – State Finance Law and GAAP require that any expenses incurred over more that one funding source or program must be charged proportionately and the method of allocation must be documented.

30. Other Tidbits (continued) • Agency Board of Directors must operate in accordance with it’s corporate by-laws • Reports should be made to the Board regarding program activities and accomplishments. • OCFS should be identified as a funding source in any and all promotional material

31. Other Tidbits (continued) • Agency checks should be signed by two people and should be different from those who have direct responsibility to maintain the checking account, books and records. • Agency should maintain records so as to keep each grant year’s expenditures accounted for separately.

32. Other Tidbits (continued) • Exterior of the program site should be maintained and in good repair and free from any danger to safety and health. • Interior of the program site ( furnishings, floor coverings, stairways, handrails) should be maintained and in good repair and free from any danger to health and safety.

33. Other Tidbits (continued) • Program site should have at least two unobstructed and easily accessible means of egress to the exterior of the building. • The means of egress should be identified with illuminated exit signs (visible in the dark). • Program site should have emergency exit route posted on diagrams which are located in areas conducive to easy viewing.

34. Other Tidbits (continued) • Exterior of the program site should be maintained and in good repair and free from any danger to safety and health. • Interior of the program site ( furnishings, floor coverings, stairways, handrails) should be maintained and in good repair and free from any danger to health and safety.

35. Other Tidbits (continued) • Program site should have fire extinguishers available which are: • Operable as verified by an inspection tag signed and dated by a certified inspector within previous 12 months. • Program should have a first aid kit and a spill kit.

36. Other Tidbits (continued) • Program should have fire, heat and/or smoke and CO2 detectors. • Flammable or highly combustible materials (ex. Gasoline, spray paint, solvents, varnish, wood stain, turpentine) at the program site should be stored in fire restrictive storage units.

37. Other Tidbits (continued) • Agency should maintain documentation that the program site has received a fire inspection within the previous 12 months, and that any violations have been corrected. Programs located in areas of public access such as court houses, libraries, and schools are exempt from this requirement.

38. Other Tidbits (continued) • When monitoring visits are conducted the results of the visit should always be detailed in a written report. • Program strengths identified through monitoring can be brought to the attention of other agencies as they might be able to use those practices to enhance their programs.

39. It’s Up To You • Through experience, you will learn what’s important, what questions need to be asked, and what questions can be answered.