Understanding Federal Programs from an Auditor Perspective
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The document discusses federal compliance requirements for the Child Nutrition Cluster federal program from an auditor's perspective. It provides an overview of the financial and federal compliance audit process as it relates to a school district's food service fund. It then reviews 12 potential federal compliance requirements and how auditors would test for compliance. Specific requirements covered in more depth include activities allowed/allowable costs, cash management, eligibility, equipment/property management, matching, period of performance, procurement/suspension and debarment, program income, reporting, and special tests and provisions such as verification of free and reduced price meal applications. The document emphasizes the importance of internal controls and provides examples of key controls for each compliance requirement.
Understanding Federal Programs from an Auditor Perspective
- 1. UNDERSTANDING FEDERAL PROGRAMS FROM AN AUDITOR PERSPECTIVE SCHOOL NUTRITION ASSOCIATION OF ARIZONA PROFESSIONAL GROWTH CONFERENCE – 3.25.17 SARA KIRK, HEINFELDMEECH
- 2. Agenda Where do federal compliance requirements come from? Perform a walk through of the federal compliance requirements for the Child Nutrition Cluster Federal Program Audit approach and testwork How to ensure your District is compliant and how to be prepared for the audit
- 3. How do the operations of the Food and Nutrition Department impact the audit?
- 4. FINANCIAL AUDIT - Food Service Fund Financial statement – Balance Sheet
- 5. FINANCIAL AUDIT - Food Service Fund Financial statement – Revenues, Expenditures, and Changes in Fund Balances
- 6. FEDERAL (SINGLE AUDIT) Schedule of Expenditures of Federal Awards - SEFA Child Nutrition Cluster expenditures = 8,099,639 Total federal expenditures for all programs = 22,652,961
- 7. Who is responsible for what? 7 AUDITOR • Express an opinion on compliance for each of the major federal programs audited • Examine evidence and perform procedures • Test and report on internal control over compliance DISTRICT • Responsible for compliance related to federal awards • Develop sound accounting policies and establish and maintain effective internal controls over compliance with federal requirements
- 8. Items to consider when establishing internal controls over compliance with program requirements
- 9. Know what the requirements are! Code of Federal Regulations/ADE manuals Codification of the general and permanent rules published in the Federal Register by the Executive departments and agencies of the Federal Government. (CFR) Title 7 Agriculture of the CFR Subtitle B 210-299 are related to the Food and Nutrition Service. The Arizona Department of Education (ADE) is the State Agency designated to administer the program as specified in 7 CFR 210.3. ADE puts out tools such as the Child Nutrition Programs Manual and the CNP Verification Guidance Manual.
- 10. Know what the requirements are! Child Nutrition Cluster – Compliance Supplement Office of Management and Budget (OMB) Circular A-133 is a large and extensive US federal government guide created by OMB and used in auditing federal assistance and grant programs, as well as their recipients. The 2016 compliance supplement can currently be located here: https://obamawhitehouse.archives.gov/omb/circulars/a133_co mpliance_supplement_2016
- 11. Know what the requirements are! Child Nutrition Cluster – Compliance Supplement
- 12. Know what the requirements are! Child Nutrition Cluster – Compliance Matrix
- 13. 12 potential Compliance Requirements (that could apply to all programs) Activities Allowed or Unallowed Allowable Costs/Cost principles Cash Management Reserved (previously Davis-Bacon Act) Eligibility Equipment and Real Property Management Matching, Level of Effort, and Earmarking Period of Performance (only costs incurred during the grant period charged) Procurement and Suspension and Debarment Program Income (accounting system tracks separately) Reserved (previously Real Property Acq. & Relocation Assist.) Reporting Subrecipient Monitoring (not applicable) Special Tests and Provisions
- 14. Auditor responsibility – Perform tests and report Do auditors look at all applicable compliance requirements? Not necessarily Direct and material compliance requirements Should an auditee comply with all applicable compliance requirements? Yes Do not try to predict an auditor’s scope
- 15. A. & B. - Activities Allowed/ Unallowed Allowable Costs/Cost Principles
- 16. A. & B. – Activities Allowed/Unallowed & Allowable Costs/Cost Principles •Allowable/Unallowable Activities are ones that can or cannot be funded under a specific program. •Generally grant specific, outlined in grant agreement •Allowable Costs/Cost Principles describes the cost accounting requirements associated with federal awards. •Specific items that can/cannot be paid for with grant funds (ex. Purchases of alcohol are prohibited) •Indirect costs
- 17. A. & B. – Activities Allowed/Unallowed & Allowable Costs/Cost Principles – Key District internal controls If your auditor asks you what internal controls are in place to ensure program funds are spent on allowable costs, what might be your response? Program budget established and monitored Requisition/purchase order process followed Formal hiring processes have been established Manager/Director approvals are required Employees are provided with training
- 18. A. & B. - Activities Allowed/Unallowed & Allowable Costs – Audit tests How would an auditor test compliance with these requirements? Review compliance supplement, grant agreement Identify details of total expenditures (reconcile to SEFA) Select samples and perform testwork Review purchase orders, receiving reports and invoices for vendor payments Review contracts and timesheets for employee payments Test indirect costs
- 19. Allowable Costs and Cost Principles Indirect Costs Indirect Cost Rate is used – simplified mean for distributing a fair share of administrative costs to federal programs Ratio of indirect costs to a direct cost base Calculated by ADE based on AFR information Unrestricted rate used
- 20. Allowable Costs and Cost Principles Indirect Costs
- 22. C. Cash Management When entities are funded on a reimbursement basis, program costs must be paid for by entity funds before reimbursement is requested from the Federal Government.
- 23. Cash Management USDA regulations state that net cash resources shall not exceed three months average expenditures. Food Service AFR used by ADE to monitor Food Service revenues LESS: Food Service expenditures Balance Balance LESS: Monthly expenditures* x 3 Balance positive = EXCESS CASH *Calculated using operating months only
- 24. C. Cash Management – Key District internal controls If your auditor asks you what internal controls are in place to ensure compliance with cash management requirements, what might be your response? Manager verification that meals provided prior to the submission of a reimbursement claim Tracking of cash resources throughout the year to ensure excess cash is not accumulating Review of cash balances in the general ledger prior to authorizing disbursements
- 25. E. Eligibility
- 26. E. Eligibility Compliance Requirement •Specifies the criteria for determining the individuals, groups of individuals, or subrecipients that can participate in the program and the amounts of assistance for which they qualify. •Eligibility of those participating in the program funded by the grant or contract rather than the eligibility of the primary recipient. Child Nutrition Cluster = Individual eligibility based on the submission of an annual application furnishing family income and size
- 27. E. Eligibility – Key District internal controls If your auditor asks you what internal controls are in place to ensure compliance with eligibility requirements, what might be your response? Training requirements for staff, particularly those performing determinations Completion of Official Use section for each application Supervisory review of eligibility conclusions Establishing realistic case loads
- 28. Eligibility TIPS Streamline your process with technology Less people required to process Less training, more accountability Increased accuracy Filing by application number versus student name/site Ease of filing Ease of finding Less copying ADE pulls apps random versus by school as in the past Direct Certification Run before school starts and mail home approval letters Run daily, then weekly, then monthly
- 30. F. Equipment and Real Property Management •Equipment and real property management provides standards for the use and disposition of equipment and real property purchased with federal funds. •These requirements cover records and inventory management. •Equipment means tangible nonexpendable property, including exempt property, charged directly to the award having a useful life of more than one year and an acquisition cost of $5,000 or more per unit. •Title vests with non-federal entity.
- 31. F. Equipment and Real Property Management – Key District internal controls If your auditor asks you what internal controls are in place to ensure compliance with equipment and real property requirements, what might be your response? Process for tracking assets purchased (and disposed) with federal funds Accounting system allows for separate identification of property acquired with federal funds Management reviews inventory counts and resolves discrepancies Property tags are used
- 32. G. Matching, Level of Effort, Earmarking MATCHING = APPLICABLE LEVEL OF EFFORT = NOT APPLICABLE EARMARKING = NOT APPLICABLE
- 33. G. Matching •Matching is amount (or percentage) of grantee contributions or matching funds provided. •Matching, or cost sharing, includes requirements to provide contributions (usually non-federal) of a specified amount or percentage to match federal awards. •Matching may be in the form of allowable costs incurred or in-kind contributions (including third-party in-kind contributions).
- 34. Matching District required to match a certain amount from its Maintenance and Operation (M&O) Fund and/or Unrestricted Capital Outlay Fund Match amount reported on Food Service AFR page Calculation of Required Matching Amount: Number of Lunches Served in PRIOR YEAR (AFR) x 30% 30% - x PRIOR YEAR paid lunch reimbursement rate Required matching amount -
- 35. G. Matching – Key District internal controls If your auditor asks you what internal controls are in place to ensure compliance with matching requirements, what might be your response? Match amounts included in budget Accounting system capable of tracking requirements Matching calculation verified by a second employee to ensure calculated properly and sufficient
- 37. H. Period of Performance •Individual federal grants are awarded for a specified time period, typically one year. •Federal regulations prohibit the use of funds from a grant outside that time period.
- 38. H. Period of Performance – Key District internal controls If your auditor asks you what internal controls are in place to ensure compliance with period of performance requirements, what might be your response? Purchase orders contain time limits If goods and services are not received by FYE, the PO is cancelled and a new PO is created Employment contracts are for a definite time period
- 39. H. Period of Performance Use caution with summer orders, order ahead Watch for technology hardware repair or orders Plan for parts orders place for equipment repairs Office supply orders Cleaning supply (mops) replacements Open POs for kitchen deep cleaning or servicing (hoods, inspections) Paying for salaries (caterings that happened in June but the timesheet was submitted in July)
- 41. I. Procurement, Suspension & Debarment •Procurement - States, and governmental subrecipients of states, shall use the same state policies and procedures used for procurements from non- federal funds. (State statutes) •Suspension & Debarment - Non-federal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred or whose principals are suspended or debarred. •Excluded Parties List System/System For Award Management – www.sam.gov
- 42. AZ School District Procurement Rules Arizona Revised Statute § 15-213 and the Office of the Auditor General establish specific guidelines for purchases in excess of $10,000 in aggregate by like items and vendor. These guidelines are incorporated into USFR. More than $10,000 but less than $50,000 – verbal quotes More than $50,000 but less than $100,000 – written quotes More than $100,000 – A.A.C. Title 7 Education, Chapter 2 State Board of Education, Articles 10 and 11, School District Procurement – competitive sealed bid/proposal
- 43. Federal Procurement Rules $0 to $3,500 – Micropurchase $3,500 to $150,000 – Small purchase (obtain price quotations from at least 3 suppliers) More than $150,000 (RFP or IFB)
- 44. I. Procurement, suspension, and debarment – Key District internal controls If your auditor asks you what internal controls are in place to ensure compliance with procurement, suspension, and debarment requirements, what might be your response? Establish process for S&D verifications (use of sam.gov) Inclusion of language regarding S&D in RFP or other bid documents Conflict of interest policies Utilization of expenditure tracking methods for procurements Use of procurement checklists Use of ADE’s tracking tool
- 46. J. Program income •Revenue earned as a direct result of activities funded under a federal grant. •Any revenue generated must be used to operate and improve its food services program. KEY CONTROLS: Keeping food service operations separate from other operations in the accounting records. Segregation of duties in place over journal entries. AUDITOR TESTS: Review of accounting records. Review of transfers to ensure allowable.
- 47. L. REPORTING CHILD NUTRITION CLUSTER = MONTHLY MEAL SERVICE SUMMARIES
- 48. Reporting •Grant recipients are required to use standard financial reporting forms for submitting information to the grantor agency. •Many times these reports are required of state agencies who develop their own reports for sub-grantees (local governments). •Performance or special reports may be required.
- 49. Reporting requirement MONTHLY MEAL SERVICE SUMMARY Meal services are held daily at school sites Individual school claim prepared monthly District wide claim prepared monthly
- 50. L. Reporting – Key District internal controls If your auditor asks you what internal controls are in place to ensure compliance with reporting requirements, what might be your response? Implementation of effective meal sales and cash tracking system Second person recount/verify cafeteria reporting Timely depositing Monthly claim preparation process involves agreeing to supporting documents and review of second person Policies and procedures for reporting Adherence to due dates
- 51. Cover sheet checklist was created for the monthly claim to specify everything that needed to be sent to the district office each month.
- 54. M. Subrecipient Monitoring •Non federal recipients of federal assistance that pass on that assistance, whether in part or in total to another recipient is responsible to monitor the activities of that subrecipient. *Per review of the compliance supplement, this is not applicable at the District level.
- 56. N. Special Tests & Provisions •Additional requirements set forth by federal agency – see Part IV of the Compliance Supplement •Found in the laws, regulations, and the provisions of contract or grant agreements pertaining to the program. •Not every federal program has special tests and/or provisions •Child Nutrition Cluster has couple key ones: •Verification of Free and Reduced Applications •Paid Lunch Equity
- 57. N. Special Tests and Provisions – Key District internal controls If your auditor asks you what internal controls are in place to ensure compliance with special tests and provisions requirements, what might be your response? Adherence to due dates for various elements of verification process Established process and procedures for verification Results of verification reviewed by a second individual independent of the initial verification Awareness of paid lunch equity requirements and District status/approach
- 58. N. Special Tests and Provisions – Verification TIPS Verification Send your person with your reports to all ADE Drop-In sessions When you sign up, your specialist is there to work through your numbers for pulling applications and at the end completing your final verification report If an application drops out for withdrawn, for example, be sure to pull another application so that your numbers are correct Reviewing Set time for someone to review each application before the selection letters get sent Have a folder that is given to you each day with the verification documentation that came in so that you review the accuracy of the results
- 59. N. Special Tests and Provisions – Paid Lunch Equity TIPS Paid Lunch Equity Don’t wait until October When you are completing your AFR in the summer, complete your PLE tool (make sure you have the updated tool) Keep documentation showing additional funds from non-Federal sources if not raising prices if needed
- 60. Thank you for attending! QUESTIONS??