Corrective Action PlansFrequently Asked Questions

Leigh Manasevit, Esq.lmanasevit@bruman.com Bonnie Little Graham, Esq.bgraham@bruman.com Jenny Segal , Esq.jsegal@bruman.com

Brustein & Manasevit, PLLCwww.bruman.comSpring Forum 2013

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Intro[N]ewly purchased items of equipment were not consistently entered into the property tracking system or, if entered, some of the items of equipment remained in the warehouses undelivered, were delivered to an incorrect location, or were misplaced or stolen. As of 1998, VIDE began to implement the corrective actions necessary to revamp its property management system as well as to correct other deficiencies in its administration of Federal grant programs. Progress was slow. As a result, VIDE was designated as a “high-risk” grantee and special conditions were imposed. Later, ED and VIDE entered into a compliance agreement that permitted VIDE to continue to receive funding while it implemented a structured plan to correct the administrative and programmatic deficiencies. • Application of U.S. Virgin Islands Dept. of ED, Docket No.

05-04-R (Jan. 24, 2011).

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Agenda

1. When are corrective action plans necessary?2. What needs to be in a corrective action plan?3. Can the state/grantee require a corrective action plan from

locals/subgrantees?4. Can I use grant funds to pay for corrective actions?5. How are corrective actions enforced?6. Can I appeal required corrective actions?

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WHEN ARE CORRECTIVE ACTION PLANS NECESSARY?

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Identifying Noncompliance

• Monitoring by ED or grantee• OIG audit• A-133 single audit• Performance data• Financial data• Internal review

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Corrective Action Needed

• Program Determination Letters• OIG Audit Report• Single Audit Report• Grant Award Notification – special conditions• Monitoring report

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WHAT NEEDS TO BE IN A CORRECTIVE ACTION PLAN?

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Corrective Action Plans

• Objective/activity (measurable)• Timeline• Identify person responsible• Budget• Data• Deliverables

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Activity Responsible Party Deliverable Due Date

Ensure compliance with SEA’s application process for Federal education funds, including using SEA’s application tools, meeting all SEA deadlines and following SEA’s amendment procedures.

LEA Director of Federal Programs [name, contact info]

Documentation evidencing that LEA used SEA-provided application tools and submitted its application for funds and any amendments in accordance with SEA’s application process and deadlines, including budgets and signed assurances. Signature under penalty of perjury by the Superintendent or highest-ranking administrative position at LEA affirming that the submitted application(s) is true and correct.

Consistent with SEA published deadlines

For example:

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Corrective Action Plan

• Over-promise• Under-promise• Unrealistic timeframe• Does not address the issue

Correcting noncompliance can be a lengthy process, measured in years rather than months

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CAN THE STATE/GRANTEE REQUIRE A CAP FROM LOCALS/SUBGRANTEES?

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Authority• EDGAR 80.40(a)• Grantees are responsible for managing the day-to-day

operations of grant and subgrant supported activities. Grantees must monitor grant and subgrant 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.

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Authority• EDGAR 80.12(a)• A grantee or subgrantee may be considered “high risk” if:• Has a history of unsatisfactory performance• Is not financially stable• Has management system that does not meet EDGAR

standards• Has not conformed to terms and conditions of previous

awards• Is otherwise not responsible Br

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CAN I USE GRANT FUNDS TO PAY FOR CORRECTIVE ACTIONS?

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Paying for Corrective Actions• Allowable?• Necessary and reasonable

• Legal expenses required in the administration of Federal programs are allowable.

• Costs related to cooperative audit resolution are allowable

• Allocable?• Activity is allowable under multiple programs, agency has

discretion in determining which programs may be charged. 34 C.F.R. 76.760• Agency can make “business decision” regarding what

combination of funds would be applied to a function or activity that benefits two or more programs. Implementation Guide for OMB Circular A-87, Q&A 2-16

• Example: Cross-cutting grants management policies and procedures manual

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HOW ARE CORRECTIVE ACTIONS ENFORCED?

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Enforcement - EDWhenever the Secretary has reason to believe that any recipient of funds under any applicable program is failing to comply substantially with any requirement of law applicable to such funds, the Secretary may—•withhold further payments under that program,•issue a complaint to compel compliance through a cease and desist order of the Office, •enter into a compliance agreement with a recipient to bring it into compliance• take any other action authorized by law with respect to the recipient.Any action, or failure to take action, by the Secretary under this section shall not preclude the Secretary from seeking a recovery of funds

•GEPA, 20 USC 1235c

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Enforcement - Grantees

• Withholding approval of application• Withholding of funds• Reimbursement with special conditions• High risk designation

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Compliance Agreement

Pros• Continue to receive

federal funding• Clear requirements and

deadlines

Cons• Heightened federal

oversight• Deadlines• Inflexible• Expensive

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Withholding of Funds• Withholding: • Reasonable notice of intent to withhold and opportunity for

a hearing with an impartial hearing officer. 20 U.S.C. 1232c(b)(2); 20 U.S.C. 1234d(b).

• Withhold until satisfied there is no longer a failure to comply.

• Suspending:• SEA must provide notice to the subgrantee and allow it 15

days to show cause why the suspension should not take effect. 20 U.S.C. 1232c(b)(2).

• If the subgrantee does not show cause, SEA may suspend funds for 60 days.

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Reimbursement with Special Conditions• ED and Grantees have discretion to impose special conditions• Grantees are responsible for ensuring all expenditures are lawful

(including subgrantees’ expenditures) and for ensuring all findings of noncompliance are resolved. 34 CFR 80.40(a).

For example: SEA could reimburse 80% of each Federal draw upon receipt of the summary reports and detailed lists, and then reimburse the remaining 20% after sampling certain expenditures and verifying detailed supporting documentation (such as time and effort documentation supporting payroll charges and requisition requests, purchase orders, contracts, receiving documents, invoices and canceled checks for non-payroll charges).

Is this reimbursement scheme “withholding”?

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High Risk Designation• After placing the grantee/subgrantee on high risk, special

conditions or restrictions that correspond to the high risk condition must be imposed. Such special conditions or restrictions may include:• Payment on a reimbursement basis;• Withholding authority to proceed to the next phase until receipt

of evidence of acceptable performance within a given funding period;

• Requiring additional, more detailed financial reports;• Additional project monitoring;• Requiring the grantee or subgrantee to obtain technical or

management assistance; or• Establishing additional prior approvals.

• 34 CFR 80.12(b)

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CAN I APPEAL REQUIRED CORRECTIVE ACTIONS?

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Appeal

• Disallowance vs. Corrective action• GEPA permits an appeal of a

disallowance decision• No appeal of corrective actions

• A-133, _.315(c) “If the auditee does not agree with the audit findings or believes corrective action is not required, then the corrective action plan shall include an explanation and specific reasons.”

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Appeal – Disallowance Impact of Corrective Action on Recovery Amount

• Compromise authority: In certain circumstances, ED may compromise the amount claimed under GEPA if the grantee/subgrantee demonstrates “the practice that resulted in the disallowance decision has been corrected and will not recur.” 34 C.F.R. 81.36(a).

• Grantback: In certain circumstances, ED may offer a grantback of up to 75% of the recovered funds if the “practices or procedures of the recipient that resulted in the violation have been corrected.” 20 U.S.C. 1234h(a).

• Equitable offset: Remedy available to grantees and subgrantees to prevent the recovery of sustained audit liabilities. Case law establishes that evidence of appropriate corrective actions is an equitable factor in support of the application of equitable offset.

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THE “SUPER” CIRCULAR ON CORRECTIVE ACTIONS

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Cooperative Audit Resolution

• “Federal agencies offering appropriate amnesty for past noncompliance when audits show prompt corrective action has occurred.”

• Corrective Action means action taken by the auditee that:• Corrects identified deficiencies;• Produces recommended improvements; or• Demonstrates that audit findings are either invalid

or do not warrant auditee action

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For example…• In one jurisdiction, ED issued a 70 Page PDL which determined all

findings were either:• 1. Resolved and closed because ED had received sufficient

documentation that corrective action was already in place; or• 2. Required further corrective action: • Please note that corrective action is required for some of

these audit findings, as well as audit findings not specifically addressed in this PDL. [ED] will continue to work with [you] to implement corrective actions required by this PDL.

• Emphasized the importance of:• 1. Producing records at the time they are requested by the

auditors and complying with the requirements in 76.730(e) of EDGAR to keep records “to facilitate an effective audit”’; and

• 2. Working with ED (not being adversarial).

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For example…• A second jurisdiction received a 76 page PDL regarding two

single-audits. PDL did not demand recovery of any funds, but mandated several corrective actions, such as:• MOE: Review MOE calculation methodologies and update; use

audited data; complete MOE calculations in a timely manner and communicate data to LEAs to ensure timely completion of A-133 audits.• Is audited data required?

• Subrecipient Monitoring: Process for identifying “high risk” grantees under 80.12; conduct fiscal monitoring (cannot rely solely on A-133 audits).

• Comparability: Develop and implement an indicator for monitoring comparability and integrate this indicator into protocols for subrecipient monitoring.

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For example . . . Colorado• OIG: “We commend CDE for initiating timely corrective action

in response to the audit’s finding and recommendations. The actions that CDE describes in its comments, in response to our recommendations, would appear to address our finding, but the Department will ultimately make this determination.”

• PDL: “We find that the policies and procedures provided generally appear sufficient to establish an effective system to account for the distribution of effort for employees who work on multiple programs, however we have questions regarding implementation . . . “• Single audit findings!

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This presentation is intended solely to provide general information and does not constitute legal advice. Attendance at the

presentation or later review of these printed materials does not create an attorney-client relationship with Brustein & Manasevit, PLLC. You should not take any action based upon any information in this presentation without first consulting legal counsel familiar

with your particular circumstances.

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Disclaimer