THE FUNDAMENTALS OF FEDERAL GRANTS MANAGEMENT AND AUDIT RESOLUTION Michael L. Brustein, Esq. mbrustein@bruman.com Brustein & Manasevit, PLLC Spring Forum 2016

Brustein & Manasevit, PLLC © 2016. All rights reserved. If a “non-federal entity” violates the terms of the grant, what are the consequences? Recovery of funds? Imprisonment/fine? Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. “Any false, fictitious, or fraudulent information, or the omission of any material fact, may subject me to criminal, civil, or administrative penalties for fraud, false statements, false claims or otherwise.” 2 CFR § 200.415 (citing 18 U.S.C. §1001) Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. RECOVERY OF FUNDS Cannot repay federal claims with federal dollars Will state legislatures, city councils, post secondary institutions bail you out? Don’t forget about grant backs Treasury offset procedures (TOP) Brustein & Manasevit, PLLC © 2016. All rights reserved.

CAN VIOLATING THE TERMS OF THE GRANT LEAD TO RECOVERY OF FUNDS? Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. Congress may fix the terms on which it disburses grants. A federal grant “is much in the nature of a contract,” in return for the federal funds the grantee agrees to comply with the federally imposed conditions. Pennhurst v. Halderman, 451 U.S. 1 (1981) Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. But New Jersey and Pennsylvania argued to the Supreme Court that USDE cannot recover misspent grant funds Bell v. New Jersey and Pennsylvania, 461 U.S. 773 (1983) Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. Federal auditors determined both states misspent Title I funds. Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. Supreme Court grantees misusing federal funds incur a debt to the Federal Government (citing Section 415 of GEPA) Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. Citing Pennhurst grantee chose to participate in the program, and as a condition of receiving the grant, gave an assurance that it would abide by the conditions of the grant Brustein & Manasevit, PLLC © 2016. All rights reserved.

ARE CONTRACTORS/VENDORS SUBJECT TO THE TERMS OF THE GRANT? NO! See 2 CFR 200.330 (b)(5) Brustein & Manasevit, PLLC © 2016. All rights reserved.

WHAT VIOLATIONS CAUSE HARM TO THE FEDERAL INTEREST? Non-federal entity made an unallowable expenditure Fail to properly account for funds 34 CFR 81.30 Brustein & Manasevit, PLLC © 2016. All rights reserved.

AN IDENTIFIABLE FEDERAL INTEREST INCLUDES: Serving only eligible beneficiaries Providing only authorized services Complying with fiscal requirements: Set-asides Excess costs MOE Comparability SNS Matching Brustein & Manasevit, PLLC © 2016. All rights reserved.

AN IDENTIFIABLE FEDERAL INTEREST INCLUDES (cont.): Integrity of planning, application, record keeping, reporting requirements Maintaining accountability for use of funds 34 CFR 81.32 Brustein & Manasevit, PLLC © 2016. All rights reserved.

HOW IS A GRANT TERM VIOLATION DETERMINED? OIG audit/investigation Single audit Federal program monitoring Pass through monitoring 34 CFR 81.30 Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. Audit reports are recommendations to management! Management must decide to sustain, sustain in part, or reject the audit finding. 2 CFR 200.521 Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. For federal awards to non-federal entity, the federal agency issues the management decision (e.g. Program Determination Letter) 2 CFR 200.521 (b) Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. For pass through agencies (State- Administered Programs), SEA makes management decision 2 CFR 200.521 (c) Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. In both instances, 180 days from date of final audit report 2 CFR 200.521 (d) Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. First audit under UGG must be submitted to audit clearinghouse by March 31, 2017 (EDGAR p. 216) Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. AUDITORS MUST REPORT: Significant deficiencies and material weaknesses in internal controls Material non-compliance with grant terms Known questioned costs exceeding $25,000 for compliance requirements in major program 2 CFR 200.516 Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. ED does not concur! (EDGAR p. 229) Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. SEA must ensure subrecipients take timely and appropriate action to correct control weaknesses or instances of non- compliance Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. ED does not monitor SEA Audit Resolution Process of LEAs / PS Statewide single audits identify ineffective SEA oversight ED oversees resolution of SEA single audit findings that involve federal education programs Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. OIG looking at NC, MASS, ILL Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. The SEA must consider whether local audits necessitate adjustments to state’s own records 2 CFR 200.331 (g) Brustein & Manasevit, PLLC © 2016. All rights reserved.

TYDING AMENDMENTS (CARRYOVER PROVISIONS) Will dictate whether state returns funds to ED, or reallocates “live dollars” Note: 27 months of availability! Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. On fund recovery: Subrecipient returns disallowed expenditures Subrecipient contributes non-federal funds to federal activity OR Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. Does SEA expand its audit resolution activities for findings that are repeated for the same LEA for multiple years? ED-OIG/A09P0001 Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. Do SEA management letters meet all requirements of UGG? Corrective actions required Time frames for follow-up Does SEA determine that the corrective actions are reasonable before approving them? ED OIG/A09P0001 Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. The management decision should describe any appeal process available to the auditee Audit resolution appeal process should be codified Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. Federal Audit Resolution 34 CFR Part 81 (EDGAR) See 81.30-Basis for Recovery of Funds Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. Mitigating circumstances 34 CFR 81.33 “The 90 Day Letter” Brustein & Manasevit, PLLC © 2016. All rights reserved.

BRUMAN RECOMMENDATION If disallowance under $200,000 use compromise of claim authority 34 CFR 81.36 If disallowance over $200,000 consider Mediation 34 CFR 81.13 CAROI 2 CFR 200.513 (c) Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. CAROI available for both pass through and federal audit resolution Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. Equitable offset now in jeopardy Brustein & Manasevit, PLLC © 2016. All rights reserved.

Brustein & Manasevit, PLLC © 2016. All rights reserved. LEGAL DISCLAIMER This presentation is intended solely to provide general information and does not constitute legal advice or a legal service.  This presentation does not create a client-lawyer relationship with Brustein & Manasevit, PLLC and, therefore, carries none of the protections under the D.C. Rules of Professional Conduct.  Attendance at this presentation, a later review of any printed or electronic materials, or any follow-up questions or communications arising out of this presentation with any attorney at Brustein & Manasevit, PLLC 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. Brustein & Manasevit, PLLC © 2016. All rights reserved.