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

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If a “non-federal entity” violates the terms of the grant, what are the consequences?
Recovery of funds?
Imprisonment/fine?
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“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 § (citing 18 U.S.C. §1001)
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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)
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5. CAN VIOLATING THE TERMS OF THE GRANT LEAD TO RECOVERY OF FUNDS?
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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)
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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)
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Federal auditors determined both states misspent Title I funds.
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Supreme Court grantees misusing federal funds incur a debt to the Federal Government (citing Section 415 of GEPA)
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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
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11. ARE CONTRACTORS/VENDORS SUBJECT TO THE TERMS OF THE GRANT?
NO!
See 2 CFR (b)(5)
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12. 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
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13. 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
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14. AN IDENTIFIABLE FEDERAL INTEREST INCLUDES (cont.):
Integrity of planning, application, record keeping, reporting requirements
Maintaining accountability for use of funds
34 CFR 81.32
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15. HOW IS A GRANT TERM VIOLATION DETERMINED?
OIG audit/investigation
Single audit
Federal program monitoring
Pass through monitoring
34 CFR 81.30
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Audit reports are recommendations to management!
Management must decide to sustain, sustain in part, or reject the audit finding.
2 CFR
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For federal awards to non-federal entity, the federal agency issues the management decision (e.g. Program Determination Letter)
2 CFR (b)
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For pass through agencies (State- Administered Programs), SEA makes management decision
2 CFR (c)
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In both instances, 180 days from date of final audit report
2 CFR (d)
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First audit under UGG must be submitted to audit clearinghouse by March 31, 2017
(EDGAR p. 216)
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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
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ED does not concur!
(EDGAR p. 229)
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SEA must ensure subrecipients take timely and appropriate action to correct control weaknesses or instances of non- compliance
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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
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OIG looking at NC, MASS, ILL
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The SEA must consider whether local audits necessitate adjustments to state’s own records
2 CFR (g)
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27. TYDING AMENDMENTS (CARRYOVER PROVISIONS)
Will dictate whether state returns funds to ED, or reallocates “live dollars”
Note: 27 months of availability!
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On fund recovery:
Subrecipient returns disallowed expenditures
Subrecipient contributes non-federal funds to federal activity OR
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Does SEA expand its audit resolution activities for findings that are repeated for the same LEA for multiple years?
ED-OIG/A09P0001
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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
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The management decision should describe any appeal process available to the auditee
Audit resolution appeal process should be codified
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Federal Audit Resolution
34 CFR Part 81 (EDGAR)
See Basis for Recovery of Funds
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Mitigating circumstances
34 CFR 81.33
“The 90 Day Letter”
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34. 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 (c)
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CAROI available for both pass through and federal audit resolution
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Equitable offset now in jeopardy
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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.
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