1. 1

2. 1. OIG Audit 2. A-133 Audit 3. Federal Monitoring 4. State (Pass Through) Monitoring 2

3.  What types of audit violations are deemed “significant” by the U.S. Education Department? 3

4. 1. Time Distribution 2. MOE 3. Supplement, not supplant 4. Over-Allocating 5. Unallowable Expenses 4

5. 6. Illegal Procurement Practices 7. Serving Ineligible Students 8. Lack of Accountability for Equipment/Materials 9. Obligations Beyond Period of Availability 10. Matching Violations 5

6. 11. Excess Cost 12. Lack of Appropriate Record Keeping 13. Record Retention Problems 14. Late or no Submission of Required Reports 15. Allocations Improperly Approved 6

7. 16. Audits of Subrecipient Unresolved 17. Lack of Subrecipient Monitoring 18. Drawdown before they are needed or more than 90 days after the end of funding period 19. Large Carryover Balances 20. Discrepancies in Reports Filed 7

8. 21. Errors in Student Per Pupil Expenditures 22. Title I Comparability 23. Lack of valid, reliable or complete performance data 8

9. 1) Matching - “The Valencia Story” 2) MOE – Oklahoma 3) Supplanting/Time and Effort – New York State 9

10. A 12 year nightmare Be careful what guidance you rely on 10

11. Beginning in 1999 Valencia received 7 Gear-up Awards Gear-up statute required a 50% match The official OPE application package listed “facilities” as an example of “match” 11

12.  “The value assigned to in-kind contribution in non federal match may not exceed the fair market value of the property”  OPE Gear Up Packet 12

13.  February 2001-  OPE site visit facilities could not be used for match if “depreciation” or “use allowance” included in college’s indirect cost pool. 13

14.  VCC College did not include depreciation or use allowance in its indirect cost pool 14

15. OIG conducted audit to review VCC in-kind match documentation. Issue: Did VCC include depreciation or use allowance in indirect cost pool no 15

16.  2 nd OIG visit October 2001 › OIG – use of facilities violated non-supplant provision, because existing facilities could never be used as a match  November 2001 – OIG informs VCC of no intent to pursue supplanting violation, but will return to VCC for 3 rd visit. 16

17. Meeting in D.C. with VCC, OIG (Rich Rasa), OCFO (Ted Mueller) Discussion Points 1. Professionalism of auditors 2. Site selection 3. Calculation of match for 3 rd visit 17

18. Methodology on match calculation – flawed Must be depreciation or use allowance, not fair market value 18

19. Refund $1,822,864 for match violation Final audit report  May 2003 19

20.  1 st PDL › Did not sustain audit findings › Does VCC have additional matching contributions 20

21.  Between 2003-2010, VCC submitted data on additional match scholarships. 21

22.  Final PDL › VCC must refund $289,966 22

23.  VCC did not appeal  What about statute of limitations? Five years! 23

24.  Mitigating circumstances › 34 CFR 81.33 (page 135)  “unjust to compel recovery of funds because the recipient’s violation was caused by erroneous written guidance from the department.” 24

25. 25

26.  ED’s Authority to Compromise Claims Against Grantees 26

27.  Assistant Secretary (OSERs) issued PDL to recover $583,943 of IDEA-Part B from Oklahoma based on Single Audit 27

28.  PDL identified 76 LEAs that violated maintenance of effort 28

29.  Oklahoma and ED jointly stayed the briefing before OALJ to pursue settlement  Based on additional documentation, amount reduced to $289,501 29

30.  Then ED compromised claim to $217,126 or 75% 30

31. Oklahoma had taken:  Corrective action  Not practical or in public interest for ED to continue the litigation  See 76 F.R. 5363, 1/31/11 31

32. Supplanting / Time and Effort New York / Kiryas Joel ACN 02K0003 2/2/11 32

33.  One public school, serving 123 students, all special needs  6,000 students in KJ attend private school  Receives $5,044,791 in Title I $772,842 in IDEA 33

34.  $276,443 in Title I funds used to pay part of the lease on the one public school building. KJ did not incur any additional lease costs as a result of providing Title I services. 34

35.  KJ could not provide adequate supporting documentation for $191,124 in salary expenditures for Title I. 35

36.  For Time and Effort violations resort to reconstruction (e.g. affidavits). 36

37. 1. Settlement – resolve questioned costs by mutual agreement 81.14 (page 132) 2. Voluntary Mediation – 81.13 (page 132) 3. CAROI – relies on alternative and creative approaches in resolving findings, but non-adversarial 4. Appeal before OALJ – Burden of proof on Auditee 37

38. 38 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.