lsc compliance update: ongoing and emerging trends top ten... · • lsc conducts oversight through...
TRANSCRIPT
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LSC Compliance Update:Ongoing and Emerging Trends
Management Information ExchangeTraining: Financial Essentials
Chicago, ILSeptember 23, 2016
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Shay BraceyFiscal Compliance Analyst III,
Office of Compliance and Enforcement
Presenter
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• LSC conducts oversight through a variety of methods including, but not limited to, reporting requirements and onsite program reviews.
• LSC reviews can vary in scope and duration, but most of OCE’s visits include both legal and fiscal compliance components. Types of OCE Visits include:
• Compliance Review (“CR”)• Follow-up Review (“FUR”) • Focused Fiscal Review (“FFR”)• Focused Review (e.g., Intake)• Technical Assistance Review (“TAR”) (i.e., Training)• Technology Initiative Grant Review (TIG) (2013 onward)• 1610 Review (1610) (i.e., Program Integrity)• Capability Assessment Visit (“CAV”)• Complaint Investigations• A-50 Follow-up
OCE Compliance Reviews
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• Evolution of the Typical OCE Onsite Visit – CR
• What has changed?
• Summer 2011 – Expanded fiscal review to include assessment of fiscal internal controls.
• Two Fiscal Compliance Analyst on every Compliance Review.
• Why?
• Fiscal Oversight Task Force Report to the Board of Directors, July 28, 2011.
OCE Oversight – The Recent Past and Present
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OCE Oversight – The Present and Future
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OCE Oversight – The Present and Future
• Recommendations of the FOTF included that LSC:
• Institute a “cradle-to-grave” approach to grants management and fiscal oversight.
Fiscal Oversight Task Force Report, page 13.
• Expand the scope of grantee reviews (both prior to and after awarding funds) to place a greater emphasis on the existence and design of internal controls and administrative processes regarding financial management and program compliance.
Fiscal Oversight Task Force Report, page 17.
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OCE Oversight – The Recent Past and Present
• Recommendations of the FOTF included that LSC:
• Increase the focus given to evaluating grantees adherence to the guidance and expectations established in the Accounting Guide for LSC Recipients.
Fiscal Oversight Task Force Report, page 17.
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Fiscal Compliance
What is Fiscal Compliance?What is reviewed during a Compliance Review visit?
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What is Fiscal Compliance?
In addition to being in accordance with the LSC Act, regulations, and guidelines, Fiscal Compliance is having adequate internal controls.
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Fiscal Compliance
Review of Fiscal Compliance takes placebefore & after receiving a grant from LSC.
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Fiscal Compliance
Before receiving an LSC grant
Review of ApplicationCurrent Special Grant Conditions
Capability Assessment Visits
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Fiscal Compliance
After receiving an LSC Grant
Compliance ReviewsDesk Review of Audited Financial Statements
Review of PAI & Fund Balance Waiver Requests
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Fiscal ComplianceCompliance Reviews
Document Request Letter
Indirect cost allocation methodologyFunding sources and codes
Segregation of financial dutiesMonthly trial balance
Time and attendance recordsBudget and variance report
Payroll registerChart of accounts
Cumulative general ledgerCash Disbursements/Receipts register
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What is LSC looking for?
Compliance with the LSC regulations and adequate internal controls.
Policies + Interviews + Testing
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Are there written policies?
Written policies is an important component of internal controls because…
Are the policies communicated to staff?
Does the accounting documentation reflect the written procedures. 45 CFR Part 1609
45 CFR Part 161045 CFR Part 1612 45 CFR Part 1614 45 CFR Part 1627
Cash receipts Cash Disbursements Payroll Bank reconciliations, etc.
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What are the policies?
What do you do? Can you explain the
process? Are you familiar with LSC
regulations?
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Use of non-LSC Funds/Transfer of LSC Funds/Program Integrity
Prohibited Political Activities Restrictions on Lobbying and Certain
Other Activities Timekeeping Requirement Private Attorney Involvement Subgrants and Membership Fees or Dues Fee Generated Cases Attorney Fees Cost Standards and Procedures Recipient Fund Balances Bonding of Recipients Technology Initiative Grants (TIGs)
Cash Disbursements – Checks Cash Disbursements – Electronic
Transactions Cash Disbursements – Credit/Debit Cards Property Procurement Legal Consultants/Contact Services Travel Cash Receipts Petty Cash Client Trust Accounts Electronic Banking Bank Reconciliation Procedures Personnel and Payroll General Segregation of Duties
Two Areas of Review Regulations + Internal Controls
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Regulatory
Regulations with a fiscal component:• 1608 – Prohibited Political Activities
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Regulatory
45 CFR 1608 Prohibited Political Activities
Accounting Policies and ProceduresGeneral Ledgers
Cash Receipts and Disbursements JournalChart of Accounts
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Regulatory
Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases
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Regulatory
45 CFR 1609 Fee-generating cases
Cost Allocation PolicyTime Records
Cash Receipts JournalCash Disbursement Journal
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Regulatory
Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,
program integrity
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Regulatory
45 CFR 1610 Use of non-LSC funds, transfers of LSC funds, program integrity
Chart of AccountsCash Receipts and Disbursement Journals
Donor Notification LettersNon-LSC grant agreements
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Regulatory
Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,
program integrity• 1612 – Restrictions on lobbying and certain other
activities
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Regulatory
45 CFR 1612 Restrictions on lobbying and certain other activities
Operating Policies & Procedures ManualCash Disbursement Records
Time Records
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Regulatory
Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,
program integrity• 1612 – Restrictions on lobbying and certain other
activities• 1614 – Private attorney involvement
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Regulatory
45 CFR 1614 Private attorney involvement
Audited Financial StatementsSubgrant agreements
Attorney/Paralegal TimesheetsPrivate attorney contracts
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Regulatory
Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,
program integrity• 1612 – Restrictions on lobbying and certain other
activities• 1614 – Private attorney involvement• 1627 – Subgrants and membership fees or dues
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Regulatory
45 CFR 1627 Subgrants and membership fees or dues
Audited financial statementsSample transactions
Trial BalanceCash Disbursements Journal
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Regulatory
Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,
program integrity• 1612 – Restrictions on lobbying and certain other
activities• 1614 – Private attorney involvement• 1627 – Subgrants and membership fees or dues• 1628 – Recipient fund balances
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Regulatory
45 CFR 1628 Recipient fund balances
Audited Financial StatementsAccounting Policies & Procedures
Waiver Request LetterLSC Approval Letter
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Regulatory
Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,
program integrity• 1612 – Restrictions on lobbying and certain other
activities• 1614 – Private attorney involvement• 1627 – Subgrants and membership fees or dues• 1628 – Recipient fund balances• 1629 – Bonding of recipients
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Regulatory
45 CFR 1629 Bonding of recipients
Evidence of coverageInsurance Binder / Policy
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Regulatory
Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,
program integrity• 1612 – Restrictions on lobbying and certain other
activities• 1614 – Private attorney involvement• 1627 – Subgrants and membership fees or dues• 1628 – Recipient fund balances• 1629 – Bonding of recipients• 1630 – Cost standards and procedures
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Regulatory
45 CFR 1630 Cost standards and procedures
Accounting Policies & ProceduresGeneral Ledgers
Cost Allocation Methodology
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Regulatory
Regulations with a fiscal component:• 1608 – Prohibited Political Activities• 1609 – Fee-generating cases• 1610 – Use of non-LSC funds, transfers of LSC funds,
program integrity• 1612 – Restrictions on lobbying and certain other
activities• 1614 – Private attorney involvement• 1627 – Subgrants and membership fees or dues• 1628 – Recipient fund balances• 1629 – Bonding of recipients• 1630 – Cost standards and procedures• 1635 – Timekeeping
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Regulatory
45 CFR 1635 Timekeeping
Timekeeping codes for cases, matters, and supporting activity
Employee HandbookOrganizational Chart
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Internal Controls
Qualities of adequate internal controls:
Documented/written policies, which are current, approved by governing body, and accessible by staff.
Segregation of financial duties
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Internal Control Review
Cash DisbursementsProperty & ProcurementElectronic Banking Bank ReconciliationsPersonnel and PayrollCredit CardEmployee Reimbursements & TravelCash ReceiptsPetty CashContract ServicesClient Trust Accounts
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Compliance Guidance
IMPORTANT!!
Program Letter 16-7 Fiscal Management Issues
• Reasonable and Necessary Expenses:
Only costs “reasonable and necessary for the performance of the grant or contract” should be charged to the LSC
grant.
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LSC “No-nos”
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LSC “No-nos”
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Compliance Guidance
IMPORTANT!!
Program Letter 16-7Fiscal Management Issues
• Salary and Benefits for Executive Directors and Senior Staff
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Compliance Guidance
IMPORTANT!!
Program Letter 16-7 Fiscal Management Issues
• Derivative Income
Derivative Income resulting form an activity supported in whole or in part with funds from LSC must be allocated and
recorded in the same proportion that the funds were expended.
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Compliance Guidance
IMPORTANT!!
Program Letter 16-7Fiscal Management Issues
• Responsibilities of Financial Oversight Committee or Committees
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Compliance Guidance
IMPORTANT!!
Program Letter 16-7Fiscal Management Issues
• Internal Controls and Accounting Guide Concerns
Segregation of DutiesApproval of Expenses
Reporting of Special One-Time Grants (e.g. TIG and PBI)
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Compliance Guidance
IMPORTANT!!
Program Letter 16-7 Fiscal Management Issues
• Bank Statement Reconciliations
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Other LSC GuidanceProgram Letter 16-1
PAI Cost Allocation and Fees Paid to Other Professionals
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Program Letter 16-1: PAI Cost Allocation and Fees Paid to Other Professionals
• What fees paid to other professionals can be counted toward the PAI requirement?
• When can recipients NOT count fees paid to other professionals toward the PAI requirement?
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Program Letter 16-1: PAI Cost Allocation and Fees Paid to Other Professionals
• Fees paid to other professionals• Incurred by recipient in furtherance of its own case =
may allocate fee to PAI IF 50% or less of market rate• If more than 50% of market rate, may not be
allocated to PAI• Incurred by PAI case handler = may allocate full cost
of fee IF • Recipient pays the other professional itself; or• Recipient reimburses PAI case handler
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Cost Allocation vs. Allowability of Costs
• Can allocate costs to PAI if they:• Meet relevant requirements of 45 CFR Part 1614• Are incurred specifically to carry out PAI activities
• Costs are allowable as expenses of the LSC grant if they:
• Are reasonable, necessary, and allocable to the grant• Are actually incurred in the performance of the grant
• Costs may be both allowable under the LSC grant *and* allocable to the PAI requirement if they meet all of the characteristics listed above
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Program Letter 16-1: PAI Cost Allocation and Fees Paid to Other Professionals
Example 1:
A recipient represents a party in a divorce. The recipient asks Accountant A to review the opposing party’s financial disclosures to the court because they are relatively complex. Accountant A agrees to do the review at a discounted rate of 25% of his standard rate, which is market rate for the area. The recipient may pay the fee and allocate it to PAI because
• Accountant A is an “other professional;” and• The fee is 50% or less of prevailing local market rate
for the service provided.
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Program Letter 16-1: PAI Cost Allocation and Fees Paid to Other Professionals
Example 2:
A recipient represents a party in a different divorce case. The recipient asks Accountant B to review the opposing party’s financial disclosures to the court because they are relatively complex. Accountant B also agrees to do the review at a discounted rate; however, Accountant B only discounts his rate to 75% of the prevailing local market rate. The recipient may pay the fee, but may not allocate the cost to PAI because:
• The fee is more than 50% of the prevailing local market rate for the service provided.
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Program Letter 16-1: PAI Cost Allocation and Fees Paid to Other Professionals
Example 3:
A private attorney represents a party in another divorce case. The private attorney also asks Accountant B to review the opposing party’s financial disclosures. Accountant B also agrees to do the review at the same discounted rate he offered the recipient: 75% of the prevailing local market rate. The recipient may pay the fee and allocate the cost to PAI because:
• The case is being handled by a private attorney
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Other LSC GuidanceProgram Letter 16-3
Procurement Policy Drafting Guidance for LSC Recipients
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ELEMENTS OF AN EFFECTIVE PROCUREMENT POLICY
Effective policies typically address:
Competition – How are potential vendors identified, evaluated and selected?
Negotiating Terms – What are the parties’ rights and obligations during the transaction?
Documentation – How is best value verified?
Internal Controls – How can equal opportunity for potential vendors be increased and wasteful, fraudulent, and abusive purchases be reduced?
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COMPETITION
Using a competitive process promotes best value, checks improper influence and nepotism, improves bargaining power, and bolsters funder and public confidence.
Cornerstones of Effective competitive procurement policy:
Transparency Policy is accessible to employees and potential business partners Internal controls ensure vendors have equal opportunity to compete
Objectivity Use of standardized vendor identification, evaluation and selection process Use of pre-determined, objective criteria to identify, evaluate and select vendors Defined approval system Conflicts of interest policy
* Competition requirements should be tailored *
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COMPETITION
To promote transparency and objectivity in competition, organizations may consider addressing the following in their procurement policies:
How will you identify vendors?
Certification of best value Price comparison Requests for Information (RFI) Requests for Quotes (RFQ) Request for Proposals (RFP) Sole Sourcing
How will you select vendors?
• Justify selection• Conditional selection
How will you evaluate vendors?
• Evaluation plan• Evaluation team• Evaluation rules• Evaluation criteria
What level of competition will you require?
• Increase competition requirements as estimated cost, risk, or profile of purchase increases
• Tie competition to type of purchase being made
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NEGOTIATING TERMS
Effective procurement policies require contracts to be legally sufficient and in a form appropriate for the transaction
Legal Sufficiency refers to contract’s enforceability in the event of a dispute.
Contract Form refers to the general appearance, structure, and substance of the contract.
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DOCUMENTATION
Documenting purchases is important for verifying best value and for auditing purposes.
Effective procurement policies typically address:
Level of Documentation Required Increase documentation required as cost, risk, or profile of purchase
increases Tie documentation to purchase being made
Purchasing Record Typically include purchasing authority, purchase approvals, competition-
related documents, contract negotiations, signed contracts, invoices, orders forms, etc.
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INTERNAL CONTROLSEffective internal controls minimize risk of fraud, waste,
and abuse.Internal controls to consider include:
• Written procurement policy• Segregation of duties• Purchasing authority• Purchasing approvals• Budget review• Purchase planning and needs
assessment• Competition thresholds• Sole Sourcing• Advertising business opportunities• Quote/Bid thresholds• Evaluation criteria• Evaluation terms
• Evaluation rules• Documentation• Legal review of terms• Vendor background checks• Designating purchasing personnel• Work before contract• Quality control• Reporting• Training program • Signature authority• Fraud response plan
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QUESTIONS ??
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LSC Compliance Update:Ongoing and Emerging Trends
Management Information ExchangeTraining: Financial Essentials
Chicago, ILSeptember 23, 2016