Federal Policy Through Audit Resolution - PowerPoint Presentation

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Federal Policy Through Audit Resolution - PPT Presentation

Two Steps Forward One Step Back By Michael Brustein Esq mbrusteinbrumancom Brustein amp Manasevit PLLC Fall Forum 2015 Basic Hierarchy of Safe Harbors Program Statute GEPA Program Regulations 34 CFR 815b ID: 661188

pllc amp brustein manasevit amp pllc manasevit brustein 2015 rights reserved state attachment equitable funds audit offset gepa appeal

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Slide1

Federal Policy Through Audit Resolution“Two Steps Forward, One Step Back”

Michael Brustein, Esq.

mbrustein@bruman.com

Brustein & Manasevit, PLLC

Fall Forum 2015Slide2

Basic Hierarchy of Safe HarborsProgram Statute

GEPA

Program Regulations (34 CFR 81.5(b))

EDGARFinal Agency Audit Decisions90 Day Letter (34 CFR 81.33)Non-Regulatory Guidance and Dear Colleague Letters (?)Memoranda, Emails, Telephone Calls

2Slide3

Good Guidance vs. Bad Guidance

OMB Directs Agencies to Promote Rulemaking Through Public Comment

Attachment ASenator Alexander Chiding Duncan on Policy Issues In May 2015, op-ed in National Review: ED issuing “guidance” to skirt regulatory requirements of rulemaking. “Guidance” should be non binding.

3Slide4

The Reins Act H.R. 427 “Regulations from the Executive in Need of Scrutiny” (243-165)Passed House

7/28/15

4Slide5

Congress has 70 session days to enact approval of “major” regs with $100 million+ impact, or they do not take effect

5Slide6

How Does GEPA Define “Regulation”?Section 431(a)“Regulation means any rules, regulations, guidelines, interpretations, orders, or requirements of general applicability.”

6Slide7

Regulations must contain citations to the particular sections of statutory law or other legal authority upon which such provision is based. - 431(a)(2)

7Slide8

Seven Significant Ed Policies Made Through the Audit Resolution ProcessCooperative Audit Resolution

Equitable Offset

Linkage Under Tydings

S/L Measured by ObligationsS/L Is Doctrine of ReposeDe Minimis Rule of Time and EffortUnrestricted Indirect Cost Rate Under IDEA B State Funds

8Slide9

Is the pendulum now swinging back?

9Slide10

(A) CAROIPiloted in May 1996 (Attachment B)History of Florida Voc Ed / Adult Ed Time and Effort AuditsAggressive State Auditor General

10Slide11

Florida CAROI precedent in 1996 served as model for other states

11Slide12

CAROI fully resolved disallowances and eliminated monetary claims

12Slide13

ED was sole agency to use CAROINPRM on Super Circular in February 2013 adopted Cooperative Audit Resolution as Government Standard

13Slide14

See 2 CFR 200.25(d)NPRM “amnesty”UGG “appropriate relief”

14Slide15

What does “Appropriate Relief” mean?

Consider information that was not available or presented to auditors during audit.

Consider, if appropriate, equitable offset, where allowable costs are allowed to substitute for unallowable costs.

Accept, if appropriate, alternative documentation that can substitute for missing records. As a general matter, such documentation must be prepared by individuals that have direct knowledge of the underlying facts and rely on credible contemporaneous records.

15Slide16

Is ED backtracking from 1996 precedent?

16Slide17

(B) Equitable OffsetAllowable costs charged to nonfederal funds are allowed to substitute for unallowable costs

17Slide18

Origin of Equitable OffsetTangipahoa Parish School Board v.

U.S. Department of Education

821 F.2d 1022 (1987)

“ The equitable factors involved are proper considerations in the determination of appropriate refunding.”

19Slide20

Fifth Circuit case led to ruling in Appeal of New York, Docket No. 26-226-86 (1989)

20Slide21

Salary expenditures funded by New York could have been charged to federal grants and that amount is an equitable offset

21Slide22

The New York precedent reaffirmed from 1989 to 201425 years of precedent turned upside down by Pennsylvania Case – Attachment C

22Slide23

Trier of Fact must analyze each request for equitable offset:Scope and pervasiveness of underlying actions

Whether grantee acted in good faith in response

Arguments ED offers in opposition

Was there underlying fraud or intentional wrong doing?

24Slide25

Equitable offset is now under scrutiny by OALJ!!! Is it even allowed under GEPA?

25Slide26

(C) Linkage(a.k.a. “the Tydings case”)VEA Amendments of 1976 required OIG (HEW) to audit every state CTE programBetween 1978-1984 OIG recommended > $250 million

be returned due to Tydings violation

OGC, OVAE, OESE, OSERS, OPE, CFO bought into this specious logic

27Slide28

Brustein & Manasevit, PLLC called Senator Tydings (retired) and professors of accounting as witnesses to debunk ED’s position

28Slide29

In 1986, Secretary William Bennett repudiated OIG and adopted standard of linkage - Appeal of the State of California, Docket No. 12 (122) 83 (1986) -

Attachment

29Slide30

Based on California Tydings Decision and 1970 FIFO Memo (Attachment E), States for past 30 years can avoid “lapsing” by treating newer grant expenditures as older grant expenditures, and undertake this accounting after the 27 month period

30Slide31

(D) S/L Measured by “Obligations”GEPA S/L uses term “expenditure” Section 452 (k)What does “expenditure” mean?

31Slide32

ED consistently held that “expended” as used in the statute means “obligated” - Appeal of the State of Michigan, Docket No. 8-272-88 (1989) -

Attachment

“Obligation” defined based on underlying transaction. - See 34 CFR 76.707

33Slide34

In current Pennsylvania case, Secretary ruled that S/L was not date of underlying obligation, but date of violation (date of accounting entry to federal funds)

34Slide35

(e) s/l IS Doctrine of ReposeIf GEPA S/L is five years from date of obligation, what if grantee lacks source documentation or fails to expend funds in a timely manner?

35Slide36

GEPA S/L was intended as a “doctrine of repose” which after 5 years would remove threat that SEA / LEA would have to make repayments - Appeal of Los Angeles Community College District, Docket No. 26- 91-81 (1984) –

Attachment

5 year S/L covers matters where there is no record of expenditures or funds not expended in a timely manner

37Slide38

(F) “De Minimis Rule”If time spent on matters outside the objectives of the grant were “de minimis,” effort certifications are unnecessary - Appeal of State of Michigan, Docket No. 8- 72-88 (1989) –

Attachment

“Montana Compact” defined “de minimis” as less than 5%

39Slide40

(G) Unrestricted Indirect Cost RateED argued that entire IDEA-B program is subject to a restricted cost rate under 34 CFR 76.563 of EDGAR

40Slide41

But OALJ ruled that IDEA-B state discretionary funds and state administrative funds are not subject to the non supplanting provisions, only flow-through funds -Appeal of New York State, Docket No. 91-81- R (1995) – Attachment

41Slide42

“If there is no non-supplanting provision, there is simply no basis for using a restricted indirect cost rate.”

42Slide43

Thus the additional amount that the state is entitled to is an equitable offset

43Slide44

~ 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 lawyer-client 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.

Federal Policy Through Audit Resolution - PowerPoint Presentation

Federal Policy Through Audit Resolution - PPT Presentation

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