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AUDIT GUIDELINES. Substance Abuse Prevention and Treatment (SAPT) Program. Michigan Department of Community Health - PDF
AUDIT GUIDELINES. Substance Abuse Prevention and Treatment (SAPT) Program. Michigan Department of Community Health
Download "AUDIT GUIDELINES. Substance Abuse Prevention and Treatment (SAPT) Program. Michigan Department of Community Health"
Christal Hortense Manning
1 AUDIT GUIDELINES Substance Abuse Prevention and Treatment (SAPT) Program Michigan Department of Community Health October 2005
2 TABLE OF CONTENTS INTRODUCTION... 1 AUDIT REQUIREMENTS Single Audit... 2 Financial Statement Audit... 2 Supplemental Audit Schedules A and B... 2 Reporting Package... 3 Due Date... 4 Penalty... 4 Where to Send... 4 Incomplete or Inadequate Audits... 5 Management Decision... 5 SUBRECIPIENT VS. VENDOR DETERMINATION... 6 COORDINATING AGENCY / DIRECT CONTRACT AGENCY RESPONSIBILITIES AUDIT OBJECTIVES... ITEMS REQUIRING SPECIAL CONSIDERATION Adult Benefit Waiver (ABW) Budget Deviations Equipment Purchases Expenditure Reporting Fees and Collections HIV Early Intervention Program (EIP) Funds Indirect Costs Match Requirement Methamphetamine Prevention Project MIChild Reporting Subcontracts Classification Between Subrecipient and Vendor Procurement Standards Timely Execution of Complete Subcontracts Same Rates for Medicaid and Community Grant Pass-Through Agency Responsibilities Vendor Contract Responsibilities SUPPLEMENTAL AUDIT SCHEDULES A & B Schedule A - Schedule of Budgeted, Reported and Audited Amounts Schedule B - Schedule of Expenditures and Funding Sources by Program MATERIAL WASTE OR LOSS RETENTION OF AUDIT WORKING PAPERS AND RECORDS EFFECTIVE DATE AND MDCH CONTACT SAMPLE SCHEDULE A ATTACHMENT SAMPLE SCHEDULE B ATTACHMENT...
3 Introduction INTRODUCTION The Substance Abuse Prevention and Treatment (SAPT) Program Audit Guidelines are intended to provide clarification of the audit requirements contained in the SAPT Program contracts between the Michigan Department of Community Health (MDCH), and Regional Substance Abuse Coordinating Agencies (CAs) or Direct Contractors (agencies contracting directly with MDCH). The SAPT Program Audit Guidelines prescribe general audit responsibilities, and may not address all circumstances or conditions that are unique to the SAPT Program. Therefore, the auditor is required to exercise professional judgment to determine the necessary audit steps needed to accomplish the audit objectives. Under the terms of Office of Management and Budget (OMB) Circular A-1 33, MDCH is considered a primary pass-through entity and the CAs or Direct Contractors become secondary pass-through entities having the same responsibility for enforcing the audit requirements among their subcontractors. Additionally, the SAPT Program contract between MDCH, and CAs or direct contractors, Part 11, Section 111. Assurances, G. Subcontracts, states, "Assure for any subcontracted service, activity or product: That any executed subcontract to thls agreement shall require the subcontractor to comply with all applicable terms and conditions of this agreement." Therefore, the audit requirements contained in the SAPT Program contracts between MDCH, and CAs or direct contractors, and the clarifications contained herein also apply to subcontract agencies receiving federal awards as a subrecipient. If, however, the subcontractor received payment for goods or services provided as a vendor, the subcontractor would be exempt from the audit requirements contained in the SAPT Program contracts and the clarifications contained herein (See the section titled "Subrecipient vs. Vendor Determination" in these Audit Guidelines).
4 General Audit Requirements AUDIT REQUIREMENTS Single Audit Coordinating agencies, direct contract agencies, and subcontract agencies that expend $500,000 or more in Federal awards ' during the fiscal year must obtain a single audit or program-specific audit (when administering only one federal program) in accordance with the Code of Federal Regulations (CFR), Title 45, Part 96.31; the Single Audit Act Amendments of 1996 (31 U.S.C ); and updated Office of Management and Budget (OMB) Circular A-133 "Audits of State, Local Governments, and Non-Profit Organizations." The single audit must be performed by an independent auditor, and in accordance with Generally Accepted Government Auditing Standards (GAGAS). A program-specific audit must be performed by an independent auditor, and in accordance with GAGAS and the program-specific audit guide from the Office of Inspector General. If a program-specific audit guide is not available, the requirements outlined in Section.235(b) of OMB Circular A-133 must be followed. Financial Statement Audit Coordinating agencies, direct contract agencies, and subcontract agencies that are exempt from the Single Audit requirements, but receive $500,000 or more in total funding (state and Federal) directly or indirectly from MDCH must obtain a Financial Statement Audit prepared by an independent auditor and in accordance with Generally Accepted Auditing Standards (GAAS). Subcontract agencies receiving payments for goods or services provided as a vendor are exempt from the financial statement audit requirements. Supplemental Audit Schedules A and B For coordinating agencies, direct contract agencies, and subcontract agencies that expend $500,000 or more in Federal awards, or receive $500,000 or more in total funding (state and Federal) directly or indirectly from MDCH their independent auditors must prepare Supplemental Audit Schedules A and B. ' Guidance on determining Federal awards expended is provided in Section.205 of OMB Circular A-133. Generally, Medicaid payments to a subrecipient for providing patient care services to Medicaid eligible individuals are not considered Federal awards expended. Additionally, payments received for goods or services provided as a vendor would not be considered Federal awards. Guidance in Section.210 (b) and (c) should be considered in determining whether payments constitute a Federal award or a payment for goods and services. Guidance is also provided in the section titled "Subrecipient vs. Vendor Determination" in these Audit Guidelines.
5 General Audit Requirements Supplemental Audit Schedules A and B must reflect budgeted, reported and audited revenues and expenditures covering the contract period. The schedules must be prepared on the full accrual basis. Further details are provided later in this document. Sample schedules are attached to these guidelines. - Note: Subcontract agencies receiving payments for goods or services provided as a vendor are exempt from the supplemental audit schedule requirements. Reporting Package The following sections list the specific items that must be included in the reporting package for various scenarios: For coordinating agencies, direct contract agencies, and subcontract agencies subject to Single Audit (even if federal funding received from, or indirectly from, MDCH is less than $500,000), the reporting package includes: 1. The single audit reporting package described in Section.320(c) of OMB Circular A- 133, including the corrective action plan; 2. Supplemental Audit Schedules A and B; and 3. Management letter, if one is issued, and management's response. For coordinating agencies, direct contract agencies, and subcontract agencies exempt from Single Audit, but spend $500,000 or more in total hnding from, or indirectly from, MDCH in state and federal grant funding, the reporting package includes: 1. The financial statement audit prepared in accordance with GAAS; 2. Supplemental Audit Schedules A and B; and 3. Management letter, if one is issued, and management's response. For coordinating agencies, direct contract agencies, and subcontract agencies exempt from Single Audit, that spend less than $500,000 in total funding from MDCH in state and federal grant funding, but a financial statement audit includes disclosures that may negatively impact MDCH-funded programs, including, but not limited to fraud, going concern uncertainties, and financial statement misstatements, the reporting package includes: 1. The financial statement audit prepared in accordance with GAAS; and 2. Management letter, if one is issued, and management's response.
6 General Audit Requirements For coordinating agencies, direct contract agencies, and subcontract agencies exempt from Single Audit, that spend less than $500,000 in total funding from MDCH in state and federal grant funding, and the financial statement audit does not include any disclosures that may negatively impact MDCH-funded programs, the reporting package includes: 1. An Audit Status Notification Letter certifying the exemptions. Due Date The CA or direct contract agency must submit the reporting package described above to MDCH within nine months after the end of the agency's fiscal year. Subcontract agencies must submit the reporting package described above to their applicable CA or direct contract agency within nine months after the end of the subcontractor's fiscal year. CAs or direct contract agencies may contractually require an earlier reporting package due date for their subcontractor agencies. Penalty If the CA or direct contract agency fails to submit the applicable single audit or financial statement audit reporting package within nine months after the end of the agency's fiscal year, the Department may withhold from current funding five percent of the audit year's grant funding (not to exceed $100,000) until the required reporting package is received. MDCH may retain the withheld amount if the reporting package is delinquent more than 120 days. If the CA or direct contract agency fails to submit the Audit Status Notification Letter within nine months after the end of the agency's fiscal year, the Department may withhold one percent of the audit year's grant funding from current funding until the Audit Status Notification Letter is received. Where to Send The CA or direct contract agency must submit the reporting package described above to MDCH at the following address: Michigan Department of Community Health Office of Audit Quality Assurance and Review Section P.0 Box Lansing, Michigan Or 400 S. Pine Street Capital Commons Center Lansing, Michigan 48933
7 General Audit Requirements Incomplete or Inadequate Audits If MDCH determines the reporting package is incomplete or inadequate, the auditee and possibly its independent auditor will be informed of the reason of inadequacy and its impact in writing. The recommendations and expected time frame for resubmitting the corrected reporting package will be indicated. Management Decision MDCH will issue a management decision on findings and questioned costs contained in the CA or direct contract agency single audit within six months after the receipt of a complete and final reporting package. The management decision will include whether or not the audit finding is sustained; the reasons for the decision; and the expected CA or direct contract agency action to repay disallowed costs, make financial adjustments, or take other action. Prior to issuing the management decision, MDCH may request additional information or documentation from the CA or direct contract agency, including a request for auditor verification or documentation, as a way of mitigating disallowed costs. However, if there are no findings andlor questioned costs, MDCH will notify the CA or direct contract agency that the review of the audit and supplemental audit schedules is complete and the results of the review.
8 Subrecipient vs. Vendor Determination SUBRECIPIENT VS. VENDOR DETERMINATION An entity receiving pass-through federal funds may be a subrecipient or a vendor. Federal awards expended by a subrecipient would be subject to Single Audit requirements. The payments received for goods or services provided as a vendor would not be considered federal awards and are therefore not subject to the Single Audit requirements. A subrecipient is defined as "a non-federal entity that expends federal awards received from a pass-through entity to carry out a federal program but does not include an individual who is a beneficiary of such a program. A subrecipient may also be a recipient of other federal awards directly from a federal awarding agency." A vendor is "a dealer, distributor, merchant, or other seller providing the goods or services that are required for the conduct of a federal program. These goods or services may be for an organization's own use or for the use of beneficiaries of the federal program." The following checklist is designed to help determine whether an entity receiving federal funds should be considered a subrecipient or a vendor for Single Audit purposes. Generally, a preponderance of "yes" answers for a particular classification should assist this determination. However, in some instances, it may be difficult to determine whether a relationship is that of a subrecipient or a vendor; therefore, the decision should be based on the substance of the relationship over the form of the agreement. [OMB Circular A- 133, Section.210(d)] General Instructions: 1. Answer all questions for both types of organizations. Each question should be answered either "Yes" or "No." A "Yes" answer is indicative of the type of relationship being reviewed. However, there are certain factors that will have a greater bearing on the conclusion than others, such as responsibility for determining eligibility for the program. 2. After completing the checklist, document the conclusion and the basis for the classification in Step #2.
9 Subrecipient vs. Vendor Determination Step 1 Answer the following questions (1-10) for the entity receiving federal funds: Subrecipient Classification Characteristics indicative of a federal award received by a subrecipient (questions 1-5): 1. Does the entity determine who is eligible to receive federal financial assistance? [OMB Circular A-133, Section.21 O(b)(l)] 2. Does the entity have programmatic decision-making responsibility such as the determination of program benefits, approval of costs incurred, establishment of program service area, etc.? [OMB Circular A- 133, Section.2 10(b)(3)] 3. Does the entity have its performance measured against whether the objectives of the federal program are met? [OMB Circular A-133, Section.210(b)(2)] 4. Does the entity have responsibility for adherence to applicable federal program compliance requirements? [OMB Circular A- 133, Section.2 10(b)(4)] 5. Does the entity use the federal funds to carry out a program of the pass-through entity as compared to providing goods or services for a program of the passthrough entity? [OMB Circular A- 133, Section.2 10(b)(5)] Vendor Classification Characteristics indicative of a payment of goods or services received by a vendor (questions 6-10): 6. Does the entity provide the goods or services within normal business operations? [OMB Circular A-1 33, Section.210(c)(l)] 7. Does the entity provide similar goods or services to many different purchasers? [OMB Circular A-133, Section.210(c)(2)] 8. Does the entity operate in a competitive environment? [OMB Circular A-1 33, Section.2 10(c)(3)] 9. Does the entity provide goods or services that are ancillary to the operation of the federal program? [OMB Circular A- 133, Section.2 10(c)(4)] 10. Is the entity not subject to compliance requirements of the federal program? [OMB Circular A-1 33, Section.210(c)(5)]
10 Subrecipient vs. Vendor Determination Step 2 - Conclusion Based on the preponderance of "Yes" answers, substance of the relationship, and discussions with appropriate personnel, the entity has been determined to be a: (check one) Subrecipient Vendor Comments:
11 CA / Direct Contract Agency Responsibilities COORDINATING AGENCY I DIRECT CONTRACT AGENCY RESPONSIBILITIES (AUDITS, SUBRECIPIENT MONITORING, OTHER REQUIREMENTS) To ensure fulfillment of the audit, subrecipient monitoring, and other requirements of OMB Circular A-133 and the contract with MDCH, CAs and direct contract agencies must: Identify in its accounts all Federal awards received and expended and the Federal programs under which they were received including the CFDA title and number, award number and year, name of the Federal agency, and name of the passthrough entity; and inform subcontractors of CFDA title and number, award name and number, and name of Federal agency for Federal awards passed through to subcontractors. Maintain internal control over programs assuring that the Federal and state grants are being managed in compliance with applicable laws, regulations, and the provisions of contracts. Comply with provisions of contracts, laws, and regulations, including the compliance requirements applicable to the Federal program as listed in the Compliance Supplement to OMB Circular A-133; and advise subcontractors of requirements imposed on them by Federal laws, regulations, and the provisions of contracts or grant agreements. Ensure that any executed subcontract requires the subcontractor to comply with all terms and conditions of the contract between MDCH, and the CA or direct contract agency. Prepare appropriate financial statements in accordance with generally accepted accounting principles, including (as required) the schedule of expenditures of Federal awards in accordance with Section.310 of OMB Circular A-133. Ensure that the required audit and supplemental audit schedules are completed by an independent auditor, and the required reporting package is submitted to MDCH by the contractually required due date; and submit the single audit reporting package and data collection form to the Federal clearinghouse within the earlier of 30 days after receipt of the auditor's report, or nine months after the end of the audit period according to the requirements of OMB Circular A-133, Section.320. Permit access by authorized representatives of MDCH, Federal grantor agency, Comptroller General of the United States and State Auditor General to records, files and documentation related to the SAPT Program as requested; and ensure that any executed subcontract allows the CA or direct contract agency access to the records and financial statements of the subcontractor as necessary. Follow up and take corrective action on audit findings, including preparation of a summary schedule of prior audit findings and a corrective action plan in accordance with Section.315 of OMB Circular A-133.
12 CA / Direct Contract Agency Responsibilities 9. Monitor the activities of subcontractors (including those below the single audit threshold) as necessary to ensure that Federal awards are used for authorized purposes in compliance with laws, regulations, and the provisions of contracts as required by OMB Circular A-133, Section.400(d)(3). 10. Ensure that each of the subcontractors comply with the applicable audit requirements, and require timely submission of subcontractor audit reports to the CA or direct contract agency. 11. Review subcontractors' audit reports and issue a management decision on audit findings within six months after receipt of the subcontractor's audit report and ensure that the subcontractor takes appropriate and timely corrective action as required by Section.400(d)(5) of OMB Circular A Ensure the procurement, receipt, and payment for goods and services to vendors comply with laws, regulations, and the provisions of contracts or grant agreements as required by Section.210(f) of OMB Circular A-133.
13 Audit Objectives AUDIT OBJECTIVES The "Audit Requirements" Section details the type of audit required, and the supplemental audit schedule requirements. Following are the objectives of each: The objective of a financial statement audit is primarily limited to determining whether the financial statements of the audited agency are presented fairly in all material respects in conformity with Generally Accepted Accounting Principles. The obiectives of a single audit are to determine whether: 1. The financial statements of the audited agency are presented fairly in all material respects in conformity with Generally Accepted Accounting Principles and the Schedule of Expenditures of Federal Awards is presented fairly in all material respects in relation to the financial statements taken as a whole. 2. The audited agency has complied with laws, regulations and the provisions of contracts or grant agreements that may have a direct and material effect on each of its major programs. To assist auditors in performing the required compliance audit and to help identify important compliance requirements, auditors should refer to the OMB Circular A-133 Compliance Supplement AND the section of these SAPT Program Audit Guidelines titled "Items Requiring Special Consideration." The OMB Circular A-133 Compliance Supplement, Part 2 identifies the compliance requirements that are applicable to the programs included in the Supplement (e.g. CFDA ). Part 3 includes a general description of compliance requirements, audit objectives, and suggested audit procedures. Part 4 or Part 5 contains additional information about the compliance requirements that arise from laws and regulations applicable to each program, including the requirements specific to each program that should be tested. For programs not covered in the Compliance Supplement (e.g. CFDA ), the auditor should use the types of compliance requirements contained in the compliance supplement as guidance for identifying the types of compliance requirements to test, and determine the requirements governing the Federal program by reviewing the provisions of contracts and grant agreements and the laws and regulations referred to in such contracts and grant agreements. The section of these SAPT Program Audit Guidelines titled "Items Requiring Special Consideration" highlights various contractual and other regulatory provisions that require compliance testing.
14 Audit Objectives Compliance testing must include tests of transactions, and such other auditing procedures necessary to provide the auditor sufficient evidence to support an opinion on compliance. The audited agency has internal accounting and other control systems in place to provide reasonable assurance to achieve the following objectives with regards to the federal grant: Transactions are properly recorded and accounted for to permit the preparation of reliable financial statements and federal reports; Compliance with laws, regulations and other compliance requirements; and Funds, property and other assets are safeguarded against loss from unauthorized use or disposition. The objectives of the Supplemental Audit Schedule A are to confirm that the revenue and expenditure amounts reported by the agency are actual, supported by the agency's records, allowable, appropriate, and within the budget limits; identify variances between reported and audited amounts; identify MDCH overpayments; and determine compliance with the contractual/regulatory local match requirement. The objectives of the Supplemental Audit Schedule B are to identify variances between reported and audited revenues and expenditures (by program), determine questioned costs (by program), monitor PA2 funds and ensure all entitled PA2 funds were received and recorded, reconcile PA2 hnds to reported expenditures, monitor Medicaid managed care funds, and reconcile Medicaid managed care funds to reported expenditures. Additional Note: The primary objectives of the audits are financial and compliance issues. Auditors are not expected to perform an economy and efficiency audit. However, auditors should report conditions that come to their attention that are material in their opinion that reflect: a. Unnecessary duplication of effort b. Inefficient or wasteful use of resources c. Ineffective or costly procedures
15 Items Requiring Special Consideration ITEMS REQUIRING SPECIAL CONSIDERATION As stated in the "Audit Objectives" section, this section highlights various contractual and regulatory provisions that require compliance testing as part of a single audit. The provisions are listed in alphabetical order. Contract and regulatory references are provided where deemed feasible. The auditor should report material noncompliance as an audit finding in the schedule of findings and questioned costs. NOTE: If an MDCH contract provision (i.e. ABW services) is subcontracted, the auditor of the CA or Direct Contractor is not expected to perform compliance testing at the subcontractor level. However, the auditor is expected to perform testing at the CA or Direct Contractor level to determine if subcontracts contain all applicable terms and conditions, and the CA or Direct Contractor performed their required pass-through agency responsibilities (see "Pass Through Agency Responsibilities" section below). Adult Benefit Waiver (ABW) The auditor should determine if the expenditures charged for the ABW program were for covered services provided to the enrolled/eligible population that are not residents in institutions for mental diseases. The auditor should determine if the ABW program expenses were accounted for separately. If not all of the ABW authorization was used and excess ABW funds were retained by the agency as local funds, the auditor should determine that state-allocated community grant funds were not used on ABW program services in place of ABW program funds. (Contract -Attachment A - Services - 2. Treatment E. Adult Benefit Waiver) Budget Deviations The auditor should determine if budget deviations received the proper approval. To change the amount (up or down) of any state-administered fund source in Section A of the Revenues and Expenditures Report (RER), a contract amendment is required. To move state-administered funds from column to column (between Administration, Treatment, Prevention, Women's Specialty, HIV EIPITraining, SIG, Methamphetamine, and Other), written approval by October 3 lst is required. Equipment Purchases The auditor should determine if the agency has properly acquired and accounted for equipment purchases. Agencies must comply with the procurement standards set forth in OMB Circular A-102 or A-1 10, as applicable. (Contract -Part II, Section III. H.)
16 Items Requiring Special Consideration Costs charged to the SAPT Program for equipment purchases must comply with the applicable OMB Circular cost principles (A-87 or A-122). (Contract -Part II, Section III. A.) For any contract containing Attachment B.2 (Equipment Inventory Schedule), equipment purchases must be included in the budget and approved as evidenced in the Equipment Inventory Schedule for them to be an allowable cost supported in whole or in part with SAPT Program funds. (Contract - Part I, Section 2. B.) Expenditure Reporting The auditor should determine if the agency's expenditures reported on the Revenue and Expenditure (RER) Report comply with applicable OMB Circular cost principles and contract provisions. Any reported expenditures that do not comply with the applicable OMB Circular cost principles or contract provisions should be deducted from "audited costs" on Schedules A and B. OMB Circular A-87 is applicable to agencies that are local government entities, and OMB Circular A-122 is applicable to agencies that are non-profit entities. (Contract - Part II, Section III. A.) Generally, OMB Circular cost principles require that for costs to be allowable they must meet the following general criteria: a. Be necessary and reasonable for proper and efficient performance and administration of the grant. b. Be allocable to the grant under the provisions of the applicable OMB Circular. (*> c. Be authorized or not prohibited under State or local laws or regulations. d. Conform to any limitations or exclusions set forth in the applicable OMB Circular, other applicable laws and regulations, or terms and conditions of the grant and agreement. e. Be accorded consistent treatment. (**) f. Be determined in accordance with generally accepted accounting principles. g. Not be included as a cost or used to meet cost sharing or matching requirements of any other Federal award in either the current or a prior period. h. Be the net of all applicable credits. i. Be adequately documented. * Agencies cannot bill the community grant for Medicaid eligible services. ** Agencies must use the same method to allocate costs to Medicaid and non-medicaid services. All reported expenditures must be traceable to the agency's general ledger, and adequately supported. Reimbursements to subcontractors must be supported by a valid subcontract and adequate, appropriate supporting documentation on costs and services. (Contract - Part II, Section I11 G. 4.)
17 Items Requiring Special Consideration Reported costs for less-than-arms-length transactions must be limited to underlying cost. For example, the agency may rent their office building from the agency's board memberlmembers, but rent charges cannot exceed the actual cost of ownership if the lease is determined to be a less-than-arms-length transaction. Guidance on determining less-thanarms-length transactions is provided in OMB Circulars A-87 and A-122. Financing of media campaigns is specifically prohibited. (Contract - Attachment A - Administrative and Financial - 1 I. Media Campaigns) Community grant funds shall NOT be used for the following purposes (Contract -Attachment A - General - 3. SAPT Block Grant Requirements and Application to State Funds): a. Inpatient hospital services except under condition specified in federal law. b. Cash payments to intended recipients of services. c. Purchase or improve land; purchase, construct, or permanently improve (other than minor remodeling) any building or any other facility; or purchase major medical equipment. d. Satisfy any requirement for the expenditure of non-federal funds as a condition for the receipt of Federal funding. e. Provide individuals with hypodermic needles or syringes so that such individuals may use illegal drugs. f. Enforce State laws regarding the sale of tobacco products to individuals under the age of 18. g. Pay the salary of an individual at a rate in excess of Level I of the Federal Executive Schedule, or approximately $1 74,500 (for full time). Fees and Collections The auditor should determine if the agency has properly reported all fees and collections (eg. determine if all fees and other 3rd party reimbursements were properly reported on the RER as instructed in the contract). The agency is required to report all fees and collections revenue received by the agency as well as all fees and collections revenue received and reported by its subcontracted services providers on the Revenue and Expenditures Report Form. (Contract - Attachment A, Administrative and Financial - 2. Reporting Fees and Collections Revenues) All fees and collections reported on the RER need to be verified with the agency's records. The portion of fees and collections revenue reported and actually received by the agency needs to be traced and agreed to the agency's general ledger. The portion of fees and collections revenue received and reported by subcontracted services providers, and reported by the agency on the RER (subcontractor revenue not actually received by the agency but reported by the agency on the RER), needs to be traced and agreed to the underlying agency records used to prepare this information (i.e. CareNet).
18 Items Requiring Special Consideration The Audited Expenditures column on Schedule A should include all verified information (including the portion of reported fees and collections revenue received and reported by subcontracted service providers, but not actually received by the agency and recorded on their general ledger.) Schedule B should reconcile to Schedule A, and should include all verified information (including the portion of reported fees and collections revenue received and reported by subcontracted service providers, but not actually received by the agency and recorded on their general ledger.) The variances between the Supplemental Schedules and the audited financial statements created by including fees and collections not actually received by the agency should be explained in footnotes to the Schedules. "Fees and collections" are defined in the Administrative Rules (Rule ), and include only those fees and collections that are associated with services paid for by the agency. (Contract -Attachment A, Section 4.) Note that agencies may not charge Medicaid, ABW, and MIChild beneficiaries co-pays or fees. HIV Early Intervention Program (EIP) Funds The auditor should determine if the agency has NOT used HIV EIP funds to purchase primary care unless such use is approved in writing by MDCH. (Contract - Attachment A - Administrative and Financial - 9. Reimbursement for Primary Health Care with HIV Early Intervention Program (EIP) Funds) Indirect Costs The auditor should determine if the agency's reported indirect costs and the allocation methodology comply with applicable OMB Circular cost principles, and if the agency completed and submitted the required Central Cost Allocation Plan Certification to MDCH. Any reported indirect costs that do not comply with the applicable OMB Circular cost principles should be deducted from "audited costs" on Schedules A and B with a resulting "questioned cost." OMB Circular A-87 is applicable to agencies that are local government entities, and OMB Circular A-122 is applicable to agencies that are non-profit entities. (Contract - Part II, Section III. A.) OMB Circular cost principles require that indirect costs be distributed to benefited cost objectives on bases that will produce an equitable result in consideration of relative benefits derived. Therefore, indirect costs must be equitably distributed to all programs that benefit. In other words, the SAPT Program, Medicaid, ABW and MI Child must each be charged their proportionate share of indirect costs (e.g. administration and facilities). The requirements for cost allocation plans and indirect cost rates are detailed in OMB Circulars A-87 and A-122.
19 Items Requiring Special Consideration When there is a central cost allocation, the agency must submit to MDCH, on agency letterhead, a Central Cost Allocation Plan Certification whenever a central cost allocation is introduced or is revised, or every two years, whichever is sooner. (Contract -Attachment B. Instructions) Match Requirement The auditor should determine if the agency met the contractual local match requirement. Administrative Rules through define allowable match and require that coordinating agency program budgets include allowable match funds equal to not less than 10% of the total program budget, less direct federal and other state funds. The match requirement applies both to budgeted funds and actual expenditures. (Contract - Attachment A -Administrative and Financial - I. Match Rules) "Fees and collections" as defined in the Rule include only those fees and collections that are associated with services paid for by the CA. (Contract - Attachment A - Administrative and Financial - I. Match Rules) If the coordinating agency does not comply with the match requirement, or cannot provide reasonable evidence of compliance, MDCH may withhold payment or recover payment in an amount equal to the amount of the match shortfall. (Contract - Attachment A - Administrative and Financial - I. Match Rules) Methamphetamine Prevention Project The auditor should determine if the agency used at least 95% of the funding for infrastructure development activity and methamphetamine-specific prevention programming, and not more than 5% on administrative costs associated with this grant activity. The auditor should also determine if the agency entered its Methamphetamine Prevention Project revenues and expenditures separately on the Revenue and Expenditures Report form. (Contract - Attachment A - Services - 3. Prevention D. Methamphetamine Prevention Project) MIChild The auditor should determine if the expenditures charged for the MIChild program were for services provided to eligible children for medically necessary substance abuse services, the services were covered under the MIChild program, and the MIChild program expenses were accounted for separately. If not all of the MIChild authorization was used and excess MIChild funds were retained by the agency as local funds, the auditor should determine that state-allocated community grant funds were not used on MIChild Program services in place of MIChild Program funds. (Contract -Attachment A - Services - 2. Treatment D. MIChild) Reporting The auditor should determine if the agency has accurately completed (including both revenue and expenditure reporting) and timely submitted the quarterly and final Revenues and Expenditures Report (RER) Forms.
20 Items Requiring Special Consideration RER forms must be submitted on a quarterly basis, no later than thirty (30) days after the close of each fiscal quarter. The quarterly RER Forms must reflect total program expenditures, regardless of the source of funds. (Contract - Part 11, Section IV. C.) The final RER form is due 76 days following the end of the fiscal year or agreement period. The final RER form must be clearly marked "Final." (Contract - Part II, Section IK E. 2.) Subcontracts The auditor should determine if the agency has properly awarded and managed subcontracts. The following subsections address various requirements relating to subcontracts: Classification Between Subrecipient and Vendor The auditor should determine if the Agency properly classified their payments to contractors as Federal awards to subrecipients, or payments for goods and services to a vendor according to the guidance provided in Section.210 (b) and (c) of OMB Circular A-133. Procurement Standards The auditor should determine if the agency complied with the procurement standards set forth in either OMB Circular A-102 or OMB Circular A-110, as applicable, to ensure that materials and services are obtained in an effective manner and in compliance with the provisions of applicable Federal statutes and executive orders. (Contract - Part II, Section III H) Timely Execution of Complete Subcontracts The auditor should determine if there was a subcontract executed prior to the initiation of any subcontracted activity, and if the subcontract required the subcontractor to comply with all applicable terms and conditions of the agreement between the agency and MDCH. (Contract - Part II, Section III. G.) Same Rates for Medicaid and Community Grant The auditor should determine if the Agency paid the same rate when purchasing the same service from the same provider, regardless of whether the services were paid for by Community Grant funds, Medicaid funds, or other Department administered funds, including Adult Benefit Waiver and MIChild funds. (Contract - Attachment A - Administrative and Financial - 8. Reimbursement Rates for Community Grant, Medicaid and Other Services) Pass-Through Agency Responsibilities The auditor should determine if the Agency complied with their pass-through responsibilities. For Federal awards (as defined by OMB Circular A-133) passed through to subrecipients (as defined by OMB Circular A-133), agencies must (OMB Circular A-133, Section.400 (d)): a. Advise subcontractors of requirements imposed on them by Federal laws, regulations, and the provisions of contracts or grant agreements;
21 Items Requiring Special Consideration b. Ensure that any executed subcontract allows the agency access to the records and financial statements of the subcontractor as necessary; c. Inform subcontractors of CFDA title and number, award name and number, and name of Federal agency for Federal awards passed through to subcontractors; d. Monitor the activities of subcontractors (including those below the single audit threshold) as necessary to ensure that Federal awards are used for authorized purposes in compliance with laws, regulations, and the provisions of contracts as required by OMB Circular A-133, Section.400(d)(3); e. Ensure that each of the subcontractors comply with the applicable audit requirements; f. Require timely submission of subcontractor audit reports to the agency; and g. Review subcontractors' audit reports and issue a management decision on audit findings within six months after receipt of the subcontractor's audit report and ensure that the subcontractor takes appropriate and timely corrective action as required by Section.400(d)(5) of OMB Circular A-133. Vendor Contract Responsibilities The auditor should determine if the Agency ensured the procurement, receipt, and payment for goods and services to vendors complied with laws, regulations, and the provisions of contracts or grant agreements. (OMB Circular A-133, Section.210 &I)
22 Supplemental Audit Schedules A & B SUPPLEMENTAL AUDIT SCHEDULES A & B Schedule A - Schedule of Budgeted, Reported and Audited Amounts As stated previously, the objectives of the Supplemental Audit Schedule A are to confirm that the revenue and expenditure amounts reported by the agency are actual, supported by the agency's records, allowable, appropriate, and within the budget limits; identify variances between reported and audited amounts; identify MDCH overpayments; and determine compliance with the contractual/regulatory local match requirement. Following the same format as the RER Report, the auditor must record the budgeted amounts, reported amounts, audited amounts, and variances between the audited and reported amounts (with explanations) on Schedule A. Additionally, the auditor must record eligible local match funds in the final local match column, determine the local match required amount, and calculate the local match shortfall or excess. Finally, the auditor must determine the amount billable to MDCH, actual MDCH payments, and any MDCH overpayment or underpayment. If the entity's fiscal year is different than the contract period the schedules must be representative of the contract period. The schedule must be prepared on the full accrual basis. A sample Schedule A is attached to these guidelines. The following provides greater detail for completing various sections of Schedule A: Budgeted column: Reported column: Amounts must be drawn from the final budget agreement. Amounts must be drawn from the agency's final year end RER submitted to MDCH. Audited Expenditures column: Amounts must represent audited expenditures by funding source that are supported by the agency's records and adjusted as needed for any reallocations andlor unallowable items (costs that do not comply with applicable OMB Circular cost principles or contractual provisions). Note that an adjustment to one funding source (e.g. increase in fees and collections from the reported amount) may warrant an adjustment to another funding source (e.g. decrease in community grant from the reported amount.) Variance column: Local Match Funds column: Amount Billable to MDCH: Amounts must represent variances between audited and reported amounts. Footnotes explaining each variance must be provided. Amounts must represent allowable local match funds as defined in the Administrative Rules (R ) and the contract. Amount is the subtotal of Section A (audited amount).
23 Supplemental Audit Schedules A & B Total MDCH Payments: (Overpayment)/ Underpayment: Local Match Requirement: Amount must represent MDCH payments for the contract period only. Amount represents the difference between the amount billable to MDCH and the amount previously paid by MDCH. If MDCH has made an overpayment, the funds are due back to MDCH. If MDCH has made an underpayment, the funds will not be paid by MDCH due to the fact that the grant year is closed and no additional federal or state funds are available. Additionally, accurate reporting of costs within established timeframes is the responsibility of the agency; subsequent amendments are not allowed. Amount is calculated by applying 10% to the total expenditures less Medicaid, ABW, MIChild, and Other Contracts & Sources. The financial data included in Schedule A must reconcile to the corresponding amounts reflected on Schedule B, Schedule B - Schedule of Expenditures and Funding Sources by Program As stated previously, the objectives of the Supplemental Audit Schedule B are to identify variances between reported and audited revenues and expenditures (by program), determine questioned costs (by program), monitor PA2 funds and ensure all entitled PA2 funds were received and recorded, reconcile PA2 funds to reported expenditures, monitor Medicaid managed care funds, and reconcile Medicaid managed care funds to reported expenditures. For each program category, the auditor must record the following (see attached sample of a completed Schedule B): Budgeted column: Amounts must be drawn from the final budget agreement. Reported column: Amounts must be drawn from the agency's final year end RER submitted to MDCH. Audited Expenditures column: The "Gross Amount" column must represent total audited expenditures for the specific program category that are supported by the agency's records and adjusted as needed for any reallocations andlor unallowable items (costs that do not comply with applicable OMB Circular cost principles or contractual provisions). The Medicaid and fees used to support the expenditures are recorded and deducted from the gross amount to determine the net audited expenditures.
24 Supplemental Audit Schedules A & B Audited Funding Sources: The audited amount of each funding source for each program category is recorded. Note that PA2 funds cannot be used for administration. Variance (Audited-Reported): This column represents the difference between audited gross expenditures and reported gross expenditures. Questioned Cost: (Expenditures- Funding): This column represents the difference between audited expenditures (net of Medicaid and fees) and audited funding sources. If the entity's fiscal year is different than the contract period the schedules must be representative of the contract period. Additionally, the schedules must be prepared on the full accrual basis. The Reconciliation of PA2 Funds must show the beginning balance, PA2 funds received from the county(ies) in the current year, current year expenditures of PA2 funds (must agree with audited PA2 funds shown on Schedules A & B), and the ending balance. Note that the beginning fund balance must reconcile to the previous fiscal year's ending balance, and any variances should be explained. If PA2 funds were not received and/or expended during the fiscal year, the applicable areas should be reflected as zero with the beginning and ending balances updated accordingly. The Reconciliation of Medicaid Managed Care (PEPM) Funds must show current year PEPM payments, Medicaid savings carried over from prior years, current year expenditures of Medicaid funds (must agree with audited Medicaid funds shown on Schedules A & B), Medicaid savings being carried forward (including prior year savings being carried forward again), and the lapse amount (amount to be returned to the grantee). Note that the Medicaid savings carried over from prior years must reconcile to the previous fiscal year's reported amount, and any variances should be explained. If Medicaid funds were not received and/or expended during the fiscal year, the applicable areas should be reflected as zero. The financial data included in Schedule B must reconcile to the corresponding amounts reflected on Schedule A.
25 Material Waste or Loss MATERIAL WASTE OR LOSS If during the course of the audit, the auditor finds material waste or loss (e.g. defalcations, theft, etc.), the auditor should promptly notify the agency and MDCH, or, if conditions warrant it, notification may only be to MDCH. Notification should also be made if the audited agency's records are found to be non-auditable.
26 Retention of Audit Working Papers and Records RETENTION OF AUDIT WORKING PAPERS AND RECORDS Audit working papers and records must be retained for a minimum of three years after the final audit review closure by MDCH. The agencies are required to keep subcontractors' reports on file for three years from date of receipt. All audit worlung papers must be accessible and are subject to review by representatives of the Michigan Department of Community Health, the Federal Government and their representatives. There should be close coordination of audit work between the Coordinating Agency auditor and the auditors of its subcontractors. To the extent possible, they should share audit information and materials in order to avoid redundancy.
27 Effective Date and MDCH Contact EFFECTIVE DATE AND MDCH CONTACT These SAPT Program Audit Guidelines replace the guidelines of July 1998 and subsequent amendments, and are effective beginning with the fiscal year audits. Any questions relating to these guidelines should be directed to: Debra S. Hallenbeck, Manager Quality Assurance and Review, Office of Audit Michigan Department of Community Health Capital Commons Center 400 S. Pine Street Lansing, Michigan Phone: (517) Fax: (517) Jasjit Khanuja, Senior Auditor Quality Assurance and Review, Office of Audit Michigan Department of Community Health Capital Commons Center 400 S. Pine Street Lansing, Michigan khanuiaj Phone: (5 17) Fax: (5 17)
28 ABC Coordinating Agency SUBSTANCE ABUSE PREVENTION & TREATMENT Schedule of Budgeted, Reported, and Audited Amounts For the Year Ended September 30,200~ SCHEDULE A Budgeted Reported Audited Variance Local Match Fund Source (FINAL) (FINAL RER) Expenditures (Audited-Reported) Funds A State Agreement 1 Community Grant $1,500,130 $1,500,130 $1,498,130 (2,000) (1) (2) 2 SDA 10,000 9,453 9, SIG 19,220 19,220 19, Methamphetamine A Subtotal 1,529,350 1,528,803 1,526,803 (2.000) B Medicaid 1 Current Year PEPM (Federal & State) 150,000 28,817 26,817 (2,000) (3) 2 Reinvestment Savings B Subtotal C Adult Benefit Waiver (ABW) 1 Current Year PEPM (federal share only) 45,000 43,489 43,489 0 C Subtotal 45,000 43,489 43,489 0 D MI CHILD 1 Current Year PEPM D Subtotal E Local 1 Current Year PA2 330, , , ,835 2 PA2 Fund Balance Other Local (R excluding subsection (l)(b)) $23,000 $22,734 $23,734 1,000 (2) 23,734 E Subtotal 353, , ,569 1,000 F Fees & Collections- Subtotal (R (l)(d)) $105,000 $104,037 $104, ,037 G Other Contracts & Sources (Subtotal) 15,000 12,232 12,232 0 Grand Total of Subtotals A G 2,201,350 2,072,646 2,071,646 (1,000) (1) Amount Billable to MDCH (Section A audited subtotal) Total MDCH Payments Local Match Funds Total Local Match Requirement [(Grand Total of Audited Expenditures Mlnus Subtotals B, C, D & G) lo%] Local Match (Shortfa11)lExcess Variance Footnotes (1) Unallowable cost of $1,000 originally charged to the Community Grant disallowed. (2) Additional Other Local of $1,000 identified in audit testing, which resulted in less use of Community Grant for expenditures. (3) Use of prior year Medicaid savings of $2,000 improperly reported as current year PEPM.
GUIDANCE - Subrecipient and Vendor Determinations Federal Funds
Date of Issue: July 21, 2008 Office of Issuance: AWI FG 063 Reference: Final Subrecipient/Vendor Guidance GUIDANCE - Subrecipient and Vendor Determinations Federal Funds OF INTEREST TO: Workforce Florida
DEPARTMENT OF COMMERCE GRANTS FOR PUBLIC WORKS AND ECONOMIC DEVELOPMENT FACILITIES ECONOMIC ADJUSTMENT ASSISTANCE
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