Areas that need strong internal controls include: payroll costs, non-payroll costs, and procurement.
In 2017, school personnel affected by Hurricane Harvey worked tirelessly to remedy any damage caused by that treacherous storm. Today, we are battling against a worldwide, unseen enemy that continues to morph. Once again, administrators are working tirelessly to protect their students, teachers and the personnel that make it happen every single day. If we go further back, in 2009 schools scrambled to gauge the effect of the economic downturn and then worked diligently to administer the American Recovery and Reinvestment Act (ARRA) stimulus funds. During that time, the Texas Education Agency implemented the use of new funds, the Office of Management and Budget (OMB) gave us new Catalog of Federal Domestic Assistance (CFDA) numbers, and pass through entities gave us the new terms and conditions related to this stimulus package. If you recall, it also had an impact on the reporting for the federal single audits. It was quite a trying time.
Today, we wait for guidance on the new Coronavirus Aid, Relief, and Economic Security (CARES) Act federal funding. From what we know today and based on an Education Weekly article , 90 percent of the $13.5 billion will be passed through to the state education agencies through the Title I, Part A formula designed to help schools with large shares of students from low-income households. The U.S. Department of Education has released a Certification and Agreement for Funding under the Education Stabilization Fund Program Elementary and Secondary School Emergency Relief Fund (ESSER Fund) . The document shows that CFDA # 84.425D will be used for this portion of the relief fund. I would expect that this funding source will be considered high risk for single audit purposes and may need to be tested as major program.
In its letter dated April 10, 2020, the American Institute of Certified Public Accountants’ (AICPA) Government Audit Quality Center alerted auditors and the OMB to the possibility of varying key controls during the year due to the pandemic. We know existing controls at many schools have already been tweaked given their staffing limitations. However, the AICPA has suggested that there should be three separate sets of key controls (1) before COVID-19; (2) during the shutdown and (3) a ramp up after stay-in-place restrictions are relaxed.
From our point of view, these are the areas that need strong internal controls:
Payroll Costs – How is overtime tracked? We have learned during these types of disasters that overtime can be abused. When not monitored closely, once detected the amount of overtime can be quite alarming. Schools must determine which employees can work overtime, the documentation requirements as well as the approval process for such overtime. At times we see that employees fail to describe the duties performed and do not mention the need for the overtime, such as Hurricane Harvey or COVID-19. Without a proper description, the legitimacy of the overtime is questioned.
If you haven’t done so, make sure that you identify the employees that are eligible for overtime. Employees receiving overtime outside of those designated employee group should be scrutinized. Some school administrators have told us that their employee groups include information technology personnel responsible for distributing tablets for remote learning as well as Child Nutrition personnel. If your school is struggling to document overtime, TEA has provided a great example for payroll documentation
Non-payroll Costs – Purchase orders should explicitly reference COVID-19 as well as the corresponding supporting documentation. This applies to both expenditures that will be applied against Federal Emergency Management Agency's (FEMA )Public Assistance or CARES Act funding. For purchase orders where COVID-19 is mentioned, ensure that date of the purchase order makes sense. That is, the date of the purchase should be dated on or after the date of the COVID-19 pandemic. TEA has also provided example documentation for such non-payroll costs for planning and mitigation of COVID-19.
Be sure that expenditures tracked for COVID-19 purposes are in direct response to COVID-19. This means, that if there is any documentation that suggests you were already going to purchase certain goods or services prior to the COVID-19 pandemic, then such expenditures could be disallowed.
In addition, you may find that federally funded events or trips were cancelled and the related costs are now non-refundable. The good news is that TEA has issued guidance stating that those costs can remain in the federal fund, but schools should be aware that additional funding will not be made available.
Procurement – First things, first: make sure your governing body approves a resolution to invoke the public exigency/emergency procurement procedures specifically related to COVID-19. I would suggest that your legal counsel review the resolution so that it is clear what purchases fall under these non-competitive procurement procedures. In addition, please make sure that both finance and procurement personnel are keeping current with the FEMA guidance. On March 17, 2020, FEMA released guidance related to procurement and have provided an important excerpt below:
Current federal procurement standards (found at 2 C.F.R. § 200.320(f)(2)) allow non-state entities to noncompetitively procure contracts (i.e., sole-sourcing) under certain emergency or exigent circumstances. FEMA defines an emergency or exigent circumstances as unexpected and unusually dangerous situations requiring immediate action or an urgent need for assistance or relief. Emergencies typically involve a threat to life, public health or safety, improved property, or some other form of dangerous situation. Exigencies, on the other hand, typically involve an urgent need to avoid, prevent, or alleviate serious harm or injury, financial or otherwise. Under both an emergency and exigency, using a competitive procurement process would prevent a non-state entity from taking immediate action required to address the situation. However, use of the emergency/exigency exception is only permissible during the actual emergency or exigent circumstances.
The President’s unprecedented Nationwide Emergency Declaration, and the Secretary of Health and Human Services’ (HHS) declaration of a Public Health Emergency for COVID-19 establish that exigent and emergency circumstances currently exist.
Please note that the public health emergency began January 27, 2020, and local governments and nonprofits and other non-federal entities may proceed with new and existing noncompetitive procured contracts. Please remember that the reason to follow noncompetitive procedures is to protect property and public health and safety. An additional resource is the FEMA Fact Sheet. Take some time to review it.
As part of your federal funds monitoring process, assign an individual to keep track of all of the guidance issued by the Texas Education Agency. There are various Frequently Asked Questions related to federal costs. This is definitely a page to bookmark.