STATE ENERGY PROGRAM SPECIAL PROJECTS. US Department of Energy

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1 STATE ENERGY PROGRAM SPECIAL PROJECTS APRIL 2015 State Project/Program: STATE ENERGY PROGRAM SPECIAL PROJECTS US Department of Energy Federal Authorization: Energy Organization Act of 1977, as amended, Public Law 95-91, 42 U.S.C. 710; ARRA 2009, Public Law 91-95, 42 U.S.C 7101; Energy Policy and Conservation Act; ARRA 2009, Title III, Part C, Section , Public Law , 42 U.S.C ; Balanced Budget Down Payment Act II of 1996; ARRA 2009, Public Law ; National Energy Conservation Policy Act of 1978, Public Law ; ARRA 2009, Public Law CFR 600 NC Department of Environment and Natural Resources State Energy Program Agency Contact Person Program Starlette Hodge State Energy Program Manager North Carolina Department of Environment and Natural Resources 1612 Mail Service Center Raleigh, NC Agency Contact Person Financial Amy Robinson Accountant North Carolina Department of Environment and Natural Resources 1612 Mail Service Center Raleigh, NC Address Confirmation Letters To: Tracy Davis Director, Division of Energy, Mineral and Land Resources North Carolina Department of Environment and Natural Resources 1612 Mail Service Center Raleigh, NC The auditor should not consider the Supplement to be safe harbor for identifying audit procedures to apply in a particular engagement, but the auditor should be prepared to justify departures from the suggested procedures. The auditor can consider the supplement a safe harbor for identification of compliance requirements to be tested if the auditor performs reasonable procedures to ensure that the requirements in the Supplement are current. The grantor agency may elect to review audit working papers to determine that audit tests are adequate. Auditors may request documentation of monitoring visits by the State Agencies. B

2 I. PROGRAM OBJECTIVES The objective of the State Energy Program (SEP) Special Projects is to allow States to submit proposals to implement specific Department of Energy (DOE) Office of Energy Efficiency and Renewable Energy deployment activities and initiatives as Special Projects under the State Energy Program. States will compete for funding to implement activities relating to a number of programmatic areas such as building codes and standards, alternative fuels, industrial efficiency, building efficiency, and solar and renewable technologies. In accordance with 10 CFR 420.1, the purpose of the SEP is to promote the conservation of energy, to reduce the rate of growth of energy demand, and to reduce dependence on imported oil through the development and implementation of a comprehensive State Energy Program and the provision of Federal financial and technical assistance to States in support of the program. DOE encourages states to develop strategies that align their goals and objectives to national goals. By aligning with national goals, increasing jobs, reducing US oil dependency through increases in energy efficiency and deployment of renewable energy technologies, promoting economic vitality through an increase in green jobs, and reducing greenhouse gas emissions States and DOE demonstrate SEP leadership in successfully addressing national needs at the State and local level. These national goals are included in the Energy Policy Act of 2005 and the Energy Independence and Security Act. II. PROGRAM PROCEDURES The SEP Special Projects Program is administered by the North Carolina Department of Environment and Natural Resources, 512 N. Salisbury Street, Raleigh, North Carolina 27604, (919) In accordance with OMB Circular No. A-102, the State submits proposals to DOE Office of Energy Efficiency and Renewable Energy to compete for funding to implement activities relating to a number of programmatic areas such as building codes and standards, alternative fuels, industrial efficiency, building efficiency, and solar and renewable technologies. The SEP Special Projects Program has no statutory formula. The program may or may not have matching requirements depending on the particular annual solicitation. The length of time for funded projects vary by award and release of funding. Projects may be proposed by partners to the State. The State will evaluate project partners proposals based on merit and compliance to federal solicitation. The State may submit proposals on behalf of project partners or submit proposals to DOE without partners. State proposals for competitive funding may include financial support for salaries, materials, and supplies, equipment, travel, publication costs, and services required for implementing the activities described in the application. Evaluations will be conducted by staff of the Office of Energy Efficiency and Renewable Energy end-use sectors participating in the annual solicitation. Final decisions to approve are made by the Assistant Secretary Office of Energy Efficiency and Renewable Energy. DOE Field Offices are then instructed to negotiate and prepare the grant award documents to the States. Once the State received the award notification from DOE, contracts are negotiated with any project partners. Contractual agreements with a project partner (the entity that is receiving the funds on a reimbursement basis from the State) is used to execute each project approved by DOE. Project work is performed during the time specified in the Assistance Award Agreement. B

3 III. COMPLIANCE REQUIREMENTS A. Activities Allowed or Unallowed Per 10 CFR , no financial assistance provided to the State for the State Energy Program (SEP) shall be used: 1. For construction, such as construction of mass transit systems and exclusive bus lanes, or for construction or repair of buildings or structures; 2. To purchase land, a building or structure or any interest therein; 3. To subsidize fares for public transportation; 4. To subsidize utility rate demonstrations or State tax credits for energy conservation measures or renewable energy measures; or 5. To conduct, or purchase equipment to conduct, research, development or demonstration of energy efficiency or renewable energy techniques and technologies not commercially available. No more than 20 percent of the financial assistance awarded to the State for the SEP shall be used to purchase office supplies, library materials, or other equipment whose purchase is not otherwise prohibited. Demonstrations of commercially available energy efficiency or renewable energy techniques and technologies are permitted, and are not subject to the prohibitions of (a)(1), or to the limitation on equipment purchases of (b). The State may use regular or revolving loan mechanisms to fund SEP services which are consistent with 10 CFR 420 Subpart B. The State may use loan repayments and any interest on the loan funds only for activities which are consistent with 10 CFR 420 Subpart B. The State may use funds for the purchase and installation of equipment and materials for energy efficiency measures and renewable energy measures, including reasonable design costs, subject to the following terms and conditions: 1. Such use must be included in the State's approved plan and, if funded by Petroleum Violation Escrow (PVE) funds, must be consistent with any judicial or administrative terms and conditions imposed upon State use of such funds; 2. The State may use for these purposes no more than 50 percent of all funds allocated by the State to SEP in a given year, regardless of source, except that this limitation shall not include regular and revolving loan programs funded with petroleum violation escrow funds, and is subject to waiver by DOE for good cause. Loan documents shall ensure repayment of principal and interest within a reasonable period of time, and shall not include provisions of loan forgiveness. B

4 3. Buildings owned or leased by the United States are not eligible for energy efficiency measures or renewable energy measures under paragraph (e) of this section; 4. Funds must be used to supplement and no funds may be used to supplant weatherization activities under the Weatherization Assistance Program for Low- Income Persons, under 10 CFR part 440; 5. Subject to the mechanisms below, the State may use a variety of financial incentives to fund purchases and installation of materials and equipment including, but not limited to, regular loans, revolving loans, loan buy-downs, performance contracting, rebates and grants. The following mechanisms are not allowed for funding the purchase and installation of materials and equipment: 1. Rebates for more than 50 percent of the total cost of purchasing and installing materials and equipment (The State shall set appropriate restrictions and limits to insure the most efficient use of rebates); and 2. Loan guarantees. All projects receiving financial assistance from DOE must be reviewed under the National Environmental Policy Act (NEPA) of U.S.C. Section 4321 et seq. The first step in DOE s NEPA review process requires financial assistance recipients to submit information to DOE regarding the potential environmental impacts of the project receiving DOE funds. Applicants must complete the Environmental Checklist (DOE PMC EF-1) on-line at the following site: In accordance with 10 CFR , grantees and subgrantees are permitted to rebudget within the approved direct cost budget to meet unanticipated requirements and may make limited program changes to the approved project. However, unless waived by the awarding agency (U. S. Department of Energy), certain types of post-award changes in budgets and projects shall require the prior written approval of the awarding agency. Additionally, unless waived by the awarding agency, cumulative transfers among direct cost categories, or, if applicable, among separately budgeted programs, projects, functions, or activities which exceed or are expected to exceed 10 percent of the current total approved budget, whenever the awarding agency's share exceeds $100,000 grantees or subgrantees shall obtain the prior approval from the awarding agency. Audit Objective 1. Determine whether Federal awards were expended only for allowable activities. Suggested Audit Procedures 1. Identify the types of activities which are either specifically allowed or prohibited by the laws, regulations, and the provisions of contract or grant agreements pertaining to SEP. 2. When allowability is determined based upon summary level data, perform procedures to verify that: B

5 a. Activities were allowable. b. Individual transactions were properly classified and accumulated into the activity total. 3. When allowability is determined based upon individual transactions, select a sample of transactions and perform procedures to verify that the transaction was for an allowable activity. 4. The auditor should be alert for large transfers of funds from program accounts which may have been used to fund unallowable activities. B. Allowable Cost/Cost Principles Costs must be allowable, allocable and reasonable in accordance with the applicable Federal cost principles referenced in 10 CFR 600. Audit Objectives Determine whether the governmental unit complied with the provisions of A-87 as follows: 1. Direct charges to Federal awards were for allowable costs. 2. Charges to cost pools used in calculating indirect cost rates were for allowable costs. 3. The methods for allocating the costs are in accordance with the applicable cost principles, and produce an equitable and consistent distribution of costs (e.g., all activities that benefit from the indirect cost, including unallowable activities, must receive an appropriate allocation of indirect costs). 4. Indirect cost rates were applied in accordance with approved indirect cost rate agreements (ICRA), or special award provisions or limitations, if different from those stated in negotiated rate agreements. Suggested Audit Procedures The following procedures apply to direct charges to the Federal award as well as charges to cost pools that are allocated wholly or partially to the Federal award or used in formulating indirect cost rates used for recovering indirect costs from the Federal award. 1. Test a sample of transactions for conformance with: a. The criteria contained in the Basic Guidelines section of A-87, Attachment A, paragraph C. b. The principles to establish allowability or unallowability of certain items of cost contained in A-87, Attachment B. 2. If the auditor identifies unallowable costs, the auditor should be aware that directly associated costs might have been charged. Directly associated costs are costs incurred solely as a result of incurring another cost, and would have not been incurred if the other cost had not been incurred. When an unallowable cost is incurred, directly associated costs are also unallowable. For example, occupancy costs related to unallowable general costs of government are also unallowable. B

6 C. Cash Management Per the NC Department of Environment and Natural Resources Cash Management Plan, federal funds received for major federal assistance programs, which are governed by the Cash Management Improvement Act of 1990, must be drawn in accordance with the current State/Federal Agreement. In accordance with 10 CFR , procedures for minimizing the time elapsing between the transfer of funds from the U.S. Treasury and disbursement by grantees and subgrantees must be followed whenever advance payment procedures are used. Grantees must establish reasonable procedures to ensure the receipt of reports on subgrantees' cash balances and cash disbursements in sufficient time to enable them to prepare complete and accurate cash transactions reports to the awarding agency. When advances are made by letter-of-credit or electronic transfer of funds methods, the grantee must make drawdowns as close as possible to the time of making disbursements. Grantees must monitor cash drawdowns by their subgrantees to assure that they conform substantially to the same standards of timing and amount as apply to advances to the grantees. In accordance with 10 CFR (d), reimbursement shall be the preferred method when the requirements of advances are not met. Grantees and subgrantees may also be paid by reimbursement for any construction grant. Except as otherwise specified in regulation, Federal agencies shall not use the percentage of completion method to pay construction grants. The grantee or subgrantee may use that method to pay its construction contractor, and if it does, the awarding agency's payments to the grantee or subgrantee will be based on the grantee's or subgrantee's actual rate of disbursement. Requests for payment shall be based on allowable costs and/or encumbrances incurred with the project or the fixed fee schedule; however, allowable reimbursement shall not exceed the cost of the Agreement. Final requests for payment are due within 90 days of Agreement termination. Audit Objectives 1. Determine whether for advance payments the recipient/subrecipient followed procedures to minimize the time elapsing between the transfer of funds from the U.S. Treasury, or pass-through entity, and their disbursement. 2. Determine whether the State has complied with the terms and conditions of the Treasury-State Agreement or Subpart B procedures prescribed by Treasury. 3. Determine whether the pass-through entity implemented procedures to ensure that advance payments to subrecipients conformed substantially to the same timing requirements that apply to the pass-through entity. 4. Determine whether interest earned on advances was reported/remitted as required. 5. Determine whether an entity has awards funded on a reimbursement payment basis, as well as awards funded through advance payments. For such entities, determine whether program costs are paid for with entity funds before reimbursement is requested from the Federal government. B

7 Suggested Audit Procedures Note: The following procedures are intended to be applied to each program determined to be major. However, due to the nature of cash management and the system of cash management in place in a particular entity, it may be appropriate and more efficient to perform these procedures for all programs collectively rather than separately for each program. 1. For programs tested as major, verify which of those programs are covered by the Treasury-State Agreement in accordance with the materiality thresholds in 31 CFR section 205.5, Table A. 2. For those programs identified in procedure 1, determine the funding techniques used for those programs. For those funding techniques that require clearance patterns to schedule the transfer of funds to the State, review documentation supporting the clearance pattern and verify that the clearance pattern conforms to the requirements for developing and maintaining clearance patterns as specified in the Treasury-State Agreement (31 CFR sections , , and Select a sample of Federal cash draws and verify that: a. The timing of the Federal cash draws was in compliance with the applicable funding techniques specified in the Treasury-State Agreement or Subpart B procedures, whichever is applicable (31 CFR sections and ). b. To the extent available, program income, rebates, refunds, and other income and receipts were disbursed before requesting additional Federal cash draws as required by the A-102 Common Rule (.21) and OMB Circular A-110 (2 CFR section ). 4. Where applicable, select a sample of reimbursement requests and trace to supporting documentation showing that the costs for which reimbursement was requested were paid prior to the date of the reimbursement request (31 CFR section (b)(5)). 5. Review the calculation of the interest obligation owed to or by the Federal Government, reported on the annual report submitted by the State to ascertain that the calculation was in accordance with Treasury regulations and the terms of the Treasury-State Agreement. Trace amounts used in the calculation to supporting documentation. D. Davis Bacon Act The Davis Bacon Act does not apply to the SEP Special Project. However, the Department of Labor (DOL) has implemented the Davis Bacon Act government-wide for all federal programs awarded under the ARRA. Consequently, the Davis Bacon Act does apply to the SEP-R. B

8 E. Eligibility In accordance with 10 CFR 600.6(b), and DOE Program Rule 10 CFR Part 420, State Energy Program, eligibility for SEP is restricted to States, Territories and the District of Columbia. F. Equipment and Real Property Management Equipment Management Title to equipment acquired by a non-federal entity with Federal awards vests with the non-federal entity. Equipment means tangible nonexpendable property, including exempt property, charged directly to the award having a useful life of more than one year and an acquisition cost of $5,000 or more per unit. A State shall use, manage, and dispose of equipment acquired under a Federal grant in accordance with State laws and procedures. Subrecipients of States who are local governments or Indian tribes shall use State laws and procedures for equipment acquired under a subgrant from a State. Equipment records shall be maintained, a physical inventory of equipment shall be taken at least once every two years and reconciled to the equipment records, an appropriate control system shall be used to safeguard equipment, and equipment shall be adequately maintained. When equipment with a current per unit fair market value of $5,000 or more is no longer needed for a Federal program, it may be retained or sold with the Federal agency having a right to a proportionate (percent of Federal participation in the cost of the original project) amount of the current fair market value. Proper sales procedures shall be used that provide for competition to the extent practicable and result in the highest possible return. Department Activities Equipment Number Assignment The Fiscal Management Section assigns groups of asset numbers to each division to be used for fixed asset acquisitions. The Fixed Asset Officer of each division will assign the equipment number to the fixed asset. When an asset is purchased all input forms must be completed and sent to the Fiscal Management Section by the 15 th of the month following the month of purchase. The assigned number will appear on the division s Fixed Asset Report. For divisions entering their own fixed assets, input must be completed by the 15 th of the month after the month the asset is purchased. It is the responsibility of each facility to follow-up to ensure that an equipment number has been assigned to each fixed asset and that it is properly tagged, if required. Equipment Identification Labels and Tags After assignment of equipment numbers, the division will forward the equipment tags to the respective locations. Upon receipt of these labels/tags, the Fixed asset Officer or designee will have them attached to the identified equipment. It will be the responsibility of each location to ensure that an equipment tag has been received for each asset required to be tagged. B

9 Federal Surplus Property The Department of Environment and Natural Resources will follow the rules and regulations set forth by the Department of Administration pertaining to the acquisition and utilization of Federal Surplus Property. These rules are as follows: The property is needed and will be utilized by the donee (Department of Environment and Natural Resources) and funds are available to pay all costs and charges incident to donation. The property will be used by the Donee Institution (Department of Environment and Natural Resources) and not for personal use. The property will be put into utilization for the purpose for which acquired within one year of receipt and shall be continued in use for such purpose for one year from the date the property was placed in use, except there will be a period of restriction of 18 months on all property with a Government cost of $5,000 and all passenger motor vehicles, regardless of Government cost. Additional restrictions of up to 5 years will apply for special types of property such as aircraft, vessels and other related property. All property will be utilized by the donee institution ( Department of Environment and Natural Resources) that the property was transferred to and the property cannot be loaned, leased, rented, traded, sold, cannibalized or otherwise disposed of without prior written approval of the state agency (Department of Administration) or G.S.A. while the property is still under the state and federal restricted period of utilization. Property that is no longer needed by the donee (Department of Environment and Natural Resources) which is still under state and federal restrictions can be returned to the state agency (Department of Administration or be retransferred to another eligible Donee institution or organization provided the donee (Department of Environment and Natural Resources) makes written request to the state agency (Department of Administration) requesting such action and the state agency (Department of Administration) approves the desired action. All property acquired by the donee (Department of Environment and Natural Resources) is on an "as is", "where is" basis, without warranty of any kind. Subrecipient Activities The subrecipient must receive prior written approval for the purchase or disposal of Fixed Assets costing $5,000 or more from the State Energy Program. The subrecipient must report the purchase to the State Energy Program by submission of a Fixed Asset Purchase form with required monthly reports. The State Energy Program processes the Fixed Asset Purchase form and sends a North Carolina Department of Environment and Natural Resources Fixed Asset Tag to the subrecipient for affixing to the fixed asset. The subrecipient is required to include the fixed asset in their records with a notation that the State Energy Program, as Grantor, has reversionary right to the fixed asset. Audit Objectives 1. Determine whether the non-federal entity maintains proper records for equipment and adequately safeguards and maintains equipment. 2. Determine whether disposition or encumbrance of any equipment or real property acquired under Federal awards is in accordance with Federal requirements and B

10 that the awarding agency was compensated for its share of any property sold or converted to non-federal use. Suggested Audit Procedures (Procedure 1 only applies to subrecipients of States that are local governments or Indian tribal governments. Procedure 2 only applies to States and to subrecipients of States that are local governments or Indian tribal governments.) 1. Obtain entity s policies and procedures for equipment management and ascertain if they comply with the State s policies and procedures. 2. Select a sample of equipment transactions and test for compliance with the State s policies and procedures for management and disposition of equipment. (Procedures 3-4 only apply to institutions of higher education, hospitals, and other nonprofit organizations, and Federal awards received directly from a Federal awarding agency by a local government or an Indian tribal government.) 3. Inventory Management of Equipment a. Inquire if a required physical inventory of equipment acquired under Federal awards was taken within the last two years. Test whether any differences between the physical inventory and equipment records were resolved. b. Identify equipment acquired under Federal awards and trace selected purchases to the property records. Verify that a North Carolina Department of Environment and Natural Resources Fixed Asset Tag is affixed to the asset. Verify that the property records contain the following information about the equipment: description (including serial number or other identification number), source, who holds title, acquisition date and cost, percentage of Federal participation in the cost, location, condition, and any ultimate disposition data including, the date of disposal and sales price or method used to determine current fair market value. c. Select a sample from all equipment identified as acquired under Federal awards from the property records and physically inspect the equipment, including whether the equipment is appropriately safeguarded and maintained. 4. Disposition of Equipment a. Determine the amount of equipment dispositions for the audit period and perform procedures to verify that dispositions were properly classified between equipment acquired under Federal awards and equipment otherwise acquired. b. For dispositions of equipment acquired under Federal awards, perform procedures to verify that the dispositions were properly reflected in the property records. c. For dispositions of equipment acquired under Federal awards with a current per-unit fair market value of $5,000 or more, test whether the awarding agency was reimbursed for the appropriate Federal share. B

11 (Procedure 5 applies to States, local governments, Indian tribal governments and nonprofit organizations regardless of whether funding is received as a recipient or subrecipient.) 5. Disposition of Real Property a. Determine real property dispositions for the audit period and ascertain such real property acquired with Federal awards. b. For dispositions of real property acquired under Federal awards, perform procedures to verify that the non-federal entity followed the instructions of the awarding agency, which will normally require reimbursement to the awarding agency for the Federal portion of net sales or fair market value at the time of disposition, as applicable. G. Matching, Level of Effort, Earmarking In accordance with 10 CFR , the State shall provide cash, in kind contributions, or both for SEP activities in an amount totaling not less than 20 percent of the financial assistance allocated to the State under (b). Cash and in-kind contributions used to meet this State matching requirement are subject to the limitations on expenditures described in (a), but are not subject to the 20 percent limitation in (b). This match requirement does not apply to PVE funds used for the SEP. Audit Objective 1. Matching Determine whether the minimum amount or percentage of contributions or matching funds was provided. Suggested Audit Procedures 1. Matching a. Perform tests to verify that the required matching contributions were met. b. Ascertain the sources of matching contributions and perform tests to verify that they were from an allowable source. c. Test records to corroborate that the values placed on in-kind contributions (including third party in-kind contributions) are in accordance with the OMB cost principles circulars, the A-102 Common Rule, OMB Circular A-110, program regulations, and the terms of the award. d. Test transactions used to match for compliance with the allowable costs/cost principles requirement. This test may be performed in conjunction with the testing of the requirements related to allowable costs/cost principles. 2. Level of Effort - Per CFDA # , is not applicable. H. Period of Availability of Federal Funds DOE encourages the State to expend all obligated SEP funds within the annual grant cycle. If the State has estimated unobligated funds to be carried forward from one year to B

12 the next within the grant period, they must amend the subsequent program year State Plan and budget to include activities associated with those unobligated funds. When the State s grant is closed out, any remaining unobligated funds are subject to reauthorization approval by the Office of Management and Budget. Audit Objective 1. Determine whether Federal funds were obligated within the period of availability and obligations were liquidated within the required time period. Suggested Audit Procedures 1. Review the award documents and regulations pertaining to the program and determine any award-specific requirements related to the period of availability and document the availability period. 2. Test transactions charged to the Federal award after the end of the period of availability to verify that the a. underlying obligations occurred within the period of availability, and b. liquidation (payment) was made within the allowed time period. 3. Test transactions that were recorded during the period of availability and verify that the underlying obligations occurred within the period of availability. 4. Test adjustments (i.e., manual journal entries) to the Federal funds and verify that these adjustments were for transactions that occurred during the period of availability. As long as the auditor obtains sufficient, appropriate evidence to meet the period of availability audit objectives, the auditor may test period of availability using the same test items used to test other types of compliance requirements (e.g., activities allowed or unallowed or allowable costs/cost principles). However, if this approach is used, the auditor should exercise care in designing the sample to ensure that sample items are suitable for testing the stated objectives of compliance requirements covered by the sample. Department Activities The SEP commences July 1 and ends June 30 of each year. Funds are allocated and approved for disbursement to subrecipients once an official notification is received from the U.S. Department of Energy through a Notice of Financial Assistance Award (NFAA). Contracts to subrecipients are executed once the NFAA is received. Subrecipients should not expend funds prior to receiving an official contract. If there are funds remaining at the end of the year, they are carried over into the next year. The carryover funds are not available to expend until an amended plan is submitted to and approved by the US Department of Energy and a NFAA is received. Suggested Audit Procedures 1. Review program records to ascertain if a NFAA was received and executed. 2. Determine if a contract exists between the State Energy Program B

13 and the subrecipient and assess whether the contract was granted to the subrecipient or expenditures were made in advance of the State receiving the NFAA. 3. Determine whether expenditures commenced after the contract with the State Energy Program was officially executed. I. Procurement and Suspension and Debarment Procurement States, and governmental subrecipients of States, shall use the same State policies and procedures used for procurements from non-federal funds. They also shall ensure that every purchase order or other contract includes any clauses required by Federal statutes and executive orders and their implementing regulations. Local governments and Indian tribal governments which are not subrecipients of States will use their own procurement procedures provided that they conform to applicable Federal law and regulations and standards identified in the A-102 Common Rule. Institutions of higher education, hospitals, and other non-profit organizations shall use procurement procedures that conform to applicable Federal law and regulations and standards identified in OMB Circular A-110. All non-federal entities shall follow Federal laws and implementing regulations applicable to procurements, as noted in Federal agency implementation of the A-102 Common Rule and OMB Circular A-110. Source of Governing Requirements - Procurement The requirements for procurement are contained in the A-102 Common Rule (.36), OMB Circular A-110 (2 CFR sections through ), program legislation, Federal awarding agency regulations, and the terms and conditions of the award. The specific references for the A-102 Common Rule and OMB Circular A-110, respectively, are given for each suggested audit procedure indicated below. (The first number listed refers to the A-102 Common Rule and the second refers to A-110.) Suspension and Debarment Government wide requirements for nonprocurement suspension and debarment are contained in the OMB guidance in 2 CFR part 180, which implements Executive Orders and 12689, Debarment and Suspension. The OMB guidance, which superseded the suspension and debarment common rule published November 26, 2003, is substantially the same as that rule. Non-Federal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred or whose principals are suspended or debarred. Covered transactions include those procurement contracts for goods and services awarded under a nonprocurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000 or meet certain other specified criteria. 2 CFR section of the government wide nonprocurement debarment and suspension guidance contains those additional limited circumstances. All nonprocurement transactions (i.e., subawards to subrecipients), irrespective of award amount, are considered covered transactions. B

14 When a non-federal entity enters into a covered transaction with an entity at a lower tier, the non-federal entity must verify that the entity is not suspended or debarred or otherwise excluded. This verification may be accomplished by checking the Excluded Parties List System (EPLS) maintained by the General Services Administration (GSA), collecting a certification from the entity, or adding a clause or condition to the covered transaction with that entity (2 CFR section ). The information contained in the EPLS is available in printed and electronic formats. The printed version is published monthly. Copies may be obtained by purchasing a yearly subscription from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402, or by calling the Government Printing Office Inquiry and Order Desk at (202) The electronic version can be accessed on the Internet ( Source of Governing Requirements Suspension and Debarment The requirements for suspension and debarment are contained OMB guidance in 2 CFR part 180, which implements Executive Orders and 12689, Debarment and Suspension; Federal agency regulations in 2 CFR implementing the OMB guidance; the A-102 Common Rule (.36); OMB Circular A-110 (2 CFR section ); program legislation; Federal awarding agency regulations; and the terms and conditions of the award. Most of the Federal agencies have adopted this guidance and relocated their associated agency rules in Title 2 of the CFR as final rules. For any agency that has not completed its adoption of 2 CFR part 180, pending completion of that adoption, agency implementations of the common rule remain in effect. Appendix II includes the current CFR citations for all agencies. In either case, the applicable requirements are specified in the terms and conditions of award. Audit Objectives 1. Determine whether procurements were made in compliance with the provisions of the A-102 Common Rule, OMB Circular A-110, and other procurement requirements specific to an award. 2. For covered transactions determine whether the non-federal entity verified that entities are not suspended or debarred or otherwise excluded. Suggested Audit Procedures (Procedures 1-4 apply only to institutions of higher education, hospitals, and other nonprofit organizations; and Federal awards received directly from a Federal awarding agency by a local government or an Indian tribal government.) 1. Obtain entity s procurement policies. Verify that the policies comply with applicable Federal requirements (.36(b)(1) and 2 CFR section Ascertain if the entity has a policy to use statutorily or administratively imposed in-state or local geographical preferences in the evaluation of bids or proposals. If yes, verify that these limitations were not applied to federally funded procurements except where applicable Federal statutes expressly mandate or encourage geographic preference (.36(c)(2) and 2 CFR section ). 3. Examine procurement policies and procedures and verify the following: a. Written selection procedures require that solicitations incorporate a clear and accurate description of the technical requirements for the material, B

15 product, or service to be procured, identify all requirements that the offerors must fulfill, and include all other factors to be used in evaluating bids or proposals (.36(c)(3) and 2 CFR section (a)(3)). b. There is a written policy pertaining to ethical conduct (.36(b)(3) and 2 CFR section ). 4. Select a sample of procurements and perform the following: a. Examine contract files and verify that they document the significant history of the procurement, including the rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis of contract price (.36(b)(9) and 2 CFR section ). b. Verify that procurements provide full and open competition (.36(c)(1) and 2 CFR section ). c. Examine documentation in support of the rationale to limit competition in those cases where competition was limited and ascertain if the limitation was justified (.36(b)(1) and (d)(4); and 2 CFR sections and (e)). d. Verify that contract files exist and ascertain if appropriate cost or price analysis was performed in connection with procurement actions, including contract modifications and that this analysis supported the procurement action (.36(f) and 2 CFR section ). e. Verify that the Federal awarding agency approved procurements exceeding $100,000 when such approval was required. Procurements (1) awarded by noncompetitive negotiation, (2) awarded when only a single bid or offer was received, (3) awarded to other than the apparent low bidder, or (4) specifying a brand name product (.36(g)(1) and 2 CFR (e)) may require prior Federal awarding agency approval. f. Verify compliance with other procurement requirements specific to an award. (Procedure 5 only applies to States and Federal awards subgranted by the State to a local government or Indian tribal government.) 5. Test a sample of procurements to ascertain if the State s laws and procedures were followed and that the policies and procedures used were the same as for non- Federal funds. (Procedure 6 applies to all non-federal entities) 6. Select a sample of procurements and subawards and a. Test whether the non-federal entities performed a verification check for covered transactions, by checking the EPLS, collecting a certification from the entity, or adding a clause or condition to the covered transaction with the entity; and b. Test the sample of procurements and subawards against the EPLS, and ascertain if covered transactions were awarded to suspended or debarred parties. B

16 J. Program Income In accordance with 10 CFR , DOE encourages the State to earn income in connection with SEP activities to defray program costs. If the State Plan includes such activities, the State should include an estimated amount of earned income in the budget portion of the Grant Application. Program income is defined in Federal regulations as gross income earned by the recipient that is directly generated by a supported activity or earned as a result of the award. Program income includes but is not limited to income from fees for services performed; the use or rental of real or personal property acquired under Federally-funded projects; the sale of commodities or items fabricated under an award; license fees and royalties on patents and copyrights; and interest on loans made with award funds. Except as otherwise provided in regulations of the Federal agency, or the terms and conditions of the award, program income does not include interest on grant funds, rebates, credits, discounts, refunds, etc. and interest earned on any of them. Interest earned through loan fund programs generated by grant-supported activities is treated as program income. If program income is earned during the project period as a result of this award, the program income may be added to the funds committed to the award and used to further eligible project objectives. Audit Objective 1. Determine whether program income is correctly determined, recorded, and used in accordance with the program requirements, A-102 Common Rule, and OMB Circular A-110, as applicable. Suggested Audit Procedures 1. Identify Program Income a. Review the laws, regulations, and the provisions of contract or grant agreements applicable to the program and ascertain if program income was anticipated. If so, ascertain the requirements for determining or assessing the amount of program income (e.g., a scale for determining user fees, prohibition of assessing fees against certain groups of individuals, etc.), and the requirements for recording and using program income. b. Inquire of management and review accounting records to ascertain if program income was received. 2. Determining or Assessing Program Income Perform tests to verify that program income was properly determined or calculated in accordance with stated criteria, and that program income was only collected from allowable sources. 3. Recording of Program Income Perform tests to verify that all program income was properly recorded in the accounting records. 4. Use of Program Income Perform tests to ascertain if program income was used in accordance with the program requirements, the A-102 Common Rule, and OMB Circular A-110. B

17 L. Reporting Reporting requirements under the SEP Program consist of the following types of reports: Progress Report The Progress Report must provide a concise narrative assessment of the status of work and include the following information and any other information identified under Special Instructions on the Federal Assistance Reporting Checklist: 1. The DOE award number and name of the recipient. 2. The project title and name of the project director/principal investigator. 3. Date of report and period covered by the report. 4. A comparison of the actual accomplishments with the goals and objectives established for the period and reasons why the established goals were not met. 5. A discussion of what was accomplished under these goals during this reporting period, including major activities, significant results, major findings or conclusions, key outcomes or other achievements. This section should not contain any proprietary data or other information not subject to public release. If such information is important to reporting progress, do not include the information, but include a note in the report advising the reader to contact the Principal Investigator or the Project Director for further information 6. Cost Status. Show approved budget by budget period and actual costs incurred. If cost sharing is required break out by DOE share, recipient share, and total costs. 7. Schedule Status. List milestones, anticipated completion dates and actual completion dates. If you submitted a project management plan with your application, you must use this plan to report schedule and budget variance. You may use your own project management system to provide this information. 8. Any changes in approach or aims and reasons for change. Remember significant changes to the objectives and scope require prior approval by the contracting officer. 9. Actual or anticipated problems or delays and actions taken or planned to resolve them. 10. Any absence or changes of key personnel or changes in consortium/teaming arrangement. 11. A description of any product produced or technology transfer activities accomplished during this reporting period, such as: a. Publications (list journal name, volume, issue); conference papers; or other public releases of results. Attach or send copies of public releases to the DOE Project Officer identified in Block 11 of the Notice of Financial Assistance Award. b. Web site or other Internet sites that reflect the results of this project. c. Networks or collaborations fostered. d. Technologies/Techniques. B

18 e. Inventions/Patent Applications. f. Other products, such as data or databases, physical collections, audio or video, software or netware, models, educational aid or curricula, instruments or equipment. Financial Reporting Submit a Quarterly Progress Report and the SF-425 Federal Financial Report. Instructions for the Quarterly Progress Report are below. The SF-425 is available at Federal Financial Report (FFR) (SF-425/SF-425A (OMB No )). Recipients use the FFR as a standardized format to report the financial status of their Federal awards. The FFR must be filed 90 calendar days after expiration or termination of the award. References to this report include its applicability as both a financial status and a cash report, unless indicated otherwise. Closeout Reporting Property Certification The recipient must provide the Property Certification, including the required inventories of non-exempt property, located at Other Reporting Annual Indirect Cost Proposal and Reconciliation In accordance with the applicable cost principles, the recipient must submit an annual indirect cost proposal, reconciled to its financial statements, within six months after the close of the fiscal year, unless the award is based on a predetermined or fixed indirect rate(s), or a fixed amount for indirect or facilities and administration (F&A) costs. The recipient must submit its annual indirect cost proposal directly to the cognizant agency for negotiating and approving indirect costs. If the DOE awarding office is the cognizant agency, submit the annual indirect cost proposal to the address on the Reporting Requirements Checklist. Department Activities The subrecipient is responsible for submitting a monthly financial report 30 days following the calendar month of their first expenditure. In addition, the subrecipient is responsible for submitting a quarterly narrative report 15 days following each calendar quarter, and a final narrative report 90 days following contract termination. Audit Objective 1. Determine whether required reports for Federal awards include all activity of the reporting period, are supported by applicable accounting or performance records, and are fairly presented in accordance with governing requirements. Suggested Audit Procedures Financial Reports Note: For recipients using PMS to draw Federal funds, the auditor should consider the following steps numbered 1 through 5 as they pertain to the PSC 272 (SF-425A), PSC B

19 272-A (SF-425), PSC 272-B, and PSC 272-E, regardless of the source of the data included in the PMS reports. Although certain data is supplied by the Federal awarding agency (i.e., award authorization amounts) and certain amounts are provided by DPM, the auditor should ensure that such amounts are in agreement with the recipient s records and are otherwise accurate. 1. Review applicable laws, regulations, and the provisions of contract or grant agreements pertaining to the program for reporting requirements. Determine the types and frequency of required reports. Obtain and review Federal awarding agency or pass-through entity, in the case of a subrecipient, instructions for completing the reports. a. Ascertain the accounting basis used in reporting the data (e.g., cash or accrual). 2. Perform appropriate analytical procedures and ascertain the reason for any unexpected differences. Examples of analytical procedures include: a. Comparing current period reports to prior period reports. b. Comparing anticipated results to the data included in the reports. c. Comparing information obtained during the audit of the financial statements to the reports. Note: The results of the analytical procedures should be considered in determining the nature, timing, and extent of the other audit procedures for reporting. 3. Select a sample of the financial reports: (1) Ascertain if the financial reports are complete and accurate, were prepared in accordance with the required accounting basis, and were submitted timely to the pass-through entity or the Federal agency, as applicable. (2) Trace the amounts reported to accounting records that support the audited financial statements and the Schedule of Expenditures of Federal Awards and verify agreement or perform alternative procedures to verify the accuracy and completeness of the reports and that they agree with the accounting records. If reports require information on an accrual basis and the entity does not prepare its accounting records on an accrual basis, determine whether the reported information is supported by available documentation. (3) For any discrepancies noted in PSC-272 (or SF-425) reports, review subsequent PSC-272 (or SF-425) reports to ascertain if the discrepancies were appropriately resolved with HHS DPM. 4. Test the financial reports for accuracy and completeness. a. Review accounting records and ascertain if all applicable accounts were included in the sampled reports (e.g., program income, expenditure credits, loans, interest earned on Federal funds, and reserve funds). 5. Obtain written representation from management that the reports provided to the auditor are true copies of the reports submitted or electronically transmitted to the B