Hello. National Grants Management Association Monthly Training November 16, Eric J. Russell, CIA, CGAP, CGMS, MPA Crowe Horwath LLP

Transcription

1 Hello. National Grants Management Association Monthly Training November 16, 2016 Eric J. Russell, CIA, CGAP, CGMS, MPA Crowe Horwath LLP 2016 Crowe 2016 Crowe Horwath Horwath LLP LLP

2 Agenda Third Party Risk Mitigation What Can Grant Administrators do to Mitigate Risk? Opportunities and Next Steps for Auditors of Federal Awards Questions 2016 Crowe Horwath LLP 2

3 Third Party Risk Mitigation We often focus on internal operations, finances, and other matters that address internal risk. For Federal and Non-Federal entities, significant risk exists as a result of third parties, including but not limited to: Contractors and subcontractors; Recipients of Federal Financial Assistance and their subrecipients; and Vendors within the supply chain Crowe Horwath LLP 3

4 Third Party Risk Mitigation (Cont.) What is being done currently to mitigate risk? Risk assessments during the pre-award process; Audits, reviews, and assessments of contractors and financial assistance recipients; Incorporation of Federal regulations within the terms and conditions of award agreements; Requiring and enforcing requirements pertaining to monitoring; and Much, much more! 2016 Crowe Horwath LLP 4

5 Third Party Risk Mitigation (Cont.) We will discuss some items that demonstrate specific third party risks. However, we must understand that risk exists in each phase. Program Development and Authorization Pre-Award Activities (Solicitation, Risk Assessment, Negotiation) Execution and Reporting Closeout and Post-Award Audit 2016 Crowe Horwath LLP 5

6 Example Finding #1: Foreign Currency Translation Condition The auditee overbilled the Government as a result of having incorrectly translated invoices denominated in Canadian Dollars and British Pounds to United States Dollars. Proposed Solution Ensure the understanding of staff and provide training as needed for applying ASC 830. Establish internal controls and procedures to verify the currency translation process prior to invoices submitted to the Government. Reimburse the Government for the amount of the questioned costs Crowe Horwath LLP 6

7 Example Finding #2: Cost Share and Matching Condition The recipient did not meet the cost share requirement, incurring $63,528 less in non-federal costs than the required $434,876. Due to the funding agency s requirement that the authorized Federal funds be reduced by the proportion of the cost share deficiency, $928,370 in costs were questioned. Proposed Solution The recipient should: Identify an additional $63,528 in cost share transactions or in-kind contributions that are fully-supported, allowable, and were incurred within the award period of performance; or Reimburse the Government $928, Crowe Horwath LLP 7

8 Example Finding #3: Grants and Contracting Officer Approvals Condition One recipient did not obtain Grants Officer approval of subawards, which was required for budget reallocation. A prime contractor did not obtain the Contracting Officer s consent to subcontract with various subcontractors tested for the delivery orders under audit, specifically. The prime contract operated under the assumption that consents to subcontract received under requests pertaining to previous delivery orders (Dos) were adequate under subsequent DOs. Proposed Solution The prime contractor should: Obtain written evidence showing that the Contracting Officer/Grants Officer at the time consented to each subcontract/subaward; Obtain evidence of an authorized deviation from FAR and State Department requirements for consent; or Reimburse the Government for costs in question Crowe Horwath LLP 8

9 Example Finding #4: Subrecipient Monitoring Condition Two recipients reportedly monitored subrecipients through the provision of technical assistance, project management unit/office meetings, and review of reports. Inadequate supporting documentation and/or evidence of review of fringe benefit and other costs incurred by subrecipients was available. The subrecipients in question were not subject to audit and do not have negotiated indirect cost rate agreements. Proposed Solution The recipients should develop subrecipient monitoring policies that require execution of monitoring procedures and retention of reports, assessments, and/or alternative deliverables demonstrating that procedures were performed; and Either locate and produce supporting documentation for the allowability of fringe benefit costs or reimburse the Government for the associated Federal expenditure amounts Crowe Horwath LLP 9

10 Evaluating the Exposure The aforementioned audit findings pertain to four separate auditees who, collectively, received grants, cooperative agreements, and contracts in excess of $500 million. The exposure, however, extends beyond these reports and awards. Consider that certain practices may have been in place at the time the base contract was issued in 2007 for the foreign currency matter; The audit scope was limited to specific awards in each instance; and Each organization is continuing to execute work on behalf of the Federal Government. Similar issues have been identified through other audits as well Crowe Horwath LLP 10

11 What We Can Do as Grant Administrators Procurement and Contracting Units Assist entities in their efforts to receive NICRAs or otherwise negotiate indirect cost rates with subrecipients as referenced in the Uniform Guidance; Continue cost incurred audit efforts, but identify which findings pertain to items that may be addressed through procurement process enhancements; Consider targeting assessments of these particular matters as these issues have not been isolated to one, two, or three Federal contractors and recipients; Collaborate with DCAA, funding agency contracting units, and/or internal audit or monitoring teams to address higher risk contracts and awards more timely; and Consider a focus on contractors controls over subcontracting, procurement, and estimating Crowe Horwath LLP 11

12 What We Can Do as Grant Administrators (Cont.) Consider included training or a detailed review of the grant or subaward agreement as a standard part of the project kickoff process; Assess performance and compliance, inclusive of transaction testing or review of supporting documentation; Require an understanding of compliance monitoring as part of the application process; and Establish a relationship with auditors and understand where processes may be improved Crowe Horwath LLP 12

13 Opportunities within the Auditor s Role (Cont.) As auditors, we are in a unique position to add significant value. Why? We see the errors, but we may also help to identify root causes; Focus on auditing the risk assessment and pre-award process; We have an opportunity to provide feedback regarding the nature and language appearing in regulation (e.g., does the language itself increase the risk of noncompliance); We may conduct trend analyses to identify systemic versus isolated issues; and We see why findings are or are not being sustained, including instances of ambiguity in communications and/or regulation Crowe Horwath LLP 13

14 Opportunities within the Auditor s Role We have an opportunity to perform value-add audit services while meeting applicable mandates. Benefits the Federal Agency as it works toward meeting strategic objectives. Benefits the funding agency and the OIG by helping to prevent and also to detect potential fraud, waste, abuse, and noncompliance. Benefits the recipients and contractors who are focusing on working with the Government in the long run Crowe Horwath LLP 14

15 Where Do Auditors Go From Here? During audit planning and risk assessment, consider expanding the concept of materiality to assess the qualitative elements (frequency and the potential long-term impact of errors); Collaborate with the grants, program, and contracting officers to identify recommendations that may prevent similar issues in the future; and Limit predictability Crowe Horwath LLP 15

16 Questions 2016 Crowe Horwath LLP 16

17 Thank you Eric J. Russell, CIA, CGAP, CGMS, MPA Senior Manager Direct: In accordance with applicable professional standards, some firm services may not be available to attest clients. This material is for informational purposes only and should not be construed as financial or legal advice. Please seek guidance specific to your organization from qualified advisers in your jurisdiction Crowe Horwath LLP 2016 Crowe Horwath LLP, an independent member of Crowe Horwath Internationalcrowehorwath.com/disclosure 17