Kansas Department of Social and Rehabilitation Services Recipient Monitoring Policy

Janet Schalansky, Secretary 
 
Original Effective Date: March 22, 2000
Rev. 2003; Approved by Audit Committee on November 12, 2003

Introduction:
"The Office of Management and Budget (OMB) has issued its final revisions to Circular A-133, "Audits of States, Local Governments, and Non-Profit Organizations." These revisions have been incorporated into the SRS Recipient Monitoring Policy. Please be aware that the following policy document is effective for fiscal years ending after December 31, 2003. This version incorporates the change to the audit threshold for qualifying for a single audit and other changes in the threshold for qualifying for a government auditing standards (GAS) audit.

Please be aware that the prior version of the SRS Recipient Monitoring Policy is still effective for fiscal years ending prior to January 1, 2004 and is included at this web site. If you have any questions about which policy is applicable to your organization, please contact the SRS Office of Audit and Consulting Services."

Purpose:
This document replaces Secretary’s Letter 544 dated May 27, 1999 regarding responsibilities for obtaining independent audits on grants awarded by SRS. It defines the responsibilities for monitoring recipients of Department funding (direct and pass-through) and expands the monitoring requirements to cover all awards of that funding. (See definition of award below.) This policy is effective for fiscal years ending after December 31, 2003.

Background and Definitions:
As defined in the OMB Circulars, award means financial assistance and cost-reimbursement contracts that non-Federal entities receive directly from Federal awarding agencies or indirectly from pass-through entities, that provide support or stimulation to accomplish a public purpose, which include grants and other agreements in the form of money or property in lieu of money, by the government to an eligible recipient. It does not include procurement contracts, under grants or contracts, used to buy goods or services from vendors. Any audits of such vendors shall be covered by the terms and conditions of the contract.

Regarding the use of grants and cooperative agreements, and contracts, the Federal awarding agency shall decide on the appropriate award instrument (i.e., grant, cooperative agreement, or contract). The Federal Grant and Cooperative Agreement Act (31 U.S.C. 6301-08) governs the use of grants, cooperative agreements and contracts. A grant or cooperative agreement shall be used only when the principal purpose of a transaction is to accomplish a public purpose of support or stimulation authorized by Federal statute. The statutory criterion for choosing between grants and cooperative agreements is that for the latter, “substantial involvement is expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement.” Contracts shall be used when the principal purpose is acquisition of property or services for the direct benefit or use of the Federal Government.”

For purposes of this document, the term “recipient” refers to those entities receiving funding (direct and pass-through) through the Department of Social and Rehabilitation Services.

Monitoring Policy Requirements:
I. Non-Federal entities that expend $500,000 or more in a year in Federal awards (total of all applicable federal awards) shall have a single or program-specific audit conducted for that year in accordance with the provisions of OMB Circular A-133. The following additional requirements apply to this category, when applicable:

• If the federal award document requires performance measures be audited and reported by the State back to the Federal government, then the recipient of the award will have to report those performance measures either through their independent audit or through another entity designated by SRS.
• If the federal award document requires SRS to account for the award in specific line item detail, then the independent auditor will be required to submit detailed schedules of revenues and expenditures in the CPA report. If line item detail is not required, the independent auditor should include a schedule listing total revenues and total expenditures (state share and federal share) for each award. If the award covers multiple years, each year should be reported separately on the schedule.
• The cost for the single audit may be charged against the Federal award.

II. Entities that expend $300,000 or more but less than $500,000 in a year in Federal awards OR $300,000 or more in a year in State awards shall have an independent audit conducted in accordance with Government Auditing Standards (GAS). For these audits, the recipient shall prepare (1) financial statements that reflect its financial position, results of operations or changes in net assets, and, where appropriate, cash flows for the fiscal year audited, (2) a schedule of award expenditures for the period covered by the recipient’s financial statements, (3) a schedule of findings and questioned costs, (4) a summary schedule of prior audit findings, (5) a corrective action plan, (6) a report on internal controls and (7) a report on compliance with laws and regulations. The following additional requirements apply to this category, when applicable:

• If the state award document requires supplemental information regarding performance measures or detailed information on award revenue and expenditures, then that information will be provided by the independent auditor or by another entity designated by SRS.
• The cost of this audit may not be charged against the award if the award includes any federal awards; however, the costs may be charged against a state only award.

III. Entities not meeting the requirements for either an OMB Circular A-133 Single or Program-specific audit, or an SRS Government Auditing Standards audit listed above, which expend less than $300,000 in Federal awards and less than $300,000 in State awards during their fiscal year, will be subject to either a limited scope audit performed by an Independent Auditor, or internal monitoring performed by the Department of Social and Rehabilitation Services. Those entities required to submit a limited scope audit will be notified as part of the grant award process. The determination of the type of monitoring will also occur during the grant award and negotiation process.

Recipients subject to a limited scope audit:
• For purposes of OMB Circular A-133, limited scope audits only include agreed-upon procedures engagements conducted in accordance with either the AICPA’s generally accepted auditing standards or attestation standards.
• The agreed-upon procedures engagement will address one or more of the following types of compliance requirements: activities allowed or unallowed; allowable costs/cost principles; eligibility; matching, level of effort, earmarking; and reporting.
• The independent auditor may be asked to evaluate the design and implementation of a recipient’s internal controls.
• SRS will pay for and determine the procedures to be performed by the limited scope audit.
• The cost for a limited scope audit may be charged against the Federal award, provided the recipient does not have a single audit.

Recipients subject to internal monitoring performed by SRS:

• As outlined in the OMB Circular A-133 Compliance Supplement, under Part M - Subrecipient Monitoring, monitoring activities may take various forms, such as:
  • Reviewing reports submitted by the recipient.
  • Performing site visits to the recipient to review financial and programmatic records and observe operations.
  • Arranging for agreed-upon procedures engagements for certain aspects of recipient activities, such as eligibility determinations.
  • Reviewing the recipient’s single audit or program-specific audit results.
  • Evaluating audit findings and the recipient’s corrective action plan.

Action Needed:
Audits required above shall be completed and submitted to SRS within the earlier of 30 days after receipt of the auditor’s report(s), or nine months after the end of the audit period. If SRS program staff have set a submission date for audit reports that is less than the requirement noted here, audits should be submitted to comply with those instructions. SRS staff shall be given access, when requested, to all working papers prepared in the independent audit. Audit reports should be forwarded to: The Department of Social & Rehabilitation Services, Office of Audit and Consulting Services, Docking State Office Building, 11th Fl, 915 S.W. Harrison, Topeka, Kansas 66612. Questions regarding this policy may be directed to the SRS Office of Audit and Consulting Services, SRS program staff, or the SRS Grants and Contracts Unit. Payments resulting from award closeout activities should be made payable to SRS and sent to the SRS Grants and Contracts Unit, Attn: Grants and Contracts Supervisor, Docking State Office Building, 11th Fl., 915 S.W. Harrison, Topeka, Kansas 66612.