CHAPTER 5

AUDITS, COMPLAINTS, AND GRIEVANCES

This chapter provides guidance and procedural suggestions for resolution of audits as well as non-criminal complaints and grievances at the expiration of the JTPA program. In addition, it provides updated information regarding the requirements of the amendments to the Single Audit Act and Office of Management and Budget (OMB) Circular A-133 issued pursuant to that Act which was issued after the publication of the JTPA Financial Management TAG.

AUDITS

States and subrecipients must complete normal annual audit cycles in accordance with OMB Circular A-133, codified at 29 CFR Part 99 and 20 CFR 627.480(a)(3) of the JTPA regulations. No additional funds will be provided by DOL to cover these audit costs. All JTPA recipient and subrecipient organizations that expend $300,000 or more in Federal financial assistance funds (from all Federal sources combined) and operate one or more programs must have a single audit.

If a recipient or subrecipient expends $300,000 in Federal financial assistance funds under only one Federal program, the auditee may elect to have a program-specific audit conducted in accordance with the guidance in OMB Circular A-133.

There are no Federal audit requirements for vendors.

It is particularly important with the expiration of JTPA that these audits are planned, conducted, and issued timely. States and other subrecipients required to conduct audits should determine the cost of performing the audit and include those costs as a prepaid expense to their program in their final costs at closeout. Only that portion allocable to the audit of JTPA funds is allowable. If the entity is multiple funded, the proportionate share of JTPA expenses can be determined by the percentage of JTPA funds to be audited of the total funds audited. If the costs are not included in the final expense reports, they will not be reimbursed to the entity at a later date and may not be charged to the WIA program.

OMB Circular A-133 and 29 CFR Part 99 now prohibit charging a Federal award for the conduct of any audit that does not meet the requirements of the OMB circular even if such audits are required by State or local government entities.

The completed audit must be submitted to the Federal Audit Clearinghouse, Bureau of the Census, 1201 E. 10^th St., Jeffersonville, IN 47132, within the earlier of 30 days after receipt of the report from the auditor or nine months after the end of the audit period unless a longer period is agreed to in advance by the cognizant or oversight agency for audit. Additional copies must be submitted for distribution to Federal departments or agencies that provided Federal financial assistance funds, as well as to the entity's cognizant Federal agency. At the same time, copies should be sent directly to non-Federal agencies that are pass-through entities.

COMMERCIAL (FOR PROFIT) ORGANIZATIONS

Commercial (for profit) organizations that meet the definition of subrecipient (see 29 CFR 99.210) and that receive more than $25,000 in JTPA funds in one year will continue to conduct audits in accordance with 20 CFR 627.480(a)(3) of the JTPA regulations. These entities may have either a program-specific annual independent audit conducted, prepared, and issued in accordance with generally accepted government auditing standards, or an organization-wide audit that covers the JTPA program within its scope.

AUDIT PROCUREMENT

Due to the termination of the JTPA program and the very limited time for conducting and resolving audits, recipients and subrecipients that have the ability to define the requirements of their audit service contract should consider including:

• A specific time by which all field work must completed;
• A specific deadline for issuance of the draft and final audit reports; and
• Payment conditions dependent on timely completion and issuance of draft and final audit reports.

NON-FEDERAL AUDIT RESOLUTION

Non-Federal audit resolution responsibility rests with each entity that directly awards JTPA funds to a subrecipient. 20 CFR 627.481(c) requires that States set standards for audit resolution to ensure both timely and appropriate resolution, and to ensure consistency within the State as well. SDAs must have included in their job training plan the audit resolution policies and procedures that are instituted in accordance with State standards.

The State must resolve all audits of SDAs, substate grantees (SSGs), and any other direct subrecipients. SDAs and SSGs are responsible for resolving audits of their service providers/direct subrecipients, and lower-tier service providers that award funds to subrecipients are responsible for resolving audits of those entities.

DOL encourages States to ensure that all audit resolution at all levels be completed within the closeout period. However, the closeout period will not be extended solely for the purpose of audit resolution. Audit reports are to be completed and submitted within nine months from the end of an entity or organization's fiscal year, and resolved within six months of submission. When successor WIA entities are required to resolve audit findings after JTPA closeout has been completed, the cost of these activities are to be treated as allowable WIA administrative costs if completed within this period.

Since no specific process is mandated, the audit resolution process used in individual States may vary. However, the process must accomplish the following:

• Determine the need for and ensure the implementation of corrective action for all findings that are apt to have an impact on the WIA program for all auditees that will continue to provide services under the new program;
• Allow or disallow all questioned costs and provide the basis for each such determination;
• Determine whether allowable "stand-in costs" were reported on the financial status report and included within the audit scope, meet the Title and three-year period of fund availability requirements, and are available to substitute for disallowed costs;

• Establish a debt (where appropriate) and indicate the method of repayment planned or required; and
• Notify the auditee of its appeal rights.

The suggested audit resolution system described in the following paragraphs is patterned after the Grant Officer's Initial and Final Determination process used at the Federal level (20 CFR 627.606). This process may be used at the State, SDA, SSG, and all other subrecipient levels within the State.

Pre-Resolution

Before starting resolution, the awarding agency (resolution agency) should verify the acceptability of the audit report. Although the auditee must ensure that the audit it obtains meets the standards required for the organization, the awarding agency may wish to do its own check.

Controls Related to Audit Resolution

OMB Circular A-133 requires recipients and subrecipients to ensure that appropriate corrective action, or audit resolution, occurs within six months after receipt of the audits of subrecipients.

20 CFR 627.480(d)(3) requires that an audit resolution file be maintained, documenting the disposition of reported questioned costs and corrective actions taken for all findings. Upon receipt of the final audit report, specific controls should be established to ensure that resolution takes place within required time frames. It is suggested that an audit control log be maintained to include the following:

• Date of audit;
• Period covered by audit;
• Date received;
• Auditor;
• Questioned costs;
• Administrative findings;
• Assigned audit number; and
• Date(s) Initial and Final Determination(s) scheduled, issued, and appealed.

SUGGESTED PROCEDURE FOR RESOLVING AUDIT REPORT FINDINGS

This three-part process includes the Initial Determination, an informal resolution period, and the Final Determination, and is based on the ETA Grant Officer resolution process. These must all be accomplished within six months of the receipt of the final audit report. It is recommended that the awarding agency give the auditee a copy of the audit report and allow a reasonable time for comment. Because the auditee is responsible for procuring the audit, it should already have a copy of the report. However, it may still be helpful to send a letter requesting comments on the audit findings before issuing an Initial Determination.

Part 1. Initial Determination

The Initial Determination is a preliminary decision on whether to allow or disallow questioned costs and resolve any non-monetary (administrative) findings. It offers the auditee/subrecipient an opportunity for informal resolution, not a formal hearing.

The Initial Determination, which addresses questioned costs and administrative findings, should be sent to the subrecipient within a reasonable time after the end of the subrecipient's comment period. The Initial Determination should be sent "Certified Mail-Return Receipt Requested."

The guidance below should be used for evaluating the allowability of questioned costs. The information can be used in the Initial and Final Determinations.

• In most instances, a cost will be disallowed if the basis is a clear and unequivocal violation of law and regulations. Costs can also be disallowed based on a violation of Federal grant terms and conditions.
• Costs incurred must be supported by required source documentation such as time and attendance records, bills and invoices, and canceled checks. The subrecipient's inability to produce such documentation is in itself supportable grounds for disallowing questioned costs.
• Some flexibility is available if the questioned cost is based on a violation of a subrecipient, subgrant, or contract requirement. Subgrants and contracts can be more restrictive in the range of activities and types of cost permitted under that subgrant or contract than Federal or, if applicable, State rules or regulations. Therefore, it is possible that a cost could be unallowable under the subgrant/contract provisions but allowable under State provisions and/or the JTPA Federal regulations. If the subrecipient subsequently allows and accepts such a cost, the State administration need not disallow the cost. However, an entity cannot require less than full compliance with the JTPA and its regulations.

Administrative (non-monetary) findings can be addressed in the same Initial Determination. While the JTPA program will no longer exist, there are some administrative findings that will continue to be applicable to recipients and subrecipients that will be transitioning into the WIA program. In those instances, administrative findings will need to be resolved with corrective actions that will remedy the deficiency or variance.

The proper resolution of an administrative finding is corrective action of the deficiency or variance. Although not required, entities may wish to prioritize administrative findings to focus immediate attention on those considered serious, especially if the finding could result in cost disallowances, such as an inadequate eligibility determination process.

Internal audit resolution controls should document the findings selected for urgent corrective action. In addition, it is strongly recommended that the resolution of administrative findings be coordinated with the agency monitoring the program to ensure that on-site follow-up verifies and documents corrective action. The guidance provided below can be used for both the Initial and Final Determinations. For each administrative finding, note:

• The deficiency and the corrective action required of the subrecipient. If the administrative finding was corrected during the comment period or as a result of informal resolution, indicate the manner in which the matter was resolved. If further corrective action is required, the specific action required should be specified in the Initial and Final Determinations, as appropriate;
• The dates for completion of the corrective action;

• The availability of technical assistance, if requested (Documentation in the subrecipient file should be maintained to indicate when technical assistance was requested and provided. Progress reports on the implementation of corrective action should be provided by the subrecipient and maintained in the file.); and
• Sanctions and remedial actions that may be taken against the subrecipient if the deficiency is not corrected. The completeness and specificity of this part of the Initial Determination is important in serious cases when it is likely that the awarding agency will take strong measures, including termination, reorganization, reallocation, or partial funding if the deficiency is not corrected.

Part 2. Informal Resolution Period

During this phase, the subrecipient has an opportunity to present new evidence, documentation, or explanation to change the decision by the awarding agency.

The subrecipient has an opportunity to agree to corrective action before the awarding agency initiates sanctions or remedial actions. Occasionally, the subrecipient will admit to the nonallowability of a questioned cost and make repayment. In such cases, the amount is disallowed but is not subject to debt collection in the final determination.

The terms of repayment may be negotiated; the terms for agreed upon repayment may also be included in the final determination.

Part 3. Final Determination

The Final Determination should be sent to the subrecipient within a reasonable time (not more than six months) after the awarding agency receives the final audit report. The Final Determination should be sent "Certified Mail-Return Receipt Requested."

The Final Determination should:

• Reference the Initial Determination;
• State the awarding agency's final decision to disallow the costs, listing each disallowed cost specifically and noting the reasons for each disallowance. It is suggested that the Final Determination include a discussion of the auditee's response to the Initial Determination. (Lengthy explanations can be incorporated by reference to item and page number of the audit report; however, a Final Determination that can stand on its own is preferable.);

• Identify the questioned costs in the audit report that have been allowed by the awarding agency and the basis for the allowance of the costs;
• Demand repayment of the disallowed costs;
• Describe debt collection actions and other sanctions that the awarding agency may impose if repayment is not made;
• Inform the subrecipient of its right to a hearing; and
• Restate the status of each Administrative finding.

When a cost is disallowed in the Final Determination, a debt is created. However, if the subrecipient requests a hearing, no further collection action can be taken pending the outcome of the hearing.

The agency responsible for resolution is required to maintain an audit resolution file documenting the points listed above as well as all formal correspondence relating to the resolution.

Note: The subrecipient should be told that the Final Determination letter is based on information that was currently available. If new information becomes available, the Final Determination letter may be reopened at the awarding agency's option. However, this is not intended to extend the negotiation process indefinitely. Ensuring due process without incurring needless delays is a concern every administrative complaint system must recognize and address.

Post Audit Resolution Follow-Up on Unresolved Findings In some cases, administrative findings may not be resolved within the six-month time frame allowed. If these findings are associated with an organization that will no longer be a subrecipient or provide WIA services, the resolution of the administrative findings is moot. If, on the other hand, the subrecipient will continue to administer programs for the local area and the administrative findings would affect WIA performance, the SDA and subsequently the local board must continue follow-up of corrective actions. To ensure that these findings are fully resolved, proper controls should be implemented that will track resolution during the post Final Determination period. Follow-up tracking systems are recommended that require auditees to report, at least quarterly, the status of unresolved audit and monitoring of findings.

The awarding agency's efforts to correct a deficiency should be monitored on a continuing basis by appropriate staff. Depending on the severity of the deficiency and the time of year, it may only be necessary to review the status of the corrective action during routine fiscal monitoring. However, per 29 CFR Part 96.54(c) in instances of non-compliance with Federal laws and regulations, the awarding agency must ensure that corrective action is taken within six months after receipt of the audit report.

If the subrecipient fails to correct the deficiency in the allotted time, the sanctions and remedies noted in the Final Determination may be exercised. This occurs only if the subrecipient has foregone its rights to a hearing or the hearing officer has upheld the awarding agency's Final Determination.

Note: If either party is dissatisfied with the decision of the hearing officer, there should be a process that provides for independent review of that decision, as described in 20 CFR 627.503.

Other Recommended Uses of the Initial and Final Determination Process All JTPA administrative entities are encouraged to develop a process or procedure similar to the Initial and Final Determination processes described above for resolving monetary and non-monetary findings resulting from monitoring, incident reports, compliance reviews, and investigations, in addition to audits.

STAND-IN COSTS

Stand-in costs may continue to be used as a resolution of audit and monitoring findings which are of a non-criminal nature as long as the documentation meets the criteria established in 20 CFR 627.480(f) of the JTPA regulations.

The application of stand-in costs occurs at the audit resolution stage. If an auditee agrees that an auditor's questioned cost is unallowable and wishes to propose the use of stand-in costs as substitutes for otherwise unallowable costs, the proposal must be included with the audit resolution report or other document by which the auditee provides its comments to the resolution agency. If the auditee is uncertain about the allowability of the auditor's questioned cost before receipt of the Initial Determination, the proposal to use stand-in costs may be presented during the informal resolution period.

Criteria

Stand-in costs are substitutes, disbursed or accounted for from non-Federal funds, for unallowable JTPA costs identified in an audit report. Stand-in costs must meet the following criteria:

• To be considered, proposed "stand-in" costs shall have been actually incurred allowable JTPA costs that were reported as uncharged JTPA program costs, included within the scope of the audit, and accounted for in the auditee's financial system as required by 20 CFR 627.425, Standards for financial management and participant data systems.

Each of the separate criteria for consideration of proposed stand-in costs are discussed below.

• Must be allowable JTPA costs that were actually incurred, but were paid by a non-JTPA source.

• Must have been reported as uncharged JTPA program costs. The amount (value) of the service must be included in the appropriate section of the Federal reports. Additional guidance is provided in the JTPA reporting instructions.

• Must have been included within the scope of the audit (not necessarily tested but potentially subject to testing). This means that the costs must be recorded and included in the financial statements presented by the agency to the auditor for audit. Failure to include unbilled costs disqualifies the costs for stand-in consideration.
• Must have been accounted for in the auditee's financial system. This means that the unbilled expense must be recorded and documented in the administrative entity's chart of accounts. It cannot be presented as a separate consideration outside the entity's accounting system.
• Must be adequately documented in the same manner as all other JTPA program costs. This means that the unbilled expense must be treated in a manner consistent with cost principles affecting other expenses, including but not limited to the cost allocation methodology, cost classification methodology, and supporting documentation requirements.

• To be accepted, stand-in costs must come from the same Title and three-year period of fund availability as the costs that they are proposing to replace, and they must not cause a violation of the cost limitations.

Caution: Stand-in costs cannot be fabricated using circumstances or conditions that appear to be legitimate liabilities if no actual costs are incurred by any entity. For example, the local school department provides free space for the JTPA program in a building that has been fully depreciated. The only facility-related costs the school department actually pays are for general maintenance. A liability created by JTPA related to rental costs that were never paid is not a legitimate stand-in cost. The only legitimate stand-in cost available in this example, assuming that all recording and reporting requirements have been satisfied, is an allocable share of the general maintenance cost based on square footage occupied, or another allocation method that would be more equitable.

"In-kind" contributions are not considered unpaid JTPA program liabilities; therefore, they cannot be used as stand-in costs. "In-kind" contributions are not actual incurred costs. Examples of such items that are not stand-in costs include:

• Uncompensated overtime;
• Unbilled rental costs associated with fully depreciated publicly owned buildings;
• Allocated costs derived from an improper allocation methodology;
• Discounts; and
• Any State share of the cost of State or community college tuition

Two other caveats should be mentioned. First, as suggested above, allowable stand-in costs may be used to trade or substitute for disallowed costs under certain conditions. The source of stand-in, however, is intended to be limited to the same entity which incurred the disallowed costs. Thus, aggregation or pooling of stand-in within a state as a kind of insurance policy available to reduce or extinguish bad costs wherever they might be identified is not an arrangement that will be recognized by DOL. Second, if the cause of the disallowed costs was fraud or one of the other causes mentioned in Section 164(e)(1) of the JTPA, DOL will not consider proposals of stand-in to substitute for such costs.

COMPLAINTS

Recipients and subrecipients are encouraged to develop a process or procedure similar to the Initial and Final Determination processes described above for resolving monetary and non-monetary findings resulting from monitoring, incident reports, compliance reviews, and investigations. A tracking system similar to that used for audits should be established to ensure timely resolution in these matters also.

HEARINGS RELATED TO AUDITS, COMPLAINTS, AND

GRIEVANCES

In accordance with Section 144 of the JTPA, States and subrecipients must continue to provide a system for receiving complaints for up to one year after the expiration of the program on June 30, 2000. Prior to closeout, the cost of operating the grievance/complaints systems should be charged to JTPA. After the closeout of JTPA, such costs may be charged to WIA until the end of the required one-year period. As previously stated in Chapter 1 of this TAG, only those costs associated with appeals that are resolved in a timely manner will be allowable costs to WIA. Costs associated with complaint system outcomes, such as back wages, contract disputes, etc., must be paid from a non-Federal source.

Example: Ninety days after the end of the JTPA program, a State receives an audit of one of its subrecipients that contains several findings involving questioned costs. The State begins the audit resolution process immediately and charges staff costs as part of its closeout expenditures. The State submits a final closeout expenditure report to DOL on December 31, 2000. If the audit is not completely resolved by that date, any staff costs associated with its resolution subsequent to the submission of the State's closeout report will be charged to the WIA program until the end of the six-month audit resolution period. Any staff costs associated with audit resolution after the six-month resolution period are to be charged to a non-Federal source.

Example: A final audit determination is issued in January 2001 with disallowed costs and the SDA appeals the determination. The costs associated with the conduct of the hearing as well as for its preparation are allowable if the hearing is held within 30 days from the date of the appeal and a decision is rendered within 60 days from the appeal date.

Example: An SDA staff member has filed a grievance alleging wrongful termination and is requesting back wages from the SDA. The grievance is filed on June 15, 2000, and is not completely resolved until January 16, 2001. The SDA lost the case and has been ordered to pay an amount of $8,000 in back wages. The legal and staff costs associated with the case were charged first to JTPA and, when the grant closed, to the WIA program. The amount owed the staff member for back wages must be paid from a non-Federal source. [20 CFR 627.435(e)(2)]