1. Program Fiscal Review Michigan Department of Education/Office of Special Education (OSE)

2. Program Fiscal Review (PFR) A PFR is the review of IDEA federal grant expenditures to ensure compliance with federal and state rules and regulations as they relate to fiscal management and specific programmatic aspects of the grant

3. * Individuals with Disabilities Education Act (IDEA) is the law, codified in 34 CFR 300 * Federal Cost Principles, 2 CFR 225 * OMB Circulars A133 and A102 * Education Department General Administrative Regulars (EDGAR), 34 CFR 80 * Michigan Administrative Rules for Special Education * State School Act, Section 51a * OSE Allowable Cost Guide Rules and Regulations

4. Expenditures must be: - Allowable to the grant - Reasonable and necessary to the grant (as defined in 2 CFR 225) - Allocable to the grant (as defined in 2 CFR 225) - Adequately documented (documentation tells the story) Scope of PFR

5. Definition of “Allowable” * To determine if a cost is allowable: - The proposed cost is consistent with IDEA program specific rules - The proposed cost is consistent with EDGAR administrative rules - The proposed cost is consistent with OSE Allowable Cost Guide Scope of PFR continued

6. Definition of “Reasonable” * A cost is reasonable if it: - Does not exceed that which would be incurred by a prudent person. - Follows sound business practices; arm's-length bargaining; federal, state and other laws and regulations; and, terms and conditions of the federal award (IDEA) - Reflects market prices for comparable goods or services. Scope of PFR continued

7. Definition of “Necessary” * A cost is necessary if it: - Is of a type generally recognized as ordinary and necessary for the operation of the governmental unit or the performance of the federal award (IDEA) Scope of PFR continued

8. Definition of “Allocable” * A cost is allocable if: - the goods or services involved are chargeable or assignable to such cost objective in accordance with relative benefits received (benefits students with disabilities) - All activities which benefit from the governmental unit's indirect cost, will receive an appropriate allocation of indirect costs Scope of PFR continued Allocable

9. Expenditures must be: - Recorded properly (based on B2011 Accounting Manual) - Reported properly (in MEGs system, GL Accounts and A133 SEFA) - Employees must be approved SE personnel (based on Administrative Rules for Special Education) - Time and Effort documentation must be on file (as defined in 2 CFR 225) Scope of PFR continued

10. An analysis of the grant allocation amounts at the ISD is done to determine which grants will have a limited desk review versus an extensive site visit - This is based on total dollars allocated for the grants reviewed Grants Analysis: Desk Review Versus Site Visit

11. Desk reviews * OSE has determined for IDEA grants: - A desk review is a limited review in which the general ledger summary of actual expenditures from the agency’s (ISD/LEA/PSA) accounting system is compared to reports submitted to MDE (IFERs, FERs) and the agency’s independent audit reports (A133) - A desk review is done on grants that are less than or equal to 5% of the total dollar amount to be reviewed Grants Analysis: Desk Review Versus Site Visit continued

12. Site Visits *OSE has determined for IDEA grants: - A site visit is an extensive review of the general ledger summary and detail of transactions of actual expenditures from the agency’s (ISD/LEA/PSA) accounting system, in which a sample of transactions are selected to review supporting documentation, including payroll transactions - A site visit is done on grants that are more than 5% of the total dollar amount to be reviewed Grants Analysis: Desk Review Versus Site Visit continued

13. OSE administers IDEA, Part B, Section 611 grants, which are: - Flowthrough, including ARRA Flowthrough - Transition Services - Enhancing Opportunities for Students with Disabilities (EOSD) - Mandated Activity Projects (MAPs) Grants Analysis: Desk Review Versus Site Visit continued

14. * OSE conducts desk reviews for the Office of Great Start (OGS) * OGS administers IDEA, Part B, Section 619 and Part C grants, which are: - Preschool, including ARRA Preschool - Early On, including ARRA Early On These desk reviews are forwarded to OGS for their information and follow up Other Grants Reviewed

15. * ISDs and other agencies are listed on 1 of 3 rotation schedules. Rotation #1, is completed before moving to #2, etc. ISDs are visited every 3 to 5 years. All ISDs are in the rotation schedules and will be visited. * Follow up visits may occur prior to the next scheduled rotation * Reviews may occur based on special request of OSE management Rotation Process for ISDs/Other Agencies

16. LEAs/PSAs are selected for site visits, based on risk factors, such as, but not limited to: - Amount of funds allocated - Findings in A133 audit reports - Findings in prior PFRs - Last time visited - Request by ISD or OSE Selection Process for LEAs/PSAs

17. * Announcement Letter to ISD * Auditor contacts ISD Special Ed Director and/or Financial Manager to schedule visit * Auditor selects LEAs and asks ISD to provide contact names/emails/phone numbers * Auditor contacts LEAs Special Ed Director and/or Financial Manager to schedule visits Process Prior to PFR

18. * Electronic General Ledger summaries for all grants that will be reviewed * Electronic General Ledger detail of transactions for all grants determined to be site visits * Completed questionnaire of processes * Auditor selects samples from GL detail and sends via email to have ready for review Documentation Prior to Visit

19. * Names of employees charged to the grants * For selected employees - Background checks - Time and Effort documentation - Teacher certifications - Professional licenses - MDE approvals - Step and level of employee and bargaining unit salary rates Documentation for Payroll

20. * Time and Effort - Semi annual certifications or personnel activity reports are not on file - Semi annual certifications or personnel activity reports are not in compliance * 2 CFR 225 * See Financial Management-Timekeeping PPT at: http://www.michigan.gov/mde/0,1607,7-140- 6530_9091---,00.html http://www.michigan.gov/mde/0,1607,7-140- 6530_9091---,00.html #1 Common Finding for Employees

21. * Unallowable Costs - Teachers who are not special education endorsed - Teacher consultants, transition coordinators, social workers, supervisors who do not have MDE approval - Other professionals (OT, PT, Psych's, Speech, etc.) who do not have licenses. - Position is not an approved position for special education * Michigan Administrative Rules for Special Education * OSE Allowable Cost Guide #2 Common Finding for Employees

22. For selected transactions - Signed contract - Invoice, Other support for services - Copy of check - Background checks, if applicable - Professional Licenses or Certifications, if applicable - Evidence that excluded party list was checked * NOTE: a purchase order alone, is not adequate documentation Documentation for Contracted Services

23. * Contracts not on file * Contracts do not have necessary elements - Scope of services - Defined compensation - Not signed by all parties -No period defined * 2 CFR 225 Common Findings for Contracted Services

24. * For selected transactions not considered items of interest (books, classroom supplies, etc.) - Invoice and copy of check * Items of interest are items that are less than $5,000 but have longer than 1 year life or are easily pilfered (computers, iPads, iPods, etc.) - Invoice and copy of check - Evidence of tracking or tagging of items Documentation for Supplies/Materials

25. * Lack of Documentation - Support for purchases needs to be sufficient enough to determine that it was received, is allowable, reasonable, necessary and allocable. * Unallowable Costs - Purchases must be for students with disabilities * 2 CFR 225 * 34 CFR 300 * OSE Allowable Cost Guide Common Findings for Supplies/Materials

26. * For selected transactions - Invoice - Copy of check - Inventory list and evidence of tracking - Evidence of MDE prior approval * Note: Capital outlay must be coded as such in accounting system and MEGs. Indirect costs do not apply Documentation for Capital Outlay

27. * Accounting Procedures/Improper Coding - Capital Outlay is coded as supplies - Capital Outlay is reported in MEGS as supplies * Prior Approval - Did not obtain prior approval from MDE * B2011 Accounting Manual * EDGAR 34 CFR 80 Common Findings for Capital Outlay

28. * Other transactions include, but not limited to, conferences, professional development, travel, field trips, etc. - Registration information - Travel logs - Actual receipts for meals, airlines, rental cars - Sign in sheets - Agendas * Note: Budgets, lesson plans, requests for reimbursement are not adequate documentation Documentation for Other Transactions

29. * Lack of Documentation - Support for events needs to be sufficient enough to determine that it is allowable, reasonable and necessary * Unallowable Activity - Events are not for the benefit of students with disabilities * 2 CFR 225 * OSE Allowable Cost Guide Common Findings for Other Transactions

30. *For selected journal entries: - Entry showing accounts debited and credited - Actual transactions in the original accounts general ledger detail, to select a sample - Supporting documentation for selected transactions, including payroll records, invoices, agendas, logs, contracts, etc. Documentation for Journal Entries

31. * Accounting Procedures/Audit Trail - Transactions should be charged directly to the grant, as a general practice - Numerous journal entries runs the risk of errors and loss of audit trail * Unallowable Costs - Items or payroll reclassified are unallowable * OSE Allowable Cost Guide Common Findings for Journal Entries

32. * Separate calculations for Preschool 619 and Flowthrough 611 * Evidence that the proportionate share was spent out of the federal grants, based on actual time - Names of employees that provide services to non-public schools - GL detail showing total charged to the federal grants for non-public services - Time and Effort documentation * 34 CFR 300 Appendix B Documentation for Proportionate Share

33. * Evidence that you plan to meet MOE - Preliminary worksheet should be done in the beginning of the year and monitored periodically to ensure you will meet MOE * See IDEA Maintenance of Effort Planning Tool at: http://www.michigan.gov/mde/0,1607,7-140- 6530_6598_8391-140285--,00.html http://www.michigan.gov/mde/0,1607,7-140- 6530_6598_8391-140285--,00.html Documentation for Maintenance of Effort

34. At end of site visit - Tentative findings will be discussed - LEA/PSA/ISD may need to provide information via email to complete review - LEA/PSA/ISD has opportunity to provide corrective action prior to report writing, and it will be noted in the report OR will have 30 days after report is mailed to provide corrective action End of Review Process

35. After all LEAs/PSAs and ISD is visited and information is reviewed - ISD is informed of findings noted, including amounts to be repaid or recoded - ISD will be responsible for repayments to MDE End of Review Process

36. * Auditors document all information reviewed in electronic work papers * Report is written, processed and reviewed by OSE management * Report is sent to ISD, each LEA/PSA will have a separate report within the whole report * ISD disseminates individual LEA/PSA reports - Corrective actions and repayments are due 30 days after report is mailed Report Process

37. * Review of State Aid - Review of reimbursements - Time and Effort documentation * Excess Costs - Calculation - Review of expenditures * Charter Schools Upcoming Additions to PFR

38. * For questions related to Program Fiscal Reviews for IDEA Special Education Nancy Jo Serna, sernan@michigan.gov Michael Wynn, wynnm@michigan.govsernan@michigan.govwynnm@michigan.gov Contact Information