Audits and Investigations

Unlike other funding sources, government authorities have seemingly limitless resources to audit and investigate grantees and contractors if they fail to follow the rules, which can result in the clawback of funds and even civil and/or criminal penalties. Given these consequences, it is critical that grantees and their contractors understand their obligations and rights, and the contours of enforcement actions.

Click here for Additional Resources.

On February 17, 2016 the FAR Council proposed to amend the FAR to implement Section 857 of the National Defense Authorization Act for Fiscal Year 2015 (NDAA 2015). Section 857 of NDAA 2015 amended 10 U.S.C. § 2324(e)(1) to make unallowable “[c]osts incurred by a contractor in connection with a congressional investigation or inquiry into an issue that is the subject matter of a proceeding resulting in a disposition,” such as a criminal conviction, a determination of contractor civil liability for fraud, a penalty for whistleblower reprisal, suspension or debarment, rescission of a contract, termination of a contract for default, or a settlement of an action that might have resulted in any of these penalties. 10 U.S.C. § 2324(e)(1)(Q), (k)(2). The proposed rule would amend FAR 31.205-47 to add as unallowable those costs incurred in any congressional investigation or inquiry that is associated with a criminal conviction, suspension or debarment, termination for default, etc., the costs of which are already unallowable under FAR 31.205-47. Even though Section 857 of NDAA 2015 applies only to DoD, NASA, and Coast Guard contracts, the proposed rule would make Section 857 applicable to all agencies subject to the FAR.

While this particular change is restricted to the FAR, nonprofits should keep a wary eye on whether a similar change is made to the Uniform Guidance’s Cost Principles, which currently provide that certain types of costs associated with congressional inquiries are allowable. See 2 C.F.R. § 200.450.

On March 31, the National Science Foundation (NSF) Office of Inspector General (IG) issued an audit report in which it questioned approximately $1.8 million in costs charged by the University of California at Berkeley to NSF grants totaling $379 million from 2010 to 2012. The NSF IG’s report is one of several recent reminders that Federal nonprofit grantees need to prepare for audits of their grants, and that those audits often can entail a lengthy process, particularly where large dollar amounts are involved. This month’s newsletter continues our focus on various compliance issues with a discussion of how to prepare for, engage in, and appeal multi-year audits. While long-term audits can be an arduous and frustrating process, nonprofit grantees should consider taking the following actions before, during, and after IG audits to minimize the IG’s recommended disallowance and recover improperly disallowed funds.

Continue Reading Considerations for an IG Audit

recent report by the Council of the Inspectors General (IGs) highlighted federal grant fraud as one of the top challenges that federal IGs must deal with in the years to come. This emphasis mirrors a broader increase in activity across federal IGs in recent years. For example, in Fiscal Year 2013, the federal government (government) recovered $14.8 billion from investigative actions. Based on these indicators, nonprofit grant recipients should be prepared for additional federal scrutiny in their grant programs. This article focuses on how nonprofit grant recipients can prepare for one of the tools increasingly used by IGs in a government investigation: The administrative subpoena.

Continue Reading IG Audits, Generally

The implementation of the Super Circular retained an important access-to-records requirement that gives the various federal agency Inspectors General (IG) access to “documents, papers, or other records of the non-federal entity which are pertinent to the federal award, in order to make audits, examinations, excerpts, and transcripts.” 2 C.F.R. § 200.336(a). Under the record retention standards, all “[f]inancial records, supporting documents, statistical records, and all other non-federal entity records pertinent to a federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the federal awarding agency or pass-through entity in the case of a subrecipient.” Id. § 200.333.

Continue Reading Surviving and IG Audit

On September 18, 2014, the United States District Court, Southern District of Florida, issued its decision inSouth Florida Water Management District v. Federal Emergency Management Agency, 2014 U.S. Dist. LEXIS 133153 (S.D. Fla. Sept. 17, 2014). In this case, the South Florida Water Management District challenged FEMA’s decision to de-obligate funds awarded to the district after several hurricanes devastated the area in 2004 and 2005.

Continue Reading Federal District Court in Florida Limits the Ability of FEMA to De-Obligate Funds Previously Awarded under the Stafford Act