Section 5000 Visits, Reviews, and Audits

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1 Section 5000 Visits, Reviews, and Audits Table of Contents Visits Prior to Approval... 2 Reviews... 2 Two Types of Reviews...3 Compliance Reviews by Texas Department of Agriculture... 3 Contracting Entities and Subdistributing Agencies...3 Distribution Sites...3 Monitor Reviews by Contracting Agencies... 4 Subdistributing Agency and Distribution Site Reviews...4 Examination of Records... 5 Contracting Entity and Distributing Agency Records... 5 Subdistributing Agency and Distribution Site Records... 6 Findings... 6 Contracting Entities and Subdistributing Agencies... 6 Corrective Action Plan...6 Violation Examples...7 Subdistributing Agency and Distribution Sites... 7 Examples of Corrective Action Plans... 8 Contracting Entity Plan...8 Subdistributing Agency and Distribution Site Plan...8 Audits... 8 General Policy Purpose of Audits... 9 Value of USDA Foods for Audits...9 Audit Scope and Frequency Procedures for Compliance with Audit Requirements Sanctions for Noncompliance Other Audits Section 5000, Visits, Reviews, and Audits Page 1

2 Section 5000 Visits, Reviews, and Audits Visits Prior to Approval The Texas Department of Agriculture (TDA) visits, prior to approval, an applicant contracting entity s administrative offices and sites to assess the potential for successful operations of The Emergency Food Assistance Program (TEFAP). See TEFAP Handbook, Section 2000, Eligibility and Application Requirements, Visit Prior to Approval of Initial Applications and Renewals. Reviews The Texas Department of Agriculture (TDA) reviews contracting entities (CEs), subdistributing agencies, and distribution sites to achieve the following: Evaluate their TEFAP operations and activities Ensure program compliance, according to the terms and conditions of Commodity (USDA Foods) Agreement Between Contracting Entity and Texas Department of Agriculture Application for Participation/Plan of Operation including the following: o Storage and warehousing practices o Inventory controls and accountability o Civil rights compliance o Financial management systems o Approval and monitoring of subdistributing agencies and distribution sites to ensure program compliance o Reporting and record keeping o Other aspects of their programs, as determined by TDA CEs also review subdistributing agencies and distribution sites. Section 5000, Visits, Reviews, and Audits Page 2

3 Two Types of Reviews There are two types of reviews: 1. compliance review The review TDA conducts of its CEs or their subdistributing agencies, and the review a CE conducts of its subdistributing agencies. 2. monitor review The review a CE or TDA conducts of a distribution site. Each type of review and its frequency is discussed below. Compliance Reviews 1 by Texas Department of Agriculture Contracting Entities and Subdistributing Agencies When TDA reviews a CE, TDA also reviews the CE s subdistributing agencies (if any exist). A subdistributing agency is a food bank that contracts with a CE that is a food bank to receive, store, and deliver USDA Foods. Annually, TDA reviews at least 25% of all CEs and subdistributing agencies, and each of these organizations no less than every four years. NOTE: TDA may review subdistributing agencies without coordinating with TDA CEs. In addition, subdistributing agencies are subject to review by USDA. Distribution Sites A distribution site 2 is a place where an emergency feeding organization distributes USDA Foods to needy persons, including food for home consumption. TDA annually reviews one-tenth or 20 (whichever is fewer) distribution sites. If feasible, at least one review is conducted at a distribution site during meal service, at a time when USDA Foods are distributed to households, and/or when household eligibility is being determined. TDA determines distribution site reviews first by risk-based assessment then by random sample. At least half of the distribution sites receive a review on the risk-based approach; the remaining distribution sites receive a review by random sample. 1. Risk-based assessment. TDA evaluates all distribution sites based on the following risk factors: Value of USDA Foods Amount of administrative funds received History of complaints History of program violations Length of time operating TEFAP 1 For a definition of this term, see TEFAP Handbook, Section 9000, Terms, Definitions, and Acronyms. 2 For a full definition of this term, see TEFAP Handbook, Section 9000, Terms, Definitions, and Acronyms. Section 5000, Visits, Reviews, and Audits Page 3

4 Length of time since last review Known turnover of director or key staff Other applicable factors 2. Random sample. Distribution sites not selected for a risk-based review are subject to be selected by random sample. NOTE: TDA may review distribution sites without coordinating with CEs. In addition, distribution sites are subject to review by USDA. Monitor Reviews 3 by Contracting Agencies CEs review subdistributing agencies and distribution sites to ensure program compliance and proper use of USDA Foods. If reviews reveal problems, CEs must take appropriate action, including following the instructions in this handbook section. Subdistributing Agency and Distribution Site Reviews As applicable, CEs will annually review at least 50% of subdistributing agencies and distribution sites no less than every two years, and one-tenth or 20, whichever is fewer, of distribution sites (including sites operated by subdistributing agencies and sites operated by other agencies that receive USDA Foods from subdistributing agencies). To the extent feasible, CEs will schedule reviews to coincide with meal service, distributions to households, and/or when household eligibility is being determined. The CE ranks all sites according to the number of meals and/or households served during the previous federal fiscal quarter (as described in the note below), and includes in the review sample the first one-sixth or 25 sites, whichever is fewer, that served the most meals and/or households. EXAMPLE: If a CE distributes USDA Foods to 100 subdistributing agencies and distribution sites, then the annual review sample of those organizations is 50 (that is, 50% of 100 = 50). If, together, the 50 subdistributing agencies and distribution sites distribute USDA Foods to 1,000 distribution sites, the review sample of distribution sites is 50. The CE determines the number of sites using the formula: the lesser of one-third of sites or 50 sites, and 50 is less than one-third of 1,000. Finally, the CE determines the number of the largest distribution sites to be included with the 50 review sites. In this example, the number of the largest sites to be reviewed is 3 For a full definition of this term, see TEFAP Handbook, Section 9000, Terms, Definitions, and Acronyms. Section 5000, Visits, Reviews, and Audits Page 4

5 25. To determine how many of the largest sites must be reviewed, the CE ranked all the sites by size, and then identified the less of one-sixth of all sites or 25 sites, and 25 is less than one-sixth of 1,000. The remaining 25 distrubution sites are selected at random. NOTE: When selecting the first 25 (or one-sixth) sites, as required above, meal sites do not easily compare to household sites. However, CEs may use any reasonable formula, including the following: 240 meals served monthly equals one household served monthly. For example, a site serving 240,000 meals per month is equal in size to a site that serves 1,000 households. Examination of Records Contracting Entity and Distributing Agency Records As part of a compliance review 4, TDA determines whether a CE or subdistributing agency has complied with the terms and conditions of the 1. Commodity Agreement (if applicable), 2. agreement between the CE and subdistributing agency (if applicable), and 3. TEFAP requirements. When preparing for a compliance review, a CE or subdistributing agency must make all TEFAPrecords available to the reviewers. During a review, TDA may also look at the following: Documents concerning the application for participation Storage and warehousing practices Inventory controls CE approval and monitor review of subdistributing agencies and distribution sites to ensure TEFAP compliance All required TEFAP forms Budget records (applicable only to CEs) Records of training Cost allocation records Records of subcontracting Procurement records Single audit records Civil rights compliance Other aspects of the program, as determined by TDA 4 For a definition of this term, see TEFAP Handbook, Section 9000, Terms, Definitions, and Acronyms. Section 5000, Visits, Reviews, and Audits Page 5

6 Subdistributing Agency and Distribution Site Records Independently or as appropriate, in coordination with TDA, CEs will review subdistributing agencies and distribution sites to accomplish the following: Evaluate operations and activities Assess the extent to which the subdistributing agency or distribution site informs the needy population of the availability of USDA Foods Ensure program compliance according to the terms and conditions of agreements, including, but not limited to, the following: o Receiving, handling, distributing, and/or using USDA Foods according to TDA requirements o Adherence to nondiscrimination requirements o Providing needy persons and households equal access to USDA Foods (including the elderly, persons with disabilities, and homebound persons) o Means testing households o Evaluating the frequency of meal service or USDA Foods distribution, the quantity of USDA Foods included in meals or USDA Foods packages, and other factors, as may be necessary Findings Contracting Entities and Subdistributing Agencies If TDA compliance review finds violations, TDA will provide the CE with a written report of review findings that includes the following details: Each violation found The factors contributing to each violation Recommendations for corrective action (as agreed to and signed by the CE), including 1) timetables for completion and 2) claims action to be pursued (if any) Provisions to monitor or evaluate progress and the effectiveness of corrective action(s) Each CE is responsible for receiving the findings for its subdistributing agencies. TDA may mail, , or present the written report at the end of the review. Corrective Action Plan To address noncompliance, CEs and subdistributing agencies must submit a corrective action plan (CAP). CEs submit CAPS to TDA; subdistributing agencies submit CAPs to their CEs. CAPs 1) state how the organization will correct program violations and 2) include the following details: Section 5000, Visits, Reviews, and Audits Page 6

7 An outline of actions to be taken The expected outcome of each action The target date for completion of each action The date by which each violation will be eliminated For example: A CAP is required if the CE receives a finding for failing to maintain administrative records. In such a case, the CE will provide, in writing, the following: The steps to rectify the lack of record maintenance What the result of those steps would be The target date for each step, including the end date for the corrective action TDA will perform a follow-up review of a CE to ensure that the CE implemented the CAP and corrected violations. A CE will perform a follow-up review of a subdistributing agency to ensure that the subdistributing agency implemented the CAP and corrected violations. Violation Examples Violations include, but are not limited to, the following: Failure to maintain adequate site or administrative records Failure to follow competitive bid procedures Failure to comply with civil rights laws and regulations Submittal of false information to TDA Noncompliance with food distribution requirements Failure to adjust USDA Food orders to conform to variations in the number of participants Claims for reimbursement for administrative costs that were not related to operation Subdistributing Agency and Distribution Sites If a CE monitor review finds violations, the subdistributing agency or distribution site must submit a CAP to the CE. The CE must provide TDA with a copy of the CAP. The CAP must adequately address program violations. The CE may return an incomplete or inadequate CAP to a subdistributing agency or distribution site for additional clarification. Additionally, the CE may amend or modify the CAP of a subdistributing agency or distribution site based on new information, changes in circumstances, or progress to date. The CE may also extend time frames for a distribution site s good faith efforts to correct violations or problems in order to comply with requirements. Section 5000, Visits, Reviews, and Audits Page 7

8 After the subdistributing agency or distribution site implements its CAP, it must submit a final disposition report to the CE, which must send a copy of the final disposition report to TDA. The CE must perform a follow-up review to ensure that the distribution site corrected violations. TDA may terminate the CE s Commodity Agreement if 1. the CE does not follow up to ensure the violations have been corrected, or 2. the subdistributing agency or distribution site refuses or fails to correct violations, but the CE does not terminate the part of the agreement with the subdistributing agency or distribution site for receiving and using USDA Foods. Examples of Corrective Action Plans Contracting Entity Plan During a compliance review, TDA may discover violations. TDA may require a CE to develop, within a specified time frame, a CAP. If TDA finds violations at a subdistributing agency, TDA requires the CE to request and enforce the subdistributing agency s CAP. For example, TDA may require a CE to have a plan to develop food providers in an area where needy persons have little or no access to USDA Foods. TDA will monitor the CAP and may extend the time frame if the CE attempts to locate and develop food providers, but did not receive an application within the original time frame from a qualified agency or organization. Or, TDA may take other action as indicated by the actions of the CE and other circumstances. Subdistributing Agency and Distribution Site Plan During a monitor review, a CE may discover violations. TDA may require corrective action by the subdistributing agency or distribution site. A CAP might include, for instance, a plan to develop, within a specified time frame, a system for maintaining records of USDA Foods distributions to households. After monitoring the subdistributing agency or distribution site s progress, the CE may take the following action, as warranted by the circumstances: Determine that corrective action is complete Take steps to terminate that portion of the agreement for receiving and using USDA Foods Extend the corrective action time frame Audits General Policy CEs subject to audit must be audited on a single (organization-wide) audit basis by independent auditors according to the the Uniform Administrative Requirements, Cost Principles, and Audit Requriement for Federal Awards (2 Code of Federal Regulations Part 200). Section 5000, Visits, Reviews, and Audits Page 8

9 A CE is exempt from the single audit requirement if it is one of the following: A Federal entity A military base An Indian tribal government A nonprofit CE and does not expend the level of federal financial assistance as described in Audit Scope and Frequency in this handbook section Purpose of Audits Audits are conducted to determine the following: Financial operations are conducted properly. Expenditures of program funds comply with applicable laws and regulations. Internal procedures meet the objectives of federally assisted programs. Financial statements are correct. Financial reports contain accurate information. Value of USDA Foods for Audits Each CE must obtain an annual audit if it expends more than $500,000 in Federal grants during the CE s fiscal year. For each CE s fiscal year beginning January 1, 2015, or after, the threshold is $750,000. The value of USDA Foods must be considered part of Federal grants. For audit purposes, CEs must consider all USDA Foods distributed or used during the fiscal year as expended. The value of expended USDA Foods may be determined by the fair market value (FMV) at the time the foods are received by the CE or by one of the following: 1. The USDA purchase price (cost-per-pound) 2. The estimated cost-per-pound data provided by USDA at the beginning of the program year 3. The USDA commodity file cost as of a date specified by TDA A method of determining the value of USDA Foods must be chosen for audit purposes. Once a CE has selected a method of determining the value of USDA Foods, it must use that method consistently in all of its audit activities and must maintain a record of the means of valuing USDA Foods for audit purposes. In most cases, it would be easier for a CE to use one of the options provided rather than having to determine the FMV at the time of the receipt of the USDA Foods. FMV information can usually be found in the bill of lading, on the Web-Based Supply Chain Management (WBSCM), Section 5000, Visits, Reviews, and Audits Page 9

10 or in the Texas Unified Nutrition Programs System (TX-UNPS). The value applied to USDA Foods for audit purposes does not apply for other purposes. Audit Scope and Frequency The frequency and scope of audits are determined by the amount and source of federal financial assistance expended in any year. If the federal financial assistance that a CE expends in one year exceeds $500,000, then the CE must have an organization-wide audit conducted for that year. If the federal financial assistance that a CE expends in one year is less than $500,000, then the CE is exempt from the single audit requirement. The threshold will increase to $750,000 for each CE s fiscal year beginning on January 1, 2015 or after. EXCEPTION: CEs who are subject to single audit requirements may elect to obtain a programspecific audit, if 100% of the their federal financial assistance results from their participation in the TEFAP. CEs subject to single audit must obtain the audits on a yearly basis unless they are one of the following: State or local government that is required by constitution or statute, in effect on January 1, 1987, to undergo audits less frequently than annually. This requirement must still be in effect for the biennial period under audit. Nonprofit organization that has obtained biennial audits for all biennial periods ending between July 1, 1992, and January 1, 1995 (30-month period). All consecutive audits obtained during this 30-month period must have been on a biennial basis. Any interruption in the biennial process during this 30-month period disqualifies the sponsor from being able to obtain a biennial audit for the CE s fiscal years beginning after June 30, A nonprofit organization that meets one of the following: o Started operating a federal program for the first time during the 30-month period stated above o Had already been in existence and had been obtaining biennial Generally Accepted Accounting Standards (GAAS) financial statement audits prior to participating in a federal program o Continued a biennial audit cycle when participating in the federal program If biennial audits are conducted, they must include both years. However, if an organization is subject to the audit requirements and has a financial audit performed annually, the organization must also obtain a single audit on an annual basis. CEs who are exempt from the single audit requirement remain subject to any audit requirements prescribed by state or local laws or regulations. Section 5000, Visits, Reviews, and Audits Page 10

11 Procedures for Compliance with Audit Requirements Organizations that are not exempt from the single audit requirement must arrange for an audit to be conducted by one of the following: An independent auditor A local government accountant An independent certified public accountant An independent public accountant, licensed on or after December 31, 1970, whose license or certificate is still valid As a condition of eligibility for participation in TEFAP, TDA requires that CEs submit documentation of compliance with single audit requirements. CEs must submit as proof of eligibility one or more of the following forms of documentation of compliance: A copy of an audit for a specific fiscal year which has been determined to meet the requirements of the Single Audit Act A completed audit form, submitted via TX-UNPS or paper, showing that the CE will obtain, if required, an acceptable audit that meets the requirements of the Single Audit Act TDA will notify CEs of due dates for audits six months after the end of the fiscal year for which the audit is due, and eight months after the end of the fiscal year for which the audit is due. The first notification will be sent by standard, first-class mail. The second notification will be sent by USPS certified mail, return receipt requested, and standard first-class mail. In this letter, TDA will notify a CE of the following: TDA must receive the audit on or before the due date specified in this notice. If TDA does not receive the audit by the specified due date, TDA will terminate the Commodity Agreement effective the first day of the month following the month in which the audit was due. The CE has the right to appeal this decision. If a CE submits an audit that does not meet single audit requirements, TDA will notify the CE that the audit is unacceptable. The CE will be given 30 calendar days from the date on the notification letter to submit an acceptable audit. If the CE does not submit an acceptable audit by the specified time frame, TDA will notify the CE of the following: The CE failed to provide an acceptable audit within the specified time frames. TDA must receive an acceptable audit by the due date specified in this notification. If TDA does not receive an acceptable audit by the specified due date, TDA will Section 5000, Visits, Reviews, and Audits Page 11

12 terminate the Commodity Agreement effective the first day of the month following the due date specified in the above mentioned notification. The CE has the right to appeal this decision. If TDA does not receive an acceptable audit by the specified due date, TDA will notify the CE that the CE failed to provide an acceptable audit by the specified due date, and TDA terminated the Commodity Agreement effective the first day of the month following the specified due date. When the audit is completed, a CE must submit an original and two copies to the Food and Nutrition program specialist. CEs should review and accept the completed audit before submitting the audit to. If corrective action is necessary, the CE should work with the auditing firm to develop a corrective action plan. If the audit is organization-wide but the TEFAP is not specifically audited, the CE must submit a letter from the auditor stating that the program was included in the random sampling process but was not selected for audit. Sanctions for Noncompliance TDA must receive an acceptable audit within nine months of the last day of the current fiscal year if CE is submitting an annual audit, or second fiscal year included in the biennial audit period, if CE is submitting a biennial audit. TDA may terminate the Commodity Agreement, effective the first day of the month following the month in which the audit was due, if either of the following conditions is true: TDA does not receive the audit by the specified due date. The CE submits an audit that does not meet requirements of the Single Audit Act. TDA will notify the CE in writing that the audit is unacceptable. CEs must submit an acceptable audit within 30 calendar days of the date of the notice. If TDA determines that extenuating circumstances resulted in a CE s inability to submit an acceptable audit, TDA may conduct an audit, either directly or through contract with a third party. The CE must pay all costs associated with such an audit. CEs have the right to appeal any decision TDA makes that adversely affects a CE s participation in the program. Section 5000, Visits, Reviews, and Audits Page 12

13 Once a Commodity Agreement has been terminated for failure to comply with the Single Audit Act, the CE must provide an acceptable audit for any outstanding audit year(s) and comply with the requirements of the Single Audit Act in order to be eligible to participate in TDA s food programs. Other Audits TDA retains, both for itself and for the federal government, the right to conduct additional audits as necessary. If serious deficiencies such as fraud or misuse of funds occur and corrective action would not be practical, TDA will immediately terminate the Commodity Agreement to eliminate participation in TEFAP. Section 5000, Visits, Reviews, and Audits Page 13