Why strong internal controls are key for spending CARES Act funds

Recent findings may shine light on what auditors will be looking for when reviewing the internal controls
By: | March 2, 2021

The influx of CARES Act funds brings with it auditing requirements to ensure the funding is used appropriately and allowably.

It is important that states and districts maintain strong internal controls for those funds, according to Bonnie Graham, partner with Brustein & Manasevit PLLC. Graham spoke on the topic during the 2021 National ESEA Network Conference.

While guidance on CARES Act auditing isn’t clear and can be a “moving target,” all federal grantees and subgrantees are required to conduct self-assessments, reviews, and internal audits to monitor issues in real time, Graham said.

The Uniform Grants Guidance at 2 CFR 200.303 requires that grantees:

  • Implement an internal control system that provides “reasonable assurance” that the funding recipient is allowably managing the federal funds.
  • Continually evaluate and monitor their compliance systems. Review process should monitor expenditures and controls.
  • Promptly take action when noncompliance is identified.
  • Safeguard personally identifiable information.

As school districts receive added funding during the COVID-19 “emergency,” disruptions in normal working operations may create concerns around local educational agency capacity to properly administer the stimulus funds, Graham said. The need for funds may be “immediate,” with a system of strong internal controls seen as a roadblock, she said.

But Graham pointed to recent audit findings that may shine light on what auditors will be looking for when reviewing the internal controls of CARES Act and CRRSA subgrantees.

For example, she said an ED Office of Inspector General audit of the internal controls used by the Virgin Islands to monitor the use of Immediate Aid to Restart School Operations funds found the “fiscal and program monitoring inadequate.”

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Among OIG’s findings were that the state educational agency conducted insufficient training, there was a need for improved technical assistance or guidance, the SEA had insufficient staffing and procedures to internally audit the program, and there were no risk assessments or fraud reporting processes.

According to the audit report, OIG made five recommendations for the Virgin Islands:

  1. Finalize the monitoring and internal control plan and implement processes that provide reasonable assurance that the Virgin Islands Department of Education will spend Restart program funds in a timely manner and conduct effective programmatic monitoring of the program.
  2. Update its monitoring and internal control plan once an external evaluator is contracted to include the role the external evaluator will have in assisting the Virgin Islands DOE in monitoring the Restart program and how the contractor will monitor the program to ensure compliance.
  3. Staff its Internal Audit Division at planned levels and develop and implement standard operating procedures to provide reasonable assurance that it will fulfill its responsibilities.
  4. Assess the risk of fraud in department programs and develop and implement control activities to prevent, detect, and respond to potential fraud.
  5. Develop and implement a fraud reporting mechanism and display in public places the OIG hotline contact information.

Graham also pointed to an audit of the internal controls used by the Texas State Educational Agency for its Restart Grant as an example of the controls auditors could be looking for in reviewing the internal controls for CARES Act funds. Graham said OIG lauded the Texas SEA for the following:

  • A well-defined process to allocate program funds to subgrantees, including LEAs and nonpublic schools.
  • Appropriate existing processes for submission and review of subrecipient applications, as well as payment for allowable expenditures.
  • A description of a well-established fiscal monitoring in its required internal control and monitoring plan.
  • Technical assistance provided to LEAs and nonpublic schools that ensured they used funds in compliance with the Restart program.

Charles Hendrix covers education funding and other Title I issues for LRP Publications.