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OREGON YOUTH AUTHORITY

 

DIVISION 250

OYA AUDIT GUIDELINES

416-250-0000

Purpose and Scope

(1) These rules establish an OYA procedure for audits of any service provider agreeing to offer services through direct contract with the OYA, and the provider's subcontractors and vendors. These rules also establish basic record keeping standards for programs subject to audit under these rules, establish procedures for appealing audit findings, and set out a process to implement the findings of the final audit report.

(2) Under these rules, the OYA may audit any service provider that provides any part of OYA services. The scope of the audit will include only OYA funds or related matching funds. However, OYA may include other funds in its tests to the extent necessary to audit OYA funds or matching funds.

Stat. Auth.: ORS 420A.025
Stats. Implemented: ORS 420A.010
Hist.: OYA 2-1995, f. 12-19-95, cert. ef. 1-2-96; OYA 4-2001, f. & cert. ef. 4-20-01; OYA 1-2005, f. & cert. ef. 1-11-05

416-250-0010

Definitions

(1) Audit: The examination of documents, records, reports, systems of internal control, accounting and financial procedures, and other evidence for one or more of the following purposes:

(a) To ascertain whether the financial statements present fairly the financial position and the results of financial operations of the fund types and/or account groups in accordance with Generally Accepted Accounting Principles and federal and state rules and regulations;

(b) To determine compliance with applicable laws, rules, regulations and contract provisions;

(c) To review the efficiency and economy with which operations are carried out; and

(d) To review effectiveness in achieving program results.

(2) Capital construction: An expenditure related to construction or remodeling of physical facilities with a projected cost of $250,000 or more.

(3) Capital improvement: An expenditure related to construction or remodeling of physical facilities with a projected cost of more than $5,000 but less than $250,000.

(4) Capital outlay: Purchases of equipment and tangible personal property of a non-expendable nature which have a useful life of more than one year. The minimum dollar threshold for determining if a purchase is capital outlay can not exceed the amount set for state purchases of capital outlay. The current threshold for the State of Oregon is $5,000, however, a lesser amount may be used.

(5) Direct contractor: A person or organization which operates under a direct contract with the OYA to provide services to youth offenders in OYA's care.

(6) Internal auditor: Auditors within the OYA.

(7) Internal control structure: The plan of organization including all of the methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, and promote operational efficiency and adherence to management's policies.

(8) Non-allowable expenditures: Expenditures made by a contractor or subcontractor of the OYA which are not consistent with relevant federal and state laws, rules, regulations or contract provisions. To be allowable, expenditures must be necessary and reasonable for the proper and efficient performance of the contracted services. If only state funds are involved, expenditures will be evaluated based on state laws and rules, the contract provisions, and whether they are necessary and reasonable for the proper and efficient performance of the contracted services. When federal funds are involved, determination of allowable expenditures includes, but is not limited to, those rules and regulations itemized and referred to in applicable Office of Management and Budget circulars.

(9) Reasonable cost: A cost that in nature or amount does not exceed that which would be incurred by a prudent person under the circumstance prevailing at the time the decision was made to incur the cost. Consideration will be given to whether the cost is of a type generally recognized as ordinary and necessary for the operation of the organization; what restraints or requirements exist such as those imposed by factors of generally accepted sound business practices, federal and state laws and regulations, and terms and conditions of the contract; whether the individuals concerned acted with prudence in the circumstances, considering their responsibilities to the organization, their employer, their clients, the public and the governments; and whether significant deviations from the organization's established practices unjustifiably increase costs.

(10) Service provider: A public or private community agency or organization contracted by the OYA that provides recognized OYA service(s) either directly or through subcontractors or vendors, and is approved by the OYA or other appropriate agency to provide these service(s). For the purpose of this rule, "provider" or "program" is synonymous with "service provider."

Stat. Auth.: ORS 420A.025
Stats. Implemented: ORS 420A.010
Hist.: OYA 4-2001, f. & cert. ef. 4-20-01; OYA 1-2005, f. & cert. ef. 1-11-05

416-250-0020

Revenue

(1) A service provider will maintain a revenue account for each income source which results from the operation of the service or is used to support the service. For example, separate revenue accounts will be established for each program for which the provider receives payment from OYA, direct federal payments, donations, fees, interest earned, rentals collected from subleases, sales of capital equipment, training grants or any other source of income.

(2) Only cash revenue may be used to match state funds unless the OYA gives prior authorization in writing to use contributed services or property to match state funds.

Stat. Auth.: ORS 420A.025
Stats. Implemented: ORS 420A.010
Hist.: OYA 4-2001, f. & cert. ef. 4-20-01; OYA 1-2005, f. & cert. ef. 1-11-05

416-250-0030

Expenses

(1) A service provider subject to audit under these rules will keep its accounting records consistent with Generally Accepted Accounting Principles. Accounting records will be retained for three years from the date of the expiration of the OYA's agreement or from the finalization of an audit, whichever comes later. Allocation methods for expenses will be documented. Relevant calculations representing allocations will be shown. The allocation method will reasonably distribute expenses shared by service providers or programs. Charges assessed against a service provider by a related organization will be justified by the related organization as to the method and reason for relevant cost allocation. The expense invoice will list the location where services and supplies purchases are delivered for any item in excess of $1,000.

(2) Record requirements for personal services:

(a) Reports reflecting the distribution of labor of each employee must be maintained for all staff members, professional and nonprofessional, whose compensation is charged in whole or in part to OYA funds. To support the allocation of indirect costs, such reports must also be maintained for other employees whose work involves two or more functions or activities if a distribution of their compensation between such functions or activities is needed in the determination of the organization's indirect cost rate(s). Reports maintained to satisfy these requirements must meet the following standards:

(A) The reports must reflect an after-the-fact determination of the actual activity of each employee. Budget estimates (i.e., estimates determined before the services are performed) do not qualify as support for charges to OYA funds;

(B) Each report must account for the total activity for which employees are compensated and which is required in fulfillment of their obligations to the organization;

(C) The reports must be signed by the individual employee, or by a responsible supervisory official having first-hand knowledge of the activities performed by the employee, to attest that the distribution of activity represents a reasonable distribution of the actual work performed by the employee during the periods covered by the reports;

(D) The reports must be prepared at least monthly and must coincide with one or more pay periods;

(E) Periodic time studies, in lieu of ongoing time reports, may be used to allocate salary and wage costs. However, the time studies used must meet the following criteria:

(i) A minimally acceptable time study must encompass at least one full week per month of the cost reporting period.

(ii) Each week selected must be a full work week (e.g., Monday to Friday, Monday to Saturday or Sunday to Saturday).

(iii) The weeks selected must be equally distributed among the months in the cost reporting period, e.g., for a 12 month period three of the 12 weeks in the study must be the first week beginning in the month, three weeks the second week beginning in the month, three weeks the third and three weeks the fourth.

(iv) No two consecutive months may use the same week for the study, (e.g., if the second week beginning in April is the study week for April, the weeks selected for March and May may not be the second week beginning in those months).

(v) The time study must be contemporaneous with the costs to be allocated. Thus, a time study conducted in the current cost reporting year may not be used to allocate the costs of prior or subsequent cost reporting years.

(vi) The time study must apply to a specific provider. Thus, chain organizations may not use a time study from one provider to allocate the costs of another provider or a time study of a sample group of providers to allocate the costs of all providers within the chain.

(b) Any person being compensated for services to a service provider who is not an employee of the organization will have a written contract with the service provider. The contract will set forth the specific services being purchased, the contract time period, the rate at which compensation will be paid and an hourly rate where applicable.

(3) Record requirements for capital expenditures:

(a) Depreciation for capital outlay, capital improvements, and capital construction will be documented in a depreciation schedule. The depreciation schedule at a minimum will include a description of the asset, date of acquisition, cost basis, depreciation method, estimated useful life, annual depreciation expense and accumulated depreciation.

(b) Any capital expenditures purchased by a service provider using OYA funds will be listed on an inventory system showing location of item and reference to purchase invoice and payment receipt location. The inventory will be checked annually and verification of the inventory list signed by the inventory control person. All capital items purchased with OYA funds must be used in an OYA approved program.

(4) Reasonable procedures will be established to ensure the security of cash, blank checks, purchase orders, check protector machines, and signature stamps.

(5) A service provider must expend funds consistent with an agreement or direct contract, these rules, the required program or licensing rule, and federal and state requirements. For services contracted with a predetermined rate, OYA funds not used in delivering the service of the required quantity and quality will be classified as carryover. Carryover of OYA administered funds will be spent for OYA services. These funds will be kept in restricted accounts in the financial records. Funds spent on unallowed costs will be considered noncompliance and will be returned to OYA.

(6) All travel expenses will be supported by a system of authorized trip reports, receipts, and/or other documentation. Authorization is indicated by approval of the travel expenditure by the Director (or person with delegated authority) of the service provider.

Stat. Auth.: ORS 420A.025
Stats. Implemented: ORS 420A.010
Hist.: OYA 4-2001, f. & cert. ef. 4-20-01; OYA 1-2005, f. & cert. ef. 1-11-05

416-250-0040

Audit Process and Reports

(1) Any person, organization, or agency, including OYA, may request an audit of a service provider by submitting an audit request in writing to the OYA Director's Office. The request will clearly identify the service provider to be audited, setting forth its name, location, program director, the period for which the audit is requested and the reason for the request.

(2) The OYA Director's Office will review the request and arrange for an audit if considered appropriate.

(3) The OYA Director's Office has discretion to notify the appropriate service provider program director of the scheduled audit in advance. The OYA retains the right to perform an audit without prior notice to the subject service provider.

(4) Upon completion of the audit, the OYA will prepare a report setting forth the findings, recommendations, and auditee responses where applicable. Audit work papers will be available showing the details of the audit findings.

Stat. Auth.: ORS 420A.025
Stats. Implemented: ORS 420A.010
Hist.: OYA 4-2001, f. & cert. ef. 4-20-01; OYA 1-2005, f. & cert. ef. 1-11-05

416-250-0050

Disposition of Audit Findings

(1) To the extent an audit documents non-allowable expenditures in non-capitated programs, the OYA will recover such funds.

(2) To the extent an audit report evidences non-compliance with applicable program and/or licensing rules, the audit findings may be referred to the Director of the OYA to assess civil penalties, where applicable, or for other corrective action deemed necessary by the OYA.

(3) Notwithstanding any other provisions of these rules, to the extent an audit report reveals non-compliance with Generally Accepted Accounting Principles or these rules, OYA may require corrective action to bring the deficiencies into compliance with state and federal rules and regulations. Non-compliance which results in substantial misrepresentation of financial activities may result in termination of the license and/or contract.

Stat. Auth.: ORS 420A.025
Stats. Implemented: ORS 420A.010
Hist.: OYA 4-2001, f. & cert. ef. 4-20-01; OYA 1-2005, f. & cert. ef. 1-11-05

416-250-0060

Provider Appeals

(1) A provider may appeal certain decisions affecting the provider by making a written request to the OYA Director's Office. The request must state whether the provider wants an administrative review, and/or a contested case hearing, as outlined in the OMAP General Rules OAR 410-120-1560, Provider Appeals, through 410-120-1840, Provider Hearings-Role of Hearings Officer. If the subject service provider decides to appeal the audit, it will set forth in writing the reasons for its appeal within 30 days of receipt of the report.

(2) When OYA seeks to recover funds under these rules, OYA will negotiate the terms and conditions of repayment with the audited service provider.

Stat. Auth.: ORS 420A.025
Stats. Implemented: ORS 420A.010
Hist.: OYA 4-2001, f. & cert. ef. 4-20-01; OYA 1-2005, f. & cert. ef. 1-11-05

416-250-0070

Basic Accounting Records

(1) A service provider subject to audit under these rules will maintain a chart of accounts that defines all items included in determining the cost for each program. The chart of accounts will list all revenues and expense accounts.

(2) The organization will have bank deposit records and documentation to verify the source of revenue. Revenue and expense accounts, with related asset, liability, and equity accounts, will account for all expenditures related to delivery of the program.

(3) All basic accounting records will be retained for at least three years following the expiration of the contract or from the finalization of an audit including any appeal, whichever is later.

Stat. Auth.: ORS 420A.025
Stats. Implemented: ORS 420A.010
Hist.: OYA 4-2001, f. & cert. ef. 4-20-01; OYA 1-2005, f. & cert. ef. 1-11-05

416-250-0080

Internal Controls

Establishing and maintaining an internal control structure is the responsibility of the service provider. Effective internal controls are considered essential to achieving the proper conduct of business with full accountability for the resources made available. Internal controls will be implemented and maintained to provide reasonable assurance that:

(1) The provider identifies, assembles, classifies, records, analyzes, and reports its transactions in conformity with Generally Accepted Accounting Principles or appropriate regulatory requirements for preparing financial statements and other required financial reports;

(2) Losses or misappropriations of assets due to errors or irregularities in processing transactions and handling the related assets are prevented or detected;

(3) Noncompliance with applicable federal and state laws and rules and regulations and terms of the contract is prevented or detected;

(4) State and federal funds are reasonably, prudently and economically spent; and

(5) All costs are appropriately allocated among programs, departments, and other benefiting units.

Stat. Auth.: ORS 420A.025
Stats. Implemented: ORS 420A.010
Hist.: OYA 4-2001, f. & cert. ef. 4-20-01; OYA 1-2005, f. & cert. ef. 1-11-05

416-250-0090

Independent Audit Reports

The OYA may, at its discretion, accept an independent audit, in lieu of an OYA audit, if it determines the work papers and procedures of the independent auditor meet Government Auditing Standards (where applicable), Generally Accepted Auditing Standards and other audit standards which may be adopted by the OYA.

Stat. Auth.: ORS 420A.025
Stats. Implemented: ORS 420A.010
Hist.: OYA 4-2001, f. & cert. ef. 4-20-01; OYA 1-2005, f. & cert. ef. 1-11-05

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