WSR 97-24-061

PROPOSED RULES

SUPERINTENDENT OF

PUBLIC INSTRUCTION

[Filed December 1, 1997, 10:41 a.m.]

Original Notice.

Preproposal statement of inquiry was filed as WSR 97-18-010.

Title of Rule: Chapter 392-115 WAC, Finance--Audit resolution process.

Purpose: To implement SB 5354 [5394] which gives the Superintendent of Public Instruction authority to write rules to resolve audit findings dealing with state funds.

Statutory Authority for Adoption: SB 5394.

Statute Being Implemented: Chapter 28A.300 RCW.

Summary: This rule will coordinate and equitably treat how both state and federal audit findings are resolved.

Name of Agency Personnel Responsible for Drafting: Rick Wilson, Office of Superintendent of Public Instruction, (360) 753-2298; Implementation: Marcie Senger, Office of Superintendent of Public Instruction, (360) 753-2298; and Enforcement: Jim Coolican, Office of Superintendent of Public Instruction, (360) 753-1545.

Name of Proponent: Office of Superintendent of Public Instruction, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: The rule allows the Superintendent of Public Instruction to resolve audit findings issued by the State Auditor for all school districts involving federal funds.

Proposal Changes the Following Existing Rules: The proposal change allows the Superintendent of Public Instruction to resolve audit findings also involving state funds and recover funds if appropriate.

No small business economic impact statement has been prepared under chapter 19.85 RCW. There is no economic impact on small business.

RCW 34.05.328 does not apply to this rule adoption.

Hearing Location: Wanamaker Conference Room, 2nd Floor, Old Capitol Building, P.O. Box 47200, Olympia, WA 98504-7200, on January 13, 1998, at 9:00 a.m.

Assistance for Persons with Disabilities: Contact Jim Rich by December 30, 1997, TDD (360) 664-3631, or (360) 753-6733.

Submit Written Comments to: Legal Services, Office of the Superintendent of Public Instruction, P.O. Box 47200, 600 South Washington Street, Olympia, WA 98504-7200, FAX (360) 753-4201, by January 12, 1998.

Date of Intended Adoption: January 14, 1998.

November 26, 1997

J. J. Coolican

for Terry Bergeson

Superintendent of

Public Instruction

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-005 Authority. The authority for this chapter is Substitute Senate Bill No. 5394 which authorizes the superintendent to set policy and procedure for resolution of monetary and nonmonetary audit findings involving state money and RCW 28A.300.070 which authorizes the superintendent of public instruction to receive and administer federal moneys in accordance with federal acts--to wit;

(1) U.S. Public Law 98-502 (((the)) Single Audit Act of 1984) and U.S. Public Law 104-156 (Single Audit Act Amendments) and its implementing federal rules and regulations that require the superintendent of public instruction to resolve audit findings against governmental organizations receiving federal moneys that the superintendent of public instruction receives and administers;

(2) U.S. Public Law 89-64 and amendments thereto (Child Nutrition Act of 1966) and its implementing rules and regulations that require the superintendent of public instruction to resolve audit findings against those organizations operating child care programs and receiving federal moneys received and administered by the superintendent of public instruction; or

(3) U.S. Office of Management and Budget Circular ((A-110 and successor circular)) A-133 and successors that require the superintendent of public instruction to resolve audit findings against those organizations receiving federal moneys administered and received by the superintendent of public instruction.

(4) U.S. Public Law 100-297 (Elementary and Secondary School Improvement Act of 1988) and U.S. Public Law 103-382 (Improving America Schools Act) implementing rules and regulations that require the superintendent of public instruction to consider audit findings to be prima facie evidence, and the burden of proof to set aside an audit finding rests with the subrecipient.

(5) U.S. Public Law 94-142 (Individuals with Disabilities Education Act) and amendments thereto that require the superintendent of public instruction to provide a free and appropriate education to students with disabilities.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-005, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-010 Purpose. The purpose of this chapter is to set forth the policies and procedures in accordance with state and federal requirements for the resolution of monetary and nonmonetary audit findings against a subrecipient receiving state or federal moneys administered by the superintendent of public instruction.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-010, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-015 Definition--Subrecipient. As used in this chapter, "subrecipient" means a public or nonpublic entity receiving state or federal moneys administered and disbursed by the superintendent of public instruction.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-015, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-020 Definition--Program audit. As used in this chapter, "program audit" means an examination of a subrecipient to determine compliance with the state or federal laws and regulations governing the operation of a specific program.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-020, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-025 Definition--Single audit. As used in this section, "single audit" means an organization-wide examination conducted under the Single Audit Act of 1984 and the Single Audit Act Amendments of 1996 encompassing the entire financial operation of a subrecipient reporting whether:

(1) All financial statements present fairly the financial position and results of financial operations in accordance with generally accepted accounting principles;

(2) All laws and regulations having a material effect upon the financial statements or major state or federal assistance programs have been complied with; and

(3) All internal control systems provide reasonable assurance that federal financial assistance programs are managed in compliance with applicable laws and regulations.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-025, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-045 Definition--Nonmonetary audit finding. As used in this chapter, "nonmonetary audit finding" means a weakness, error, or irregularity not associated with a questioned cost but associated with:

(1) Inadequacy of internal controls;

(2) Lack of compliance with state or federal laws or rules and regulations; or

(3) Improper financial statements of the subrecipient.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-045, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-050 Definition--Audit finding. As used in this chapter, "audit finding" means either a monetary or nonmonetary audit finding ((clearly)) designated as ((an audit finding)) questioned federal or state data in ((the)) an audit report, management letter or audit memorandum, including but not limited to staffing, enrollment or other reported data of a subrecipient pertaining to state or federal moneys administered or disbursed by the superintendent of public instruction.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-050, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-055 Definition--Disallowed costs. As used in this chapter, "disallowed costs" means those questioned costs associated with an audit finding that the superintendent of public instruction has determined should not be charged to the state or federal government program.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-055, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-060 Definition--Allowed costs. As used in this chapter, "allowed costs" means a questioned cost that the superintendent of public instruction has determined is properly charged to the state or federal government program. Such determination includes but is not limited to the following reasons: Clerical error; inappropriate methodology; noncompliance with generally accepted auditing standards and incorrect interpretation or application of law, rules, or regulations.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-060, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-065 Definition--Resolved audit finding. As used in this chapter, "resolved audit finding" means an audit finding that is addressed in or subject to provisions of a management decision letter.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-065, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-085 Audit finding against SPI considered to be an audit finding against a subrecipient. An audit finding contained in an audit report of the superintendent of public instruction resulting from failure of a subrecipient to comply with state or federal law or rules and regulations, shall be considered an audit finding against the subrecipient and resolved pursuant to this chapter.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-085, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-090 Lack of compliance with the audit resolution process. Any subrecipient failing to comply with the process or procedures of this chapter ((may)) shall be subject to the withholding or recovery of state or federal moneys. The superintendent of public instruction ((may)) shall recover moneys or withhold future funding as necessary to implement management decision letters or ((final)) corrective action plans. Money withheld may be released upon corrective action.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-090, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-110 Management decision letter developed. The superintendent of public instruction shall prepare and forward to the ((suprecipient)) subrecipient a management decision letter setting forth:

(1) Any corrective actions to be taken by the subrecipient;

(2) Any disallowed costs to be recovered from nonfederal sources;

(3) Any allowed costs chargeable to federal sources;

(4) ((Any corrective action to be taken by the subrecipient;

(5))) The due date for submission to the superintendent of public instruction of any ((final)) corrective action plan;

(5) Any state adjustments of data submitted which may result in revised apportionment calculations or recovered payments.

The superintendent of public instruction shall issue the management decision letter no later than one hundred eighty calendar days after the receipt of the audit report setting forth an audit finding against the subrecipient.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-110, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-115 ((Final)) Corrective action plan. The subrecipient shall develop a ((final)) corrective action plan, as required in the management decision letter, setting forth:

(1) The corrective actions; and

(2) The schedule for implementation of corrective actions.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-115, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-120 SPI reviews ((final)) corrective action plan. The superintendent of public instruction shall review and approve the ((final)) corrective action plan and implementation schedule as proposed by the subrecipient for compliance with the required actions set forth in the management decision letter. If the ((final)) corrective action plan or its implementation schedule does not comply with the requirements of the management decision letter, the superintendent shall require the subrecipient to modify the ((final)) corrective action plan accordingly. The auditor (the office of the state auditor or a certified public accountant) has the responsibility to review the subrecipient's actions to determine if the corrective actions called for in the ((final)) corrective action plan have taken place and assess the adherence to the ((final)) corrective action plan in making audit determinations.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-120, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-125 SPI informs subrecipient of the results of review. The superintendent of public instruction shall inform the subrecipient, by letter, of:

(1) The results of its review of the ((final)) corrective action plan;

(2) Any modification required to be made by the subrecipient; and

(3) The implementation schedule of the ((final)) corrective action plan.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-125, filed 3/8/91, effective 4/8/91.]

AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-130 Subrecipient implements ((final)) corrective action plan. The subrecipient shall implement the ((final)) corrective action plan, with any required modifications, by the date(s) specified by the superintendent of public instruction.

[Statutory Authority: RCW 28A.300.070. 91-07-007 (Order 91-04), 392-115-130, filed 3/8/91, effective 4/8/91.]

NEW SECTION

WAC 392-115-151 Appeals or adjudicative proceedings. Pursuant to WAC 392-115-150:

(1) Any subrecipient deciding to appeal the management decision letter, may do so to the superintendent of public instruction or designee in accordance with the adjudicative proceedings in RCW 34.05.413 through 34.05.494 and the administrative practices and procedures of the superintendent of public instruction in chapter 392-101 WAC.

(2) Reviewing initial orders and preparing and entering final agency orders in accordance with RCW 34.05.464 may be accomplished by a person appointed by the superintendent.

(3) The superintendent of public instruction may assign the adjudicative proceeding to the office of administrative hearings and may delegate final decision-making authority to the administrative law judge conducting the hearing.

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AMENDATORY SECTION (Amending Order 91-04, filed 3/8/91, effective 4/8/91)

WAC 392-115-155 Modification of management decision letter. The superintendent of public instruction shall ((include any judgments or decisions)) consider any and all recommendations resulting from a fully exhausted appeals process in a revised management decision letter developed pursuant to WAC 392-115-110.