PART A - POLICY AND GUIDANCE FOR RESOLVING AUDIT FINDINGS
This Part primarily consolidates, and to some extent updates, the
material previously presented in DCS-87-77, DCS-83-28, and DCS-84-60.
These memos address the comparable responsibilities which DHS and county
agencies have for reviewing audit reports of entities to which they
provide funding and for resolving audit findings disclosed in the reports.
A main objective of this Part is to provide policy and guidance for the
resolution of audit findings.
THE DEPARTMENT'S TREATMENT OF AUDITS OF COUNTY AGENCIES
The Department's policy for resolving audit findings disclosed in
county agency audit reports is based on making the distinction between:
(1) internal control findings, (2) audit adjustments, and (3) compliance
audit exceptions. For each of these areas, the Audit Resolution Policy
addresses options available to the Department of Health and Social
- INTERNAL CONTROL FINDINGS: The audit report or management
letter will include the auditor's findings based on the study and
evaluation of the county agency's system of internal accounting
control. The county agency will be required to address the audit
findings in the Corrective Action Plan it submits to the Department of
Health and Social Services for approval, as part of the audit
resolution process. However, if the internal control weaknesses
disclosed are of a critical nature or repetitive, the Department will
consider an audit disallowance. Disallowances will be discussed with
the county agency as part of the audit resolution process.
- AUDIT ADJUSTMENTS: This term is used to describe fiscal
adjustments to reported expenditures that were omitted from the
agency's expenditure report and should have been included and/or
expenditures that are included in the agency's expenditure report but
should not have been included. These adjustments are usually
identified at the time the reconciliation is performed and when the
expenditures are reviewed for appropriateness. Examples of
expenditures that would increase the reported expenditure amount are
costs included on the county clerk's records but not included in the
agency records. Adjustments that would require a reduction to reported
expenditures are accounting errors, unallowable costs, non-matchable
A 100% disallowance will be taken on audit adjustments when they
- COMPLIANCE AUDIT EXCEPTIONS:
Category A: The majority of these exceptions are due to
non-compliance with the Department's purchase of service requirements
developed under Wis. Statute Section 46.036. One or more of these
items occur in virtually every audit. (Please note that items 1-5
apply to social service and mental hygiene audits while item 6 applies
to income maintenance only.)
- No vendor "Financial and Compliance Audit Report" or
waiver on file.
- No written vendor contract to support purchase of service
expenses or approved waiver on file. (NOTE: Any written documents
of agreement signed by both parties constitute a legal contract.)
- Expenses exceed contract limits.
- No client service authorization policy and procedure on file.
- Specific service eligibility requirements not met.
- AFDC client remains in non-mandatory protective payee status for
more than twenty-four months.
A 10% disallowance guideline will apply to Category A with the
exception of "No Vendor Contract" which has a 20% guideline.
The Department staff responsible for resolving audits may recommend a
higher or lower disallowance amount to the Division Administrator. For
example, a higher figure may be considered when there are a large
number of exceptions or a pattern of repetitive non-compliance.
Category B: There are two specific audit exceptions which have
been included in this category:
- Payments to a non-certified vendor for alcohol abuse services.
- Payments in excess of the five day average limit on alcohol
detoxification, and twenty-one day limit on drug detoxification.
A 100% disallowance will be taken on these exceptions.
>Under-Reported County Costs (State or Federal
Under DCS 84-23, the Department's policy, effective
with the CY 1985 county audits, was to not reimburse counties
for any incorrectly under-reported costs discovered through an audit.
This policy was modified by DCS-87-77 to be less restrictive. The
current policy applies to under-reported costs supported by state or
federal funds. The intention is to give the county credit for the
allowable expenses without the state supplanting unclaimable federal
When an audit identifies federal funds due to a
county, the Department will recognize the under-reported costs only
up to the amount of any negative audit adjustments or compliance audit
exceptions to net any cash payment to the county or state to zero (0),
unless otherwise specified in a state/county contract. In short, while
the Department will not reimburse counties for under-reported costs
found in the audit, the county will be allowed to use the dollars as
an offset against any amount owed to the state.
In addition, when the county has generated excess
matching funds, even though these funds may not generate additional
revenue, the county will be allowed to use the overmatch as an offset
against any amount owed to the state.
To resolve the county agency specific audit findings
under this policy, those Department staff members with audit resolution
responsibilities will direct the completion of a corrective action plan
authored by the audited agency. The resolution of Single Audit findings
which apply to funds provided by more than one Division within the
Department will be coordinated by the Department's Office of Program
Review and Audit. The corrective action plan is intended to detail how the
agency will correct the problems identified in the final audit report. The
plan will be submitted to the Department staff responsible for resolving
the audit. These staff will work with the audited entity to obtain a
written agreement that the audited entity will implement a mutually
acceptable corrective action plan.
When this agreement has been obtained, and any funds
due to the Department have been returned, the audit may be considered
resolved. Program Division staff responsible for audit resolution
activities will monitor the implementation of the plan to ensure that the
agreed upon corrections are made. Additionally, subsequent audits will
include a review of prior audit resolution plans and their implementation.
RESPONSIBILITY OF COUNTIES FOR AUDITS OF PROVIDER AGENCIES
The introductory section of this memo indicates the
broad audit responsibilities that counties have for the providers with
which they contract as a result of the Single Audit Act and OMB Circular
In addition, Wisconsin Statutes Section 46.036(4)(c)
states that each provider under contract shall
"Unless waived by the department, biennially, or
annually if required under federal law, provide the purchaser with a
certified financial and compliance audit report if the care and services
purchased exceed $25,000. The audit shall follow standards that the
The conditions under which a waiver may be obtained are
contained in the Department's Purchase of Service Instructions. (These
instructions have in the past been issued as part of the DCS Memo Series,
and are now included as Part B, Chapter 7 of this manual.) Any requested
waiver must be obtained from the Department by the county prior to the
county signing the contract with the provider agency.
The Provider Agency Audit Guide contains the
standards prescribed by the Department for audits of provider agencies
(vendors). The audit guide provides a uniform audit approach and uniform
documentation procedures for audits of organizations providing care and
services purchased under the provisions of Section 46.036(4)(c) of the
Wisconsin Statutes. It also provides instructions and assistance on
specific items which should be considered when contracting for audits.
This guide is intended to assist providers and their auditors in assuring
that the audits meet minimum state and federal requirements.
The material below provides some more specific
information concerning the counties responsibilities for audits of the
provider agencies with which they contract.
- The county should receive the provider agency's
annual audit report no later than 180 days from the close of the
provider agency's fiscal year, unless a different submission date is
specified in the contract.
- Audit requirements are based on the amount of funds
a provider agency receives. OMB Circular A-133, "Audits of
Institutions of Higher Education and Other Non-Profit
Organizations," issued March 8, 1990 states:
Audits of provider agencies should be made in
accordance with the provisions of OMB Circular A-133, Government
Auditing Standards published by the Comptroller General of the
United States, and the Department of Health and Social Services' Provider
Agency Audit Guide.
- Non-profit institutions that receive $100,000
or more a year in federal awards shall have an audit made in
accordance with the provisions of the circular. However,
non-profit institutions receiving $100,000 or more but receiving
awards under only one program have the option of having an audit
of their institution prepared in accordance with the provisions of
the circular or having an audit made of the one program.
- Non-profit institutions that receive at least
$25,000 but less than $100,000 a year in federal awards shall have
an audit made in accordance with this circular or have an audit
made of each federal award in accordance with federal laws and
regulations governing the programs in which they participate.
- Non-profit institutions receiving less than
$25,000 a year in Federal awards are exempt from federal audit
requirements, but records must be available for review by
appropriate officials of the federal grantor agency or subgranting
- The number and kind of individual reports that will
be contained in a vendor agency's audit report depends on a variety of
different circumstances. Section X of the Provider Agency Audit
Guide lists the various types of reports that may be issued, and
the reader is referred to that source for further information.
- The county should review the provider agency audit
report to determine:
- that the audit is adequate (i.e. the provider
agency had a financial and compliance audit which meets the
applicable federal, state and county requirements and notes any
problems in meeting the same, and that funding source requirements
have been met);
- the nature and amount of questioned costs;
- any items of noncompliance and the fiscal impact thereof, and;
- material internal control weaknesses.
Additionally, the county must reconcile the amounts
included in the audit report to the Board or DSS records by funding
source and contract period. The reconciliation should be kept on file
with the audit report.
- The county must follow up and resolve in writing:
- any questioned costs and items of
- recommendations and comments of the audit
firm's management letter regarding the accounting system and
internal controls, etc.;
- requests for the return of unearned funds
advanced and returned to the Department accordingly, and/or;
- payments of earned funds not advanced.
- Funds disallowed as the result of the audit should
be reported to the state with identification of source/contract
addendum. Audits should be brought to a conclusion within six months
upon receipt from the agency.
As part of the compliance audit of a county,
provider agency audit reports will be reviewed on a selected basis to
ensure that the audits have been properly handled. Deficiencies in the
county's review process will be dealt with on an individual basis with
emphasis on corrective action.
POLICY FOR RESOLUTION OF PROVIDER AGENCY AUDITS BY COUNTY AGENCIES
The previous section defined the responsibility of
county agencies for resolving audits of their provider agencies. The
purpose of this section is to establish a Provider Agency Audit
Disallowance Policy regarding the treatment of fiscal and compliance audit
exceptions and adjustments identified in provider audits. This policy is
modeled closely on the policy the Department has developed for resolving
audits of county agencies. In the future, the Department will update the
disallowance policy, as needed, to reflect changing audit requirements.
The Provider Agency Audit Disallowance Policy is based
on the distinction between: (1) Internal Control Findings, (2) Fiscal
Audit Exceptions and Audit Adjustments, and (3) Compliance Audit
The county agency is expected to complete an Audit
Resolution Letter which addresses these points. This letter is to be filed
with the audit report. In general, the county agency is being given the
same flexibility and constraints for resolving provider audits that the
Program Divisions of the Department have in resolving county audits.
- INTERNAL CONTROL FINDINGS: The audit report and
Management Letter will include the auditor's findings based on the
study and evaluation of the provider agency's system of internal
accounting control. Generally, the county agency will be required to
identify the type of corrective action to be taken by the provider,
and specify what action the provider plans to implement in the Audit
Resolution Letter. However, if the findings of internal control
weaknesses are of a critical nature or repetitive, the County must
consider an audit disallowance. Disallowances must be discussed with
the provider agency as part of the audit resolution process.
- FISCAL AUDIT EXCEPTIONS AND AUDIT ADJUSTMENTS:
These terms are used here and applied to provider audits in the same
manner the Department applies them to county agency audits. They
include problems identified through the review of provider expenditure
reports and agency records, instances of fraud, accounting errors,
unallowable costs, non-matchable costs, etc. For example, over or
under payment to a provider agency typically results from audited
expenditures not reconciling to reported expenditures.
A 100 percent disallowance should be taken on any
Fiscal Audit Exception or Audit Adjustment whenever it occurs. These
items are considered to be required adjustments where there is little
room for negotiation.
- COMPLIANCE AUDIT EXCEPTIONS: The definition of
compliance as used in provider audits differs from the compliance
aspect of county agency audits. Compliance exceptions for county
agency audits are due to non-compliance with the Department's purchase
of services requirements developed under Wisconsin Statutes 46.036.
For the purpose of provider agency audits, the compliance aspect
involves testing for compliance to the major provisions of the
county/Provider Agency contract(s), the compliance requirements found
in the Provider Agency Audit Guide, the Department's Allowable
Cost Policy Manual, and the federal compliance requirements
associated with federal funds that have been distributed to provider
agencies (these requirements are found in the compliance supplements
associated with OMB Circulars A-133 and A-128).
A 10 percent disallowance guideline will apply to
those compliance exceptions which do not come under Part II. The
county may take a higher or lower amount based on individual
circumstances. For example, a higher figure may be considered when
there are a large number of exceptions or a pattern of repetitive
(NOTE: In those cases where the county has
overmatched funds provided through the Department of Health and Social
Services, the disallowance collected from the provider agency by the
county can be retained by the county. If a county is not overmatched,
the disallowances collected must be returned to the Department.)
The Audit Resolution Letter must specify the amount
of any disallowance, and to whom it is owed. If the county retains any
or all of the disallowance based on the overmatch criterion noted
above, the Department will confirm the amount of overmatch based upon
the county expenditure reports. Any funds due to the Department should
be forwarded to the Department within thirty (30) days or the amount
will be deducted from a subsequent county payment.
The county may, at its discretion, allow provider
agencies to offset any amounts owed to the county against
under-reported expenditures or excess local match in the same way that
the Department applies this provision to counties.
It is important to note that money owed to a
provider agency for a prior year based upon the audit findings, may not
be charged against the current year contract of the county agency.
The Audit Resolution Letter should record agreement
between the county and the vendor agency on a corrective action plan
and implementation timetable for addressing any problems disclosed
during the audit. Audits will be considered resolved only when
agreement on a corrective action plan has been reached and any funds
due to the county have been paid. The Department of Health and Social
Services will monitor county performance in resolving audits of
provider agencies by reviewing the Single Audit reports of the
counties. Based on the results of this review, the Department, acting
through the Program Division staff who have audit resolution
responsibilities, may restrict the flexibility of individual counties
to resolve provider agency audits.
May 30, 2014