PART B - AUDIT RESOLUTION QUESTIONS AND ANSWERS
As noted in the Introduction, one of the goals of this chapter is to combine in one
document the audit resolution material that was previously contained in several memos that
appeared in the DCS numbered memo series.
DCS 84-77 COUNTY AGENCY RESOLUTION OF VENDOR AGENCY AUDITS consisted of four
sections dealing with (a) questions and answers on county resolution of vendor agency
audits, (b) vendor agency audit report components, (c) a checklist for counties to use in
reviewing and resolving vendor audit reports, and (d) the review by DHSS auditors of the
resolution of vendor audits by the county.
In the current document, we have updated and retained the bulk of the material
previously included in the question and answer section. For guidance on what an audit
report should include, the reader is referred to the department's Provider Agency Audit
Guide and to OMB Circular A-133 which is the audit circular covering non-profit
A new checklist that one might use in reviewing audit reports and in setting the
groundwork for audit resolution is included following this question and answer section.
The section on the review of the county's audit resolution activities by DHSS auditors
has been deleted. The department, as part of its audit resolution responsibilities under
the Single Audit Act of 1984, reviews and resolves audits of the counties. To the extent
that these audit reports disclose any difficulty with how the counties are handling audits
of their subrecipients, the department will follow up during the resolution of the
audit report of the county.
Questions and Answers
Q1. Do counties have the ability to negotiate less than a
100% disallowance with their providers when resolving audits?
The policies presented in the preceding sections of this chapter provide the counties
with considerable flexibility in resolving audits with its providers. The department may
monitor compliance with the provisions of the provider resolution policy.
Q2. Must counties follow the department's Allowable Cost
Yes, county and provider agencies are expected to comply with both the principles and
the specific provisions of the manual.
Q3. Under what circumstances, if any, may the provisions of
the Allowable Cost Policy Manual be waived?
Under current practice, the individual Program Divisions of the department will
consider requests for waiving specific cost policies or principles if an agency puts into
writing the specific policy that it requests be waived along with a justification for
requesting the waiver. The department will consider requests for waiver on a case-by-case
Q4. Can counties waive parts of the provider contract or
decide at the end of the contract period not to enforce certain contract provisions?
While the department provides a Model Contract, the actual contract language is the
responsibility of the county agency and provider. The parties to the contract may agree to
amend or renegotiate the contract provisions under the terms of the contract. However, the
county agency and provider may not amend or renegotiate their contract in such a
way as to violate state requirements.
If the county agency and the provider choose to negotiate a contract which is different
from the Model Contract, or if they choose to amend a contract in such a way that the
amendment results in contract language different from that contained in the Model
Contract, such contracts, or amendments, will require state approval.
Q5. What is the county's responsibility when a provider is
in the red?
Any provider organization, especially small single-purpose organizations may from time
to time experience operating losses, although this phenomenon is certainly not limited to
only small agencies. If a county chooses to enter into a contract with such an
organization (for example, in the case of an organizations that fills a critical service
need which cannot easily be replaced) the county may, of course, do so; however, state
policy and statutory requirements must still be followed. In a situation where a county
chooses to contract with an organization that might be considered a "high risk"
organization, the county might wish to incorporate into its contract with the organization
sufficient provisions to safeguard its interests to the extent possible. Some guidance for
dealing with organizations that qualify as high risk organizations are presented elsewhere
in this manual. (See Part B, Chapter 7)
Q6. What action, if any, should be taken by the county when
a non-profit agency continues to show a substantial annual operating reserve or a
continually increasing operating reserve?
It is not unusual for larger agencies to have an operating reserve. Such reserves, for
certain types of providers, are an allowable cost as explained in the department's
Allowable Cost Policy Manual. The audit report should show whether the county agency has
contributed toward a reserve. Under these circumstances, the county may (a) ask for a
refund, (b) negotiate a lower rate in the next possible contract period, (c) amend future
contracts with the provider to clearly state that operating reserves are not an allowable
cost under the contract, or (d) no longer contract with the agency.
Q7. ofit agency has shown a profit in the prior year? What bearing does the audit
have on rate setting?
In contracting for services, county agencies are responsible to ensure that the
contract rate conforms to the department's Allowable Cost Policy Manual and Wisconsin
Administrative Code, Section HSS 1.01 (Uniform Fee Schedule). However, the word
"allow" is misleading because the contract unit rate is a matter of negotiation
within the constraints noted above. Rate increases should be justified by realistic
budgets and utilization estimates. As noted above, the audit report should inform the
county if they have been overcharged or have overpaid and this may have an impact on a
subsequent contract rate.
Q8. When a statewide provider has a contract with multiple
counties but the largest contractor does not require an audit, should the other counties
still require one?
Audit waivers are granted by the department and unless a waiver was granted, the other
counties referred to in the question would have to secure an audit. In its consideration
of audit waivers for organizations that serve multiple counties, the department will try
to ensure that individual counties do not assume an unfair burden for securing and
Q9. When you have a hospital with an outpatient clinic,
what part of the audit should the county look at?
If the clinic is indeed part of the general hospital, the department does not require a
certified audit (See the purchase of service instructions included as Part B, Chapter 7 in
Q10. What does a county do when a provider goes bankrupt or out
of business for any reason?
The county has no obligation to a vendor beyond the current contractual agreement. From
the point that a vendor is unable to complete its contractual obligations, the county must
determine if it needs to file a claim for services paid for but not rendered. Also, the
most common concern in this situation has been whether the state would still require the
county agency to secure an audit. Generally, the audit has been waived if the vendor does
go out of business and there is an acceptable accounting of payments and services.
Q11. When is it appropriate to ask for an audit and when is it
appropriate to waive an audit? What process should be followed for audit waivers?
The purchase of service instructions, included as Part B, Chapter 7 in this manual,
details both the process for requesting audit waivers from the department and the criteria
for the granting of waivers. Several of the criteria are very specific but it is important
to note that one of the criteria -- "Undue burden on the provider" -- is
intentionally more general. It allows the county agency and the department to review
individual cases based upon what can only be termed their "best business
Q12. What does a county do when it receives an audit but the
audit is not certified?
The term "certified" means that the audit firm gave an opinion on the
financial statements and any other required opinions. The opinions can contain
qualifications and still be certified. The nature of the qualification should be examined
by the county. An adverse opinion, a disclaimer of opinion, or no opinion are acceptable
but only for one year.
Q13. ; What does a county do when a provider is uncooperative in
meeting contract provisions (that is, in submitting timely and accurate reports on clients
served and costs)?
There is no single "right thing to do" when one party does not fulfill its
contact obligations. There are a number of possible approaches which range from
withholding payments, negotiation, legal remedies, or simply not renewing the contract.
Q14. How will the issue of donations, and funding events
that bring funds into the provider agency be handled, and specifically, will provider
agencies still be allowed to have excess funds for their own emergencies?
The provider agencies have always been allowed to retain donations if the donor or
donee restrict the contribution. Unrestricted donations would be used as a cost offset.
Q15. How is a person trained in social work competent to evaluate
the work of a CPA?
The county or provider agency is purchasing the services of the CPA firm and has every
right to expect an understandable report. It is the obligation of the CPA firm to clear up
any ambiguities. The director is not expected to do a professional evaluation of the CPA
firm but is responsible for reviewing and understanding the audit report.
Q16. What procedures should a county follow when a provider
refuses to provide an acceptable audit report?
Assuming that the provider states his/her refusal prior to contracting,the county's
choices are (a) accept the refusal and risk a state audit exception, (b) decline from
contracting with the provider, or (c) negotiate with the provider about an alternative
form of fiscal monitoring and seek an audit waiver from the department. (NOTE: It is
important to remember that a waiver cannot be sought "after-the-fact." It must
be obtained prior to contracting.) In any event, the county should exhaust efforts to
secure an "acceptable" audit where perhaps there is a lack of understanding
rather than intention.
Q17. Does the provider agency need a CPA firm to carry out the
Q18. What process does a county follow to handle "audit
The department's provider audit resolution policy requires that the county agency
complete a resolution letter which details any refund distribution.
Q19. What does a county do when an impasse is reached on an audit
If a true impasse has been reached there are only limited remedies remaining:
(a) withhold payments if still contracting, (b) go to court, (c) cease contracting with
the provider. The intention of the audit resolution policy elaborated above is to give
counties flexibility within state requirements to negotiate the audit resolution. However,
the county will be held responsible for the proper use of state funds by providers.
Q20. Will the state be establishing uniform procedures for
counties to follow in fulfilling county responsibilities for audit resolution?
No. At this point, the provider audit resolution policy presented in the beginning of
this chapter identifies the areas the counties must review in provider audit reports but
does not detail procedural steps for the resolution of audit issues.
Q21. What role does the Area Administrator play in relation to
county resolution of provider audits?
The role of the regional office staff is to provide technical assistance to counties on
provider audit resolution issues but the regions will not approve individual
resolution plans. On a regular basis, the regional offices will monitor county agency
compliance with the provider audit resolution policy. Depending on the monitoring results,
the Program Division of the department may reduce or eliminate the flexibility of
individual counties. Program Division central office staff will continue to serve as a
resource to regional office staff. The department's Division of Management Services will
not have a direct role in the provider/county agency resolution process. The department's
Office of Program Review and Audit will monitor the entire system through its review of
audits of counties.
Q22. What should be said in a contract about audits?
The Model Contract for the Purchase of Services includes audit language that may be
used. In addition, the department's Provider Agency Audit Guide provides an indication of
what should be covered in an audit.
Last Revised: July 12, 2010