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 organizations.
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 sub recipients, 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 Policy Manual?
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 basis.
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. When a non-profit 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 resolving audits.
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 this manual.)
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 judgment."
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 audit?
Q18. What process does a county follow to handle "audit refund distribution"?
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 resolution?
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.