10.1 Effective Internal Controls

Lead Agencies must ensure the integrity of the use of CCDF funds through effective fiscal management and must ensure that financial practices are in place. Lead Agencies must have effective fiscal management practices in place for all CCDF expenditures. 10.1.1 Organizational structure to support integrity and internal controls Describe how the Lead Agency’s organizational structure ensures the oversight and implementation of effective internal controls that promote and support program integrity and accountability. Describe: Responsibilities/Delegation of Duties: Contracts and Grants Monitoring & Compliance Unit The Contracts and Grants Monitoring & Compliance Unit (M&C) monitors financial assistance contracts and grants. The M&C Unit Supervisor delegates duties and manages the Lead Monitoring Coordinator (LMC), and a temp staff monitor. The Supervisor reviews and approves specific monitoring components (reports, Monitoring Plan etc.) and assigns special projects as needed. Subsidy Compliance Unit The organization of the Subsidy Compliance Unit ensures the oversight and implementation of effective internal controls. One Senior Subsidy Compliance Manager manages the Program and Provider Compliance teams. The Program Compliance team consists of one Lead Worker and four Program Compliance Consultants. The teams share one Data Manager and one Administrative Assistant. The responsibility of the Subsidy Services Compliance Units is to interact with Local Purchasing Agencies and child care providers. Local Purchasing Agencies are monitored related to correct administration of eligibility determinations and case management. Child care providers are monitored related to correct attendance billing. Coordination of Activities: Contracts and Grants Monitoring and Compliance Unit The LMC is responsible for coordination of monitoring activities, including schedule and monitoring assignments, monitoring reports and tracking of the monitoring (including any corrective actions), until the monitoring is closed. The LMC is also responsible for conducting monitoring training, developing/updating monitoring tools, and responses to DHHS Office of Internal Audit and assessment (EAGLE) and Office of State Auditor queries. Subsidy Compliance Unit The Program Compliance Lead Worker is responsible for the day-to-day operations of the Unit. The Program Compliance Unit uses Risk Assessments completed by the Subsidy Policy Unit. The Risk Assessments take into consideration the county self-assessment completed annually for DHHS. The Lead Worker coordinates and collaborates with the DHHS Office of the Internal Auditor staff to identity high risk providers. One Provider Compliance Consultant works with the administrative assistant to send out the quarterly sanction reporting requests. This consultant tracks the responses on a spreadsheet. DCDEE has a fraud reporting email account. This inbox is managed by the Provider Compliance team. Providers identified as high risk based on factors primarily based on past performance are monitored annually. Communication Fiscal/Program Staff: Contracts and Grants Monitoring and Compliance Unit The M&C Unit requests and receives programmatic assessments from DCDEE program staff as part of CCDF contract monitoring. Program issues identified during monitoring are communicated to program staff and staff are included in any ongoing programmatic concerns or corrective actions. The M&C Unit requests and receives fiscal and reimbursement data for contracts from the budget unit in preparation for monitoring. Subsidy Compliance Unit Checks received from providers who have overpayments are forwarded to the DCDEE Budget Office for submission to the DHHS Office of the Controller. Segregation of Duties: Contracts and Grants Monitoring and Compliance Unit Risk assessments are completed by the LMC and reviewed/approved by the M&C Unit Supervisor. The LMC compiles monitoring reports that are reviewed/approved by the M&C Unit Supervisor, then reviewed by an internal team before sending to the Division director for final review/approval. Subsidy Compliance Unit For Local Purchasing Agency monitoring, the Program Compliance Unit is separate and apart from the Technical Assistance Unit that trains and consults with the Local Purchasing Agency staff. The Subsidy Policy Unit is separate and apart from the Program Compliance Unit. Checks and Balances: Contracts and Grants Monitoring and Compliance Unit The M&C Unit reviews a sampling of fiscal expenditures to ensure appropriate, allowable expenditures; payroll and travel records are examined to determine appropriate methods/approvals are utilized; audit reports (if applicable) are reviewed for findings and potential impact on programs. Subrecipient monitoring (if applicable) is reviewed to ensure appropriate contractor oversight. For contracts that support programs with individual participants, applications/approvals are examined to ensure appropriate eligibility. Internal Control Questionnaires are performed on non-governmental contractors to determine an appropriate system of duties segregation to mitigate fraud risk. Risk assessments are conducted annually to identify contracts that may require additional fiscal or program reviews outside the scope of standard monitoring. Subsidy Compliance Unit The Lead Worker coordinates and collaborates with the DHHS Office of the Internal Auditor staff to identity high risk providers. One Provider Compliance Consultant works with the administrative assistant to send out the quarterly sanction reporting requests. This consultant tracks the responses on a spreadsheet. DCDEE has a fraud reporting email account. This inbox is managed by the Provider Compliance team. Providers identified as high risk based on factors primarily based on past performance are monitored annually. Other Activities to Support Program: Contracts and Grants Monitoring and Compliance Unit An annual Division Monitoring Plan is sent to DHHS Office of Internal Audit for review before submission to the NC Office of State Budget and Management. The Monitoring Plan contains an overview of program monitoring, education/TA, and close-out of awards. The Division Monitoring Procedures Manual is an internal document that details program monitoring procedures. It is updated annually and reviewed by program supervisors and staff. Include the following elements in your description: 1. Assignment of authority and responsibilities related to program integrity. 2. Delegation of duties. 3. Coordination of activities. 4. Communication between fiscal and program staff. 5. Segregation of duties. 6. Establishment of checks and balances to identify potential fraud risks. 7. Other activities that support program integrity. 10.1.2 Fiscal management practices Describe how the Lead Agency ensures effective fiscal management practices for all CCDF expenditures, including: a. Fiscal oversight of CCDF funds, including grants and contracts. Describe: NC DCDEE's use of CCDF is reviewed every year by the NC Department of Health and Human Services to ensure effective internal controls for overall administration of these funds. For activities funded with CCDF quality dollars, the Division of Child Development and Early Education's Center of Excellence committee reviews and evaluates proposed activities. The committee ensures that all funded proposals reflect the goals of the Division of Child Development and Early Education, comply with all CCDF regulations, have clear budgets, and have measurable outcomes. Formal contracts stipulate the services to be rendered by the contractor; outline specific budget line items; and require assurances/certifications that funding will be used for approved purposes. DCDEE follows a comprehensive annual monitoring plan to assess contractor compliance with all fiscal and programmatic requirements. b. Tracking systems that ensure reasonable and allowable costs and allow for tracing of funds to a level of expenditure adequate to establish that such funds have not been used in violation of the provision of this part. Describe: 1. North Carolina prepares an annual budget that details the planned expenditures for CCDF funds. The budget allocates funds to various categories, such as direct services (subsidy), quality improvement activities, and administrative costs. 2. North Carolina uses the North Carolina Financial System (NCFS) to manage and track financial transactions related to CCDF funds. 3. NCFS allows for real-time tracking of expenditures against the budget. Specific modules and reports within the system are dedicated to grant management, ensuring detailed monitoring of all grant-related activities. 4. The Budget Team updates the CCDF 696 Tracking Report (CCDF Tracker) monthly using data from NCFS. This ensures that all spending aligns with the planned budget and complies with federal and state guidelines. c. Processes and procedures to prepare and submit required state and federal fiscal reporting. Describe: DCDEE has different procedures for all the different reports required for CCDF. For the financial report, 696, DCDEE CCDF Budget Analyst sends CCDF expenditure spreadsheets to the Office of the Controller who then submits the 696 to OCC. For the 218, Quality Progress Report, DCDEE CCDF Coordinator provides programmatic information about DCDEE contracts to the Budget Officer who then provides expenditures for the different items on the QPR. For state fiscal reporting, DCDEE CCDF Budget Analyst shares reports with the Office of the Controller. The 800 report is completed annually by the CCDF Finance and Business Analyst. This report requires the State and Territory Lead Agencies to report annual estimates of families, children and providers receiving subsidies due to COVID-19 circumstances, which were funded through grants, contracts, or certificates. These annual estimates will be reported as part of ￿Element #15: Comments￿, along with a description of the population of families, children, and providers reported in ACF-800 data elements #1, #2, and #8. The annual estimates include the numbers of: Families and children served whose subsidy was partially or fully funded with CARES Act dollars; Essential worker (e.g., medical workers, first responders, etc. as defined by the State) families and children served because of the COVID-19 crisis (funded with CARES Act and broader CCDF dollars); Providers that served children of essential workers because of the COVID-19 crisis (funded with CARES Act and broader CCDF dollars); and Providers that closed for some period of time and received subsidies based on enrollment (funded with CARES Act and broader CCDF dollars). The 801 report is completed using a full population and unloaded monthly. The 801 report is entered 3 months after the close of the month due to billing and payment practices of the DCDEE. The state’s case management and payment system, NC FAST, prepares the samples and they are downloaded to a shared drive from which the files are uploaded to CARS. The 404 Error Rate Review report is completed by staff in the Subsidy Services Section. The 403 report is automated in NC FAST. The Program Compliance Lead Worker and Manager complete the error sections of the report. NC FAST generates the numeric data. Some portions of the report dealing with what was completed and the plans for the next cycle are prepared by the Senior Manager and the Subsidy Assistant Director. The Senior Subsidy Compliance Manager and the Assistant Director complete and enter data into the ACF Online Data Collection tool and the Assistant Director submits the report. The 901 was automated in the Stabilization Grant Portal through report queries. d. Other. Describe: Local Purchasing Agency Subrecipient Monitoring and Child Care Provider Monitoring are completed by DCDEE Subsidy Section staff in accordance with the DCDEE monitoring plan. NC Department of Health and Human Services evaluates the DCDEE monitoring activities annually to ensure internal controls are in place. 10.1.3 Effectiveness of fiscal management practices Describe how the Lead Agency knows there are effective fiscal management practices in place for all CCDF expenditures, including: a. How the Lead Agency defines effective fiscal management practices. Describe: The Lead Agency defines effective fiscal management practices as the strategies, procedures, and policies that the Agency implements to effectively manage its financial resources. They include the development of a comprehensive budget, implementing systems to monitor financial activities regularly, establishing internal controls, providing timely and accurate financial reports to stakeholders, and ensuring compliance with all applicable laws, regulations, and funding requirements related to financial management. For CCDF Quality/Contract funds/expenditures: Monitoring by the Monitoring & Compliance Unit and Budget Unit: The DCDEE’s Monitoring & Compliance and Budget Units conduct ongoing monitoring of all CCDF contracts and quality expenditures. This includes reviewing financial reports, reimbursement requests, and supporting documentation to verify that all expenditures follow state and federal guidelines. State Audits: The NC State Auditor's Office periodically audits DCDEE’s financial operations. These audits ensure that all funds are being managed according to state laws and CCDF regulations and that effective fiscal practices are in place. Compliance with NC DHHS Policies: The DCDEE follows the North Carolina Department of Health and Human Services (NC DHHS) fiscal policies and procedures, ensuring that all financial activities related to CCDF are handled with the highest standards of accuracy and transparency. Detailed Contract Provisions: All contracts issued by the DCDEE for CCDF funds include specific provisions related to fiscal management, such as requirements for budgeting, allowable costs, and detailed reporting. These contracts are designed to ensure that funds are used appropriately and that contractors adhere to all financial guidelines. For Subsidized Child Care Assistance program: The DHHS Office of Internal Auditor reviews DCDEE Subsidy Services Section annually. Controls for Special Tests and Provisions are as follows: 1. Based on the review schedule, Provider Compliance Consultants complete reviews of child care facilities and documents information using the Visit Checklist of Child Care Providers Receiving Subsidies and the Provider Subsidy Attendance Evaluation forms. (C34.5) 2. Within 45 days of the on-site visit, the Provider Compliance Consultant prepares the Investigations Findings Report and submits it to the Provider Compliance Lead Worker for review. Facilities in compliance are approved by the Provider Compliance Lead Worker. The Sr. Subsidy Compliance Manager reviews all reports for providers that are out of compliance and signs all letters. The Compliance Administrative Assistant, Division of Child Development and Early Education, mailed the report to the provider via USPS. The Consultant follows up with the provider to ensure receipt of the report. The Final Report identifies specific findings and corrective actions plans (CAPs). (C34.6) 3. The CAPs are received and reviewed by the Provider Compliance Consultants to determine if the action plans have been completed timely. Regarding the referral visits, the Provider Compliance Consultant records the CAP due date in the ￿Prov Comp Tracking Log￿ and records the date the CAP is received in the log to evidence timely receipt of the CAPs. (C34.7) For the SFY 23-24 there were no audit findings on these controls. The Program Compliance Unit has controls for Subrecipient Monitoring. 1. The Subsidy Services Program Compliance Unit is responsible for conducting monitoring reviews to each of the 100 LPAs once every three years as required by the DCDEE Subrecipient Monitoring Plan. The Monitoring Schedule is used to schedule the monitoring reviews over the three-year period. (C33.8) 2. Based on the monitoring schedule and the sample size, a Program Compliance Consultant or a team of consultants completes reviews of each LPA and documents programmatic and fiscal information using the monitoring tool. (C33.9) 3. Within ninety (90) days of the monitoring reviews, the Program Compliance Consultant prepares the Monitoring Report and if the LPA is out of compliance, she submits the report to the Senior Subsidy Compliance Manager (60038860) who reviews the report, signs it, and submits the report to the LPA. If the LPA is within compliance (results score is 95% or above), the Program Compliance Consultant submits the Monitoring Report to the Program Compliance Lead Worker (65026134) who reviews the report, obtains the Senior Subsidy Compliance Manager’s signature, and submits the report to the LPA. The Monitoring Report identifies specific findings and corrective actions. (C33.10) 4. Within 365 days of the exit conference, LPAs must complete all corrective actions within the North Carolina Families Accessing Services through Technology (NC FAST) system, unless the LPA has experienced a hardship which prevents them from meeting this deadline. Once all completed corrective actions are approved by the assigned Program Compliance Consultant, a ￿finalization letter￿ is submitted to the Senior Subsidy Compliance Manager (60038860) who reviews and approves it, as evidenced by a signature, and submits it to the LPA. (C33.11) There were no findings for the SFY 23-24. b. How the Lead Agency measures and tracks results of their fiscal management practices. Describe: The Lead Agency measures and tracks the results of its fiscal management practices through various methods and metrics, including monitoring key financial indicators such as budget variances and expenditure trends, ensuring the accuracy and timely delivery of financial reports such as the ACF-696 report, regularly reviewing policies and procedures, and soliciting feedback from relevant stakeholders. c. How the results inform implementation. Describe: The results provide the Lead Agency with critical information and guidance for updating and implementing financial management policies, procedures, programs, thereby ensuring responsible stewardship of federal funds. d. Other. Describe: 10.1.4 Identifying risk Describe the processes the Lead Agency uses to identify risk in the CCDF program including: a. Each process used by the Lead Agency to identify risk (including entities responsible for implementing each process). Describe: The Subsidy Compliance Teams use the following four risk factors to adjust scheduling of monitoring for Local Purchasing Agencies and providers: Referral, Random Resulted in Attendance Error Rate >10%, Non-Compliance Action, and overpayment >10%. The Program Compliance Team uses Local Purchasing Agency scores below 95% to complete the monitoring schedule. Counties with scores below 95% in the previous monitoring cycle are prioritized for monitoring at the beginning of the monitoring next cycle. b. The frequency of each risk assessment. Describe: The risk assessments are completed on a form annually by the Policy Unit. c. How the Lead Agency uses risk assessment results to inform program improvement. Describe: DCDEE uses risk assessments to identify child care providers who are at increased risk non-compliance with program rules, policies and procedures. Also, the Local Purchasing Agency risk assessments are used to establish the monitoring schedule. d. How the Lead Agency knows that the risk assessment processes utilized are effective. Describe: DCDEE used the guidance of the NC Department of Health and Human Services, Office of the Internal Auditor, to develop the Risk Assessment tool to ensure sure the risk assessment is relevant. The risk assessments consider staff turnover at local departments of social services and local purchase agencies and this allows DCDEE to analyze trends for planning strategies to address related concerns such as providing technical assistance staff and training to assist local staff. The DCDEE Risk Assessment tool is submitted to the Office of the Internal Auditor with the DCDEE subrecipient monitoring plan. DCDEE has noted improvement to monitoring and compliance through prioritizing monitoring for the upcoming SFY based on the six highest risk assessments. Analysis indicated change from two to six subrecipients being assessed as high risk (last year compared to this year) and went from zero of the high risk subrecipients being monitored to one this SFY. e. Other. Describe: Not applicable. 10.1.5 Processes to train about CCDF requirements and program integrity Describe the processes the Lead Agency uses to train staff of the Lead Agency and other agencies engaged in the administration of CCDF, and child care providers about program requirements and integrity. a. Describe how the Lead Agency ensures that all staff who administer the CCDF program (including through MOUs, grants, and contracts) are informed and trained regarding program requirements and integrity. i. Describe the training provided to staff members around CCDF program requirements and program integrity: The Senior Subsidy Compliance Manager delivers a presentation to the Program Integrity Regional Meetings across the state. ii. Describe how staff training is evaluated for effectiveness: DCDEE informally evaluates the effectiveness of staff training based on staff performance following the training through second party reviews and by informal requests for feedback following the training. iii. Describe how the Lead Agency uses program integrity data (e.g., error rate results, risk assessment data) to inform ongoing staff training needs: Error rate errors identified are reported to the Technical Assistance staff in the Subsidy Services Section using a referral form following each agency monitoring performed by the Program Compliance Unit. The TA staff work with the LPAs directly to address errors found in monitoring. In coordination with other Division staff, training material, relating to procedures and techniques of good practice in the delivery of subsidy program services, is developed and disseminated. This work can include virtual or in-person meetings with Division of Social Service Child Care staff and child care of Local Purchasing Agencies staff to review errors and discuss policies. These meetings are held with individual counties or by a consultant with their assigned counties. Semi-annually, a statewide meeting is held by the Subsidy Technical Assistance Staff to provide training to all Division of Social Service Child Care staff and child care staff of Local Purchasing Agencies on topics where errors have been common. There is a also a record review component where records are reviewed to assess for the prevalence of errors found in monitoring. b. Describe how the Lead Agency ensures all providers for children receiving CCDF funds are informed and trained regarding CCDF program requirements and program integrity: i. Describe the training for providers around CCDF program requirements and program integrity: The Provider Compliance Team within the Subsidy Services Section maintains a presentation related to the work performed by team on the DCDEE website. ii. Describe how provider training is evaluated for effectiveness: DCDEE informally evaluates provider training based on provider performance following the training. Based on data collected by the Program Compliance Staff the Subsidy Policy Unit has been asked to create a training on the Subsidized Child Care Provider Agreement. The Provider Compliance Consultants provide materials to providers when they find anomalies in billing records. iii. Describe how the Lead Agency uses program integrity data (e.g., error rate results, risk assessment data) to inform ongoing provider training needs: Provider Compliance Consultants have identified training needs for the Subsidized Child Care Provider Agreement, rules related to sanctions, overpayments, and appeals. In preparation for the next periodic rule review, Subsidy Section staff are consulting with the Assistant Attorney General assigned to DCDEE. 10.1.6 Evaluate internal control activities Describe how the Lead Agency uses the following to regularly evaluate the effectiveness of Lead Agency internal control activities for all CCDF expenditures. a. Error rate review triennial report results (if applicable). Describe who this information is shared with and how the Lead Agency uses the information to evaluate the effectiveness of its internal controls: Error Rate Review Reports are created for and provided to each local purchasing agency that has one or more error cases. DCDEE has a procedure where all routine Local Purchasing Agency monitoring is flagged for errors found in the Error Rate Review. A form is used to share information about the same error types with Technical Assistance Consultants as routine monitoring occurs. Technical Assistance Consultants also receive the monitoring report and the list of cases monitored. b. Audit results. Describe who this information is shared with and how the Lead Agency uses the information to evaluate the effectiveness of its internal controls: DCDEE is audited by DHHS annually. Recommendations and findings related to Program and Provider auditing are shared with the DCDEE monitoring staff and, when applicable, program procedures for monitoring of Local Purchasing Agencies and Providers are made by DCDEE. If a finding is determined by the DHHS Office of the Controller, the internal controls for Provider Compliance and Program Compliance activities are adjusted to better meet the control requirement. The auditor presents opportunities for improvement which include suggestions to further strengthen internal controls. c. Other. Describe who this information is shared with and how the Lead Agency uses the information to evaluate the effectiveness of its internal controls: In the spring of 2023, DCDEE convened a work group with 5 counties to examine the DCDEE Local Purchasing Agency monitoring processes. As a result of this work group, DCDEE made modifications to the monitoring processes. These changes took effect in SFY 24-25, on July 1, 2024. The changes to the subrecipient monitoring have been implemented. Changes did not affect the internal controls in place previous to the adjustments in the monitoring. The DHHS Office of the Internal Auditor will perform testing of the monitoring results in the Spring of 2025. 10.1.7 Identified weaknesses in internal controls Has the Lead Agency or other entity identified any weaknesses in its internal controls? a. [ ] No. If no, describe when and how it was most recently determined that there were no weaknesses in the Lead Agency’s internal controls. b. [x] Yes. If yes, what were the indicators? How did you use the information to strengthen your internal controls? Related to sub-recipient monitoring, it was determined one Mandatory/Matching sub-award had not been communicated to sub-recipients. Procedures were enhanced to ensure information is communicated according to procedure.