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: Under the authority of Tenn. Code Ann. § 4-4-124, the Office of Inspector General (OIG) includes oversight of the Lead Agency’s independent monitoring of programs, and includes internal audit, program monitoring, claims management, background checks, and investigations functions. The activity’s purposes, authority, and responsibility of the Division of Audit Services is defined and established through the Office of Inspector General Division of Audit Services Charter. OIG investigates referrals of potential fraud, waste, and abuse, and handles adjudication. OIG partners with other state and federal agencies and law enforcement entities as necessary on investigations. The Division of Audit Services External Program Review (EPR) includes Grants and Contracts Monitoring and Food Program Monitoring, providing independent and objective monitoring and consultation services to programs administered by TDHS, including the Lead Agency CCDF Program. The Division of Audit Services Internal Audit Division (Internal Audit) assists the Lead Agency in complying with federal, state, and Lead Agency laws, regulations, and rules by conducting regularly scheduled and random audits of various programs administered by TDHS, including the Lead Agency CCDF Program. The Office of Inspector General, Division of Audit Services EPR assists the CAE with preparing an annual subrecipient monitoring plan based on prior activities and current risk assessments. Auditing and monitoring are secluded and performed annually based on risk analysis. Internal Audit activities are performed in accordance with the Global Internal Audit Standards (GIAS). The CAE ensures each engagement of the Internal Audit plan is executed, including the establishment of objective and scope, assignment of appropriate and adequately supervised resources, documentation of work programs and testing results, and appropriate communication of engagement results with applicable conclusions and recommendations. The Lead Agency’s Fiscal Services, staffed by the Tennessee Department of Finance and Administration, performs accounting services for the Lead Agency and ensure expenditures are recorded in the state’s accounting system of record accurately and timely. Lead Agency program management, Budget, and Fiscal Services management communicate frequently, and routinely meet to review budget vs. actual reports to ensure costs are reasonable and allowable. The Director of Audit Services is the Lead Agency’s designated Chief Audit Executive (CAE), reporting directly to the TDHS Commissioner, administratively to the Inspector General (IG), and indirectly to the Executive Internal Auditor (EIA) appointed by the Governor. The CAE ensures the principles of integrity, objectivity, confidentiality, and competency are applied and upheld. Internal Auditors are required to avoid conflicts of interest by having no direct operational responsibility or authority over any of the activities audited. The CAE ensures Internal Audit remains free from conditions that may threaten the ability of auditors to carry out responsibilities in an unbiased manner, including matters of audit selection, scope, procedure, frequency, timing, and content. EPR Directors must remain free from personal or organizational influence that would interfere with professional objectivity and independence and do not implement internal controls, develop procedures, or prepare records. EPR Directors are required to provide assurances of the objectivity and independence of monitoring activities and freedom from any conflicts of interest that may impair the judgment of EPR audit or monitoring staff. The Office of Inspector General, Division of Audit Services and Division of Program Integrity conduct investigations regarding waste, fraud, or abuse of contracts or subrecipients. Internal Audit prepares and submits its Audit Plan to the state’s Office of the Comptroller of the Treasury annually. Internal Audit serves as a point of contact and coordinates the Lead Agency’s responses to external audits. Internal Audit helps identify areas that may require increased monitoring and support and is the Lead Agency lead unit for compilation of the Lead Agency annual Financial Integrity Act Risk Assessment. 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: Fiscal oversight of the Lead Agency's CCDF-funded grants and contracts includes multiple levels of review and approval from inception to execution. The Lead Agency follows an agency-wide reimbursement request policy to ensure fiscal accountability for sub-recipients. Sub- recipient reimbursement requests and supporting documentation are reviewed by Lead Agency program staff for accuracy and allowability prior to submission to Fiscal Services for payment. Fiscal Services reviews and enters invoices for proper recording of expenditures in the state's accounting system. Invoice submissions for contracts are also reviewed and approved by Lead Agency program management with direct oversight for a contractor’s scope of services to ensure allowable use of funds. Lead Agency program staff track payments against maximum liability of the grants or contracts for monitoring purposes to ensure grantees and contractors are paid timely and within contract terms. For child care providers that contract with the Lead Agency to participate in the Child Care Payment Assistance/Certificate Program, the terms and conditions of the provider agreement detail requirements a contractor must meet, including vendor registration, time and attendance reporting, documentation, audit and repayment requirements, administrative review dispute resolution process, and CCDBG requirements. Subsidy payments are generated using child care provider enrollment records which represent a child care provider’s invoice for reimbursement for direct child care services. Child Care Payment Assistance/Certificate Program payments must complete a series of reviews by Lead Agency program staff and Fiscal Services offering multiple layers to mitigate payment errors and ensure appropriate documentation before disbursement. 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: Fiscal Services uses Edison, the state’s ERP system of record, to record transactions and assist the Lead Agency with the fiscal management of grants. Edison has mechanisms to track grant costs and expenditures, house reimbursement request supporting documentation and grant contract status and budget availability. Lead Agency program staff review and approve reimbursement requests for reasonableness and allowability of quality expenditures, including identifying earmarking requirements. Once reimbursement requests are reviewed and approved by Lead Agency program staff, invoices are submitted to Fiscal Services for payment processing in Edison. Fiscal Services routinely provides earmarking reports to Lead Agency program management for monitoring purposes to ensure compliance with CCDF earmarking requirements. Lead Agency program, Budget, and Fiscal Services management routinely meet to review budget vs. actual reports to ensure costs are reasonable and allowable. If a discrepancy is noted during a review meeting, Lead Agency program management notifies Fiscal Services and provides support of the needed correction which is recorded in Edison by Fiscal Services. c. Processes and procedures to prepare and submit required state and federal fiscal reporting. Describe: State and federal fiscal reports for the Lead Agency are prepared by Fiscal Services and subject to review by the CCDF Administrator, Co-Administrator, or designated Lead Agency staff. State and federal fiscal reports are prepared based on Edison, the State’s authoritative system of record, to ensure accurate submission of expenditure reports. Fiscal reports are reviewed by Lead Agency program and management submitted by Fiscal Services. The CCDF Administrator, CCDF Co- Administrator, and designated Lead Agency staff may leverage routine or ad hoc reporting mechanisms to monitor additional information that may be required for state and federal reporting. d. Other. Describe: N/A. 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 by monitoring its established fiscal procedures. State budgets are created annually and compared against costs routinely by Lead Agency and Fiscal Services management. Fiscal Services monitors grant cash management requirements. CCDF budget and fiscal reports are prepared and reviewed with Lead Agency management to ensure compliance and accuracy of federal grant requirements. b. How the Lead Agency measures and tracks results of their fiscal management practices. Describe: The Lead Agency sets policies and provides support on fiscal practices. Through internal audit processes, compliance with internal procedures is monitored and reported to Lead Agency management annually. Monitoring procedures include reviewing the process of monthly reimbursement submissions as well as site visits to ensure fiscal accountability. The Lead Agency’s Fiscal Services, staffed by the Tennessee Department of Finance and Administration, performs accounting services for the Lead Agency and ensure expenditures are recorded in the state’s accounting system of record accurately and timely. Lead Agency management routinely review cost items recorded to CCDF, along with budget to actual trends period over period. Fiscal Services provides expenditure and earmarking reports to Lead Agency management to ensure reasonableness and accuracy of recorded costs. Lead Agency program and Fiscal Services staff participate in internal, performance, and single audit review processes. Audit results are reviewed by Lead Agency and Fiscal Services management to evaluate practices and identify opportunities to strengthen internal controls, reduce risks, and implement continuous quality improvement. c. How the results inform implementation. Describe: Lead Agency and its Fiscal Services management, staffed by the Tennessee Department of Finance and Administration, develop and implement coordinated strategies that strengthen fiscal management practices as needed. d. Other. Describe: N/A. 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 Lead Agency conducts an annual risk assessment of the CCDF Program in consultation with its Office Inspector General. The annual risk assessment of the CCDF Program uses the COSO Enterprise Risk Management Framework adopted by the Tennessee Department of Finance and Administration (TDF&A) for risk identification, risk assessment, risk response, control activities, and monitoring. The Lead Agency includes CCDF program requirements with this annual process including but not limited to children and families, child care providers, quality activities, and internal performance management, compliance, and quality assurance. The Lead Agency also conducts an annual business impact analysis focusing on business processes, recovery time, recovery point objective with TDF&A Strategic Technology Solutions across financial, operational, regulatory, and reputation areas. Strategies to mitigate risk are continuously incorporated into policies, procedures, and program design elements. b. The frequency of each risk assessment. Describe: The Lead Agency conducts a risk assessment and a business impact analysis annually in collaboration with its Office of Inspector General and Tennessee Department of Finance and Administration (TDF&A) Strategic Technology Solutions, respectively. The Lead Agency identifies, monitors, and implements mitigation strategies as practices of continuous quality improvement. c. How the Lead Agency uses risk assessment results to inform program improvement. Describe: Engagement by Lead Agency staff in the risk assessment process allows for a strategic and comprehensive evaluation of CCDF Program objectives, the identification of potential risk, assessment of inherent and residual risk impact and likelihood, and frequency and efficacy of control activities. The Lead Agency practices continuous quality improvement monitoring data to identify and mitigate risk, develop, or revise policies and procedures, and enhance program design elements on which staff receive training. d. How the Lead Agency knows that the risk assessment processes utilized are effective. Describe: Risk assessment and mitigation strategies implemented by the Lead Agency typically result in strengthened internal controls, reductions in actual or potential errors, and effective delivery of programs and services to children, families, and child care providers. e. Other. Describe: N/A. 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 Lead Agency integrates CCDF program requirements, continuous quality improvement, and program integrity content in its New Employee Academies for its Child Care Payment Assistance/Certificate Program and Child and Adult Care Licensing staff. Lead Agency management staff participate in Fundamentals of CCDF Administration training when available. Child Care Program Reliability and Compliance staff of the Lead Agency engage in consultation and technical assistance with the Lead Agency Office of Inspector General, Office of Procurement, and other internal divisions on compliance, policy, and best practices. Lead Agency staff attend and disseminate information and practices learned from national program integrity trainings and webinars facilitated by the Office of Child Care and technical assistance partners. ii. Describe how staff training is evaluated for effectiveness: The Lead Agency’s Quality Improvement and Strategic Solutions (QISS) Division performs eligibility reviews of cases annually and case reading results are disseminated to Child Care Payment Assistance/Certificate Program management for review. Child Care Program Reliability and Compliance staff of the Lead Agency collaborate with management teams from Child Care Payment Assistance/Certificate Program and Child and Adult Care Licensing to identify mechanisms to monitor program delivery and identify areas of improvement. iii. Describe how the Lead Agency uses program integrity data (e.g., error rate results, risk assessment data) to inform ongoing staff training needs: The Lead Agency practices continuous quality improvement monitoring data to identify and mitigate risk, develop or revise policies and procedures, and enhance program design elements on which staff receive training. 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 Lead Agency regularly communicates with child care providers information and training about CCDF program requirements and program integrity, including through its on-site monitoring visits, training and orientation, technical assistance, email newsletters, fiscal services reviews, audit reviews, and through engagement by CCDF Quality Child Care Partners. In addition to technical assistance and training provided to Lead Agency CCDF program management, the Office of Inspector General, Division of Audit Services provides CCDF Quality Child Care Partners with training specific to compliance state and federal requirements. ii. Describe how provider training is evaluated for effectiveness: Compliance with state and federal requirements are monitored by the Lead Agency for trends to identify potential training areas that are less effective. Additionally, post-training evaluation surveys administered by the University of Tennessee Social Work Office of Research and Public Services (SWORPS) are collected from early childhood educators who complete trainings delivered by the Lead Agency or its CCDF Quality Child Care Partners. Surveys assist the Lead Agency with evaluating educator satisfaction, content accessibility, application of training, format and delivery, and desired content areas for future trainings. The Tennessee Early Childhood Training Alliance (TECTA) administers TrainTN, the official clearinghouse for early childhood trainings recognized as approved by the Lead Agency and a companion to the state’s training and professional development workforce registry, Tennessee Professional Archive of Learning (TNPAL). TrainTN includes a core training and competency review team of subject matter experts from the Lead Agency, other state agencies, Tennessee Child Care Resource & Referral Network (CCR&R), and other CCDF Quality Child Care Partners who ensure training content and training delivery partners align with federal and state requirements, national standards of practice, and the state professional development framework. Trainings are reevaluated as scheduled or as may be determined by the Lead Agency to ensure training is effective and aligns state and federal requirements, standards, and practices. iii. Describe how the Lead Agency uses program integrity data (e.g., error rate results, risk assessment data) to inform ongoing provider training needs: The Lead Agency leverages its training and professional development workforce registry, Tennessee Professional Archive of Learning (TNPAL), to monitor the need for training, technical assistance, or intensive coaching. Lead Agency staff may make referrals to its CCDF Quality Child Care Partners for training or remediation using its Training and Technical Assistance Management System (TAM) administered by the University of Tennessee Social Work Office of Research and Public Services (SWORPS). The Tennessee Child Care Resource and Referral Network (CCR&R) utilizes an Enhanced Quality Improvement Plan (EQIP) developed in partnership with child care providers; alternatively, individualized Professional Development Plans (PDPs) may also be leveraged to coach and guide early childhood educators. The Lead Agency and its CCDF Quality Child Care Partners also use data to identify need for new training opportunities. 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: The Lead Agency’s Quality Improvement and Strategic Solutions (QISS) Division conducts a modified review based on the ACF-403 criteria (used in the cohort 2 review) annually to monitor the error rate during years between formal ACF-404 submissions. Results of error rate reviews are disseminated to Lead Agency management and Child Care Payment Assistance/Certificate Program management to evaluate and strengthen internal controls, including potential enhancements of information systems, training, and revisions to the terms and conditions of the Lead Agency’s Child Care Payment Assistance/Certificate Program contract to support requirements. 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: Audit results are reviewed by Lead Agency management to identify areas of opportunity to strengthen internal controls, reduce risks, and implement continuous quality improvement. Lead Agency program management participate in the audit review process and formulate plans for corrective action or remediation when necessary. 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: N/A. 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? The Tennessee Comptroller of the Treasury’s Single Audit Report for the State Fiscal Year 2023 (July 01, 2022 through June 30, 2023), published on March 26, 2024, found the Lead Agency overpaid child care payment assistance to 11 of 60 providers sampled for children who were absent for more than 20 consecutive days. The audit reported these overpayment errors occurred for providers under the Lead Agency’s manual Electronic Attendance Verification (EAV) process. Beginning in April 2023, the Lead Agency replaced its manual EAV review process with implementation an automated EAV review process. The audit reported no overpayment errors were found for payments subject to the automated EAV review process. The Lead Agency continues its child care modernization as it replaces its legacy child care payment assistance system with technology solutions that strengthen internal controls and data quality through automation and mitigating such risks as manual data entry. The Lead Agency reviews internal controls as part of its annual evaluation of risk assessment.