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: Assignment of authority and responsibilities related to program integrity The Texas State Legislature designated TWC as the lead agency for CCDF in 1995 when the agency was formed. Included in that legislation was also the current structure for the administration of programs by 28 Boards. TWC provides oversight of the Boards, who contract out service delivery, including the management of CCS. TWC’s Commission has policy-making authority for the agency, including the child care program. New and changed policies are considered by the Commission in open public meetings where commenters have opportunity to weigh in. TWC’s ED assigns the responsibility of CCDF Administrator to the Division Director of TWC’s CC&EL Division. CC&EL manages the development and execution of the state plan, administrative rules, and program guidance pursuant to policies set by the Commission. CC&EL, in collaboration with other TWC divisions, oversees the administration of CCDF by Boards and other subrecipients. CC&EL also provides guidance and monitors the activities of sister agencies carrying out portions of the CCDF program. Delegation of duties In addition to the CC&EL Division, several other Divisions within TWC contribute to the implementation of CCDF. The CC&EL Division’s Grants & Contracts team develops and manages contracts administered by other non-Board entities. The Workforce Board Grants department is responsible for developing and managing contracts for CCDF funds administered by the 28 Boards and for overseeing contractual compliance and use of allocated funds. The Business Operations Division oversight of procurement, contracting and grant services to ensure compliance with federal and state requirements. The Division of Information, Innovation and Insight (I|3) Division manages and analyzes TWC’s data and calculates Board performance, including for child care contracted performance measures. The Finance Division oversees annual allocations, and Board and grantee financial reporting. FDCM Division is responsible for detecting and deterring fraud, waste, abuse, and to monitor the effectiveness, efficiency and integrity of TWC programs, including CCS. Coordination of activities CC&EL has standing meetings with all internal and external groups involved in the administration or oversight of CCDF funding. For example, CC&EL coordinates with the I|3 Division to produce and provide data on the CCS program, publishing data on TWC’s website. This includes monthly meetings of the ECIA Workgroup, which is comprised of representatives from TWC, TEA, HHSC, and DSHS. Communication between fiscal and program staff CC&EL staff regularly meet with Finance (at least monthly) and Workforce Board Contracts (weekly) staff. CC&EL coordinates with TWC’s Finance Division on the allocation of CCDF funds to the 28 Boards. Finance produces monthly expenditure reports that are provided to CC&EL and to the Workforce Board Grants Department. CC&EL meets monthly with Workforce Board Grants to review expenditure information for each of the 28 Boards, for the CCS program in addition to quality improvement activities. Segregation of duties CCDF oversight duties are distributed across multiple TWC Divisions: CC&EL Division: programmatic oversight of CCDF, including policy guidance, grant and contract oversight of state quality initiatives, and QRIS implementation. Finance Division: fiscal oversight of CCDF, including the development of annual Board CCDF allocations, and producing monthly reports on the expenditure of CCDF funds. Workforce Division’s Board Grants Department: oversight of the Board’s administration of CCDF, including any corrective actions, or deobligation/reallocation of funds. Business Operations Division, Procurement and Contract Services: oversight of procurement, contracting and grant services to ensure compliance with federal and state requirements. FDCM: monitoring and fraud detection. I|3 Division: data and performance management, including producing data on Boards’ monthly performance, and publishing data on the CCS program, which is posted on TWC’s website. At the Board level, services are contracted out and oversight is provided by Boards’ fiscal and monitoring staff. Boards hold their contractors accountable for contract compliance, including ensuring allowable use of funds. Improper payments that result from contractor error must be repaid by the contractor with nonfederal funds. Establishment of checks and balances to identify potential fraud risks TWC’s FDCM Division and SRM department monitor all Board child care operations and use risk assessment and fraud detection tools to determine specific areas of Board operations that may require additional scrutiny. At the local level, Boards ensure contractors have quality control processes in place to provide secondary review/verification of eligibility determinations and payments. Boards also employ local monitors that conduct case reviews at the service contractor level. TWC’s Office of Internal Audit also periodically reviews state level child care operations and related state level activities. CCDF program activities are subject to audit by the State Auditor’s Office. In Spring 2025, TWC implemented Integrity Central, a new automated tool to proactively identify potential fraud and operational anomalies. Integrity Central uses data from TWC’s new case management system, TX3C, and algorithm-based indicators to flag areas of concern. Boards will use the data to identify areas for further investigation and potential fraud fact-finding. TWC is considering the integration of other data sources such as UI data, to enhance Integrity Central’s capabilities. 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: TWC's Finance department oversees the allocation of CCDF funds to Boards. Finance determines the allocation amount for each LWDA and provides an automated cash draw system to allow Boards to access allotted funds as needed and to report expenditures. The system does not allow Boards to spend more than the amount allocated or budgeted. Finance also provides the resources necessary for completing the ACF-696 Financial Report. The same cash draw system is also utilized by statewide initiative subrecipients. Grant managers on the CC&EL Grants and Contracts team oversee these grants in partnership with CC&EL program staff, monitoring grant activities and expenditures and meeting monthly to jointly review. For service contracts, the Business Operations division contract managers monitor performance in partnership with CC&EL staff and verify contract deliverables are met prior to authorizing invoice payment. SRM tests fiscal controls, cash management, and financial monitoring at all 28 Boards on an annual basis. SRM includes testing of child care expenditures at each Board. SRM also conducts targeted reviews of statewide initiative subrecipients based on an annual risk assessment of all grantees. 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: During the process of developing solicitations, grant agreements, and service contracts, TWC staff reviews the budget categories and amounts to determine reasonableness of the costs and compliance with allowable costs. TWC Finance and Legal Counsel staff offer guidance and clarification as needed. For contractors, TWC’s Enterprise Contracting and Procurement System is used by staff to track all statewide initiative contracts, including their deliverables, invoices, and payments. TWC staff, including from the contracting unit, reviews submitted invoices before payment to ensure compliance with the approved budget. Purchase Orders for the contracts are reviewed by multiple approvers, including by Finance staff, to ensure payments do not exceed available funds, and separation of duties among contract developers, contract managers, program staff reviewing deliverables, budget analysts, and accounts payable staff. For subrecipients, in addition to tracking the agreement deliverables and financial information, TWC's Cash Draw and Expenditure Reporting system allows subrecipients to draw down grant funds and to report expenditures. Subrecipients are required to submit budget adjustment requests for TWC staff review to determine allowability and alignment with the initiative. The Cash Draw and Expenditure Reporting system limits cash draws to the funds available. SRM includes testing of child care expenditures at each Board to ensure that expenditures are for allowable program expenses. Based on risk assessment, SRM also includes conducting audits of subrecipients’ grant awards. c. Processes and procedures to prepare and submit required state and federal fiscal reporting. Describe: TWC’s Finance Division prepares all required fiscal reports. The financial reports are prepared using information submitted by the 28 Local Workforce Development Boards on their CCDF expenditures, as well as other CCDF expenditures by TWC and other grantees and contractors. d. Other. Describe: 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: It is TWC’s policy that effective control and accountability must be maintained for all funds, property, and other assets. Assets must be adequately safeguarded and used solely for authorized purposes. Internal controls must provide reasonable assurance of compliance with grant requirements, reliable reporting, and effective, efficient operations. The TWC Financial Manual for Grants and Contracts states that to be allowable under a federal or state award, a cost must meet the general allowability criteria established by the Uniform Guidance, and/or the Texas Grant Management Standards, as applicable. b. How the Lead Agency measures and tracks results of their fiscal management practices. Describe: SRM tests fiscal controls, cash management, and financial monitoring at all 28 Boards on an annual basis. SRM includes testing of child care expenditures at each Board. SRM also conducts targeted reviews of statewide initiative subrecipients based on an annual risk assessment of all grantees. TWC’s Office of Internal Audit annually conducts performance audits and non-audit services as well as follow-up reviews. The Office of Internal Audit allocates its resources in a manner that is consistent with TWC’s mission and goals. To support TWC’s mission, audit coverage is considered across the agency. The audit plan is designed to provide coverage of key business processes over a reasonable period of time, depending on staff capacity. TWC’s annual plans and reports are posted on its website. TWC is also included in the Texas State Auditor’s Office’s Statewide Single Audit. The Texas Comptroller’s Fiscal Management Division conducts post-payment audits of agencies’ expenditures to ensure compliance with applicable laws, rules, and policies. c. How the results inform implementation. Describe: TWC is dedicated to continuous improvement. Results from audits are used to identify weaknesses and improve policies and fiscal management practices to ensure fiscal responsibility of state and federal funds. Workforce Board Grants also provides technical assistance to Boards on fiscal management. 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: SRM prepares a risk assessment of the 28 Boards at the beginning of every fiscal year that covers the CCDF program. SRM considers the previous year’s fiscal and program monitoring review in scoring the risk. Similarly, SRM also develops an annual monitoring plan for statewide initiative grantees based on a risk assessment of agency statewide grantees. TWC’s Internal Audit Division also conducts annual risk assessments to determine its areas of focus. Internal Audit staff have full, free, and unrestricted access to all agency records, property, and personnel. Recently, the Internal Audit Division conducted a review of TWC’s implementation of ARPA Stabilization funding administered through the CCRF. TWC’s Risk and Security Management department also coordinates with agency Divisions to complete and annual risk assessment that focuses on continuity of operations, data privacy and security. b. The frequency of each risk assessment. Describe: Annually. c. How the Lead Agency uses risk assessment results to inform program improvement. Describe: SRM identifies high risk areas for monitoring and any issues noted in the monitoring review are corrected by Audit Resolution. CC&EL reviews all SRM reports to determine if additional TA is needed for the Board in their oversight of CCS. CC&EL also reviews child care Internal Audit reports to determine whether additional program modifications are needed. d. How the Lead Agency knows that the risk assessment processes utilized are effective. Describe: TWC’s SRM annual monitoring reviews routinely find issues that require remediation. Issues identified are corrected by Audit Resolution and/or TA provided by the CC&EL TA team. e. Other. Describe: 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: TWC issues WD Letter policy guidance, FDCM policy guidance letters, TWC’s CCS Guide updates, and TA Bulletins. These directives are sent to all Boards, and to individuals that subscribe to TWC’s GovDelivery service. FDCM maintains a SharePoint library of information that Boards use to oversee and identify potential fraud, waste, and abuse. FDCM posts training materials and desk aids on child care fraud deterrence and compliance. TWC provides Boards and Board contractors with training through on-site instruction, webinars, desk aids, TA Bulletins, conferences, and regional training sessions. TWC's Child Care TA department conducts regular visits (virtual and in person) to consult with Boards on program requirements and policy implementation. Boards also invite TWC to present and participate in their quarterly Child Care Network and Quality Assurance Network meetings. CC&EL provides new grantees/contractors with a detailed orientation to review the terms and conditions for administering CCDF funds. CC&EL meets monthly with grantees/contractors to review grant/contract deliverables and ensure that activities align to CCDF program requirements. ii. Describe how staff training is evaluated for effectiveness: By testing compliance with CCDF rules at all 28 Boards, SRM ensures that the Boards understand program requirements. If any issues are noted, the TWC can provide TA. TWC solicits feedback from Boards through the quarterly Child Care Network meeting, and Quality Assurance Network Meeting. iii. Describe how the Lead Agency uses program integrity data (e.g., error rate results, risk assessment data) to inform ongoing staff training needs: If any issues are noted, the lead agency will provide TA to the Board to correct the issue and ensure Board and contractor staff are fully trained on the applicable policies. TWC will also consider Board feedback on policies and adjust practices where needed to ensure program integrity. 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: Pursuant to TWC’s CCS Guide section F-103, Boards must ensure that processes are in place to train eligible child care providers about CCDF program requirements and integrity. Boards may accomplish this by providing an orientation to new providers, informing providers about the requirements included in the provider agreement, and offering training to child care providers. Some examples include the following: Annual trainings; Tip sheets for new providers; Provider handbooks; and Periodic informational sessions for current and new providers. TWC’s CCS Guide section F-201 requires Boards to ensure that child care providers are given written notice of and agree to their responsibilities, reporting requirements, and requirements for provider payment, as well as complete any required Board training prior to enrolling a child. ii. Describe how provider training is evaluated for effectiveness: Boards and Board contractors conduct provider monitoring to ensure compliance with child care policies and procedures. SRM annually monitors Boards and their local providers to ensure that the funds are spent in accordance with applicable federal and state statutes, regulations, and rules. iii. Describe how the Lead Agency uses program integrity data (e.g., error rate results, risk assessment data) to inform ongoing provider training needs: If any issues are noted, the lead agency will provide TA to the Board to correct the issue and ensure Board and contractor staff are fully trained on the applicable policies. TWC will consider Board feedback on policies and adjust practices where needed to ensure program integrity. 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: All results of the triennial error rate review are shared with each Board. Each Board receives a letter with the results of the review. Any overpayments identified are collected from the Boards by the lead agency. TA is provided to the Boards with improper payments and policy changes are made if necessary to minimize future errors. 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: The lead agency conducts annual monitoring of all 28 Boards for CCDF funds and targeted reviews of other subrecipients. The lead agency conducts financial testing of CCDF expenditures and looks at program eligibility. The results are issued in a written monitoring report that is issued to each Board/subrecipient and our federal partners. Any issues are resolved through TWC’s Audit Resolution section and TA and training is provided by CC&EL, if needed. 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: 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? TWC’s Internal Audit Division reviewed the ARPA Stabilization grant which TWC implemented through the CCRF. Based on this review, TWC enhanced its internal controls. Finance was requested to conduct an independent quality control review to ensure formulas were applied consistently to calculate award amounts. The process for updating the award amount in the CCRF system was automated, which streamlines the process and reduces the potential for errors and incorrect payments. Procedures effective June 2022 required CC&EL to submit a mailing address change to Vendor Services in Finance, along with a screen shot of the provider’s updated information in HHS CCR database to ensure the correct mailing addresses are keyed into TINS. Prior to this change, mailing address changes were updated in the CCRF system based on monthly updates from HHS CCR and accepted or rejected by CC&EL staff.