1. (a) Subrecipients that enter into a contract with the Department to administer programs are required to follow all Legal Requirements governing these programs.

2. (b) If a subrecipient fails to comply with program and contract requirements, rules, or regulations and in the event monitoring or other reliable sources reveal material deficiencies in performance, or if the Subrecipient fails to correct any deficiency within the time allowed by federal or state law, the Department may apply one or more of the sanctions described in paragraphs (1) - (5) of this subsection:

   1. (1) Deny the subrecipient's requests for advances and place it on a Modified Cost Reimbursement method of payment until proof of compliance with the rules and regulations are received by the Department:

      1. (A) Subrecipients placed on a Modified Cost Reimbursement method of payment must comply with the reporting requirements outlined in §5.211 of this title (relating to Subrecipient Reporting Requirements); §5.406 of this title (relating to subrecipient Reporting Requirements); §5.506 of this title (relating to subrecipient Reporting Requirements); §5.1006 of this title (relating to Performance and Expenditure Benchmarks); and §5.2007 of this title (relating to Reporting), as applicable;
      2. (B) Subrecipients on a Modified Cost Reimbursement method must provide all supporting documentation to the Department no later than seven (7) days after the reporting due date;
      3. (C) If subrecipient has not submitted documentation required for cost reimbursement review in accordance with reporting deadlines, Subrecipient may be required to enter a monthly report containing zero amounts and submit documentation required for the review as part of the next's month reporting;
      4. (D) Subrecipients reporting a monthly report containing zero amounts throughout the program year shall submit all required support documentation to the Department for review by the last regular monthly report (before the final report); and/or
      5. (E) The Department will review and assess supporting documentation submitted by subrecipient no later than the seventh (7th) day of the following month.
   2. (2) Withhold all payments from the Subrecipient (both reimbursements and advances) until acceptable confirmation of compliance with the rules and regulations are received by the Department, reduce the allocation of funds (with the exception of Community Services Block Grant ("CSBG")) to Eligible Entities as described in §5.206 of this title (relating to Termination and Reduction of Funding) and as limited for LIHEAP funds as outlined in Texas Government Code, Chapter 2105 or impose sanctions as deemed appropriate by the Department's Executive Director, at any time, if the Department identifies possible instances of fraud, waste, abuse, fiscal mismanagement, or other serious deficiencies in the subrecipient's performance;
   3. (3) Suspend performance of the contract or reduce funds until proof of compliance with the rules and regulations are received by the Department or a decision is made by the Department to initiate proceedings for contract termination;
   4. (4) If possible, elect not to provide future grant funds to the Subrecipient until appropriate actions are taken to ensure compliance; or
   5. (5) Terminate the contract. Adhering to the requirements governing each specific program administered by the Department, as needed, the Department may determine to proceed with the termination of a contract, in whole or in part, at any time the Department establishes there is good cause for termination. Such cause may include, but is not limited to, fraud, waste, abuse, fiscal mismanagement, or other serious deficiencies in the Subrecipient's performance. For CSBG contract termination procedures, please refer to §5.206 of this title.

3. (c) Contract Closeout. When the Department moves to terminate a contract and such termination takes effect, the procedures described in paragraphs (1) - (12) of this subsection will be implemented.

   1. (1) The Department will issue a termination letter to the subrecipient no less than thirty (30) days prior to terminating the contract. If the entity is an Eligible Entity under the CSBG Act the Department, after the rights and due processes of the CSBG Act have been followed will simultaneously initiate proceedings to terminate the Eligible Entity status and the effectiveness of the contractual termination will be stayed automatically pending the outcome of those proceedings. The Department may determine to take one of the following actions: suspend funds immediately or allow a temporary transfer to another provider; establish a Modified Cost Reimbursement plan for closeout proceedings, or provide instructions to the Subrecipient to prepare a proposed budget and written plan of action that supports the closeout of the contract. The plan must identify the name and current job titles of staff that will perform the closeout and an estimated dollar amount to be incurred. The plan must identify the CPA firm which will perform the Single Audit. The Department will issue an official termination date to allow all parties to calculate deadlines which are based on such date.
   2. (2) If the Department determines that a Modified Cost Reimbursement is an appropriate method of providing funds to accomplish closeout, the subrecipient will submit backup documentation for all current expenditures associated with the closeout. The required documentation will include, but not be limited to, the chart of accounts, detailed general ledger, revenue and expenditure statements, time sheets, payment vouchers and/or receipts, and bank reconciliations.
   3. (3) No later than thirty (30) days after the contract is terminated, the subrecipient will take a physical inventory of client files, including case management files, and will submit to the Department an inventory of equipment with a unit acquisition cost of $5,000 or greater or having a useful life of more than one year.
   4. (4) The terminated subrecipient will have thirty (30) days from the date of the physical inventory to copy all current client files. Client files must be boxed by county of origin. Current and active case management files also must be copied, inventoried, and boxed by county of origin.
   5. (5) Within thirty (30) days following the subrecipient due date for copying and boxing client files, Department staff will retrieve copied client files.
   6. (6) The terminated subrecipient will prepare and submit no later than thirty (30) days from the date the Department retrieves copied client files, a final report containing a full accounting of all funds expended under the contract.
   7. (7) A final monthly expenditure report and a final monthly performance report for all remaining expenditures incurred during the closeout period must be received by the Department no later than sixty (60) days from the date the Department determines that the closeout of the program and the period of transition are complete.
   8. (8) The subrecipient will submit to the Department no later than sixty (60) days after the termination of the contract, an inventory of the non-expendable personal property acquired in whole or in part with funds received under the contract.
   9. (9) The Department may transfer title to equipment having a unit acquisition cost (the net invoice unit price of an item of equipment) of $5,000 or greater or having a useful life of more than one year, to the Department or to any other entity receiving funds under the program in question. The Department will make arrangements to remove equipment covered by this paragraph within ninety (90) days following termination of the contract.
   10. (10) Upon selection of a new service provider, the Department will transfer to the new provider client files and, as appropriate, equipment.
   11. (11) As required by any OMB circular or other circulars and standards as applicable to the contract, as amended from time to time, a current year Single Audit must be performed for all agencies that have exceeded the federal expenditure threshold under OMB Circular A-133 or the State expenditure threshold under Uniform Grant Management Standards. The Department will allow a proportionate share of program funds to pay for accrued audit costs, when an audit is required, for a Single Audit that covers the date up to the closeout of the contract. The terminated subrecipient must have a binding contract with a CPA firm on or before the termination date of the contract. The actual costs of the Single Audit and accrued audit costs including support documentation must be submitted to the Department no later than sixty (60) days from the date the Department determines the closeout is complete.
   12. (12) Subrecipients shall submit within sixty (60) days after the date of the closeout process all financial, performance, and other applicable reports to the Department. The Department may approve extensions when requested by the Subrecipient. However, unless the Department authorizes an extension, the Subrecipient must abide by the sixty (60) day contractual requirement of submitting all referenced reports and documentation to the Department.

Source Note:The provisions of this §2.202 adopted to be effective November 19, 2014, 39 TexReg 8976.