USCA25R0108 - ATTACHMENT 1 - SOW CH13 Standing Trustee Audits Contract Solicitation.docx

Attachment 1 Statement of Work

AUDIT SERVICES FOR FY2025

FINANCIAL AUDIT AND AGREED-UPON PROCEDURES ENGAGEMENT FOR THE CHAPTER 13 STANDING TRUSTEES IN THE SIX JUDICIAL DISTRICTS OF ALABAMA AND NORTH CAROLINA

STATEMENT OF WORK

1. SCOPE

1.1. The Administrative Office of the U.S. Courts (AO) requires the services of a certified public accounting (CPA) firm to conduct annual financial audits and other Agreed-Upon Procedures (AUP) (prescribed procedures) of each Chapter 13 Standing Trustee in the six judicial districts of North Carolina and Alabama.

This contract will not be obligated with appropriated funds upon award. This will be funded by the trustees.

1.2. The primary purpose of a financial statement audit is to provide an opinion about whether an entity’s financial statements are presented fairly in all material respects in accordance with an applicable financial reporting framework. The primary purpose of the agreed-upon-procedures engagement (prescribed procedures) is to evaluate the compliance of the Standing Trustee with Judiciary regulations, manuals, guidelines, policies, and procedures.

1.3. Reporting on financial audits conducted in accordance with U.S. Government Accountability Office’s (GAO) Government Auditing Standards (Yellow Book) also includes reports on internal control over financial reporting and on compliance with provisions of laws, regulations, contracts, and grant agreements that have a material effect on the financial statements.

1.4. The financial statement and agreed-upon procedures (prescribed procedures) engagements over these activities of the Chapter 13 trustees shall be performed on an annual basis. The fieldwork shall be completed by such date that allows submission of a draft report no later than January15 with the annual report not due more than 45 calendar days later. Final reports must be completed no later than 45 calendar days (i.e. March 1) after January 15 of the calendar year following the end of the federal fiscal year.

2. BACKGROUND

2.1. Section 302(d)(3)(I) of the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub. L. No. 99-554, 100 Stat. 3119, 3123, authorizes the Judicial Conference of the United States to establish the bankruptcy administrator program. In 1987, the Judicial Conference approved the Regulations of the Judicial Conference of the United States Governing the Bankruptcy Administrator Program ("JCUS Regulations") set forth in the Guide to Judiciary Policy (Guide) at Volume 9, Chapter 2. Under those regulations, the Director of the Administrative Office of the United States Courts (the “AO”), with the Committee on the Administration of Bankruptcy System’s oversight, prescribed the Guidelines of the Director of the Administrative Office of the United States Courts Relating to the Administration of the Bankruptcy Administrator Program ("Director's Guidelines") set forth in the Guide at Volume 9, Chapter 3.

2.2 Under the JCUS Regulations, one Bankruptcy Administrator (BA) is appointed for each judicial district in Alabama and North Carolina who, under Judicial Conference oversight, “must (1) establish, maintain, and supervise a panel of private trustees to serve as trustees in cases under title 11 of the United States Code; and (2) supervise the administration of cases and trustees in cases under title 11.” See Guide, Vol. 9, Ch. 2, §220.10.

2.2. The bankruptcy court in a BA district appoints one or more standing chapter 13 trustees. The BA responsibilities regarding chapter 13 processing include in part: (1) recommending candidates to serve as trustees in a case or cases under chapter 13; and (2) supervising Chapter 13 trustees, including requiring an annual report (an annual financial statement) and a budget report from the trustees and other reasonable and appropriate reports as the BA determines. See Guide, Vol. 9, Ch. 2, § 240.10; see also Vol. 9, Ch. 3 § 320.20 . There are currently 12 standing chapter 13 trustees in the six judicial districts. The chapter 13 trustees are divided among the judicial districts as follows:

Alabama Middle District: One (Montgomery) Northern District: Four (Gadsden, Birmingham, Decatur, Tuscaloosa) Southern District: One (Mobile)

North Carolina Eastern District: Two (New Bern, Raleigh) Middle District: Two (Greensboro, Winston-Salem) Western District: Two (Charlotte, Statesville)

2.3. Debtors may file a chapter 13 case and enter into an adjustment of debts plan, known as a wage earner’s plan, under the Bankruptcy Code to repay all or part of their debts. A petition under chapter 13 is voluntary. A debtor must be an “individual with regular income, ” defined as an “individual whose income is sufficiently stable and regular to enable such individual to make payments under a plan under chapter 13 of this title, other than a stockbroker or a commodity broker.” 11 U.S.C. § 101(30). An individual with regular income can also file a chapter 13 petition jointly with their spouse. 11 U.S.C. § 302. Chapter 13 debtors are subject to debt limitations set out in 11 U.S.C. § 109(e) of the Bankruptcy Code.

2.4 Under a chapter 13 plan, debtors remit regular payments to the standing trustee as required by court-approved plans. For a chapter 13 plan to be confirmed, it must meet certain statutory requirements, including unsecured creditors must receive an amount equal to at least what they would receive in a chapter 7 liquidation. 11 U.S.C. § 1325(a)(4).

2.4. Standing chapter 13 trustees are private individuals, not government employees, and are fiduciaries. Standing trustees’ compensation and operating expenses are paid from chapter 13 funds received from debtors. Specifically, a percentage fee to be applied to payments received under plans is requested by the standing trustee based upon an annual budget submission. The percentage fee is limited to a maximum of 10 percent of all payments received under plans and may be adjusted throughout the year to avoid excess accumulations or shortages. 11 U.S.C §1302(e)(1978).

2.5.

2.6. The Director of the AO has delegated to the Audit Officer of the Office of Audit the authority to administer a system of audits of the financial, administrative, and procedural activities of the trustees in the BA districts. The Audit Officer of the Office of Audit (with the assistance of the Court Services Office) will be responsible for ensuring that the auditor performs the audit work in accordance with the terms of the Blanket Purchase Agreements under which the audits are performed.

3. REQUIREMENTS

3.1. The Contractor shall conduct annual financial statement audits of the Annual Report for Chapter 13 Trustees (Annual Report) and agreed-upon-procedures (prescribed procedures) of the Chapter 13 Standing Trustees operations. The Annual Report is defined and prepared in accordance with the Director’s Guidelines set forth in the Guide to Judiciary Policy at Volume 9, Chapter 3. and procedures established by the BA. The auditor shall conduct procedures on, but are not limited to, the following areas regarding each Annual Report:

3.1.1. The Contractor shall conduct the financial statement audits in accordance with the U.S. Government Accountability Office’s (GAO) Government Auditing Standards (Yellow Book), for financial audits issued by the Comptroller General of the United States. The prescribed procedures, an other attest engagement, shall be conducted in accordance with the American Institute of Certified Public Accountants (AICPA) statements on standards for attestation engagements.

3.1.2. Evaluation of Internal controls - The auditor shall perform an evaluation of the standing trustee’s written internal controls to determine whether the trustee’s controls are sufficient to ensure that financial transactions are performed and recorded properly and that assets are safeguarded.

3.1.3 The auditor shall review the segregation of duties employed by the standing trustee to determine whether incompatible duties are assigned to employees that would allow errors, fraud, waste, loss, or abuse to go undetected or prevent the timely correction of improper actions. The auditor shall prepare a matrix to evaluate and document the study of job functions. The auditor shall report and describe whether duties are adequately segregated and identify any compensating controls and mitigating factors. A copy of the completed matrix shall be attached to the report on prescribed procedures.

3.1.4 The auditor shall use professional judgment when performing audit procedures and selecting cases and transactions to be tested. None of the cases or transactions shall be selected by the standing trustee. The auditor shall use whatever methods available to understand the population of transactions and cases as a whole. The auditor shall not inform the standing trustee of which cases or transactions will be tested prior to the beginning of the fieldwork.

3.1.5. Examine evidence supporting the amounts and disclosures of the Annual Report including disbursements from the expense funds;

3.1.6. Determine whether the Annual Report was prepared in accordance with the Director’s Guidelines and policies and procedures applicable to bankruptcy trustees, which is an “other comprehensive basis of accounting” (OCBOA) other than accounting principles generally accepted in the United States of America and accounting principles used by the standing trustee, and determine that the overall Annual Report presentation conforms to JCUS Regulations and the Director’s Guidelines;

3.1.7. Review the standing trustee’s or any related person or entities disclosures of any lawsuits, contingent liabilities, and lease arrangements;

3.1.8. Review the previous years’ Annual Report management letter and the plan by the BA for corrective action of any findings related thereto; and,

3.1.9. Review significant events and transactions subsequent to the period under audit through the completion of field work.

4. Audit Planning

4.1. The Contractor shall adequately plan and document the planning of the work necessary to achieve the audit objectives. The Contractor shall submit to the COR copies of the following engagement planning documents within 30 days after contract award which shall document all planning considerations consistent with the standards of fieldwork as outlined in GAO’s Government Auditing Standards. Planning considerations shall include, but are not limited to:

4.1.1. Planned audit objectives

4.1.2. Assessment of risks

4.1.3. Consideration of fraud, waste, or abuse

4.1.4. Scope

4.1.5. Audit methodology

4.1.6. Identify the potential criteria needed to evaluate matters subject to audit

4.1.7. Identify sources of audit evidence and determine the amount and type of evidence needed given audit risk and significance

4.1.8. Identify whether to use the work of other auditors and specialists to address some of the audit objectives

4.2. Audit Plan and Draft Audit Program

4.2.1. The contractor shall prepare an Audit Plan and a Draft Audit Program. Audit guides/programs shall document the audit procedures designed to achieve the planned audit objectives. Summary memorandums shall provide a comprehensive summary of the overall results of the audit procedures and conclusions reached. The Contractor shall submit copies of Audit Plan and Draft Audit Program to the COR for review and approval within 30 days after contract award.

4.3. Audit Scheduling

4.3.1. Audit scheduling is coordinated with each trustee and a schedule of planned audits, and the status of each audit must be completed and provided to the AO not more than 30 calendar days after contract award.

4.3.2. Audit fieldwork shall be completed by such date that allows submission of a draft audit report no later than January 15 with the annual report due not more than 45 calendar days after Contract award.

5. AGREED-UPON-PROCEDURES (Prescribed Procedures)

5.1. The agreed upon procedures requires the auditors to test the standing trustee’s compliance with the JCUS Regulations and the Directors’ Guidelines. Due to the fiduciary nature of the standing trustee’s duties, the auditor must report to the AO on the prescribed procedures regardless of amount.

5.2. The report on the agreed upon procedures should contain each of the following for each procedure being reported on:

5.2.1. A restatement of the element of the prescribed procedure being performed;

5.2.2. A description of the work performed by the auditor to identify the source of understanding and tasks performed to comply with the specific prescribed procedure including a list of all sample cases, receipts, transactions, debtor refunds, etc. reviewed;

5.2.3. A report on the results of the prescribed procedures performed,

5.2.4. A list of recommendations to rectify any observations and procedural deficiencies.

5.2.5. When the statement of work requires an auditor to “review” an agreed upon procedure, it is expected that the auditor will perform the following steps:

5.2.5.1. Inquire of the standing trustee and trustee office staff about the agreed upon procedures to obtain an understanding of the designed operation as well as the actual operation.

5.2.5.2. Read any written policy to ensure the procedure is functioning as designed. Note whether or not a written policy exists;

5.2.5.3. In conjunction with financial statement audit procedures outlined above, examine the written process for any control weakness. If no written process exists, review the process through inquiry and observation of the process with the individuals charged with completing the process to report any control weaknesses;

5.2.5.4. Verify that the procedure is in place and that the procedure in place is implemented as represented by the standing trustee or the standing trustee’s employees; and

5.2.5.5. Document all the previous steps in the work papers.

5.3 The auditor shall report whether the standing trustee has a written accounting procedures manual.

5.3.1 The auditor shall also verify the actual duties of three (3) employees to test the accuracy of the accounting procedures manual.

5.4. The auditor shall select a sample of cases as follows: (10) cases closed by the Bankruptcy Court, of which at least two (2) cases were converted post-confirmation, two (2) cases were dismissed post-confirmation, and two (2) completed cases and perform the procedures described at 5.5.

5.5. Using the samples selected at 5.4, the auditor shall review and report whether the standing trustee has a documented process for use upon conclusion of the standing trustee’s assignment to a case. A chapter 13 trustee's duties end when the trustee enters a final report and final account in the case certifying that the trustee has completed all administrative matters, and the court relieves the trustee of further responsibilities. This generally occurs after discharge of the debtor(s) or after dismissal, transfer or conversion of the case. The auditor shall determine whether all cases have a final account, all checks issued in the case have cleared the bank, the final account was filed within thirty (30) days on any case converted to chapter 7, or as required for all other cases, and the creditor distributions or refunds were properly processed in these cases. Fed. R. Bankr. P. 1019(e)

5.6 Related Party Transaction - The auditor shall review all disbursements and reimbursements or payment in kind to the standing trustee, any related corporations, the standing trustee’s law firm or members of the law firm or staff (if applicable), the standing trustee’s spouse or relative or any standing trustee employee. Such expenditures should be matched to the standing trustee’s approved budget and the Annual Report for that particular year. The auditor shall review the sufficiency of any agreement between the above parties related in any manner to any funds, space, assets, or employees. Any such agreement shall be made part of the report.

5.6.1 The auditor shall list and review the sufficiency of documentation relating to all related party transactions paid or expense offsets taken from either trust or operating expense funds to the extent not already included in the above.

5.7. Alternate Place of performance – Contingency only. As determined by the Contracting Officer's Representative (COR), the Contractor employees may be required conduct contingency review procedures if the engagement is performed at an alternate place of location (e.g., home, the Contractor's facility, or another approved activity within the local travel area) in cases of unforeseen conditions or contingencies (e.g., pandemic conditions, exercises, government closure due to inclement weather, etc.)

6. Compliance over Computer Operations –

6.1 The auditor shall interview at least three (3) of the standing trustee’s employees, of differing levels of computer access and job functions to verify the adherence to the segregation of duties matrix (see 3.1.3 above). In addition, the auditor shall obtain copies of the user profiles for those employees and compare their computer access rights with the duties set forth in the matrix. The auditor shall report any inconsistencies. The standing trustee’s level of computer access shall be noted in the report.

6.1.1. Contingency review of Compliance over Computer Operations - Auditor will initiate a video conference with each employee to perform the interviews. If the employees do not have the ability to video conference, a teleconference will be initiated to discuss the outlined duties, as well as request system screenshots noting completion of a task and denial of access notification to verify access rights.

6.2. The auditor shall review and report whether any third party, including a judge, other judiciary employee, attorney, BA, third party vendor for case management, or the National Data Center established by the National Association of Chapter 13 Trustees (NACTT), has access to the standing trustee’s computer system. If so, the auditor shall identify and report the access controls in place. Examples of access controls include §chapter 13 trustee whether standing trustee approval is required for issuance of a temporary password or enabling remote access.

6.3. The auditor shall review and report the standing trustee’s policy for changing user passwords and perform tests to verify passwords are in place. A user password is defined as the initial password used to log onto the standing trustee’s computer system. The auditor shall report the last date of change in passwords and whether or not there is a written policy regarding passwords and computer access.

6.4. The auditor shall review and report on the physical security of the computer hardware. For example, the auditor shall determine if the computer server is in a safe environment with controlled access and shall report any lack of security.

6.4.1. Contingency review: Auditor would either observe the security of the computer hardware on a video conference or obtain pictures to substantiate the Standing Trustee's response to the Internal Control Questionnaire (ICQ) on the security over the hardware.

6.5. The auditor shall review and report the access controls which provide different levels of security that limit access to sensitive data fields (such as debtor receipts, creditor name, creditor address, creditor number, and disbursement amount) and whether the access controls are reviewed periodically and tested by the standing trustee against user profiles to ensure employees only have access to computer data necessary to perform their assigned duties.

6.6. The auditor shall also review and report the access controls over computer hardware. Access controls include policies and procedures to prevent or detect errors caused by improper use or manipulation of data files, unauthorized or incorrect use of a computer program, and other improper uses of computer resources. The auditor shall report any exceptions, such as an employee who has access to programming, updating individual debtor records, and access to cash.

6.7. The auditor shall review and report the back-up procedures utilized by the standing trustee, including the use of cabinets and off-site storage of computer back-up media. Documentation produced by the standing trustee in response to this inquiry shall include procedures for periodic preventive maintenance and for contingency planning in the event of a computer failure or natural or man-made disaster. The auditor shall report any lack of procedures or inadequate procedures.

6.8. The auditor shall report whether the standing trustee allows employees to telecommute. If so, the auditor shall report the steps the standing trustee has taken to monitor and ensure computer/network security and report the mechanisms for monitoring the quality and quantity of employee work.

6.9. The auditor shall review and report on any case management software agreements or contracts of the standing trustee.

7. Case Tracking –

7.1. The auditor shall report whether the standing trustee reconciles his or her caseload with the bankruptcy clerk’s office and shall report how often the reconciliations occur. If there are any cases that do not reconcile, the auditor shall document the procedure used to complete the reconciliation process and attach a copy of the procedure to the report on prescribed procedures.

7.2. The auditor shall review the standing trustee’s procedures to monitor the accuracy and completeness of case information entered into the standing trustee’s computer system to include electronic case files, proofs of claim, pleadings, notices, and any other documents filed with the court and received electronically. (e.g., The standing trustee may use processes referred to as bar-date reviews, confirmation work-up, six-month reviews, or case audits).

7.3. A total of ten (10) cases at various stages of the review process shall be selected by the auditor. The auditor shall ensure that each type of review completed by the standing trustee’s office is included in the cases reviewed by the auditor and shall report whether the reviews are documented.

7.3.1. Contingency review: Auditor will either obtain an auditors' read-only access to the system or request screenshots of the case details.

8. Banking and Bonding –

8.1. The auditor shall review and report the bank reconciliation/proof of cash process. The auditor shall report whether the individual(s) performing the reconciliation(s) has recordkeeping, cash handling or other separation of duties.

8.1.1. Contingency review: Auditor will request scanned copies of all required documentation. Additionally, being provided auditors' read-only access to the bank statements would greatly assist with this testing, as well as the testing of the receipts and disbursements.

8.2. The auditor shall review a sample of monthly trust account and expense account bank reconciliations and report any unexplained reconciling items. The auditor shall: (1) select September and three other monthly reconciliations for detailed testing for each audit year;. (2) trace all items on the bank reconciliations to the supporting documentation; and (3) ensure that reconciliations are reviewed and approved by the standing trustee. The auditor shall note in the report on agreed upon procedures who is signing the reconciliations.

8.3. For noted material differences in the monthly bank reconciliations, the auditor shall determine the reason, discuss with the standing trustee, and disclose any unexplained material differences in the report.

8.4. The auditor shall review and report whether the standing trustee has a “positive pay” agreement with its bank for disbursements from the trust account and the expense account.

8.5. The auditor shall select two months, other than the month of September, and determine whether the month-end trust and expense account balances from the general ledger agree with the monthly report submitted to the BA. If the standing trustee submits a report to the BA quarterly, the months selected should be in different quarters. The auditor shall review the records of disbursement between the trust fund account and the expense and compensation account and report any discrepancies or errors regardless of materiality.

8.6. The auditor shall review and report whether the standing trustee has procedures to reconcile the total debtor ledgers to the corresponding general ledger account and to the adjusted bank statement (all trust bank balances). The auditor shall report any adjustments regardless of materiality.

8.7. The auditor shall review and report whether all appropriate employees are covered by the employee bond or fidelity insurance and whether the amount of coverage meets minimum requirements.

9. Trust Account Receipts –

9.1. The auditor shall review initial control of all incoming receipts, including lockbox rejects, payments received at court or off-site, and returned undeliverable trust disbursements. The auditor shall report whether the standing trustee accepts currency and whether any payments are accepted from debtors who come to the office of the standing trustee or in court. The auditor shall also note if the trustee maintains a receipts log for which all receipts are entered. In addition, the auditor shall report any exceptions including the following:

9.1.1. Items are not received and recorded properly or timely.

9.1.2. The record of the items does not include notation of the final disposition.

9.1.3. There is not an adequate segregation of duties associated with the trust account receipt process.

9.1.4. Currency is not adequately safeguarded.

9.2. Using reconciliations for September and three other months previously tested, the auditor shall review a minimum of ten (10) receipts and ten (10) items posted as a negative receipt (suspense accounts) for the audit period that are representative of debtor receipts, creditor refunds, re-deposited non-sufficient funds (“NSF”) checks, and undeliverable disbursement checks. The auditor shall trace the sample items to any supporting documentation, debtor ledger accounts and any appropriate logs. The auditor shall report all discrepancies, such as postings to the wrong debtor ledger accounts.

9.3. Using the above selected receipts sample, the auditor shall review and report whether daily deposits are reconciled to daily debtor ledger postings.

9.4. The auditor shall review and report whether receipts are deposited in a timely manner.

9.5. Using the above selected negative receipts sample, the auditor shall review and report the standing trustee’s procedures for handling NSF transactions and report any exceptions.

9.6. The auditor shall determine whether electronic funds transfers (EFT) are received. If so, select a sample of EFTs using the reconciliations selected above. Trace the EFTs to supporting documentation to ensure accuracy of amounts received and recorded. Report any differences.

9.7. The auditor shall review and report whether pre-confirmation funds are deposited in an interest-bearing account. If yes, the auditor shall select five (5) cases converted or dismissed before confirmation, assess the standing trustee’s calculation of interest paid, match to Internal Revenue Service Form 1099 for agreement, and report exceptions.

9.8. The auditor shall report whether the standing trustee scans trust receipts and transmits them electronically to the standing trustee’s financial institution.

9.8.1. Contingency review: Auditor will request scanned copies of all required documentation noted above. Additionally, being provided auditors' read-only access to the bank statements would greatly assist with this testing, as well as other testing performed during the audit.

10. Trustee Account Disbursements - The auditor shall review and report the level of oversight performed by the trustee in the trust account disbursement process. In doing so:

10.1. The auditor shall review and report whether the individuals who prepare trust disbursement checks or any electronic funds transfers are involved in inserting and mailing the checks or other incompatible duties.

10.2. The auditor shall review whether persons involved in preparing or inserting and mailing the checks or handling electronic funds transfers are different from the persons preparing the bank reconciliations, and report incompatible duties.

10.3. The auditor shall report all uses of signature stamps and automated signatures in signing trust or expense checks.

10.4. The auditor shall obtain a report of all debtor refunds during the fiscal year. The auditor shall review the standing trustee’s refund process to test the accuracy and timeliness of debtor refunds, and to confirm that refunds are made only when appropriate (e.g., pursuant to court order, when a case is closed, converted or dismissed). The auditor shall pull at least five (5) cases and trace the debtor refund to the debtor ledger and the canceled check.

10.5. The auditor shall examine a minimum of twenty-five (25) disbursements during the audit period, including three (3) debtor refunds and automated clearing house (“ACH”) payments, if any. The auditor shall trace the disbursements to the corresponding debtor ledger accounts and verify that a proof of claim has been filed with the court. The auditor shall determine that each creditor is not related to the standing trustee or anyone in the standing trustee’s office. The auditor shall report all discrepancies, such as duplicate payments and postings to the wrong debtor ledger account.

10.6. The auditor shall review and report the procedures for handling stale-dated checks. Report whether checks are imprinted with “void after 90 days.” The auditor shall report whether any checks have not been canceled 120 days after issuance.

10.7. The auditor shall review and report the procedures for the processing of returned undeliverable disbursement checks. The auditor shall report whether the procedure is not being handled properly or timely based on local practice or rules. For example, the person processing returned checks should not be involved with the initial check authorization and preparation or any other related function.

10.8. The auditor shall report any individual(s) other than the standing trustee who is authorized to sign checks or make electronic transfer of funds.

10.9. The auditor shall review and report whether interest is transferred monthly from the trust account to the expense account and, if transferred, by whom. If the interest is being used to offset banking fees, the auditor shall identify documents that support the calculation of the offset between interest and banking fees and identify the person who authorizes the calculation and offset.

10.10. The auditor shall review and report on the percentage fees transferred to the compensation and expense account. The auditor shall confirm the percentage fee being transferred conforms to the debtor’s confirmed plan.

10.11. The auditor shall review and report whether any funds in addition to the percentage fees are transferred to the compensation and expense accounts.

10.12. The auditor shall send confirmation letters to 100 percent of all related party vendors (i.e. vendors related to the trustee; potential conflict of interest) requesting confirming information of the vendor’s/creditor’s claim amount, mailing and payment address, date the proof of claim was filed, and copies of documents supporting the claim. The auditor may use a sampling process to send confirmation letters to the remaining population of creditors or use alternative procedures. The alternative procedures will incorporate the steps described in step 10.5 above. In addition, the audit will obtain all supporting claims filed and related documentation for each selected disbursement and trace it back to the payment support and cleared checks to verify the accuracy of the payee, the claimed amount, and the claim type.

10.12.1. Contingency testing: Auditors’ will request scanned copies of all required documents as well as read-only access to the debtor ledgers would greatly assist with this testing, as well as other testing performed during the audit.

11. Monitoring – The auditor shall review and report on the standing trustee’s procedures for monitoring accumulated and delinquent payment cases. In doing so, the auditor shall:

11.1. Report the number of cases that have accumulated at least five (5) months of payments and have been confirmed for at least five (5) months;

11.2. List the ten (10) cases for each audit year with the highest number of months’ payments accumulated and report any justification for lack of disbursements;

11.3. Review delinquent case reports and the standing trustee’s actions, including court filings;

11.4. Report on the number of cases in which no action is taken where cases are delinquent by more than three monthly payments.

11.5. The auditor shall review the detail of the standing trustee’s suspense (or adjustment) account(s). The auditor shall report the types of transactions for which the account(s) is used. The auditor shall report whether the suspense account(s) is reconciled and reviewed monthly by the standing trustee. If the standing trustee is unable to identify the receipts, those funds shall be transferred to either the Clerk of Court pursuant to court order, or, with authorization from the BA and following any local rules, to the expense fund depending on local authority.

11.6. The auditor shall review and report on the type of exception or management reports utilized by the standing trustee, on a monthly basis, to identify mistakes, irregularities, and potential fraud.

12. Expense Account – The auditor shall review and report the procedures used to process receipts into the standing trustee’s expense account.

12.1. The auditor shall determine and report how miscellaneous receipts such as awards under Section 503(b) of the Bankruptcy Code, reimbursements for expenses, and revenue related to the sale of the standing trustee’s assets are processed. The auditor shall examine 100 percent of the miscellaneous receipts for transactions equaling and exceeding $50 and three (3) random samples of receipts for transactions below $50. The auditor shall trace the items to the standing trustee’s supporting documentation and general ledger and identify and report any exceptions.

12.2. The auditor shall review and report the procedures used to process disbursements from the standing trustee’s expense account. The auditor shall report whether the individuals who prepare expense account checks are involved in inserting and mailing the checks or other incompatible duties.

12.3. The auditor shall review the general ledger to test expenses from each line item in the Annual Report. For line items with fixed monthly payments (i.e., rent), the auditor shall: obtain documentation of the monthly payment (i.e., lease agreement), select 2-5 payments during the year to test to the invoice/check, and recalculate this testing over the entire year to tie to the Annual Report line item. For items with variable payment amounts, the auditor shall select as many transactions needed to obtain 50% coverage for that line item, up to a maximum of ten (10) transactions.

12.4. The auditor shall perform a detailed variance analytic of all expense account line items on the Annual Report. This includes a review of whether any actual expense account line item exceeds the last approved budget (amended budget or letter amendment) and an analysis on the year over year actual expense account line-item change by 10% or $5,000, whichever is greater. For all line items meeting this criterion, the auditor shall report the trustee's explanation for exceeding the budget, as well as any unusual items, reimbursements or expenses that are inconsistent with the definition of each expense line item. The auditor shall review the disbursements to determine:

12.4.1. Expenses are supported adequately;

12.4.2. Expenses are “actual and necessary”;

12.4.3. Joint costs (shared costs with the trustee’s private business or law firm) are supportable and arrived at prudently and consistently.

12.4.4. The auditor shall review and report whether 100 percent of payroll transactions, including payments of applicable employment taxes, insurance, and benefits, are adequately supported, and computed.

12.5. The auditor shall review and report whether a credit card is issued in the name of the standing trustee, the trustee operation, or any related entity. The auditor shall report on all transactions that could be identified as other than Chapter 13 trustee expenses paid with any such credit card.

12.6. The auditor shall review and report whether employees or the standing trustee receives bonuses. In addition, a listing of the bonuses paid per employee should be supported by a court order and pursuant to an approved employee bonus plan. Both documents should be included in the report, if applicable.

12.7. The auditor shall determine if the trustee is paying sales tax on items requiring such taxes by performing the following:

12.7.1. Inquire with the trustee if the trustee is paying sales tax on items requiring such taxes.

12.7.2. Inquire with the trustee if the trustee is aware of any delinquencies in paying such tax.

12.7.3. If the trustee is not paying sales tax on items subject to tax, the auditor shall review the reasoning, obtain exemption certificates, ensure exemptions were obtained in legitimate manner and are not expired.

13. Recordkeeping, Reporting, Compliance with Other Regulatory Guidelines – The auditor shall report whether the standing trustee has documented employee leave policies concerning the carryover of unused leave.

13.1. The auditor shall review and report whether payroll tax returns were timely filed by the standing trustee. The auditor shall report any delinquent taxes or penalties paid by the standing trustee.

13.2. The auditor shall review and report whether federal and state unemployment tax returns were timely filed by the standing trustee.

13.3. The auditor shall review and report whether all standing trustee and trustee employee training expenses exceeding $50, including but not limited to transportation costs, were documented with receipts. From examination of the documentation, the auditor shall report whether there was any indication that standing trustee training funds were used for any extended personal travel by the standing trustee or standing trustee staff or for the personal entertainment portion of seminars.

13.4. The auditor shall review and report whether the standing trustee’s fixed asset purchases were recorded as required by 330.60 of the Director’s Guidelines on the standing trustee’s inventory listing, including whether the total purchases of the fixed assets from the standing trustee’s expense account for the year reconcile to the total amounts added to the standing trustee’s inventory record for the fiscal year.

13.5. The auditor shall review and report whether all of the standing trustee’s fixed asset disposals were removed from the standing trustee’s required inventory listing and whether the fixed asset disposals for the year reconcile to the total amounts removed from the standing trustee’s inventory record for the fiscal year.

13.6. The auditor shall review whether any fixed assets were sold to any related parties and employees during the engagement period. The auditor shall ensure that proper documentation exists to justify the calculation of the value of these items, particularly for valuations based upon any method other than fair market value.

13.7. The auditor shall review all of the standing trustee’s insurance policies to ensure insurance coverage exists. The auditor shall report the kinds of insurance, the limits of liability on each policy and whether claims were made on any of the standing trustee’s insurance policies. The auditor shall also report any umbrella coverage and the limits of liability. The auditor shall review and report whether there is insurance on the standing trustee’s property and fixed assets.

13.8. The auditor shall review all contractual agreements including all leases, employee benefit plan agreements, and any other long-term commitments, and report whether the standing trustee is in compliance with the financial terms of each agreement.

13.9. The auditor shall report on the status and amounts involved in any pending litigation where the standing trustee is named as a party and send third party confirmations to attorneys who represent the standing trustee in pending litigation, if any, in order to determine the status of the litigation.

13.10. The auditor shall select three (3) cases for the audit period that have domestic support obligations, at least, one of which has received a discharge. The auditor shall review the notices used by the standing trustee to ensure compliance with sections 1302(b) and (d) of the Bankruptcy Code.

14. CLOSE-OUT AUDITS

14.1. The auditor shall perform financial statement (annual report) close-out audits for a Chapter 13 standing trustee that retires or terminates the trustee operation. The scope of the close out audits cover less than one fiscal year of financial activity and shall be executed for the period from the end of the last annual audit through the trustee’s final day in office.

14.2. Agreed upon procedures shall not be performed without a close out audit engagement. Each CLIN of this contract includes a possibility of 2 close-out audits per year.

15. CONDUCTING THE AUDIT ENGAGEMENT

15.1. In performing work for this engagement, the auditor shall:

15.1.1. Obtain a signed management representation letter at the conclusion an audit from each standing trustee. The management representation letter used should be consistent among all standing trustees covered by this statement of work.

15.1.2. Contact the BA to set up an audit schedule that complies with the deadlines set forth above.

15.1.3. Prior to the start of any fieldwork, request any appropriate documentation from the standing trustee, such as any local rules or standing orders that affect the chapter 13 practice in the judicial district the standing trustee serves for the previous year, the standing trustee’s Annual Report and all management letters and audits for the previous year, the standing trustee’s Annual Report for the current year, approved and signed budgets and compensation orders for the current year, and bonding or collateralization reports for the current year.

15.1.4. Prior to the start of any fieldwork, confer with the BA regarding any concerns or unusual items noted by the BA related to the standing trustee’s operations.

15. ENTRANCE CONFERENCE

15.1. The auditor shall conduct an entrance conference with the Trustee, BA, and the AO.

15.2. The auditor shall hold an on-site entrance conference at the beginning of the scheduled field work, with the standing trustee and the BA (if available, not required) to discuss the standing trustee’s operations and the items needed to support the audit.

15.2.1. Alternate Place of performance – Contingency only. As determined by the Contracting Officer's Representative (COR), the Contractor employees may be required to have the entrance conference at an alternate place of location (e.g., home, the Contractor's facility, or another approved activity within the local travel area) in cases of unforeseen conditions or contingencies (e.g., pandemic conditions, exercises, government closure due to inclement weather, etc.)

16. WORKPAPERS

16.1. The Contractor shall prepare workpapers in accordance with Government Auditing Standards and shall ensure that each workpaper and the pertinent audit programs are cross-referenced and that workpapers clearly support the condition, criteria, cause, effect, and conclusion for any issues and/or findings. Each supporting workpaper will include the purpose, source, scope, conclusion, date, preparer, and reviewer.

16.2. The Contractor shall prepare summary workpapers to support audit conclusions and findings and describe the scope of work and methodology used as a basis for reaching audit workpapers.

16.3. Upon request, the Office of Audit shall have unrestricted access to the Contractor's workpapers during this contract and for a period of five years following acceptance of the final report.

17. EXIT CONFERENCE

17.1. At the conclusion of fieldwork, the auditor shall conduct an onsite exit conference with the standing trustee, the BA, the AO, and the chief bankruptcy judge of the district (the chief judge may attend at his/her discretion). Videoconference or teleconference participation shall be available to the BA, the chief bankruptcy judge (if applicable) and staff from the AO. In person exit conference attendance is required for the auditor and the standing trustee. The auditor shall inform all parties of the date and time of the exit conference at least one week in advance. The auditor shall provide a written exit conference agenda with proposed findings, specifying if any of the proposed findings rise to the level of a significant deficiency or material weakness and whether any represent repeat findings. The summary should clearly define that findings are tentative and subject to change upon review by audit management and the AO. The agenda shall also include the agreed-upon procedures (AUP) results. The agenda shall be sent (via email) to all parties participating in the exit conference in advance of the exit conference either the day of, or one day prior to the exit conference.

17.1.1. Alternate Place of Performance - Contingency Only. As determined by the Contracting Officer's Representative (COR), the Contractor employees may be required have the exit conference at an alternate place of location (e.g., home, the Contractor's facility, or another approved activity within the local travel area) in cases of unforeseen conditions or contingencies (e.g., pandemic conditions, exercises, government closure due to inclement weather, etc.)

18. AUDIT REPORTS

18.1. Copies of the final audit reports are due to the standing trustee, the BA, the chief bankruptcy judge of the district, the circuit executive, the chief circuit judge, and the AO as soon as possible but no later than March 1st, annually. This deadline may be adjusted during the progress and work scheduling reporting process by written request to the AO. Within issuing final reports, the auditor shall incorporate, as attachments to the reports, the standing trustee and BA’s comments/response to financial statement audit findings and shall provide an auditor rebuttal, if necessary.

18.2. The Contractor shall deliver audit reports that conform to the reporting requirements contained in the Government Auditing Standards. The report shall include an opinion on the financial statements audited and include a report on internal controls and compliance as described in Government Auditing Standards. Audit findings will include the following elements when pertinent:

18.2.5 The Contractor shall adhere to the following schedule in Sections 18.3 and 18.4 when submitting audit reports.

18.3. Draft Report – The auditor shall provide a written draft of its complete reports to the AO within thirty (30) calendar days of the exit conference. The AO shall provide a response to the auditor, if any, to the draft report within fourteen (14) calendar days of receiving the draft reports.

18.3.1. The auditor shall provide a written draft of its complete reports to the standing trustee and the BA within seven (7) calendar days of receiving comments to the drafts from the AO. The Contractor shall be responsible for resolving factual inaccuracies which may be identified by the AO, trustees, and BA. The auditor can request from the AO an extension of no more than three (3) days. The standing trustee and the BA shall provide a response to the auditor, if any, to the draft report within fourteen (14) calendar days of receiving the draft reports. The BA must provide written responses to financial statement audit findings contained in the draft financial statement audit report and those responses will be included in the final financial statement audit report. When necessary, the BA may request, from the AO, an extension to provide responses to financial statement audit findings. Extensions may be granted beyond March 1st upon approval from the AO.

18.3.2. In accordance with the American Institute of Certified Public Accountants (AICPA) Statements on Standards for Attestation Engagements reporting requirements for agreed-upon procedures (AUP), responses to AUP findings are not required from the standing trustee and BA; nor will any responses be presented in the practitioner’s report. However, the trustee and the BA may provide written responses to the results of the agreed-upon-procedures report and those responses may be included in the final agreed-upon-procedures report package that is submitted to the CSO Chief and chief bankruptcy judge by the BA.

18.4. Final Report - The auditor shall issue final reports to the standing trustee, the BA, the chief bankruptcy judge for the district, the circuit executive, the chief circuit judge, and the AO within seven (7) calendar days of receiving comments from the standing trustee and the BA, if any. Extensions may be requested by the auditor and must be approved by the AO.

19. CONTRACTOR SUPPORT REQUIRMENTS

19.1. Partner/Principal Services

19.1.1. The Contract shall provide Partner/Principal services including liaising with the Administrative Office of the U.S. Courts, attending judicial conference committee meetings in person, developing and approving audit approach, providing final review and approval of all work products and approval of all reports and transmittals, ensuring quality control of the entire audit process, and periodically attending entrance and exit…