WHAT'S NEW

 

Misuse of SEMAC Funds

Beginning in July 2019, SEMAC implemented a new Misuse of Funds Procedure for all grants funded by the Minnesota Legislature and the Minnesota Legacy Amendment or Arts & Cultural Heritage Fund.

All Grantees are now required to acknowledge that they reviewed the SEMAC Misuse of Funds Procedure when signing their contracts.

Be advised that there are tiered consequences for misuse of funds based on the grant amounts and the Grantee's actions.  Please review this new procedure as follows.

Regional Arts Councils'
Misuse of Funds Procedure

Description and Scope

This procedure defines misuse of funds, outlines investigation and documentation of misuse, establishes a range of consequences when misuse has occurred, and outlines a process by which a grantee may appeal consequences.

This procedure applies to funds a regional arts council receives from the State of Minnesota from its general fund, its arts and cultural heritage fund, or any other state funds.  This procedure does not apply to other revenue sources regional arts councils may have (e.g., contributions from other grant makers or donors, or earned income).

Objective

The intent of this procedure is to ensure that regional arts councils are managing state funds in a consistent manner; that similar consequences will be imposed when misuse of state funds occurs, and that a grantee that has misused funds will lose privileges statewide, not just in the region in which it resides.

Definition: What constitutes misuse of funds

Misuse of funds means using State of Minnesota resources for any purpose other than those allowed by:

Misuse can happen both intentionally or unintentionally.  Intentional misuse occurs when the grantee knowingly spends funds in ways that are outside the allowable parameters of the State, the council, or the program.  Misuse also occurs when a grantee spends funds in ways that are inconsistent with the submitted proposal and budget.  Unintentional misuse generally occurs as a result of miscommunication or misunderstanding.

Whether the misuse is intentional or unintentional -- notices and consequences will be issued.

A grantee that is unable to complete all proposed activities is not misusing funds. For example: An artist receives a grant to conduct residencies in 3 schools—three months in school A, three months in school B, three months in school C. Midway through the project, and before activities have happened at school C, school C decides it is unable to host a residency. It is too late to find a replacement school; one-third of the awarded funds will be unspent at the end of the grant period. The grantee will need to document how funds were spent, and return any unspent funds.

Unspent funds are not misuse. The notices and consequences described below would not apply in this situation.

When and how to identify misuse

Based on its internal risk assessment, each regional arts council is expected to put in place internal controls to prevent and detect misuse of state funds.

The following are some of the most common kinds of internal controls a council might put in place, however, this is not an exhaustive list:

  1. Writing extremely clear program guidelines that explicitly describe what expenses are allowable and unallowable;
  2. Issuing grant contracts that list costs that are unallowable;
  3. Issuing grant contracts that incorporate the proposal and budget;
  4. Conducting monitoring or site visits during the grant period;
  5. Requiring and reviewing interim and/or final reports;
  6. Conducting reconciliation or audits of grant expenses during or after the grant period.

Misuse may also be detected and reported by a third party. In these cases, council must conduct a careful investigation to ensure that the allegations are true and that misuse has occurred.

Grant records must be retained for seven years―the year in which the original grant contract was issued, and six subsequent fiscal years. Misuse must be detected and addressed within that seven-year period.

Responsibilities of council, when misuse has occurred

1. Verification and documentation

2. Notice of misuse and consequences to the grantee

3. Notice to the Arts Board

4. Recovery of funds

Council is expected to use all reasonable methods to recover the funds that have been misused. Recovery of funds might take different forms, depending on the amount owed and the circumstances.

5. Consequences

Misuse of state funds is never allowable. Severe consequences must be imposed if funds are not returned; lesser consequences will be imposed if funds are returned. Consequences may be different, depending on the amount of funds that have been misused. If the reason for the misuse is unintentional, consequences may be minimized.

The following is the range of consequences a regional arts council will impose:

Grantee is permanently ineligible to receive State of Minnesota funds from the council, from the Arts Board, or from any other regional arts council.

In some circumstances, council may determine that consequences outside this range are appropriate and may impose them. In these cases, council should document, and provide written notice to the grantee, the reasons that it believes more or less severe consequences are warranted.

6. Reinstatement

Appeal process

Grantees that have been assigned consequences have the right to appeal if one of the following two circumstances has taken place:

A. Consequences outside the guidelines have been assigned that the grantee feels are unfair or unwarranted.

B. Grantee has made substantial progress toward remedying the situation that prompted the consequences; grantee may appeal to have the remainder of the consequences waived.

Each council may adopt its own appeal process, so long as the process aligns with the intent of this misuse of funds procedure. Council will document its appeal process, will make its grantees aware of the process, and will document the appeal process in its biennial plan that is submitted to and maintained by the Arts Board.

If the council does not adopt its own appeal process, it should use the following process:

A. Consequences outside the guidelines have been assigned that the grantee feels are unfair or unwarranted
The grantee must submit an appeal in writing within 30 days of the date of the letter notifying the grantee that consequences will be imposed. The grantee’s appeal must state the reasons for the appeal and must provide clear and compelling support for its assertion that the consequences assigned were unfair or unwarranted.

― or ―

B. Grantee has made substantial progress toward remedying the situation that prompted the consequences; grantee may appeal to have the remainder of the consequences waived.

The grantee must submit an appeal in writing no earlier than 180 days (six months) from the date of the letter notifying the grantee that consequences will be imposed. The grantee’s appeal must state reasons for the appeal and must provide clear evidence that grantee has taken the necessary steps and implemented the appropriate remedies so that its privilege of eligibility should be reinstated.

  1. Determine that the appellant does not show sufficient cause for an appeal;
  2. Direct the staff to investigate the appeal and bring a recommended resolution of the appeal to a subsequent meeting of the Council;
  3. Request that the appellant appear before the Council at a subsequent meeting and address the appeal at that time;
  4. Determine that the appellant does show sufficient cause for appeal and offer a settlement to the applicant at the meeting.

If the appeal results in early termination of consequences, the Council will notify the Arts Board that consequences have been lifted and eligibility has been restored. The Arts Board will notify other regional arts councils that the grantee’s eligibility has been restored.

A grantee may not appeal to the Arts Board to overrule the decision of the regional arts council.

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2019-05-01 Reviewed and approved by Minnesota State Arts Board
2019-03-29 Reviewed and approved by Minnesota State Arts Board/Regional arts council liaison committee
2019-08-09 Reviewed and approved by Forum of Regional Arts Councils