If a QRF’s gross revenues generated under the QRF Program exceed $100,000 annually, the QRF must conduct an independent audit of direct labor to maintain qualifications and listing on the Procurement List. Independent audits must be conducted every other year as scheduled by the Department to determine compliance with ORS 279.835 (Definitions for ORS 279.835 to 279.855)(5)(c). The audit must be conducted by an independent certified public accountant (CPA) in accordance with generally accepted auditing principles. The QRF must submit a letter of attestation and the compilation worksheet to the Department 120 calendar days after the close of the QRF’s fiscal year. A QRF may request an extension in writing prior to the 120-day deadline. The request must state the reason for the extension and the anticipated date of submission.
For purposes of subsection (3):
“Direct labor” means all work required for the manufacture, preparation, processing and packing of products produced by a QRF and all work performed in rendition of services by a QRF. Direct labor does not include supervision, administration, shipping, or client-type services provided by a QRF to Individuals with a Disability served by the QRF, such as job training and therapeutic services.
“Supervision” means the direction, assignment, instruction and oversight of individuals performing direct labor and inspection of work performed or products for quality assurance.
“Administration” means the management activities of a QRF that include acquisition of equipment, parts, supplies and inventory, handling of the entity’s payroll, personnel and accounting activities, executive decision-making and other business activities, generally of a centralized nature, that do not entail the “hands-on” production of a product or the performance of a service.
“Shipping” means the transportation of a product to the site designated by the acquirer of the product or the transportation of workers to and from the site at which they will perform services for a customer.
The examination and resulting audit report must be based on the following records and information:
A listing of all products and services provided by the entity in the QRF’s fiscal year, including those products and services procured by Agencies under the QRF Program and those procured outside the QRF Program;
A list of all individuals covered by the audit scope employed by the QRF that are Individuals with a Disability who provided direct labor for the production of products or the performance of services during the fiscal year that is the subject of the audit examination, including employee name, unique employee identification number, job description and disability status;
A list of all individuals covered by the audit scope employed by the QRF, whether paid or unpaid, who are not Individuals with a Disability and provided direct labor required for the production of products or the performance of services during the fiscal year that is the subject of the audit examination, including employee name, unique employee identification number and job description;
A compilation of the total hours of direct labor performed by the QRF during the fiscal year;
Payroll reports for all individuals covered by the audit scope employed by the QRF during the fiscal year, including employee name, work hours paid, vacation hours, sick leave hours and training hours. Hours worked must be segregated from hours paid but not worked;
Time and billing records showing direct hours worked by each employee in the manufacture of goods or provision of services;
The QRF must have documentation of disability on file for each employee who is claimed to be an Individual with a Disability. The acceptable forms of disability documentation are defined in OAR 125-055-0017 (Record Keeping)(1)(b); and
A Competitive Employment statement must be on file for each employee who is claimed to be an Individual with a Disability, except as described in OAR 125-055-0017 (Record Keeping)(1).
The audit report must address the following elements:
A determination whether the QRF’s time, billing and payroll records are sufficiently complete and reliable to demonstrate compliance with the 75 percent direct labor requirement of ORS 279.835 (Definitions for ORS 279.835 to 279.855)(5)(c). The records must permit segregation of direct labor hours from other hours worked and paid, and allow for the assessment of direct hours worked by employees with disabilities, as well as by employees without disabilities;
If the CPA finds the records to be sufficiently complete and reliable, the CPA must test the QRF’s calculations of total direct labor hours worked by employees with disabilities for the entire applicable fiscal year. Only direct labor hours worked may be included in the calculations. Vacation, sick leave, holiday, training hours and any other hours paid but not worked by the employee must be excluded from the calculation;
The CPA must apply sufficient statistical sampling techniques to obtain an 80 percent level of confidence that:
The letter of attestation must be signed and dated by the CPA and by an officer of the QRF’s board of directors.
Failure to comply with the requirements of ORS 279.835 (Definitions for ORS 279.835 to 279.855)(5)(c) by a QRF constitutes sufficient grounds to terminate the QRF’s participation in the QRF Program and constitutes sufficient grounds for an Agency to terminate, or to suspend performance of the work under, a contract with the QRF.
If the Department determines that a QRF is in material noncompliance with any requirement imposed on it by this rule, including the direct labor requirement of ORS 279.835 (Definitions for ORS 279.835 to 279.855)(5)(c), the Department will issue to the non-complying QRF a written notice to cure the noncompliance. The written notice will state the reasons that the QRF is not in compliance and provide potential remedies.
A QRF receiving notice of noncompliance under this subsection must respond to the Department within thirty (30) calendar days of the date of the Department’s notice. The QRF’s response must acknowledge receipt of the notice and describe a corrective action plan.
If the QRF does not submit a written response within thirty (30) calendar days from the date of the written notice or such additional time as may be permitted by the Department, the Department may issue, to the QRF, written notice of the proposed termination of participation in the QRF Program.
The Department reserves the right to require a QRF to submit to the Department quarterly audit reports concerning the QRF’s compliance with the direct labor requirement of ORS 279.835 (Definitions for ORS 279.835 to 279.855)(5)(c). The Department may require, at its discretion, that the quarterly audits be conducted and reported by a CPA in accordance with subsection (5). If a QRF subject to this requirement satisfies the direct labor requirement in the first two consecutive quarterly audits, the Department may waive the quarterly audit requirement for that QRF.
If the QRF fails to achieve compliance within the time prescribed in the Department’s written notice, the Department may terminate the QRF’s participation in the QRF Program. The Department will issue to the QRF a written notice of termination.
After termination of QRF status, the QRF may not enter into or renew any contracts under the QRF Program. Termination of the QRF’s participation in the QRF Program constitutes sufficient grounds for any Agency to terminate any contract with the QRF.
If a QRF fails the direct labor requirement of ORS 279.835 (Definitions for ORS 279.835 to 279.855)(5)(c), that QRF will be required to submit an independent audit report the following year. If the subsequent annual audit discloses that the QRF failed to satisfy the direct labor requirement, the Department will issue a notice of termination to the QRF.
The QRF may submit a written appeal to the Department within ten (10) calendar days from the date of the notice of termination issued under subsection (8)(d). The appeal must state the QRF’s grounds for appealing the decision. If the QRF does not appeal the Department’s decision, termination of participation in the QRF Program is final.