Procurement and Subrecipient Monitoring: Risk Mitigation ......Creates a Federal assistance...
Transcript of Procurement and Subrecipient Monitoring: Risk Mitigation ......Creates a Federal assistance...
© 2017 Crowe Horwath LLP
Procurement and Subrecipient Monitoring:Risk Mitigation and Audit Readiness
September 22, 2017
Chris Davis, Senior ManagerCorinne Ahrend, ManagerCrowe Horwath LLP
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Agenda
•Background/Overview
•Subrecipient Monitoring Requirements
•Procurement Standards
•Implementation Issues
•Questions
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Background / Overview
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Background / Overview
•The Uniform Guidance was effective for non-Federal entities for fiscal years beginning on or after December 26, 2014.
• Multi-year awards may fall under old AND new regulations.
• Agencies implemented supplemental financial assistance regulations within 2 CFR Parts 300 – 5999.
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Background / Overview (Continued)
•Recall that the Uniform Guidance was established to:
• Promote efficiency by reducing administrative burdens on recipients;
• Provide consistency with respect to the compliance requirements applicable to various types of organizations; and
• To strengthen accountability for improper payments.
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Background / Overview (Continued)
•OMB recognizes that there are opportunities for improvement and that some elements of the regulation may need to be modified.*
• Potential clarifications/revisions have been developed and prepared for the Federal Register.
• On-hold pending approval to proceed by the White House.
* Gil Tran, U.S. Office of Management and Budget, April 2017 comments delivered at the National Grants Management Association’s Annual Training Conference.
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Background / Overview (Continued)
•Some of the key changes pertained to:
• Increasing the Single Audit threshold to $750,000 and adjusting reporting requirements;
• Mandatory disclosures of certain acts;
• Various allowable cost requirements;
• Subrecipient monitoring, including agreement content and risk assessments;
• Indirect costs;
• Procurement; and
• Internal control requirements applicable to non-federal entities.
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Subrecipient Monitoring Requirements
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Subrecipient Monitoring and Management
•A non-Federal entity may concurrently receive Federal awards as a:
• Recipient• A subrecipient• Contractor
•PTE must make case-by-case determination whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a:
• Subrecipient, or• Contractor
•Substance of the agreement is more important than the form
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Subrecipient Monitoring and Management - Definitions
•Pass-through Entity – A non-Federal entity that provides a subaward to a subrecipient to carry out part of a Federal program.
•Subaward – An award provided by a PTE to a subrecipient for the subrecipient to carry out part of a Federal award received by the PTE. It does not include payments to a contractor or payments to an individual that is a beneficiary of a Federal program. A subaward may be provided through any form of legal agreement, including an agreement that the PTE considers a contract.
•Subrecipient – A non-Federal entity that receives a subaward from a PTE to carry out part of a Federal program; but does not include an individual that is a beneficiary of such program.
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Subrecipients vs. Contractor
•Contractor:
• A contract is for the purpose of obtaining goods and services for the non-Federal entity’s own use and creates a procurement relationship with the contractor.
•Subrecipient:
• A subaward is for the purpose of carrying out a portion of a Federal award and creates a Federal assistance relationship with the subrecipient
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Characteristics of a Subrecipient
•Characteristics include:
• Creates a Federal assistance relationship
• Determines who is eligible to receive what Federal assistance
• Has its performance measured in relation to whether objectives of a Federal program were met
• Has responsibility for programmatic decision making
• Is responsible for adherence to applicable Federal program requirements specified in the Federal award
• In accordance with its agreement, uses the Federal funds to carry out a program for public purposes specified in authorizing stature, as opposed to providing goods or services for the benefit of the Pass-through Entity.
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Characteristics of a Contractor
•Characteristics include:
• Purpose is to obtain goods and services for the non-Federal entity’s own use and creates a procurement relationship
• Provides the goods and services within normal business operations
• Provides similar good or services to many different purchasers
• Normally operates in a competitive environment
• Provides goods or services that are ancillary to the operation of the Federal program
• Is not subject to compliance requirements of the Federal program as a result of the agreement, though similar requirements may apply for other reasons.
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Subrecipient vs. Contractor
Subrecipient Contractor
Creates a Federal assistance relationship Purpose is to obtain goods and services for the non-Federal entity’s own use and creates a procurement relationship
Determines who is eligible to receive what Federal assistance
Provides the goods and services within normal business operations
Has its performance measured in relation to whether objectives of a Federal program were met
Provides similar goods or services to many different purchasers
Has responsibility for programmatic decision making
Normally operates in a competitive environment
Is responsible for adherence to applicable Federal program requirements specified in the Federal award; and
Provides goods or services that are ancillary to the operation of the Federal program; and
In accordance with its agreement, uses the Federal funds to carry out a program for a public purpose specified in authorizing stature, as opposed to providing goods or services for the benefit of the PTE
Is not subject to compliance requirements of the Federal program as a result of the agreement, though similar requirements may apply for other reasons
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Improperly Classifying an Organization
•Key risks from the improper classification of an organization:
• Failure to adequately conduct monitoring;
• Monitoring against incorrect requirements and/or failure to communicate requirements;
• Noncompliance at the subrecipient level may expose your organization to risk of repayment; and
• Potential for profit to be questioned and reasonableness of costs to NOT have been evaluated/supported.
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Subrecipient Monitoring Requirements
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Subrecipient Monitoring and Management
•Requirements for Pass Through Entities (PTEs):
• Must clearly identify the agreement as a subaward
• Must provide the following information at the time of the subaward and, if not available, provide the best available information:
• Federal award identification
• Subrecipient’s name and DUNS number (must match the registered name in DUNS)
• Federal award identification number and date
• Subaward period of performance, start and end dates
• Amount of Federal funds obligated and total amount of Federal funds obligated to the subrecipient
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Subrecipient Monitoring and Management (Continued)
•Requirements for Pass Through Entities (PTEs):• Total amount of the Federal award
• Federal award project description
• Name of Federal awarding agency, PTE, and contact information for the awarding official
• CFDA number and name for each payment at the time of disbursement
• Identify whether the award is for Research & Development (R&D)
• Indirect Cost Rate (ICR)• Approved federally recognized ICR• Rate negotiated between the PTE and subrecipient• A de minimis ICR
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Subrecipient Monitoring and Management (Continued)
•Must identify all requirements imposed by the PTE on the subrecipient, including regulatory, statutory, and agreement-related requirements.
•Must identify all additional requirements imposed by the PTE, including financial and performance reporting.
•Monitoring of subrecipients must include:
• Review financial and programmatic reports • Follow-up and ensure that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award through audits, on-site reviews and other means
• Issue management decision for audit findings
•AUPs performed in accordance with GAGAS
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Subrecipient Monitoring and Management (Continued)
•Each PTE must evaluate each subrecipient’s risk of noncompliance with Federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining the appropriate subrecipient monitoring.
•Criteria “may” include the following:
• A subrecipient's prior experience
• Results of previous audits
• The experience of subrecipient's personnel or new or changed systems
• The extent and results of Federal monitoring.
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Subrecipient Monitoring and Management (Continued)
•The trade-off between efficiency and adequacy is one of the more complex issues facing non-Federal entities.•There are numerous risks.•There are multiple methods to execute procedures.•YET, there are finite resources.
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•Opportunities for efficiency and items that enhance effectiveness include:• Considering the use of fixed amount subawards to reduce the extent of monitoring required;• Focusing on provision of remote technical assistance / training to subrecipients and contractors regarding matters of compliance; and
• Fully or partially automate the risk assessment process through workflow and electronic document collection to reduce staff time.
•Use risk assessment results to dictate the type of monitoring that should occur, such as:• Low risk subrecipients > review of audit reports or desk reviews of financial and progress reports;
• Moderate risk subrecipients > expanded desk reviews; and• Higher risk subrecipients > expanded desk reviews, provision of technical assistance, and execution of on-site monitoring visits.
Subrecipient Monitoring and Management (Continued)
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Subrecipient Monitoring and Management (Continued)
Let’s take a moment and complete the following table, based on your agency, department, or organization:
Question Answer
1. For each subrecipient, do you document the determination/justification of their status as a subrecipient or contractor?
2. Does your standard subaward agreement template include ALL requirements imposed on the subrecipient (including closeout requirements) and ALL data elements previously discussed?
3. Does your organization conduct a risk assessment?
4. Assuming the answer to #3, above, is “yes,” is it documented?
5. Does your organization have a process in place to identify the total amount of Federal funds expended by each subrecipient during the fiscal year?
6. Does your organization have a process in place to identify deficiencies that may result from engagements other than the Single Audit?
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Procurement Standards
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Procurement Standards
•A number of changes were made for procurement, but significant portions remained unchanged.
•A number of changes are due to application of government requirements to other entity types.
•The procurement changes, when taken in conjunction with other revisions from the consolidation, present certain control and compliance risks.
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Procurement Standards (Continued)
•There was a two-year grace period for implementation of procurement changes.
• Grace period pertained to 2 CFR Parts 200.317 through 200.326
• Could have been adopted at the recipient’s discretion.
• Recipient must specify in written procedures that the recipient will continue to comply with OMB Circular A-110 for one additional fiscal year.
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Procurement Standards (Continued)
•An area of frequent confusion pertains to the grace period and which years are covered. The following is an excerpt from the COFAR FAQ (red font added by the presenter):
110-6 Effective Dates and Grace Period for Procurement **
Will the Federal government provide a grace period after the effective date for non-Federal entities to comply with the procurement standards in the Uniform Guidance?
Yes, for two full fiscal years after the effective date of the Uniform Guidance. In general non-Federal entities must comply with the terms and conditions of their Federal award, which will specify whether the Uniform Guidance applies. However, in light of the new procurement standards, for procurement policies and procedures, for the non-Federal entity’s first full fiscal year that begins on or after December 26, 2014, the non-Federal entity must document whether it is in compliance with the old or new standard, and must meet the documented standard. For example, the second full fiscal year for a non-Federal entity with a June 30th year end would be the year ending June 30, 2017. The Single Audit Compliance Supplement will instruct auditors to review procurement policies and procedures based on the documented standard. For future fiscal years, all non-Federal entities will be required to comply fully with the uniform guidance.
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BREAKING NEWS!!!!
https://www.google.com/search?q=breaking+news+picture&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiwsdTnqLjUAhVi0oMKHQFmDVYQ_AUIBigB&biw=1920&bih=846#imgrc=2w3ciKu5xStoFM:&spf=1497270921001
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•https://www.federalregister.gov/documents/2017/05/17/2017-09909/uniform-administrative-requirements-cost-principles-and-audit-requirements-for-federal-awards
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Procurement Standards (Continued)
What the requirement was… What it is now…
• Use of time and material contracts only when necessary
• Applies to entities other than governments
• Awarding noncompetitive contracts to consultants on retainer contracts
• Applies to entities other than governments
• Solicitations: “all requirements” that a bidder will be held to must be covered in solicitations
• Applies to entities other than governments
• New requirement • Profit must be negotiated as a separate element of the price when there is no cost competition.
• Methods of procurement included competitive procedures, noncompetitive procedures, and small purchase.
• Micro-purchases are included for aggregate purchases less than $3,500, as applicable. Other methods now apply to non-governments.
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Procurement Standards (Continued)
POP QUIZ!!!
Did your organization/district/agency elect to exercise the procurement grace period?
•Yes
•No
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Procurement Standards (Continued)
•Entity must have and follow written procurement procedures that reflect the procurement standards.
•Written standards of conduct covering conflicts of interest and governing the actions of its employees engaged in the selection, award and administration of contracts.
•Entities are encouraged to enter into state and local intergovernmental agreements where appropriate for procurement or use of common or shared goods and services.
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Methods of Procurement
•Micro-purchases for acquisition of supplies or services if aggregate amount does not exceed $3,000 – subsequently increased to $3,500
•Small purchase procedures
•Sealed bids (formal advertising)
•Competitive proposals
•Noncompetitive proposals
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Methods of Procurement (Continued)
•Micro-purchases for acquisition of supplies or services if aggregate amount does not exceed $3,000 – subsequently increased to $3,500
• Normally used for the acquisition of supplies or services
• Must distribute micro purchases equitably among qualified suppliers
• May be awarded without soliciting competitive quotations if the entity considers the price to be reasonable
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Methods of Procurement (Continued)
•Small purchase procedures
• Simple and informal procurement methods for securing services, supplies or other property that do not cost more than the Simplified Acquisition Threshold.
• If used, price or rate quotations must be obtained from an adequate number of qualified sources.
• Simplified Acquisition Threshold is between $3,500 and $150,000
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Methods of Procurement (Continued)
•Sealed bids (formal advertising)
• Bids are publicly solicited and a firm fixed price contract (lump sum or unit price) is awarded to the lowest responsible bidder whose bid, conforming with all the material terms and conditions of the invitation for bids, is the lowest in price.
• Preferred method for procuring construction
• In order for sealed bidding to be feasible:
• Complete, adequate and realistic specification or purchase description is available
• Two or more responsible bidders are willing and able to compete effectively for the business
• Procurements lends itself to a firm fixed price and the selection of the successful bidder can be made principally on the basis of price
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Methods of Procurement (Continued)
•Sealed bids (formal advertising)
• If sealed bids are used:
• Solicitation requirements
• Invitation requirements
• Public opening
• Award is made in writing to the lowest responsive and responsible bidder
• Bids can be rejected
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Methods of Procurement (Continued)
•Competitive proposals
• More than one source submits and offer and either a fixed price or cost-reimbursement type contract is awarded.
• Used when the conditions are not appropriate for the use of sealed bids.
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Methods of Procurement (Continued)
•Competitive proposals
• Requirements:
• Requests for proposals must be publicized and identify all evaluation factors and their relative importance.
• Must be solicited from an adequate number of qualified sources.
• Entity must have a written method for conducting technical evaluations of the proposals received and for selecting recipients.
• Contracts awarded to the responsible firm whose proposal is most advantageous to the program with price and other factors considered.
• May be used for qualifications-based procurement of architectural/engineering professional services.
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Methods of Procurement (Continued)
•Noncompetitive proposals
• Procurement through solicitation of a proposal from only one source and may be used only when one or more of the following apply:
• Item is available only from a single source
• Emergency for the requirement will not permit a delay resulting from competitive solicitation
• Federal awarding agency or pass-through entity expressly authorizes noncompetitive proposals in response to a written request from the non-Federal entity
• After solicitation of a number of sources, competition is determined inadequate.
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Other Matters of Note
•Non-Federal entities are required to maintain oversight to ensure that contractors perform in accordance with the terms and conditions of their agreements.
•Procurement records must be retained and include:• Rationale for the method of procurement;• Selection of contract type;• Contractor selection or rejection; and• Basis for the contract price.
•Contract cost and price• Cost or price analysis must be performed for every procurement that exceeds $150,000, including contract modifications.
• Independent estimates must be made before receiving bids or proposals (applies to procurements greater than $150,000.
• Price must be negotiated as a separate element of the price when cost analysis is performed and also when there is no price competition.
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Implementation Issues
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Observations from the Field
•First full cycle of audits under the Uniform Guidance, including:
• Traditional single audits
• Program-specific audits
• Audits conducted on behalf of offices of inspectors general
•Also have completed consulting engagements that include subrecipient monitoring, follow-up on reported findings, and audit readiness.
•Let’s discuss some of the recurring issues.
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Observations from the Field (Continued)
•Subrecipient Monitoring
• Requirement under 2 CFR Part 200.331 include:
• Incorporation of certain data elements into subawards (e.g., indirect cost rates and closeout requirements);
• Conduct of a risk assessment;
• Execution of monitoring procedures based on risk; and
• Verifying that subrecipients are audited in accordance with Subpart F.
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Observations from the Field (Continued)
•Subrecipient Monitoring (Continued)
• What are we seeing?
• Lack of documentation showing that risk assessments are occurring
• Inadequate support to understand if a subrecipient’s total Federal expenditures met the audit threshold or not versus disbursements from the prime recipient for a single subaward
• Failure to execute subrecipient monitoring activities
• Lack of training or experience with indirect cost rate negotiations
• Misclassifications of subrecipients and contractors
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Observations from the Field (Continued)
•Internal Controls
• Uniform Guidance did not significantly change the expectations
• It did change certain items from expectations to requirements
• COSO framework always had control environment, risk assessment, control activities, information and communication, and monitoring components
• Monitoring is now required, which means it must be documented
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Observations from the Field (Continued)
•Internal Controls (Continued)
• 2 CFR Part 200.303 requires that the non-Federal entity:
• Establish and maintain effective internal control over Federal awards that provide reasonable assurance that the entity will comply;
• Evaluate and monitor its compliance with Federal awards;
• Take prompt action of instances of noncompliance; and
• Take reasonable measures to safeguard personally identifiable information (PII) and other sensitive information.
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Observations from the Field (Continued)
•Internal Controls (Continued)
• We are frequently seeing:
• Lack of awareness of the requirements
• Organizations lacking an internal monitoring or audit process, or otherwise being unable to provide documentation showing that the evaluation and monitoring efforts occur
• Written procedures or periodic evaluations of controls over PII and sensitive information are absent or individuals do not understand what constitutes PII or sensitive information
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Observations from the Field (Continued)
•Procurement
• A lot changed in the world of procurement, BUT the grace period helped substantially.
• Some issues that we are consistently seeing are:
• Written procedures have not been revised to reflect the Uniform Guidance requirements;
• Non-federal entities did not document that the grace period option was exercised and applied;
• Micro-purchases have not been assessed for equitable distribution;
• Instances where the Federal requirement applicable to small purchases is more restrictive than the entity’s standard procedures creates a risk of questioned costs; and
• Independent estimates have not always been completed before receiving bids and quotes.
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Observations from the Field (Continued)
Discussion Item
•An organization has a small purchase threshold of $10,000 and does not require quotes, bids, or proposals to be provided or retained.
•The Uniform Guidance has established a micro purchase threshold of $3,500 and a small purchase threshold indexed to the simplified acquisition threshold of $150,000.
•The Procurement Director has indicated that she is unaware of the Uniform Guidance requirements.
Questions•Considering the above, is the entity exposed to risk of noncompliance?•If the entity is exposed, what can the entity due to mitigate the risk?
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Observations from the Field (Continued)
•A note on allowable costs.
• Federal agencies have the option of applying the cost principles in the Uniform Guidance to for-profit entities or applying the tradition FAR 31.2 regulation;
• Indirect cost rate calculation procedures and methodologies have not always been revised or otherwise assessed for changes in the rate calculation;
• Program and agency-specific regulations continue to apply, including those pertaining to restricted versus unrestricted rates and the 8 percent cap on the rate applied to training grants (U.S. Department of Education); and
• Failure to calculate and process a billing adjustment/true-up for final or revised provisional indirect cost rates and corrections to financial records.
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Observations from the Field (Continued)
•Other items that we are noticing include:
• Procedures not having been updated to require certification of certain financial reports per 200.415
• Procedures not having been updated to reflect mandatory disclosure and conflict of interest requirements
• Review and evaluation of existing procedures, indirect cost calculation schedules and computation methodologies, and delivery of training to account for updates in the cost principles has not consistently occurred
• Procedures to ensure the accuracy, completeness, and availability of supporting documentation for performance measures
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Questions?
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In accordance with applicable professional standards, some firm services may not be available to attest clients.
This material is for informational purposes only and should not be construed as financial or legal advice. Please seek guidance specific to your organization from qualified advisers in your jurisdiction.
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Chris Davis, CPAPhone: [email protected]
Corinne Ahrend, CPAPhone: [email protected]
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