Compliance: What It Means To YOU.

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Transcript Compliance: What It Means To YOU.

Presented By:
Katherine Wakefield CPA
Donna Denker & Associates
 Overview
 Allowable
Costs/Cost Principles (Section B in
Part 3 of the OMB Compliance Supplement)
 OMB A-133 Compliance Supplement
• 14 Compliance Requirements
• Internal Controls over Compliance
 OMB A-133 Sub Part C
• Your (auditee) responsibilities
Compliance – What is it?
The act of complying with a wish, request, or
 Grant funding usually requires meeting certain
requirements. For example:
What is allowed to be purchased
Supporting documentation
How tracked and reported
Policies and procedures in place
Adequate internal controls
14 specific requirements (to be discussed)
How would you know?
 Refer to the grant and make inquiries to the
granting agency
• Code of Federal Regulation – Administrative Law by
 Cost
Circulars and Compliance Supplement
 The focus in this presentation is the federal
What comes next?
 Apply procedures that ensure that you
are meeting all of the compliance
 Assign the responsibility to someone
 Internal controls in place
 Segregation of duties – someone to do
the work and someone else to review
 Financial statements and reports
 Determine
 Auditee
Part C
if an audit is required
requirements – OMB A-133 Sub
 Cost
circulars are cost accounting principles
and policies for Federal Awards
 These cost circulars are required to be followed
by entities receiving Federal funding
 Three cost circulars
 “Cost
principles for State, Local, and
Indian Tribal Governments”
 Applicable to:
• State Government
• Local Government
• Federally-recognized Indian Tribal Governments
• Components of the above governments
 “Cost
Principles for Educational
 Applicable to Public and Private:
• Colleges
• Universities
 “Cost
Principles for Nonprofit
 Applicable to nonprofit organizations
• Operated primarily for the public interest,
• Not organized primarily for profit, and
• Uses its net proceeds to maintain, improve
and/or expand its operations
 States, Local
Governments, and Indian
Tribes Follow:
• A-87 for cost principles (relocated to 2 CFR, Part
• A-102 for administrative requirements, and
• A-133 for audit requirements.
• Agency CFR - Administrative
 Educational
Institutions (even part of a
State or local government) follow:
• A-21 for cost principles (relocated to 2CFR, Part
• A-110 for administrative requirements
(Relocated to 2 CFR, Part 215), and
• A-133 for audit requirements.
• Agency Administrative CFR
 Non-Profit
Organizations Follow:
• A-122 for cost principles (Relocated to 2 CFR,
Part 220)
• A-110 for administrative requirements
(Relocated to 2 CFR, Part 215), and
• A-133 for audit requirements.
• Agency Administrative CFR
3 – Compliance Requirements
• A. Activities Allowed or Unallowed
• B. Allowable Costs/Cost Principles
 The
different cost principles contain
slightly different wording, but essentially
the same baseline requirements.
 General
• Basic Guidelines
• Direct Costs
• Indirect Costs
 Selected
Items of Cost
 Be
necessary and reasonable for the
• Subject to the prudent person test
 Be
allocated under the provisions of a 2
CFR Part 225
 Be authorized or not prohibited under
State or local laws or regulations
 Conform to any limitations or exclusions
set forth in these principles
• Ordinary &
• Sound Business
• Market Prices
• Acted with
• Significant
Deviations from
• Necessary for
the operations
• Arms Length
• Acted with
• Cost Consistent
Policies and
• Ordinary &
• Generally
Sound Business
• Acted with
 Be
consistent with policies, regulations
and procedures of the program
 Be accorded consistent treatment (no
doubling up, direct and indirect)
 Be determined in accordance with
generally accepted accounting
principles (unless otherwise provided by
the cost circular)
 Not
to be included as cost or used to
meet cost sharing or matching
requirements of another program (unless
provided by Federal law)
 Be net of all applicable credits
 Be adequately documented
 Are
costs that can be specifically
identified to the program
• Compensation of employees
• Cost of materials
• Equipment
• Travel
• Other
 Are
costs that can not be specifically
identified to the program.
 These types of costs benefit more than
one function of the organization. For
example, building costs, administrative
staff, etc.
 The rule of allowability:
• “Indirect costs need to be equitable to relative
benefits received.”
 A-87, 43
types of cost
 A-21, 54 types of cost
 A-122, 52 types of cost
 Advertising
 Alcoholic Beverages
 Audit costs
 Bad debt
 Bonding costs
 Communication costs
 Compensation (Payroll)
 Contingency
 Legal defense
 Depreciation
 Donations and Contributions
 Employee morale
 Entertainment
 Equipment
 Fines and penalties
 Fundraising and investment
 Gains and losses on assets
 Personal use
 Living expenses
 Idle facilities
 Insurance
 Interest
 Labor relations
 Lobbying
 Maintenance and repair costs
 Meeting and conferences
 Memberships
 Organization costs
 Patent costs
 Plant and homeland security
 Professional services
 Publication and printing
 Recruiting costs
 Relocation
 Rental costs
 Royalties
 Selling and marketing
 Taxes
 Training costs
 Transportation costs
 Travel costs
 Trustees
Employee Morale
• Costs incurred by the
entity's established
practice or custom for
 Working conditions
 Employee-employer
 Employee morale
 Employee performance
• Must be equitably
apportioned to all
activities of the entity
• Allowable
• Cost of entertainment,
including amusement,
diversion, and social
 Examples: tickets to shows,
sporting events, meals,
lodging, rentals,
transportation, gratuities
• Unallowable
 Allowable
if the primary purpose is to
disseminate technical information related
to the program or administrative of the
• Includes meals, transportation, etc.
• Caution – entertainment costs are not allowable
 Compensation
must be reasonable
• Consistent treatment throughout the entire
 Unallowable
costs can not be considered
under this section because they
constitute personnel compensation.
• Example: Providing sporting event tickets to
program support personnel as part of their
 Allowable, examples
noted in cost circular
Leave (sick, annual, court, military, other)
Employee insurance
 However, certain requirement must be met
• Benefits must be provided under established written
• Benefits must be allocated equitably across the entity,
• Benefits must be either a cash or accrual basis (GAAP) of
 Under
• 100% Administrative (indirect)
• 100% of time is charged to one Federal program
• Time is changed to more than one activity or
program (direct or indirect)
 All
charges to Federal programs (direct
or indirect) must be documented based
on payroll in accordance with accepted
practices of the organization.
 Must
certify their time by:
• Making a statement, such as, “I Sean Walker,
certify I have spent 100% of my efforts on the
Medicare program (CFDA# 93.778).”
• Signing such statement or having supervisor
sign such statement.
• Must be at lease twice per year.
 Time
distribution must be supported by
“Personnel Activity Reports”
• After-the-fact distribution of actual activity
• Accounts for 100% of total activity
• Prepared monthly
• Coincide with a payroll cycle
• Signed by the employee
 I, Sean Walker, Have
worked on the
following programs and activities during
the month of October 2010
Signed: Sean Walker
 Does
not qualify as adequate
documentation (Questioned)
 Can be used, however, they need to be
adjusted at least quarterly
 Sampling
methods are allowable,
however, they are usually required to be
approved by the cognizant agency.
 States
use this technique, however, rare in
small institutions.
 Same
rules with the following tweaks:
• All salaries and wages need to be supported by
“Personal Activity Reports”
• Reports can be signed by employee or
responsible official
 Purpose
of the Compliance Supplement:
• Identifies important compliance requirements
• Required to be used by the auditors
• Ensures audit consistency, efficiency, and
 Includes:
• Purpose and applicability
• Matrix of compliance requirements – programs
by CFDA#
Agency program requirements
Clusters of programs
Internal control
Guidance for auditing programs not included in
compliance supplements
14 Type of Compliance Requirements:
A. Activities allowed or unallowed
B. Allowable costs/cost principles
C. Cash management
D. Davis-Bacon Act
E. Eligibility
F. Equipment and real property management
G. Matching, level of effort, earmarking
H. Period of availability of Federal funds
I. Procurement and suspension and debarment
J. Program income
K. Real property acquisition and relocation assistance
L. Reporting
M. Subrecipient monitoring
N. Special tests and provisions
**Refer to the matrix or the grant to
determine if applicable.
 A. Activities Allowed or Unallowed:
• Unique to each Federal program
• Found in laws, regulation, and provisions of contract
or grant agreement
 B. Allowable Costs / Costs Principles:
• OMB Costs Principles Circulars (A-87, A-122 or A-
• Find here a list of selected costs and a comparison of
the circulars
 C. Cash Management
• When funded on a reimbursement basis
• Procedures to minimize the time elapsing
between the transfer of funds from the US
Treasury and disbursement of those funds
 D. Davis-Bacon Act
• When required by this Act, DOL, or other
• All laborers and mechanics employed by
contractors or subcontractors must be paid not
less than established for the locality
E. Eligibility
• Unique to each program
• Criteria for determining if individuals, groups or
subrecipients can participate and the amounts for which
they qualify
F. Equipment and Real Property Management
• OMB Costs Principles Circulars (A-87, A-122, or A-21)
• CFR Title 25 Part 900.51-60 for DOI stipulates
requirements for property management
CFR=Admin law by agency
 G. Matching, Level of Effort, Earmarking
• Unique to each program
• Matching – to provide contributions (usually non-
federal) of a specified amount or percentage to
match Federal awards. It may be allowable costs
incurred or in-kind contributions
• Level of effort refers to (a) specified level of service
to perform, (b) specified level of expenditures and
(c) Federal funds to supplement and not supplant
non-Federal funding of services
• Earmarking refers to amount or percentage of
funding that must be used for specified activities
(Head start example)
 H. Period of Availability of Federal Funds
• Award may specify a time period during which the
entity may use the funds
• Any funds appropriate under an ISDEAA contract or
compact or a Tribally Controlled Schools Act grant
are available until expended (25 USC 450I(c)(b)(9)).
 I.
Procurement and Suspension and
• Procurement – OMB Cost Principles Circulars (A-87,
A-122 or A-21)
• Suspension and Debarment – Prohibited from
contracting or making subawards to parties that are
suspended or debarred. Threshold $100,000
 J.
Program Income
• Gross income generated by the Federal Program
 Examples:
 Fees for services
 Use of rental property
 Sale of commodities or items fabricated under the grant
• Deduct from program outlays
• If specified, an award may:
 Add to project budget or
 Use as a match
K. Real Property Acquisition Relocation
• Uniform and equitable treatment of persons displaced by
federally-assisted programs from their homes, businesses
or farms
• Requirements for appraisals and property acquisitions
L. Reporting
Standard financial reporting forms authorized by OMB
SF-269, SF-425, SF-1512, SD-270, SF-271, SF-272
Reporting under Payment Management System (PMS)
Performance Reporting
Special Reporting
 M.
Subrecipient Monitoring
• Passing dollars through to another entity
• Pass through entity is responsible for:
 Provide the CFDA title and number, award name and
name of Federal agency
 Monitor that subrecipient administers funds in
 Ensure required audits performed
 Evaluate impact on pass through entities ability to
 N.
Special Tests and Provisions
• Unique to the Federal program
• Found in laws, regulations, and provisions of the
• Examples:
 Background investigations
 Certified payrolls performed
 Establish
and maintain internal control
designed to reasonably ensure compliance
with Federal laws, regulations, and program
compliance requirements (A-102 & A-110)
 A-133 requires auditors to obtain an
understanding of the organization’s internal
controls over Federal programs.
 Intended to assist the entities and their
auditors in complying with these
 Objectives
of these internal controls
• Transactions properly recorded and accounted
for to:
 Permit reliable financial statements and Federal
 Maintain accountability over assets; and
 Demonstrate compliance with laws, regulations, and other
compliance requirements.
• Transactions are executed in compliance with:
 Laws, regulations, and provisions of contract or grant
agreements that could have a direct and material
effect on the Federal program; and
 Any other laws and regulations identified in
compliance supplements
• Funds, property, and other assets are
safeguarded against loss from unauthorized use
or disposition
 Describes
the characteristic of internal
control to each of the 5 components:
1. Control Environment
2. Risk Assessment
3. Control Activities
4. Information and Communication
5. Monitoring
 Provides
objectives of internal control
and examples of characteristics specific
to 13 of the 14 compliance requirements
(Omits Special Tests and Provisions)
 Identify:
1. All federal awards received, expended, and
the program under which received
CFDA title and number
Award number
Name of Federal Agency and
Name of pass through entity
Maintain internal controls over Federal programs
 Compliance with laws, regulations, contracts and
grant agreements
 Prepare financial statements and the Schedule of
Expenditures of Federal Awards (SEFA)
 Ensure audits are performed and submitted
when due
 Follow up - corrective action on audit findings
• Prepare summary of prior audit findings and
corrective action plan
Submit the data collection form
 Auditee
to prepare
 Auditor to determine if presented fairly
in all material respects in relation to the
financial statements
 Auditor to issue a report on the schedule
Same period as the financial statements
Programs listed individually by federal agency
ARRA programs specifically identified
Each program within a cluster to be listed
separately and the cluster subtotaled
Catalog of Federal Domestic Assistance (CFDA#)
Name of pass-through entity, if a subrecipient, and
identifying numberNote to describe accounting
Amounts provided to subrecipients
Total Federal awards expended during the period
Value of awards of noncash assistance, insurance or
loans and guarantees
Corrective Action Plan
 At completion of the audit
 Addresses each audit finding in CY report
 Shall provide who, how, when:
• Name of contact person responsible for action
• Corrective action planned
• Anticipated completion date
 If
you don’t agree with the finding or
believe corrective action is not required
• Explain with specific reasons
Pass-Through Entity Responsibilities
 Identify award detail (Includes CFDA#) to
Advise subrecipient of Federal requirements
Monitor the activities to ensure compliance
Ensure audit is done if expending $500,000 or more
of Federal dollars
Issue management decision on audit findings within
6 months
Circular A-133 Compliance
• Available at:
• A-133
• A-87
• A-122
• A-21
• Others
 Why
is this important?
 What
does it mean to you?
 To
stay in good standing with grantor
 To
remain eligible for future funding
 To
avoid having to pay Federal dollars back
 To
avoid findings or questioned costs
 To
further provide your service and meet
the entity’s mission