Transcript Questions and Answers from Auditing the Head Start Program

Questions and Answers from Auditing
the Head Start Program as Part of Your
Single Audit: Avoid Common Pitfalls
Received from Participants Attending
A Governmental Audit Quality Center Web Event
Presented on October 11, 2012 and Re-broadcast on November 16, 2011
Purpose of this Q&A Session
Intended to supplement original GAQC Web event
held in October, 2012 titled, Auditing Head Start and
Early Head Start as Part of Your Single Audit: Audit
Essentials and Avoiding Common Pitfalls
Will cover, at a broad level, questions that came in
during the live event in several main topic areas
To get the most out of the audio recording, listeners
should open the corresponding PowerPoint
presentation prepared by the Head Start program
staff
Not all questions in PowerPoint presentation will be
addressed in detail during this Q&A session;
therefore, consider reviewing it in detail afterwards
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Presenters
Ann Linehan, Deputy Director
• Office of Head Start (OHS)
Terry Ramsey, CPA
• U.S. Department of Health & Human Services
Belinda Rinker, JD
• Senior Advisor to the Office of Head Start
Jim Belanger, CPA
• Director, Fiscal Operations, Program Monitoring
Eric Formberg, CPA, CGFM
• Plante & Moran PLLC
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Responses to Questions
The presenters will address major topic areas identified
in questions submitted during the broadcast entitled
Auditing the Head Start Program as Part of Your Single
Audit: Avoid Common Pitfalls, October 11, 2012.
Responses to individual questions submitted during the
earlier webinar broadcasts are posted on the GAQC
website, click here to access.
Responses are as complete and accurate as possible,
given the limited information available in the webinar
Q & A format. However, the responses are not formal
Office of Head Start policy statements and variation
from the facts and circumstances presented could
result in a different conclusion than that expressed by
the presenters today.
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Additional Information
Some submitted questions did not include enough facts
to allow the presenters to fully understand and address
the issues presented. Additional financial information is
available from the Head Start National Center on
Program Management and Fiscal Operations (PMFO) .
PMFO information can be accessed at the following
website: http://eclkc.ohs.acf.hhs.gov/hslc/ttasystem/operations.
Individual fiscal and program management questions
can also be submitted to the PMFO for response by
phone at the PMFO info-line: 1-855-763-6647 or by email
at [email protected].
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Overview
Opening remarks and general
observations.
Emphasize identified areas of
compliance:
•
•
•
•
Non-Federal Match
Cash Management
Property and Facilities
Indirect Costs
Closing comments.
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Matching
Are services provided by a local education
agency (LEA) allowable for in-kind match?
Services provided by a local education
agency are allowable as in-kind match so long
as they are necessary for the implementation
of the Head Start Performance Standards,
reasonably valued, and are not Federal in
source or used to match any other Federal
grant.
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Matching
Is parent time spent in the home allowable in-kind
or match and if so how does an auditor determine
what activities are allowable?
Parent in-home curriculum support activities
are allowable under limited circumstances. The
parent activity must be at the direction of the
child's teacher or home based educator, related
to implementation of the Head Start
Performance Standards, adequately
documented and meet applicable cost principle
requirements, including being necessary,
reasonable and allocable.
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Matching
When calculating the "value" of volunteer hours, what is
the basis that should be used for calculating an hourly
rate? What is the supporting documentation requirement
with respect to volunteer hours?
 Head Start guidance indicates that parent classroom
volunteer hours should be valued at the rate of a teacher
assistant, including wages and fringe benefits. Higher
rates are only reasonable if specialized skills are
provided, such as where a parent who is a professional
painter provides painting in the Head Start center.
Volunteer services shall be documented and, to the extent
feasible, supported by the same methods used by the
recipient for its own employees.
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Matching
What resource can an auditor use to verify the volunteer
rates and other match values are valid and reasonable?
 The reasonableness of in-kind values must be supported
by the Head Start agency (45 CFR 74.23(i); 45 CFR 92.24).
 The value for services donated by the employee of a third
party is based on the employee’s hourly rate, including
fringe.
 The value of volunteer services is consistent with rates
paid by the Head Start agency for staff performing similar
services. Where an internal comparison is not possible,
the rate is consistent with the rate paid in the local labor
market.
 The value of donated supplies does not exceed fair
market value.
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Matching
A grantee receives passes to a local entertainment facility
for the children and parents. They receive documentation
relative to the value of the passes. Passes are provided
to children and parents. The value of these passes is
used as matching funds. Is this appropriate?
 Entertainment expenses are generally unallowable as
direct costs and as in-kind match. The grantee could
only establish allowability by documenting that the
activity engaged in at the entertainment facility
implements identified Head Start Performance
Standard requirements, including the child's
curriculum. General parenting activities, and items that
benefit primarily the parent or child, not the program,
are not allowable as in-kind.
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Matching
For matching costs, is the criteria that the amounts
were received or is it that the amounts were
spent/used during the year? For example, if an
organization receives donated supplies, it is an
allowable matching cost in the period the supplies
are received or when the supplies are used?
 Donated supplies, equipment, land and buildings
may be claimed as non-Federal match at the time
they are donated for program use.
 Donated cash can only be claimed as match when
expended for allowable Head Start program
purposes.
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Matching
We see situations where match is recorded related to
parents dropping off or picking up their children at
the Head Start center. Typically 15 minutes for each
occurrence valued at a rate slightly above minimum
wage. Is this allowable?
 In-kind match for parents picking up and dropping
off their children at the Head Start center is
generally not allowable. Only costs associated
with transportation provided in a compliant vehicle
as described in the Head Start Performance
Standards transportation regulations beginning at
45 CFR 1310.10 (not a private auto) are allowable
for center-based programs.
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Matching
Is there a limit to the number of consecutive
years for which an agency can request a match
waiver?
No, but the grantee must reapply for the
waiver annually and meet applicable waiver
criteria set out in the Head Start Act Sec.
640(b).
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Matching
For match requirement, is the time spent by voluntary board
members allowable?
 Head Start guidance indicates that time spent by governing
bodies such as the Board of Directors, Tribal Councils and
the Policy Council may be used as in-kind for time spent in
their decision-making capacity related to the Head Start
program. A reasonable valuation should be developed by the
program, and applied based upon documentation from the
meeting minutes and sign-in sheets.
 In determining the valuation, the agency or program should
bear in mind the nature of the contribution rendered by these
individuals. Policy Council time would be considered to be
programmatic, however Board or Tribal Council time could be
considered an administrative match that is subject to the 15%
administrative cost limitation.
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Matching
Can unrecovered allowable indirect costs that
are not charged to the Head Start grant be a part
of the matching requirement?
Unrecovered allowable indirect costs may be
included as part of cost sharing or matching,
but only with the prior approval of the Federal
awarding agency.
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Matching
If match provided by a delegate agency is listed as
a receivable by the grantee during the grant period,
but received after the grant period, has the match
requirement been met?
Match is generated from qualifying expenditures
or in-kind services benefiting the Head Start
program. Recording a receivable is not an
expenditure and therefore cannot be counted as
match. The delegate agency must actually
provide eligible match to the grantee for the
benefit of the Head Start program before it may
be claimed as match by the grantee.
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Matching
What can be used to get a fair market value for donated
space? Does a letter stating fair market value has not
changed work to establish fair market value?
 Under applicable cost principles, the value of donated
space shall not exceed the fair rental value of
comparable space as established by an independent
appraisal of comparable space and facilities in a
privately-owned building in the same locality. The
appraisal must be performed by an independent
appraiser (certified real property appraiser). A letter
would not generally qualify as an independent
appraisal.
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Matching
Can programs require parents to complete
volunteer hours in order to participate in Head
Start?
Parents may not be required to pay a fee or
provide supplies as a condition for their
child’s enrollment in the Head Start program
(45 CFR 1305.9). By extension, a parent
cannot be mandated to provide donated
services in order to participate in the Head
Start program.
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Matching
If an agency contributes unrestricted (nonFederal) funds to cover Head Start costs, what
documentation is needed to show where the
unrestricted agency funds are generated from.
 At a minimum, the grantee should be able to
identify funding awards, grants, donation
records or similar documents indicating the
source of unrestricted funds and identify
journal entries showing transfer of funds from
the unrestricted fund account to the Head Start
program account.
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Cash Management (Reserves)
Should organizations be encouraged to build reserves
from non-federal sources to cover unallowable costs or
manage cash flow disruptions?
 The question is two part: What are sufficient (1) fund
balance reserves and (2) sufficient cash reserves: Fund
balance reserves are needed to pay for unallowable
costs and other expenses that cannot be paid from
Federal grants. Fund balance reserves need to be
generated from donations or other income sources.
Cash reserves involve timing to ensure that sufficient
cash is on hand to meet payroll and other expenses
when due. The amount will vary by organization
depending on factors such as stability of income and
frequency of unexpected cash needs.
Continued on next slide.
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Cash Management (Reserves)
The organization’s finance officials may wish to
discuss appropriate reserves with the chief operating
officer and governing body as well as seek advice from
their auditor.
A best practice is for the governing body to set fund
balance and cash reserve policies and monitor
adherence to the policies. Clearly adequate fund
balance and cash reserves will mitigate going concern
risks.
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Cash Management (Reserves)
Is a reserve for upcoming building repairs
allowable?
Establishment of a reserve for repairs or
replacement is not allowable in that funds are
drawn down from the payment management
system without expenditure in the applicable
grant year. To the extent that a grantee is
allowed to charge depreciate against its grant
(adjusted for Federal share) some funds may be
accumulated for repairs or replacement.
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Cash Management
What is the applicable timeframe for disbursement of
funds drawn down from the payment management
system?
 Grantees must have written cash management
procedures which minimize the duration and amount of
cash on hand and written procedures minimizing the time
elapsing between the transfer of funds to the recipient
from the U.S. Treasury and the issuance or redemption of
checks, warrants or payments by other means for
program purposes by the recipient. 2 CFR Part 74 or 2
CFR Part 92. Head Start guidance states that the grantee
must make draw downs as close as possible to the time of
making disbursements.
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Cash Management
(1) With respect to drawdowns for "immediate cash needs,”
what is the definition of immediate? (2) Is there a definition
of "excess" drawdowns? (3) What should be done with
funds drawn down when an expected large disbursement is
not paid?
 Given the ability to access payment management system
funds on a daily basis, Head Start agencies should be able
to request funds based on immediate cash needs and return
those funds when actual cash needs are less than what was
projected. Several methods are available for return of funds
to the payment management system. See instructions at:
http://www.dpm.psc.gov/grant_recipient/funding_requests/r
eturning_funds.aspx?explorer.event=true.
Continued on next slide.
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Cash Management
Any drawdowns in excess of immediate cash needs
would be viewed as excess. In evaluating compliance,
consideration would be given to the amount of funds
involved and the time lapsed between drawdown and
disbursement.
The recipient is responsible for determining when the
Federal funds have been deposited into its bank
account for each drawdown, ensuring that the funds are
fully disbursed as close as possible to the time they are
received, and returning undisbursed Federal cash on
hand to the payment management system.
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Capital Expenditures (Equipment)
Can the equipment budget line be exceeded if below
$25,000 per unit? Without approval?
 Regulations define equipment as having a unit cost of
$5,000 or greater and a useful life of one year or more.
(45 CFR 92.3(j), 45 CFR 74.2(o).
 Any proposed purchases of items meeting the
definition of equipment should be identified in the
funding application.
 For equipment not included in the funding application,
prior approval is required where the total cost exceeds
$25,000. See Program Instruction 07-01 on ECLKC at
http://eclkc.ohs.acf.hhs.gov/hslc/standards/PIs/2007/re
sour_pri_00110_011707.html.
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Capital Expenditures (Equipment)
What if the grantee’s internal policy allows equipment in
excess of $5000 to be expensed and not capitalized as long
as the grant funds it and it is on an approved budget? Are
we still supposed to treat the acquired equipment as a fixed
asset?
 The agency’s equipment threshold for equipment may be
greater than $5,000, but Head Start agencies are required
to maintain equipment records and perform periodic
physical inventories of equipment with a unit cost of
$5,000 or more (45 CFR 74.34 or 45 CFR 92.32). If the
audited financial statements are prepared using a
different equipment threshold, agencies may be required
to reconcile fixed assets or expenditures in order to
explain variances between the audit report, equipment
records and the SF-425 report.
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
Capital Expenditures (Equipment & Facilities)
Is a playground renovation of a leased property costing under
$200,000 considered a construction project? Is prior approval
from the Regional Office required?
 Under 45 CFR §1309.3, the Head Start facilities
regulations, construction means new buildings, and excludes
renovations, alterations, additions, or work of any kind to
existing buildings. The playground renovation may be
classified as a major renovation if it is to change the function
and purpose of the leased property, regardless of amount.
 Approval of a facilities activity classified as an incidental
alteration or renovation could be part of the approved budget
of the program or a budget modification request, but would
not require a full facilities application under 45 CFR
§1309.10.
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Capital Expenditures (Facilities)
If a grant award include major renovation for $100,000 but
the activity did not meet the definition per 1309.3 is filing a
notice of federal interest required or should the award have
been for minor repairs?
 A major renovation is defined as a structural change, an
increase in the floor size, significant change in function and
purpose or any renovation with costs exceeding $200,000
adjusted for CPI-U (currently $249,339.13). Dollar value is
not the only determinant of a major renovation.
 While filing a notice of Federal interest would not usually be
required for an incidental renovation, if the grant award
requires filing a notice of Federal interest the grantee is
contractually obligated to do so upon acceptance of the
funds.
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Capital Expenditures (Facilities)
If the entity’s facility costs are funded entirely by the
local match rather than by direct Head Start dollars,
does this result in a Federal interest?
 Federal share in a facility includes both Federal Head
Start funds and any acquisition costs of the facility that
are claimed by the grantee as non-Federal match. Once
claimed as match, the additional acquisition costs
become part of the grant award and are excluded from
the non-Federal share calculation per 74.2(s).
 Contributions made to facility costs by the grantee
which are not claimed as match are part of the nonFederal in the facility share and do not result in a
Federal interest.
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Capital Expenditures (Asset Purchase)
Should an auditee record a capital asset
purchased with Head Start funds as an expense
to Head Start program and capitalize it in a
separate agency fund or can the auditee record
it as fixed asset within the Head Start fund?
 Head Start regulations do not prescribe how
the fixed asset should be recorded on the
agency’s books. Regardless of the approach
used by the grantee, the Federal funding agency
retains a reversionary interest in the asset.
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Capital Expenditures (Equipment)
Head Start grantees are required to take an inventory every 2
years. Do items, such as computers, valued at under $5000,
have to be recorded on an asset inventory?
 The property management requirements in 45 CFR 74.34
and 45 CFR 92.32 provide that, as a minimum, a physical
inventory of equipment be taken and the results reconciled
with the property records at least once every two years.
 Equipment is any article of tangible, nonexpendable,
personal property having a useful life of more than one
year and an acquisition cost of $5,000 or more per unit
(unless the terms and conditions of the Federal award
specifically establishes a lower amount).
 As described, the computers would be supplies due to
their value under $5,000, not equipment. Supplies do not
need to be recorded on the equipment inventory.
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Activities Allowed (Property & Facilities)
An estimate of the cost of donated property is allowed
where records are not available. If records are not
available, can an independent appraiser provide an
estimate of value?
 The value of donated land and buildings shall not exceed
its fair market value at the time of donation to the
recipient as established by an independent appraiser
(certified real property appraiser) and certified by a
responsible official of the recipient. If documentation of
the value of the property at the time of donation is not
available, an estimate of fair market value at the time of
donation must be made by an independent appraiser.
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Activities Allowed (Property & Facilities)
Please clarify the issue of rent charged at fair market
value instead of depreciation or use allowance under
capital leases.
 Please see applicable cost principles, such as 2 CFR
230, Appendix B, Item 43.d. which state that rental
costs under leases which are required to be treated
as capital leases under GAAP are allowable only up to
the amount that would be allowed had the non-profit
organization purchased the property on the date the
lease agreement was executed. This amount would
include depreciation or use allowance, and expenses
such as maintenance, taxes, and insurance.
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Activities Allowed (Property & Facilities)
How is use allowance determined?
Please see applicable cost principles, such as
2 CFR Part 230, Appendix B, Item 11.f which
state that the use allowance for buildings and
improvements (including land improvements,
such as paved parking areas, fences, and
sidewalks) will be computed at an annual rate
not exceeding 2% of acquisition costs and the
use allowance for equipment will be computed
at an annual rate not exceeding 6 2/3% of
acquisition cost.
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Indirect Costs
What determines the threshold for smaller
grantees for an approved negotiated indirect
cost rate?
There is no threshold based on size of
grantee in relation to a negotiated indirect
cost rate. The grantee is free to decide
whether a negotiated indirect cost rate is
advisable, which may turn on a number of
factor’s including nature, number, complexity
and limitations of individual funding sources
and overall agency funding.
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Indirect Costs
If a grantee has a negotiated indirect cost rate of 17.41% (with a
base of direct salaries), are they limited to charging a rate of only
15% to the Head Start grant?
 No. Administrative costs are limited to 15% of the total of
Federal expenditures plus approved non-Federal share (45
CFR 1301.32(a)(1)). An approved indirect rate is usually
computed against a smaller base --- usually the direct salaries
charged directly to Head Start. So indirect costs may be more
than 15% of direct salaries, but still less than 15% of the total
of Federal expenditures plus non-Federal share.
 To extend the example used in the question, assume the
grantee has $1,000,000 of Federal expenses (which includes
$600,000 of direct salaries) and an approved non-Federal
share of $250,000. In this example, the indirect costs of
$104,460 ($600,000 @ 17.41%) represent administrative costs
of 8.3% ($104,460 divided by $1,250,000). Continued on next slide.
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Indirect Costs
 It is important to note that the grantee may have
administrative costs outside of the indirect rate,
such as administrative costs charged directly to the
award or administrative costs as part of the nonFederal share. These costs must also be included in
the administrative cost calculation.
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Indirect Costs (Personnel Compensation)
Could you discuss how the salary and fringe of an
executive director in a multiple program community
action agency should be allocated?
 The allocation of the salary of an executive director
should reasonably reflect how the position
functions in the grantee organization. There is no
single correct way to allocate the position of
executive director. Allocation of the position
should take into account assigned job duties,
relationship to various programs and extent of
services provided to various benefitted programs.
Allocation should be consistent with the agency’s
cost allocation plan and personnel activity reports.
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Indirect Costs (Personnel Compensation)
Are personnel activity reports required for all staff
directly charged to Head Start, even if the organization is
a single-purpose agency with only one Federal award
(e.g. Head Start)?
 The response depends upon the type of
organization. For a nonprofit organization, personnel
activity reports must be used to support direct salary
charges --- even in organizations with only a single
Federal award (2 CFR 230(Appendix
B)(8)(m)(2)). Periodic certification could be used in
lieu of personnel activity reporting by government
grantees (2 CFR 225, Appendix (B)(8)(h)(3)) as well as
educational institutions (2 CFR 220 Appendix
A(J)(10)(c)(1)).
.
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Indirect Costs
For the indirect cost proposal, why are in-kind
salaries and other forms of in-kind not allowed
to be included as part of the indirect cost rate
(ICR) base? The HHS website sample proposal
shows in-kind as an includable cost in the base.
A recent training by the Division of Cost
Allocation indicated that the inclusion or
exclusion of non-federal match from the ICR
base has not been entirely consistent. The
training further indicated that future
negotiations of indirect cost rates would
include non-Federal match.
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Indirect Costs
We have an indirect cost rate approved by the U.S.
Department of Education that we use for all Federal
grants. Is it okay to use this indirect cost rate even
though the Head Start grant does not flow through the
State? The Regional Office has always accepted the
rate.
 The U.S. Department of Education may be the
cognizant Federal agency for a number of Head Start
and Early Head Start grantees who are also school
districts. Some state Departments of Education have
agreements with the U.S. Department of Education
allowing use of the State indirect cost rate for Federal
purposes. A grantee unsure of the acceptability of this
practice should consult with Regional Office staff.
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Indirect Costs
If compensation for an executive director or chief
financial officer are included in a negotiated indirect cost
rate and the two attend a Head Start-only function do you
charge the cost of the training to indirect or direct to
Head Start?
 If the training is being attended by the executive
director or chief financial officer solely in support of
the Head Start program the cost can be charged
directly to Head Start.
 If the training is being attended to gain training which
is of benefit to the entire organization the cost should
be characterized as indirect.
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Indirect Costs
How can an agency change its previously approved
negotiated indirect cost rate agreement? For example, if
a grantee wants to change the percentage of the cost of
its executive director from 100% indirect to 90% direct
and 10% direct.
 Negotiated indirect cost rate agreements have
historically varied, with provisional rates, final rates and
varying lengths of application. Absent errors in
calculation, additional funding or other unanticipated
considerations, an indirect cost rate agreement cannot
be modified during a funding period. The rate can be
changed for subsequent periods by submitting a new
indirect cost rate proposal. See: https://rates.psc.gov/
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Indirect Costs
Our agency received an approved indirect cost
rate this year for the first time. After applying
the indirect cost rate, what additional direct
agency administrative costs may be charged
directly to the Head Start grant?
The terms and conditions of the negotiated
indirect cost rate govern whether any agency
administrative costs can be charged directly to
the Head Start grant. Costs cannot be both
included in the negotiated indirect cost rate and
charged to the Head Start grant directly.
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Indirect and Administrative Costs
What is the relationship between administrative costs and
indirect costs?
Administrative costs and indirect costs are distinct but
overlapping concepts. Administrative costs may be direct
or indirect. Indirect costs are generally administrative.
 Administrative costs relate to the overall management of
the program and do not relate to the provision of program
services. Administrative costs may be direct or
indirect. The salary of the Head Start Director would
usually be considered an administrative cost, but the
salary of the manager overseeing the education service
area would be considered a program costs. Administrative
costs may also be part of the non-Federal share.
Continued on next slide.
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Indirect and Administrative Costs
 A cost is determined to be direct or indirect based
on whether it can be assigned to a project or
activity. Indirect costs are costs incurred for
common or joint objectives which cannot be
readily and specifically identified with a particular
project or activity. Indirect costs are generally
assumed to be administrative, but programmatic
indirect costs may be allowable when explained in
the funding application (45 CFR 1301.32(f)(3)).
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Indirect Costs
If an organization has an approved indirect cost rate for
a prior year, but no approved rate for the current year,
would indirect costs charged to the current grant using
the last approved rate be allowable for the current grant
year?
Indirect costs charged on the Final SF-425 must be
supported by a final rate. Many grantees have
provisional rate agreements with the HHS Division of
Cost Allocation, which allow rates to be applied “until
amended”. In the above example, the grantee could
apply the provisional rate to the current year, adjusting
to the final rate when negotiations are completed.
Continued on next slide.
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Indirect Costs
 In other cases, cognizant agencies issue rates on a
year-by-year basis.
 For example, some grantees have negotiated a oneyear predetermined rate. In this scenario, the
predetermined rate for the current year would only be
issued upon evaluation of the prior year’s indirect cost
proposal.
Grantees are encouraged to work with their Regional
Office for guidance on recovering indirect costs when
the agency has submitted a timely indirect cost
proposal which is pending evaluation by the cognizant
federal agency.
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General Questions (Designation Renewal)
If a grantee successfully re-competes under
designation renewal is the grant awarded for a
one year or a five year period?
The new award is for a five year project
period; however, the grantee must submit an
annual refunding applications for years 2-5 of
the new five year project period.
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General Questions (Designation Renewal)
If a grantee is disbarred by USDA in the second
year of a five year project period, is the grantee
allowed to complete the five year period before
entering re-competition?
 If the grantee is disbarred from receiving
USDA funding in any year of the five year award,
it will be required to re-compete for a new five
year grant at the end of the five year project
period in which the grantee was disbarred by
USDA.
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Designation Renewal
How is transfer of program assets from a prior grantee
managed in the event that a new grantee is selected
through designation renewal?
 Information on Designation Renewal, including
Frequently Asked Questions, is found on ECLKC:
http://eclkc.ohs.acf.hhs.gov/hslc/hs/dr/index.html
Disposition of real property is addressed in 45 CFR
1309.32 and 45 CFR 1309.31 and includes a directed
transfer to another eligible entity.
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General Questions
(Research and Development)
Is it possible for Head Start funds to be considered
research and development in certain circumstances?
 OHS does have authority to award grants for research;
however, research grants are competitive grant awards
that are separate and distinct from funds received by the
grantee to operate its Head Start or Early Head Start
program.
 It is not uncommon for local Head Start programs to
form a partnership with a university and participate in a
research project but it would be a red flag if a Federally
funded Head Start or Early Head Start program were using
its program funds to support a research project.
Development costs are allowed so long as they conform
with 45 CFR 1301.32 (a)(1)(2)(b)(1)-(5).
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General Questions
(Accounting Certification)
Our client was asked to provide an “Accounting Certification”
due to a finding. We could not find any professional standard
that allowed for such a report. Can you please address this?
 OHS is aware that an accounting certification such as that
required by 45 CFR 1301.13 is not within the professional
standards of Head Start program auditors and the certification
is no longer being requested.
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Cost Allocation (Transportation)
What is the best way for an entity to charge the Head Start
program for the use of an entity owned vehicle by the
program?
 The requirement to allocate the costs of shared
resources can be met by using logical and rational
methods to ensure that each program is paying only its
fair share of the cost of an item used in common, and
that no program is subsidizing another. Generally, the
methods used to allocate a shared cost should be the
simplest, most straightforward way of allocating this
type of cost fairly. Hours of use, miles of use or numbers
of children receiving transportation by program,
supported by adequate documentation of costs might all
be appropriate allocation bases.
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Activities Allowed (Transportation)
Can a program which does not provide
transportation spend program funds for city bus
passes for parents to bring their child back and forth
to Head Start if the family does not have
transportation?
 Transportation in center based programs must be
in compliant vehicles, so the cost of city bus
passes would be allowable only if the city bus
complies with the safety and bus monitor staffing
requirement. The regulation does provide the
Office of Head Start with authority to grant a
waiver to these requirements (see 45 CFR 1310).
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Transportation
Do the 45 CFR 1310 transportation regulations
apply to Early Head Start programs? Do they
apply to home-based programs?
The transportation regulations apply to both
Head Start and Early Head Start programs, but
home based programs are excluded from
requirements of 45 CFR 1310.12,1310. 15 (c),
and 1310.16, except when there is an applicable
State or local requirement that sets a higher
standard. Incidental transportation not part of
transportation services is also excluded.
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Activities Allowed (Staff Food Expenses)
Are cost associated to food expenses for staff
allowable during a week of staff training with no
children on site?
 Meals provided to staff during training
activities are only allowable if documented
circumstances indicate that provision of meals
is necessary for more efficient operation of the
program. When staff are not in travel status,
their food costs should not, as a general rule,
be charged to the Head Start award.
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Subrecipients
If a state agency receives Head Start funds and
then sub-awards them to several municipalities
along with child care funds, are the municipalities
required to submit a separate program specific
audit for the Head Start program and a single audit
of the municipality?
A subrecipient which submits a properly
performed OMB A-133 audit meets Federal audit
requirements and no additional Federal program
audit required.
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Internal Controls
Should the monthly credit card report include
only credit card expenditures using Head Start
funds, or any credit card purchase of the
agency?
The Head Start Act (Section 642(d)(2)(A)) is
interpreted to require a monthly report of
Head Start credit card expenditures, including
those expenditures from Head Start funds or
claimed as non-Federal share. This
requirement is not interpreted to extend
beyond the Head Start program.
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Internal Controls
Should board review of monthly credit card
statements also include statements of an
individual employee who use their own credit
card and the agency reimburses the individual's
credit card?
The reporting requirement under Section
642(d)(2)(A) is not interpreted to apply to
reimbursement of costs paid by employees.
The agency would presumably collect
adequate source documentation (e.g. an
invoice) to support the charges, regardless of
the payment type used by the employee.
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Internal Controls
Do general written fiscal policies and procedures for
the entire agency meet the Head Start requirement or
does Head Start require separate fiscal policies and
procedures.
 The Head Start performance standards and Uniform
Administrative Requirements (45 CFR Part 74 or 45
CFR Part 92) require certain procedures to be in
writing. For example, Part 74 organizations must
have a written procedure for cash management
meeting the requirements of 45 CFR 74.21 (b)(5).
General agency policies and procedures should be
reviewed to insure that all Head Start-specific
requirements are met.
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Internal Controls
Since entities are required to be submitting
credit card expenditures monthly, should this be
something that auditors ask auditees? Would
any testing be recommended?
Section 642 (d) (2) (A) of the Head Start Act
requires monthly financial reporting to the
governing body and policy council which
includes credit card expenses. The auditor
should review this as part of planning and
gaining an understanding of internal control;
and perform tests and other audit procedures
depending upon audit risk.
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Activities Allowed
(Medical and Dental Services)
For non-citizens, Head Start funds are frequently
medical and dental funds of last resort. Is this
use of Head Start funds allowable?
Per 45 CFR 1304.20(c)(5), Early Head Start and
Head Start funds may be used to provide
professional medical and dental services to
enrolled children when no other source of
funding for such services is available. The
grantee must have written documentation of its
efforts to access other available sources of
funding.
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Activities Allowed
(Medical & Dental Services)
Does the term medical services include speech
and mental health services, understanding that
such services should be paid by Head Start only
as a payer as last resort?
 Yes, please refer to 45 CFR 1304.20(c)(5)
and note that services can be provided for
enrolled children and efforts to obtain other
available resources must be documented.
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Activities Allowed (Compensation)
If an employee makes more than the Executive Level II
threshold of $179,700 can any portion of their
compensation be included in the indirect cost pool or
does it all have to be excluded?
 No Head Start funds, indirectly or directly, can be used
to pay any portion of compensation to an employee
who is compensated in excess of Executive Level II.
The applicable definition of "compensation" is found in
the Head Start Act at Sec. 653(b)(2) and should be
reviewed to clarify what elements are included and
excluded when considering application of the limitation
on compensation.
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Activities Allowed (Compensation)
If you have an employee such as a chief
financial officer (CFO) whose personnel activity
report indicates only 4 – 6 hours per month of
Head Start time, is the grantee required to give
the CFO a Head Start awarded cost of living
adjustment (COLA).
The agency can exercise discretion in
determining whether to give a COLA
adjustment to a staff person who charges a
minimal amount of time to Head Start, given
that the position is overwhelmingly paid from
non-Head Start funds.
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Activities Allowed (Accruals)
Are accounts payable and accrued expenditures as
well as accrued wages considered proper
expenditures within the grant period when properly
reported at grant year end?
 Accounts payable and accrued expenditures are
reportable as expenditures on the Final SF-425
report.
 Obligations must be liquidated within 90 days of
the end of the funding period (45 CFR 74.71(b) or
45 CFR 92.23(b)), unless the liquidation period is
extended by the Federal agency.
Continue on next slide
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Activities Allowed (Accruals)
 Accounts payable and accrued expenditures
are not reportable as disbursements on the
quarterly SF-425 report to Payment
Management.
 Accrued leave may be reported as an
expenditure and disbursed to the agency. The
Office of Head Start has provided guidance on
the funding of accrued leave in Program
Instruction 09-07
http://eclkc.ohs.acf.hhs.gov/hslc/standards/PIs/
2009/resour_pri_007_051209.html
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Activities Allowed (Education Vouchers)
Is it an allowable cost to purchase prepaid tuition vouchers?
The actual payments were paid to a college for vouchers, but
only a small amount of vouchers were used over the next two
years, leaving a substantial amount of prepaid and deferred
revenue reported on financial statements. The grant had since
expired.
 Given that only a small amount of the services were
consumed during the award period, it could be determined that
purchase of these vouchers was not necessary for efficient
operation of the Head Start program, and consequently not
allowable.
 A further consideration would be whether the purchase
represented an attempt to expend funds in a current award
period but shift the benefits to future periods, which would
also be unallowable.
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General (Related Parties)
Where can we find guidance on what determines related
parties? What are the criteria for related parties? Are
separate boards enough to conclude that the agencies are
not related?
 Head Start guidance and cost principles (e.g. 2 CFR 230,
App. B, Item 43.c) use the term "less than arms length" to
describe arrangements between related parties. A related
party is one which has the ability to control or
substantially influence the actions of the other. Related
parties include, but are not limited to divisions of the
same organization, common control through officers,
directors or members, and relationships between key
personnel, either directly or through controlled
organizations. Separate boards are a strong indicator
that parties are not related, but is not dispositive.
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Eligibility
Under certain circumstances, the program may have an
additional 35% of children from families up to 130% of
the poverty line. Are auditors expected to determine if
those circumstances have been met? If so, how might
an auditor best determine that those circumstances
have been met, particularly whether families below the
poverty line have already been served.
 The Head Start Act at Sec. 645(B)(ii)(II)(aa)-(bb)
defines the actions the agency must undertake to
ensure that all eligible children are enrolled before
enrolling children whose families have income between
100% and 130% of the poverty line.
Continued on next slide.
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Eligibility
 If a child’s enrollment records indicate that family
income is 100% to 130% above the poverty line
additional documentation must be reviewed to
determine if the agency has enrolled all eligible children
before using the 100% to 130% category.
 Documentation review could include the latest
community wide assessment which should include
demographic data on eligible families, the agency’s
outreach and recruitment policies and procedures that
should ensure the agency is meeting the needs of
eligible children first, selection criteria and a review of
eligibility criteria of children on the wait list.
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Eligibility
My understanding is that the family only needs to meet
the low income threshold upon enrollment to be eligible.
Once the child is determined to be eligible and is in the
program, if the family income increases will the child still
be permitted to participate? How long is eligibility valid?
 See 45 C.F.R. 1305.7(c) a child who is determined
income eligible for Head Start remains eligible through
that enrollment year and the immediately succeeding
enrollment year regardless of a change in income.
Children determined income eligible and enrolled in Early
Head Start remain income eligible while they are
participating in Early Head Start, but upon transition to
Head Start family’s income must be re-verified.
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Eligibility
What constitutes a "family" for determining
income eligibility? Is the family required to
reside in the same household?
Family means all persons living in the same
household who are:
(1) Supported by the income of the parent(s)
or guardian(s) of the child enrolling or
participating in the program, and
(2) related to the parent(s) or guardian(s) by
blood, marriage, or adoption.
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Eligibility
You stated food stamps alone would not make a
child eligible. Please elaborate further regarding
this.
 The Supplemental Nutrition Assistance
Program (SNAP) has replaced the federal food
stamp program. Temporary Assistance to Needy
Families (TANF) and Supplemental Security
Income (SSI) are the only two programs which
qualify as public assistance for determining
categorical Head Start eligibility.
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Eligibility
If the grantee does keep documentation of
verification documents, would you suggest
auditors compare the documentation to the
eligibility verification to ensure we arrive at the
same outcome? If so, would you expect findings
if we note errors even though they aren't
required to keep that documentation?
Auditors may deem it appropriate to test
available underlying eligibility documentation.
Auditors should consider whether any
exceptions are required to be reported as an
audit finding.
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Eligibility
How are children with disabilities counted? Is it the
cumulative number of children with disabilities
served or is a grantee required to attain and
maintain enrollment of 10% of children with
disabilities after the mid-point of the program year?
 ACF-PI-HS-09-04 states that each grantee and
delegate agency should document that, from
the midpoint of their program year to its end,
it maintained an enrollment of children with
disabilities that was at least 10% of its
total funded enrollment.
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Eligibility
Do you have any guidance on when to consider
the following to be an audit finding: failure to
meet funded enrollment, serving too many overincome children and not serving 10% of children
with disabilities?
An audit finding should be prepared any time
the noted requirements are not met. The audit
finding should be clearly identify the condition
found and the effect.
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Eligibility
Regarding the 10% of enrollment of children
with disabilities, is the agency able to round to
be compliant? For example 156 funded, can the
agency be compliant with having 15 children
with disabilities?
 The requirement for enrolling children with
disabilities is that “at least” 10% of enrolled
children must be children with disabilities. If
15 of 156 children have disabilities, the
percentage is 9.6%, which is not at least
10%.
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Program Income
How are trade-ins recorded?
 If the per unit cost of the item traded in
exceeds $5,000 permission to use the property
as a trade-in is required. Permission is also
required to purchase property with a per unit
cost that exceeds $5,000 (or $25,000 if part of an
approved grant application).
 The value assigned to the traded property is
considered program income and included in the
overall value of the item purchased. The item
purchased should be recorded on the grantee’s
equipment inventory at its full value.
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Program Income
Is all income received from wrap around and
state funded childcare program income if the
costs are tracked separately including allocated
facility costs?
 Program income is the gross income earned
by the grant recipient during the grant period
that is directly generated by a supported activity
or earned as a result of the award. Program
income is formally defined in 45 CFR 74.2(ag)
and 92.25(b). Income from outside sources is
not program income unless the criteria noted
above are met.
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Early Childhood Learning and Knowledge
Center (ECLKC)
http://eclkc.ohs.acf.hhs.gov/hslc
Head Start Performance Standards
Head Start Act
Monitoring Protocol
Training and Technical Assistance Centers
Governmental Audit Quality Center
Program Instructions
Information Memorandums
Head Start Announcements
…and more!
84
GAQC Resources
GAQC Web site (www.aicpa.org/GAQC)
Original Archived GAQC Web Event titled, Auditing
the Head Start Program as Part of Your Single Audit:
Avoid Common Pitfalls, available at:
http://www.aicpa.org/InterestAreas/GovernmentalAu
ditQuality/Resources/Pages/GAQCWebEventontheH
eadStartProgram.aspx
Visit the Auditee Resource Center at:
http://www.aicpa.org/INTERESTAREAS/GOVERNMEN
TALAUDITQUALITY/RESOURCES/AUDITEERESOUR
CECENTER/Pages/AuditeeResourceCenter.aspx
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