Transcript California Primary Care Association BKD Presentation

Beyond Your Numbers
Keys to Successful Financial
Management of Grant & Contribution
Funding
Scott W. Gold, CPA
BKD, LLP
October 12, 2006
CPA & Advisory Services
Today’s Agenda
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Grants and contributions defined
Contents of the grant/contribution file
Tracking revenues and expenditures
Cash draw procedures
Proper financial accounting treatment
Compliance and reporting
Financial status report issues
Strategic planning opportunities
Beyond Your Numbers
Beyond Your Numbers
Grants and Contributions Defined
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Grants vs Contributions
 Exchange vs Non-exchange transactions
 Guidance in FASB No 116 on distinguishing
contributions from other transactions
 Generally governmental funding awards are
considered exchange transactions (grants),
however there are exceptions
 The first step is to determine grant vs
contribution for all types of awards you have
Beyond Your Numbers
Grants vs Contributions
Get it in writing
 Notice of Award
 Letter from Donor
Importance of the original source of the
funding
 Inquiry to knowledgeable person
Grants defined
 Federal
 State
 Local government
Beyond Your Numbers
Grants vs Contributions
 Contributions defined
 Private source foundations
• Many private foundations use the term “grant”
in their agreements
 Donors
 Why do we care about the distinction?
 Proper accounting
 Restrictions on use of funds
Beyond Your Numbers
Beyond Your Numbers
Contents of the
Grant/Contribution File
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Documentation is King
 It is important to maintain detailed files for each
grant or contribution your organization receives
 These files should be maintained for at least three
years after the acceptance of the award
 It is important to be able to identify specific
expenditures that were charged to each grant or
contribution
Beyond Your Numbers
Contents of File
 Copy of original signed application, if applicable
 Notice of grant/contribution award (all copies, all
pages)
 Copies of all correspondence
 Copies of required reporting (UDS, FSR, other)
 Copy of audited financial statements
 Detail record of all revenues and expenditures
(including inventory of fixed assets purchased)
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Tracking Grant Revenues and
Expenditures
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General Ledger Maintenance
 Multiple grants should be tracked
independently
 Tracking for grants with specific restrictions
• Important to ensure that enough specific
expenditures have been incurred to justify grant
funding
• Consider if indirect costs can be allocated
 Tracking for grants that have similar purposes
(“double-dipping” issue)
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Beyond Your Numbers
Cash Draw Down Procedures
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Grant Draw Processes &
Procedures
 Important to establish consistent methodology for
conducting grant draws
 Advance drawing of grants is generally negative
absent a unique financial situation
 Federal CHC grant is a reimbursement grant
 Grant funds must be expended within 3 business days
of federal cash receipt
 Grant funds requested must be supported by known
incurred expenditures
Beyond Your Numbers
Contribution Cash Processes
& Procedures
 Advance basis
 Cash is restricted until used for specific purpose
 Reimbursement basis
 Submission of expenditures for reimbursement
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Proper Financial Accounting
Treatment
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Revenue & Expenditure
Recognition
Revenue should be recognized only as
qualified expenditures are incurred
Grant funds drawn in advance of qualified
expenditures is recorded as deferred
revenue (liability)
Contribution revenue received in advance
is recorded as temporarily restricted net
assets (equity)
Beyond Your Numbers
Revenue & Expenditure
Recognition
Expenditures include operating
expenses, capital asset transactions &
other
OMB Circular A-122 rules only apply to
federal cash expenditures
Beyond Your Numbers
Accounts Receivable and
Cash Recording
Restricted Cash when received in advance
Grants receivable booked when
expenditures have been incurred before
cash receipt
Contribution receivable booked when
promise is made
Beyond Your Numbers
Grant Example
 We have received a federal grant for HIV.
 Revenue and expenditure recognition:
 At the time the expenditure is incurred
• Debit expense or capital asset
• Credit accounts payable or cash
• Debit grants receivable if cash has not yet been drawn or
deferred revenue if cash was drawn in advance
• Credit grant revenue
 At the receipt of the cash
• Debit cash
• Credit grants receivable if expenditure has been made or
deferred revenue if drawn in advance
Beyond Your Numbers
Contribution Example
 We have received a grant from a private source foundation for a restricted
purpose
 Revenue and expenditure recognition:
 At the time of the notice of award
• Debit contribution receivable
• Credit temporarily restricted net assets
 At the time of the expenditure is incurred
• Debit expense or capital asset
• Credit accounts payable or cash
• Debit temporarily restricted net assets (TRNA)
• Credit TRNA released from restriction (contribution revenue)
 At the receipt of the cash
• Debit cash
• Credit grants receivable
Beyond Your Numbers
Contribution Example
 What if the private source contribution is
unrestricted?
 Implied restriction of time until it is
expended
 Same accounting as for restricted
contribution (previous example)
 Many times contributions are received and
expended in the same fiscal period
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Compliance and Reporting
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PIN 98-23
Financial System Expectations
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Accounting & Internal Controls
Budget
Billing & Collections
Independent Financial Audit
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Budget
 Reflects the level & scope of services to be
provided within the constraints of the health
center’s resources
 Should reflect available resources & required
expenditures
 Should be approved by the health center’s
governing body
 Particular emphasis on health center revenue
streams
Beyond Your Numbers
Grant Funds:
No Strings Attached?
 If you accept the grant, accept the rules
 It is the responsibility of health center
management to understand the set of rules that
accompanies each grant award
 Noncompliance with any grant rules could result
in significant risk to those with fiduciary
responsibilities at the health center
Beyond Your Numbers
Applicable Rules &
Regulations
 Governing federal regulations - most of which are
available on the internet
 OMB Circulars A-110, A-122 & A-133
• A-110 - Management of federal grant funds
• A-122 - Cost principles
• A-133 - Audit requirements
 Section 330 of the Public Health Services Act
 Code of Federal Regulations
 Policy Information Notices (PIN) & Program Assistance
Letters (PAL)
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Scope of Project
 Important to know what activities are included &
excluded from your scope of project as defined by
the BPHC
 Changes in the scope of project should be
communicated to & approved by the BPHC in
writing
 Important to designate management level position
to monitor compliance
Beyond Your Numbers
Scope of Project
 Risks of not including qualified health center
activities in the scope of project
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FTCA Coverage
Medicare & Medicaid FQHC reimbursement
Pharmacy benefits
Other
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Grant Reporting
 Required reports to be filed under the
community health center grant include:
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FSR (annually)
UDS (annually)
Federal Cash Transactions Report (quarterly)
Other
 Federal reporting accomplished through
submission of an annual FSR
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Financial Status Report (FSR)
Issues
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FSR – A General Overview
The FSR is an official claim of expenditures
submitted to the federal granting agency
It is a comprehensive report of all financial
transactions relative to the approved project
It identifies allowable total outlays & the
revenue sources utilized to satisfy such
outlays
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FSR – A General Overview
Upon completion, the amount, if any, of
unobligated federal grant funds, and/or
undisbursed (“excess”) program income will
be determined
Section 330 programs are generally “last
dollar” programs - necessary to understand
& monitor spending order of health center
funds
Beyond Your Numbers
FSR Terminology
Total outlays
Program Income
State, local & other operational funding
Unobligated balance of federal grant funds
Undisbursed (“excess”) program income
Beyond Your Numbers
Total Outlays
Total outlays represent expenditures incurred
for the budget period prepared on the
“modified” accrual basis of accounting
Generally begins with total expenses
reported in the audited financial statements
on the “full” accrual basis of accounting
Reconciliation from “full” to “modified”
accrual basis is required
Beyond Your Numbers
Program Income
Represents the amount of fees, premiums &
third-party reimbursements accrued from
health center operations during the budget
period
Generally, will be net patient service revenue
less provision for bad debts
Comparison will be made to expected
program income included on the NGA
Beyond Your Numbers
State, Local & Other
Operational Funding
Represents all resources from the approved
project that are not program income or
Section 330 federal grant funds
Resources from state, local & other sources
(other than net patient service revenue) that
are not designated for the approved project
may be excluded from the FSR
Beyond Your Numbers
Unobligated Balance of
Federal Funds
Represents grant funds authorized for the
budget period not required to satisfy
allowable outlays (unspent grant funds)
What should I do if this situation occurs?
Beyond Your Numbers
Undisbursed (“Excess”)
Program Income
Represents the amount of fees, premiums &
third-party reimbursements, after
adjustments for uncollectible accounts,
which exceeds the amount of expected
program income identified on the NGA
What implication does this have for my
health center?
Beyond Your Numbers
FSR Issues
Appropriate budgeting of program income is
critical (best advice - be realistic, but
conservative)
Interim planning is important for
management of program revenues
Financial statement audit should reconcile
with the FSR
Beyond Your Numbers
FSR Example
 ABC Community Health Center
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Total allowable outlays
= $7,000,000
Program income
= $4,000,000
Budgeted program income = $3,000,000
Other sources of revenue = $1,000,000
Federal CHC grant
= $3,000,000
 In above circumstance, ABC CHC would have
excess program income of $1,000,000 & $0 of
unobligated federal funds
Beyond Your Numbers
FSR Example
 ABC Community Health Center
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Total allowable outlays
= $7,000,000
Program income
= $4,000,000
Budgeted program income = $4,000,000
Other sources of revenue = $1,000,000
Federal CHC grant
= $3,000,000
 In above circumstance, ABC CHC would have
excess program income of $0 & $1,000,000 of
unobligated federal funds
Beyond Your Numbers
FSR Issues
 Strategies for avoiding unobligated federal
funds
 Establishment of authorized reserve funds
 Accurate assessment of net realizable value of
accounts receivable
 Accurate recording of cost report settlements
 Accrual of expenses in accordance with generally
accepted accounting principles
 Prepayment of known recurring non-salary costs
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Beyond Your Numbers
Strategic Planning Opportunities
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Current Financial Issues
 Increased pressure to grow & expand services
without increasing reimbursements
 Increased scrutiny of financial results by the
federal granting agency & other external users of
audited financial statements
 Recent BPHC focus on current ratio, use of
federal grant money & overall health center
financial viability
 The President’s initiative is over – now what?
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Current Financial Issues
 Increased tightening of state budgets resulting in
reduced services and/or payments
 Strategic financial planning is now more important
than ever before
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Opportunities
 What do we want funded?
 Current operations  Expanded services  Defined service
• Medical, Dental, Mental Health, Pharmacy
 Capital needs
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Opportunities
 Would we do this without the funding?
 Will the money continue into the future?
 Are there other revenue streams generated by
the funded activity?
 The compliance trap and opportunity cost
 Seek funding with less restrictions
Beyond Your Numbers
Beyond Your Numbers
Best Wishes for Financial
Success for Your Health Center!
[email protected],
BKD, LLP
417 865-8701
CPA & Advisory Services