Michigan Association of State and Federal Program Specialists “Federal Grants Management” Traverse City, Michigan November 11, 2007 Leigh Manasevit Brustein & Manasevit 3105 South Street NW Washington, DC 20007 [email protected]

(202) 965-3652 1

Agenda

   Overview of EDGAR How to analyze allowable costs  Time distribution Grants management systems    Financial management Procurement Inventory management 2

Legal Structure of Federal Programs     Statutes   Program statutes (NCLB, IDEA, Perkins) General Education Provisions Act (GEPA) Regulations   Program regulations Education Department General Administrative Regulations (EDGAR) OMB Circulars Guidance 3

General Management Rules

 Education Department General Administrative Regulations: 34 CFR pts. 74-99   Part 74: Administration of Grants to Institutions of Higher Education, Hospitals, and other Nonprofit Organizations Part 75: Direct Grant Programs    Part 76: State-Administered Programs Part 77: Definitions Part 80: Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments 4

How to Analyze Allowable costs

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Helpful Questions to Ask

    Is the proposed cost consistent with federal cost principles?

Is the proposed cost allowable under the relevant program?

Is the proposed cost consistent with program specific fiscal rules?

Is the proposed cost consistent with EDGAR?

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Additional Question

 Is the proposed cost consistent with special conditions imposed on the grant?

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Practical Question

 Is the proposed cost consistent with the underlying needs of the program  Data driven decision making  Target funds to areas of weakness 8

Federal Cost Principles

 A-21 Educational Institutions 

A-87 State, Local & Indian Tribal Governments

 A-122 Non-Profit Organizations  48 CFR pt. 31 For-Profit Organizations 9

Cost Principles: Basic Guidelines  All Costs Must Be:     Necessary Reasonable Allocable Legal under state and local law 10

Basic Guidelines (cont.)

 In addition, all costs must:       Conform with federal law & grant terms Consistently treated In accordance with GAAP Not included as match Net of applicable credits Adequately documented 11

Necessary & Reasonable

 Necessary and Reasonable      Must be necessary for the performance or administration of the grant Must follow sound business practices:    Arms length bargaining (hint: procurement processes) Follow federal, state and local laws Follow terms of the grant award Fair market prices Act with prudence under the circumstances No significant deviation from established prices 12

Necessary & Reasonable (cont.)

 Data driven decision making Critical Needs Strategic Goal Current Performance (based on data) Measurable Objective 13

Necessary & Reasonable (cont.)

 Practical aspects of “necessary”   Do I really need this?

 Surplus property/existing resources  Lease vs. purchase Is this the minimum amount I need to spend to meet my need?

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Necessary & Reasonable (cont.)

 Practical aspects of “reasonable”     Is the expense targeted to valid programmatic/administrative considerations?

Do I have the capacity to use what I am purchasing?

Did I pay a fair rate? Can I prove it?

If I were asked to defend this purchase, would I be comfortable?

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Allocable

 Allocable   Can only charge in proportion to the value received by the program  Example: LEA purchases a computer to use 50% in the Title IV program and 50% in a state program – can only charge half the cost to Title IV 2 Methods of allocating costs:   Direct cost allocation Indirect cost allocation 16

Basic Guidelines (cont.)

  Legal under state and local law  If you can’t do it under state law, you can’t pay for it with federal funds Conform with federal law & grant terms  Example: Match Requirements 17

Basic Guidelines (cont.)

 Consistently treated  Must follow uniform policies that apply equally to federal and non-federal activities  Cannot assign cost as direct cost if indirect under state programs 18

Basic Guidelines (cont.)

 In accordance with GAAP  Not included as match  Net of applicable credits  Examples: purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, adjustments of overpayments 19

Basic Guidelines (cont.)

        Adequately documented Amount of funds under grant How the funds are used Total cost of the project Share of costs provided by other sources Records that show compliance Records that show performance Other records to facilitate an effective audit 20

Federal Cost Principles: Selected Items of Costs   43 specific costs detailed Listed in alphabetical order 21

Selected Item of Cost (cont.)

   Salaries and Wages  Allowable if proper time distribution records Fringe Benefits  Allowable if: (1) established written leave policies; (2) cost equitably allocated to all related activities; and (3) accounting basis consistently followed Severance Pay/Terminal Leave  Normal: Allowable as indirect cost  Abnormal: Allowable if approved by cognizant federal agency 22

Compensation for Personal Services   Overview of process:    Estimate how employee will work Pay based on estimate Reconcile estimates to how actually worked Necessary documentations   Payroll records Time and effort records 23

Support of Salaries and Wages

  Payroll must be documented in accordance with SEA/LEA’s generally accepted accounting practice Charges must be approved by a “responsible official” of the SEA/LEA 24

Time Distribution

OMB Circular A-87    If federal funds are used for salaries “time and effort records” must be kept Must demonstrate that employees paid with federal funds actually worked on the specific federal program Applies to all employees who are paid with federal funds 25

General Requirement

   Type of documentation depends on how many “cost objectives” the employee worked on These cost objectives must be connected to the employee’s salary source What is a cost objective?

 A specific grant award, or other category of costs, that requires the grantee to track specific cost information 26

Cost Objective

 For example:  Federal Program:     Title I, Part A Reading First IDEA Federal Program Cost Objective:     Title I, Part A School Improvement Title I, Part A Program Reading First Administration IDEA, Early Intervening Services 27

Cost Objective (cont.)

 Single cost objectives:  Consolidated administration  Schoolwide programs 28

Cost Objective (cont.)

 Multiple cost objectives:  More than one Federal award      A Federal award and a non-Federal award; A Federal award with specific earmarking (set-asides) or matching requirements; An indirect cost activity and a direct cost activity; Two or more indirect activities which are allocated using different allocation bases; or An unallowable activity and a direct or indirect cost activity.

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Single Cost Objective

 If an employee works on a single cost objective:    Semi-Annual Certification Signed by employee or supervisor every six months Example: “I hereby certify that for the period January 1, 2005 through June 30, 2005 one hundred percent (100%) of my time and effort was spent on Title III Administration.” 30

Single Cost Objective (cont.) Flexibility   Payroll certification in lieu of semi-annual certification 1.

2.

3.

Single cost objective Supervisor cannot assign multiple functions Employee coded to dedicated function not benefiting multiple functions Blanket certification 31

Multiple Cost Objectives

 If an employee works on multiple cost objectives:  Personnel Activity Report (PAR) or equivalent documentation   After the fact Account for total activity   Signed by employee Prepared at least monthly and coincide with one or more pay periods 32

Multiple Cost Objectives (cont.)

 Time increments reported on PARs should be sufficient to recognize:   Number of different activities performed The dynamics of these responsibilities 33

Sample PAR

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Sample PAR

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Distributing Payroll Costs

1.

2.

 Estimate how employee will work Must produce reasonable approximations of the activity actually performed   Quarterly comparison of estimates to actual costs If difference is less than 10% - annual adjustment If difference is more than 10% - quarterly adjustment 36

Special Rules for Schoolwide Programs  New fiscal guidance May 2006   If a school consolidates its funds into a single account it is not required to keep any time distribution records If a school does not consolidate its funds into a single account, it must follow the normal rules  Single cost objective – semi-annual certification  Multiple cost objective - PAR 37

Schoolwide programs (etc.)

 What does it mean to consolidate funds into a single account?

   Single bank account?

Single accounting code?

Single cost objective?

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Grant Management Systems

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Grant Administration



Three major “systems” in grants management:

  Financial Management Inventory Management  Procurement 40

What Rules Apply?

 State and local agencies must use fiscal control and fund accounting procedures that will ensure the proper disbursement of, and accounting for, federal funds    Section 441 of GEPA (general assurances) Section 9306 of NCLB (program assurances) Section 76.702 of EDGAR 41

Systems Requirements (cont.) EDGAR §§ 80.20, 80.32, 80.36



State may follow own laws and procedures

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

Systems Requirements (cont.) “All other grantees and subgrantees” must implement systems that meet specific requirements

 FMS = 80.20(b)   Inventory = 80.32(c) (e) Procurement = 80.36(b)-(i) 43

System Requirements (cont.)



Where does an LEA fall?

   Part of state?

Subgrantee?

Other grantee?

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Rules for LEAs

 

Direct grants

 LEA is considered grantee – specific EDGAR rules apply

State-administered grants

  1988 preamble to A-102  Defer to principles of Federalism  LEA must follow state law and procedures However, in practice, ED holding LEAs to very high standards 45

Financial Management

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FMS Rules for LEAs (cont.)

 7 requirements:        Financial Reporting Accounting Records Internal Control Budget Control Allowable Cost Source Documentation Cash Management 47

FMS Rules for LEAs (cont.) Financial Reporting

  Accurate, current and complete disclosure of financial information   All financial reports required by ED Consistent with GASB Rule 34 NCES Manual: Financial Accounting for Local and

State School Systems

 Chapter 5: Financial Reporting  http://nces.ed.gov/pubs2004/h2r2/ch_5_1.asp

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FMS Rules for LEAs (cont.) Accounting Records

  Must identify source and application of funds (expenditure level detail) Must contain information related to:         Award amount Authorizations Obligations Unobligated balances Assets Liabilities Outlays or expenditures Income 49

FMS Rules for LEAs (cont.) Internal Controls

  ED is subject to laws requiring it to monitor internal controls   Improper Payment Act of 2002 Federal Managers’ Financial Integrity Act of 1982 Single auditors are required to test internal controls 50

FMS Rules for LEAs (cont.) Internal Controls

 Internal controls are tools to help program and financial managers achieve results and safeguard the integrity of their programs  Includes processes for planning, organizing, directing, controlling, and reporting on agency operations 51

FMS Rules for LEAs (cont.) Objectives of Internal Control

    Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations Safeguarding assets 52

FMS Rules for LEAs (cont.) Components of Internal Control

     Control Environment Risk Assessment Control Activities Information and Communications Monitoring 53

FMS Rules for LEAs (cont.) Budget Control

 Must compare actual expenditures to budgeted amounts on a routine basis 54

FMS Rules for LEAs Allowable Cost

 Must follow applicable cost principle to determine reasonableness, allowability, and allocability of all costs     A-21 Educational Institutions A-87 State, Local & Indian Tribal Governments A-122 Non-Profit Organizations 48 CFR pt. 31 For-Profit Organizations 55

FMS Rules for LEAs (cont.) Source Documentation

   Type of documents:  Canceled checks (or similar bank record)     Paid bills Payrolls Time and attendance records Contract and subaward documents Electronic copies ok Must retain for at least 3 years, but statute of limitations = 5 years 56

Cash Management

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Cash Management

 Payment Process     Obligation Liquidation Drawdown Payment 58

Obligations 34 CFR 76.707, 34 CFR 80.23

 Obligation = Transaction that requires payment 59

Obligations (cont.)

Acquisition of Property Personal Services by Employee Personal Services by Contractor Travel Date of binding written commitment When services are performed Date of binding written commitment When travel is taken 60

Obligations (cont.)

  Every grant has a “period of availability” = period in which grantee can obligate funds In general, ED cannot extend the period of availability  But – NCLB waiver authority 61

Obligations (cont.)

 Grantees and subgrantees may begin to obligate funds when:   Awarding agency approves application; or Awarding agency determines application is “substantially approvable”  Reimbursement subject to final approval 62

Obligations (cont.)

  Tydings Amendment  Allows extra year to obligate funds  Does not apply to all grants Under Tydings, funds are available for 24-27 months:  12-15 months under the grant award  (July 1, 2006 – September 30, 2007) Plus 12 months (October 1, 2007 – September 30, 2008) 63

Obligations (cont.)

  In order to have a valid “obligation” there must be:   A transaction giving rise to an obligation within the period of availability; and A “linking” of the transaction with funds that were available during the period of availability.

“Linking” a transaction to particular grant funds can occur long after the period of availability ends 64

Obligations (cont.)

  “Linking” example:   Transaction occurs on August 1, 2005 Available funds include:  2003-2004 Funds (became available 7/1/03)  2004-2005 Funds (became available 7/1/04)  2005-2006 Funds (became available 7/1/05) But keep in mind the concept of allocability 65

Obligations (cont.)

  Under Tydings, unobligated funds can usually be “carried over” from first year Generally, no limit on “carryover” unless stated   Title I, Part A = 15%, SEA may waive every 3 years Perkins = No carryover 66

Liquidations

34 CFR 80.23

 Liquidation = Settle an obligation by paying funds 67

Liquidations (cont.)

  State must liquidate all obligations within 90 days after the end of the period of availability  Example:  Period of availability: July 1 – September 30  Liquidation period ends: December 30 State may impose shorter deadline on subgrantee 68

Payments

 Special rules if receive advance payment    Must expend funds within 3-days Must maintain written procedures for timing drawdowns and payments Interest must be paid back to ED (over $100) 69

Procurement

70

Ensuring Purchases are Necessary

  All costs have to be necessary for the performance or administration of the federal grant Therefore, must review all proposed purchases to avoid unnecessary or duplicative items     Surplus property Structure procurement to obtain most economical purchase Intergovernmental agreement for common goods or services Lease vs. purchase 71

Open Competition

 All procurement transactions must be conducted with full and open competition:   Must have written code of conduct for all employees engaged in the award and administration of contracts (must address conflicts of interest) Must have protest procedures to handle disputes 72

Open Competition (cont.)

 Situations that restrict competition:  Unreasonable requirements on vendors to qualify to do business        Pre-qualified lists should not limit competition Requiring unnecessary experience or excessive bonding Noncompetitive pricing practices Noncompetitive awards to consultants on retainer Organizational conflicts of interest Specifying a brand name In-state or local preferences 73

Role of Cost/Price

 All costs must be reasonable:    Fair market value Arms length bargaining Act with prudence under the circumstances 74

Role of Cost/Price (cont.)

 Must perform a cost or price analysis in connection with every procurement action, including contract modifications   Cost analysis generally means evaluating the separate cost elements that make up the total price (including profit) Price analysis generally means evaluating the total price 75

Role of Cost/Price (cont.)

 Method and degree of cost or price analysis depends on the particular facts and circumstances  Must make independent estimate before receiving bids or proposals  Goal of analysis is to determine reasonableness 76

Vendor Selection Process

  Must have written selection procedures Procedures must ensure all solicitations:    Include a clear and accurate description of technical requirements Identify all requirements vendor must fulfill Identify evaluation factors 77

Vendor Selection Process (cont.)

 Method of procurement:     Small purchase procedures Competitive sealed bids Competitive proposals Noncompetitive proposals 78

Vendor Selection Process (cont.)

 Noncompetitive proposals appropriate only when:     The good or services is available only from a single source (sole source) There is a public emergency The awarding agency authorizes After soliciting a number of sources, competition is deemed inadequate 79

Vendor Selection Process (cont.)

 Must perform a cost analysis in connection with every noncompetitive contract  Must ensure contractor price is reasonable  Must ensure contractor not using market power to force higher price 80

Vendor Selection Process (cont.)

 As a practical matter, noncompetitive contract raises “red flags”  Ensure persuasive and adequate documentation to facilitate audit 81

Vendor Selection Process (cont.)

 Can only contract with responsible contractors possessing the ability to perform successfully:     Contractor integrity Compliance with public policy Record of past performance Financial and technical resources 82

Vendor Selection Process (cont.)

  Cannot contract with vendor who has been suspended or debarred Must verify if contract is $25,000 or more 

http://www.epls.gov/

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Vendor Selection Process (cont.)

 Retain records to document:   Rationale for the method of procurement Selection of contract type   Contractor selection or rejection Basis for contract price 84

Contract Administration

 All contracts supported with federal funds must contain certain required provisions:         Remedies for breach, sanctions, penalties Termination for cause and convenience Compliance with federal statutes and executive orders Reporting requirements Patent rights Copyrights Access by federal agency, Comptroller General of US to records of contractor Retention of records for 3 years after final payment 85

Contract Administration (cont.)

 Must maintain a contract administration system that ensures contractors perform in accordance with the terms, conditions, and specifications of the contract 86

Contract Administration (cont.)

 As a practical matter:  Must have written contracts (purchase order ok)  Contract should include clearly defined deliverables     Description of services to be performed or goods to be delivered Description of dates when services will be performed or goods delivered Description of locations where services will be performed or goods delivered Description of number of students/teachers/etc. to be served (if applicable) 87

Contract Administration (cont.)

 As a practical matter (cont.)  Must have written invoice      Description of services performed or goods delivered Description of dates services were performed or goods delivered Description of location services were performed or goods delivered Description of students/teachers/etc. served (if applicable Invoice should be reviewed & approved before payment   Segregation of duties Documented approvals 88

Inventory Management

89

Inventory Management

34 CFR 80.32

   Different rules for equipment and supplies Equipment   Federal Definition of Equipment    Tangible personal property Useful life of more than one year Acquisition cost of $5,000 or more State may use another definition as long as it includes all property described above Supplies  Everything else 90

Inventory Management (cont.)

   ED expectations   Track all tangible personal property regardless of acquisition cost Generally not consumables – but:  Still need to verify systems ensure sufficient level of control  Still need to show that program received the item (recent OIG audit of composition notebooks) Strategies?

Emerging issues – personally identifiable information 91

Equipment

 Must have adequate controls in place to account for:    Location of equipment Custody of equipment Security of equipment 92

Equipment (cont.)

   Property records  Description, serial number or other ID, title info, acquisition date, cost, percent of federal participation, location, use and condition, and ultimate disposition Physical inventory  At least every two years Control system to prevent loss, damage, theft  All incident must be investigated 93

Equipment (cont.)

  Must protect against unauthorized use  May use for other projects as long as use is incidental and does not interfere When property no longer needed, must follow disposition rules:    Transfer to another federal program Over $5,000 – pay federal share Under $5,000 – no accountability 94

Supplies

   Must maintain effective control and accountability Must adequately safeguard all such property Must assure that it is used solely for authorized purposes 95

This presentation is intended solely to provide general information and does not constitute legal advice. Attendance at the presentation or later review of these printed materials does not create an attorney-client relationship with Brustein & Manasevit. You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances.

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