1 Michigan Association of State and Federal Program Specialists “Federal Grants Management” Traverse City, Michigan November 11, 2007 Leigh Manasevit Brustein.

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Michigan Association of State and Federal Program Specialists

“Federal Grants Management”

Traverse City, MichiganNovember 11, 2007

Leigh ManasevitBrustein & Manasevit

3105 South Street NW Washington, DC 20007

[email protected](202) 965-3652

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Agenda Overview of EDGAR How to analyze allowable costs

Time distribution Grants management systems

Financial management Procurement Inventory management

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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

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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

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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

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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

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Cost Principles: Basic Guidelines All Costs Must Be:

Necessary Reasonable Allocable Legal under state and local law

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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

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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

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Necessary & Reasonable (cont.) Data driven decision making

Strategic Goal

Measurable Objective

Current Performance

(based on data)

CriticalNeeds

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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

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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

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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

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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

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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

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Federal Cost Principles: Selected Items of Costs

43 specific costs detailed Listed in alphabetical order

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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

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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

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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

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Time DistributionOMB 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

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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

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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

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Cost Objective (cont.) Single cost objectives:

Consolidated administration

Schoolwide programs

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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.”

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

certification1. Single cost objective2. Supervisor cannot assign multiple functions3. Employee coded to dedicated function not

benefiting multiple functions Blanket certification

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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

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Multiple Cost Objectives (cont.) Time increments reported on PARs should

be sufficient to recognize: Number of different activities performed The dynamics of these responsibilities

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Sample PAR

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Sample PAR

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Distributing Payroll Costs1. Estimate how employee will work

Must produce reasonable approximations of the activity actually performed

2. Quarterly comparison of estimates to actual costs

If difference is less than 10% - annual adjustment

If difference is more than 10% - quarterly adjustment

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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

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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

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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

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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)

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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

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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

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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

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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

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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

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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

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FMS Rules for LEAs (cont.)Components of Internal Control Control Environment Risk Assessment Control Activities Information and

Communications Monitoring

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FMS Rules for LEAs (cont.)Budget Control Must compare actual

expenditures to budgeted amounts on a routine basis

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FMS Rules for LEAsAllowable 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

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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

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Cash Management

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Cash Management Payment Process

Obligation Liquidation Drawdown Payment

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Obligations 34 CFR 76.707, 34 CFR 80.23

Obligation = Transaction that requires payment

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Obligations (cont.)

Acquisition of Property Date of binding written commitment

Personal Services by Employee

When services are performed

Personal Services by Contractor

Date of binding written commitment

Travel When travel is taken

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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

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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

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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)

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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

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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

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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

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Liquidations34 CFR 80.23

Liquidation = Settle an obligation by paying funds

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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

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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)

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Procurement

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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

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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

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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

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Role of Cost/Price All costs must be reasonable:

Fair market value Arms length bargaining Act with prudence under the circumstances

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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

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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

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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

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Vendor Selection Process (cont.) Method of procurement:

Small purchase procedures Competitive sealed bids Competitive proposals Noncompetitive proposals

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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

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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

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Vendor Selection Process (cont.) As a practical matter,

noncompetitive contract raises “red flags” Ensure persuasive and adequate

documentation to facilitate audit

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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

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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

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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

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Contract Administration (cont.) Must maintain a contract

administration system that ensures contractors perform in accordance with the terms, conditions, and specifications of the contract

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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)

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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

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Inventory Management

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Inventory Management34 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

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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

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Equipment Must have adequate controls in place to

account for: Location of equipment Custody of equipment Security of equipment

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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

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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

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Supplies Must maintain effective control and

accountability Must adequately safeguard all such

property Must assure that it is used solely for

authorized purposes

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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.