Complying with federal grant regs


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  • Before the economic down-turn, the federal government slated $500 billion for federal grants of which 4% or $20 billion is directly set-aside for nonprofits. Historically, the 80% set aside as block grants to the states would be re-granted to nonprofits, though the states may be holding on to anything given their budget deficits. If you are interested in keeping up with the American Recovery and Reinvestment Act, check out
  • The greatest share of federal agency funding is through the U.S. Department of Health & Human Services as they received 58% of the total amount allotted.
  • These are overall areas of controls are presented.
  • The slide presents examples of conditions articles that are added to federal grants.
  • If you receive government furnished or acquired property, you must maintain it as your own.
  • General record-keeping and access to records requirements.
  • Each of the above bullets represent important sections involving financial management requirements from A-110.
  • A non-labor transaction must not only include the general ledger account number but also a unique charge code to ascertain whether the transaction relates to a federal award, non-federal activity, direct or indirect, or even unallowable (non-recoverable) activity.
  • This sample form relates to Quick Books software that has both general ledger accounts such as “7600 – Printing” and P&L Class that provides information as to the type of transaction, such as the “CDC” grant. You should also provide a brief description under the “Purpose and Nature” of the expense.
  • Here is a definition of program income.
  • This information highlights how the government expects an awardee to track their program income.
  • Program monitoring and reporting requirements are highlighted on this slide.
  • There are several document retention requirements. The standard retention requirement is 3 years after the final submission of the SF 269.
  • Variety of penalties that can be assessed against an organization that does not comply with the federal regulations.
  • The most important tip is to read and understand the agreement. Keep all of your correspondence even if in the form of email.
  • A time sheet record is a necessary “Personnel Activity Report” that is mandated by OMB Circular, A-122, Attachment B, Cost Principle No. 8m. If you are working on a federal grant, even part-time, you should be completing a time sheet record.
  • Complying with federal grant regs

    1. 1. Complying with Federal Grant Regulations: Allowable vs. Unallowable Expenses
    2. 2. • Micro vs. macro view on regulations• Funding Statistics & Grant Issues and Uniqueness• OMB Circular A-133 audit surveillance• Proposed Updates to A-133 thresholds & grants• What an Inspector General auditor looks for• OMB Circular A-110 grants management• Financial management diagrams – illustrations• Sample cost ledger report• Cost Principles and Unallowable Expenses 2
    3. 3. • By the end of this module, you will increase your knowledge of and be able to identify: – Fundamentals of federal grants management: • Certain HHS agency-specific requirements • Cost reimbursable grants, obligation period • Cost sharing / match requirements • Program income • Procurement procedures • Sub-recipient monitoring program • Time reporting requirements 3
    4. 4. All Federal v. Agency Regulation• Macro view: • Micro view:• OMB Circular A-110 • 45 CFR 74 Admin / Financial DHHS version of A-110• OMB Circular A-122 • Grants Policy Statement Cost • Grant agreement principles, allocations, • Solicitation rates • Congressional intent of• OMB Circular A-133 program 93.918 Capacity Federal audit Development via requirements 4
    5. 5. 5
    7. 7. Distribution of Federal Grants 8% States Locals 7% 4% Universities 1% Non-Profits 80% Tribes, For- Profit, Others2009 US BUDGET - $3.1 TRILLION GRANTS- $500 BILLION 7
    8. 8. 8
    9. 9. – Planning for Agency Operations During a Lapse in Government Funding– OMB, April 7, 2011, Ref: M-11-13 9
    10. 10. BEST PRACTICES:Components of aCompliance Program of aNonprofit w/Federal Grants
    11. 11. • Procurement contract – Good and services for the direct benefit of the federal government – Governed by the Federal Acquisition Regulation
    12. 12. • Grant – Award of financial assistance for the principle purpose to transfer something of value from Federal agency to a recipient to carry out a public purpose of support or stimulation – Governed by OMB Circular A-110• Cooperative agreement – Collaborative effort with significant government input and/or monitoring 12
    13. 13. • Cost Reimbursable – You cannot make money, no residual per OMB A-110, §71(d) – At best, you can break-even – Public – partnership, government does not expect to cover 100% of org. cost, e.g. match – “Cost – Justified” • Need supporting documents, e.g. time records, receipts to support reimbursement
    14. 14. • Allotment: agency records debt on books• Obligation: orders placed, services performed• Expenditures: spend down of grant funds (90 days after obligation period)• Disbursements: payments from Treasury to liquidate expense incurred by grantee – 90 days after obligation period
    15. 15. • Obligation period (accomplish grant): – 10/1/2010 to 9/30/2011• Award date: 12/01/2010 is start date – Awardee performs “at risk” if starts before 12/1/2010• Expenditures (spend down funds): – 10/1/2010 to 12/29/2011• Liquidation of payments (for draw downs): – 10/1/2010 to 12/29/2011
    16. 16. • Pre-award cost or condition• No cost extension – NLT 30 before end of grant (9/30/2010) – Up to a year extension• Reasons for extension – Late start due to award date (12/1/2010) – Equipment ordered during obligation period is received late in need of repair
    17. 17. OMB Circular A-133 withProposed Rule Changes forGrants & OMB CircularsSingle Audit Act –External Surveillanceand Reporting 17
    18. 18.  A-133 audit • Awarded expenses > $500,000 per year • Single audit or program specific audit • Financial statement audit per GAGAS, Generally Accepted Government Auditing Standards • Understand and test internal control sys. • Schedule of deficiencies & questioned cost • Follow-up on prior audit findings 18
    19. 19.  Purpose of Reform  Strengthen the oversight of federal grant funds by aligning existing administrative requirements  To better address ongoing and emerging risks to program outcomes and integrity  Eliminate unnecessary, duplicative requirements  To standardize info collection across agencies, adopt a risk-based model for single audits, new admin approaches for determining, monitoring and allocation of Federal funds. 19
    20. 20.  New $1 Million (M) threshold vs. $500,000 Limited A-133 audits between $1 and $3 M  Major program testing for allowable / unallowable + (1) other compliance determined by agency  Silent on level testing of internal controls over compliance Full A-133 audits over $3M • Agencies set compliance requirements • Don’t have to be universal to a program 20
    21. 21.  Audit follow-up by agencies  Digitize reports into a searchable database Pass-Through Entities and Sub-Recipients • If most funds direct from gov’t v. pass- thru, Government will do audit follow-up of all funds that are not specific to program delivery of sub-awards • Once “general” findings are cleared, PTE ensures that sub-recipient complies with audit resolution. *GAQC Alert #190, AICPA 21
    22. 22.  Changes to the Cost Principles  Consolidating all cost principles into a single document with limited variations by entity  Use of “flat” rates discounted below negotiated rates  Option of accepting a flat or negotiated rate  Flat rates maintained up to 4 years with minimal documentation  Negotiated rates require full documentation  DHHS DCA develop discount factors 22
    23. 23.  Alternatives to Time-and-Effort Reporting  Identify risks associated with support of salary cost and identify possible alternative mechanisms  New pilot programs to account for salary costs that is allocable and allowable Computing devices not subject to inventory controls less than capitalization threshold, would be considered direct cost supplies but have to be a separate line item in their budget 23
    24. 24.  Eliminating restrictions on the use of indirect costs recovered for depreciation or use allowances Eliminating the requirement for lease-vs. buy analysis relating to mortgage interest cost Eliminate printed help-wanted ads specifications Budget for contingency funds for construction or upgrade of a large facility or IT systems Allow idle capacity for certain facilities in anticipation of usage increases Gain/loss on derivatives/hedges unallowable in financing arrangements 24
    25. 25.  Increasing the CAS D/S threshold for Universities Provide examples of certificate of indirect costs and indirect cost proposal documentation requirements Combine OMB Circular A-102 and A-110 into one consolidate document with few exceptions by recipient type 25
    26. 26. – SAS 115 communicating internal controls relating to an audit (AU-325): • State in writing to management significant deficiencies and material weaknesses in internal controls– Must submit timely performance reports, SF 269 and 272, and indirect cost rates– Documenting eligibility requirements– No procurement procedures §40 of A-110 26
    27. 27. INDICATORS of Internal Control significant deficiency or material weakness “Employees or management that lack the qualifications or training to fulfill their assigned functions.” 27
    28. 28. What Inspector General Looks For Evidence of Indirect Cost Rates • Negotiated/provisional indirect rates • Cost accounting structure for indirect costs Time reporting system to allocate labor Procedure to distinguish between allowable and unallowables w/training Sub-recipient monitoring• HHS OIG: fraud, waste, abuse for grants/funds – 800-377-4950 OIG Hotline [HHS GPS I-7] – – OIG, DHHS, 330 Independence Ave, SW – Washington, DC 20201 28
    29. 29. What Inspector General Looks For Internal Controls • Journal entries documented & approved • Timesheet record • Payment request form • Expenses reviewed for allowability • Monthly travel & expense reports prepared • Annual budget with revised projections • Budget-to-actual variances analyzed • Aware of grantee procurement procedures • Sub-recipient monitoring 29
    30. 30. OMB Circular A-110Compliant Financial ManagementSystems
    31. 31. • Procurement standards• Government property standards• Record keeping requirements• Sub-recipient monitoring• Excluded parties list – Prohibition against suspended/debarred vendors; – [HHS GPS I-13 and I-14] 31
    32. 32.  Equal employment opportunity Affirmative Action Plan Certification of NO lobbying [HHS GPS I-15] Drug-free workplace [HHS GPS II-22] Business enterprise preferences [HHS GPS II-80] – Woman-owned enterprises – Minority-owned enterprises• Public Policy Requirements [HHS GPS, Exhibit 3 table, II-3 through II-9] 32
    33. 33.  Maintain accurate equipment records, including description, award, percentage paid with Federal funds, location, condition, acquisition date & cost, and disposition. Establish control system to minimize loss & damage. Provide adequate maintenance. Managing government property is like a trustee relationship Threshold is $5,000 for title / ownership
    34. 34. • Must have written procurement policy• Must have Code of Conduct to manage conflicts of interest. – Avoid appearance of family, financial or other interest in vendor – Anti-kickback policy – Don’t accept gratuities – No gratuities to federal officials – Don’t misuse proprietary information• HHS GPS II-78 to II-80• 45 CFR 74 §40 - 48 34
    35. 35. • Must maximize free and open competition among vendors. – Over “simplified acquisition threshold of $100,000 – Alert to practices that would restrain trade – Awards made to most responsive bidder: price, quality, technical capability, experience – Reject all bids if not in org’s best interest – Solicitations should have clear requirements to permit evaluation (next slide) 35
    36. 36. • Criteria included in Solicitations – Formal RFP – Clear description of goods and services to be procured or work statement – Mandatory requirements that all bidders must fulfill and factors for evaluation – A description of technical requirements: functions to be performed, milestones, range of acceptable or unacceptable criteria – Small business, minority-own preferences – Add federal agency terms and conditions 36
    37. 37. • Must perform cost/price analysis for each procurement. – Cost & price analysis performed when unit price > $100,000, the simple acquisition threshold – OpDiv approval if > $100,000 , awarded without competition (sole source) or only 1 bid received – Levels: < $5,000 Dept. Head, Officer Manager - $5,000 to $25,000 (3) written price quotes - $25,000 to $100,000, IFB (3) quotes-qualified - >$100,000 formal RFP to (3) Technical & Price 37
    38. 38. • Procurement procedures – Avoid purchasing unnecessary items – Initiate process w/ purchase request or P.O. – If necessary, perform lease vs. buy analysis to ascertain the lowest cost method – Stipulate the type of procurement: FP, T&M – Ensure vendors aren’t on excluded parties list – Contracts awarded based on contractor integrity, record of past performance, and financial & technical capability 38
    39. 39. • State and Local Units of Government – 45 CFR 92 §36 – Follow their rules so long as they conform to Federal – Foster greater economy and efficiency, to enter state and local intergovernmental agreements for use of common goods and services – Maintain records sufficient to detail history of procurement: rationale for method of procurement, contract type, selection or rejection, basis of price – Limit the use of Time & Material contracts: only use when no other contract is suitable 39
    40. 40. • Full and open competition – restrictive practices: – Unreasonable requirements to qualify to do business – Unnecessary experience and excessive bonding – Noncompetitive pricing practices between firms/affiliates – Noncompetitive awards to consultants on retainer – Specify only brand names• Avoid the use of geographic preference laws• RFP publicized and solicited from an adequate number of qualified sources 40
    41. 41. • Procurement by noncompetitive proposals when: – The item is available only from a single source – Public emergency will be delayed by competition – Awarding agency authorizes noncompetitive proposals – After solicitation of a number of sources, competition is determined inadequate 41
    42. 42. • Association must retain award/contract records for at least three years.• Association’s records are open to inspection by the Federal agency.• Association must allow Federal agency to perform on-site inspections.• Association’s records are open to public inspection.
    43. 43. Compliance Model Cost Recovery FinancialManagment SystemCompliance 43
    44. 44. • Standards for financial mgmt systems• Methods for making payments• Rules for cost sharing/match• Accounting for program income• Budget revision approvals• Sub-recipient monitoring A-133 audits• Determining allowability of costs; A-122• Establish fund availability 44
    45. 45. 45
    46. 46. 46
    47. 47. 47
    48. 48. 48
    49. 49. 49
    50. 50. 50
    51. 51. • Accounting and cost accounting records are supported by source documentation – General ledger, by budget line item – Unique program designation, tracking – Direct or indirect classification – Nature or purpose of expenditure – Attach any supporting documentation – Approval for payment (next) 51
    52. 52. Payment Request Form• Purpose / nature of expense• Supporting doc’s• Approval block• Grant designation• G/L account no. 52
    53. 53.  Match is the statutory, specified % of non-federal participation in allowable program cost that must be contributed by the recipient to be eligible to receive federal funds. “Cost sharing” is when the recipient shares in project costs other than as statutorily required in the budget, i.e. voluntary. 53
    54. 54.  All contributions including: Cash Third party in-kind Volunteer services Donated goods and space Must be included in the budget Must follow recordkeeping requirements 54
    55. 55.  Recipients cost sharing and matching when meets the following criteria:1. Verifiable from recipient’s records2. Not a part of another federal-assisted effort3. Are necessary and reasonable to accomplish project objectives4. Are allowable under OMB A-1225. Not paid by gov’t under another project6. Included in approved budget by agency 55
    56. 56.  Value of Volunteer Services and Donated Goods Is not reimbursable as either direct or indirect cost 56
    57. 57. • Program Income 2(x) definitions & 24:• Gross income earned by the recipient that is directly generated as a result of the award – Income from fees earned or services performed – Real or personal property acquired under grant – Sale of commodities (e.g. publications, reports) – Royalties on patents and copyrights – Interest on loans w/award funds and advances of federal funds 57
    58. 58. • Program income retained per awarding agency regulations or terms of grant 24• Methodology of tracking program income: – Added to Federal grant funds awarded – Used to finance non-Federal share of program – Deducted from the total program allowable cost in determining net allowable cost, as an offset• Obligation to gov’t ends after project period. 58
    59. 59. • Recipient is responsible for project, program, sub- award, function, activity supported by the award.• Monitor sub-recipient awards to ensure compliance with audit requirements – rules are under Section “M” of A-133 compliance supplement – sanctions to SRE for not complying• Federal agency prescribes frequency of reporting…quarterly to yearly 59
    60. 60. • Performance reports contain: 1. Comparison of actual accomplishments with goals and objectives established for the grant period 2. Notify the agency of any development that has significant impact on award activities and if assistance is needed 60
    61. 61. Best Practices:Sub-Recipient 51(a) MonitoringProcedures [HHS GPS II-81]
    62. 62. A Pass-Through Entity (PTE): non-federal entity provides awards to sub-recipient to carry out a federal programFederal award to subrecipient vs. payment of goods and services to a vendor per A- 133 .210 62
    63. 63. Federal award identification to subrecipient: CFDA title and number Award name and number Award year Name of award agency Flow down clauses 2nd tier subrecipient identification Recovery Act fund identification 63
    64. 64. Audits of SRE A-133 audits > $500,000 Audits completed within 9 months of year-end PTE issues a management decision on findings within 6 months of receipt of report SRE must provide corrective action on findings If SRE does not respond timely to findings, recommend sanctions 64
    65. 65. Protect the Government’s interestCompliance Committee is the nexusCompliance program for all fed. grantsWhen there are problems with the internal system, how org. fixed themThe need to document via a committee, actions to fix items and training of personnel to show gov’t 65
    66. 66. Monitoring Activities 1. Reporting involves the receipt and review of financial and performance reports, correspond. 2. Regular contact involves on-going, interactive communication with SRE to include appropriate inquiries and feedback regarding all facets of financial and program activities 3. Site visits performed at SRE’s facility; to perform thorough review of financial and programmatic records and observe operations Desk Review = [1] and [2] 66
    67. 67. • New online Federal Financial Report, SF 425 replaced the SF 269 and SF 272 – Report on grant funds authorized and expenditures – Report on recipient share (non-federal contribution / match) – Report on program income – Quarterly reports, due 30 days after quarter – Final report, due 90 days after end of grant 67
    68. 68. • Documentation –Grantee retain 3 years from submission of final expenditure report per OMB Circular A-110, --53(b) 68
    70. 70. Consequences of Non-Compliance• Withholding of disbursements or further awards;• Disallowance of cost;• Suspension/ Termination of award;• Suspension/ Debarment of Association;• Civil lawsuit; or• Criminal prosecution.
    71. 71. 1. Read award/contract documents carefully. 2. Ask for explanation. 3. Request deviation (though unlikely). 4. Document transactions, agency guidance, performance evaluations, etc., in writing. 5. Keep documentation at hand.
    73. 73.  Salary Documentation Requirements  After-the-fact actual time charges, not budgeted to estimate time charges  Timesheet must show total activity to org.  Signed by employee and supervisor  Activity reports prepared monthly and reconciled to payroll  Labor reports should also show hours to conform with the Fair Labor Standards Act  Same requirements volunteers under cost sharing or matching arrangements 73
    74. 74. • Time charges cannot be manipulated or changed by supervisors or management• Fully understands the implications of their actions: • When employee signs their timesheet, they are certifying to the accuracy of their time charge • Employees’ time charges billed as a claim to the government is subject to fraud statutes • Misrepresentation is a false claim which is fraud and is subject to severe sanctions under cost type grants & contracts 74
    75. 75.  Advance authorization of overtime premium Identifying and correcting timekeeping errors Distributing valid charge numbers for direct effort Direct personnel not knowing the correct grant or indirect account number for special training (EEO), holiday party, or “all hands meeting” Forcing actual labor charges to conform with artificially established budgets (e.g. charge your time 40% to job “A” and 60% to job “B”) 75
    76. 76. • Multiple Source Funders for 1 Program – Pro-active work statement definition for each unique funding source – Pro-active advanced understanding with each funding source to approve a particular mechanism for an equitable allocation of units of time in lieu of time sheets – Pro-active means before you start! 76
    77. 77. • Record time charges daily• Post them on the timesheet in ink• Do not enter time charges before the date, except for planned leave• Do not sign timesheet until end of week• Electronic time reporting systems are okay 77
    78. 78. Time Sheet Record Serial Number: 2007-01-31-001 Week Ending: January 17, 2006William B. JonesEmployee Signature __________________________ Approval Signature: _____________________ SUN MON TUES WEDS THUR FRI SAT TOTAL DESCRIPTION 01/11/06 01/12/06 01/13/06 01/14/06 01/15/06 01/16/06 01/17/06 DATE Direct Hours: 0 0 0 0 0 Indirect Hours: 0 0 0 Administrative 0 Vacation 0 Holiday 0 Sick 0 0 0 0 0 0 0 0 Total Hours 78
    79. 79. – Segregate cost for each government grant– Distinguish between direct and indirect cost– Consistent cost allocation of indirect cost– Identify unallowable, non-recoverable cost– Assign cost to the appropriate accounting period 79
    80. 80. – Sufficient accounting controls to ensure compliance with government grant regulations • OMB Circular A-110 for Non-Profit Organizations– Capable of performance measurement, such as provisional vs. actuals for indirect burden rates– Facilitate the development of indirect cost rates 80
    81. 81. OMB Circular A-122, Attachment B Individual Cost Principles
    82. 82. • Agency-specific HHS grant cost principles: II-31 through II-44, Exhibit 4 table• Conference grants cost principles: II-98 to101, Exhibit 10 and 11 tables• Construction grants cost principles, II-103 to II-105, Exhibit 12 and 13 tables• Fellowships cost principles, II-111 to II- 112, Exhibit 14 table 82
    83. 83. 1. Advertising and public relations cost. (UWE)2. Advisory councils. (A)3. Alcoholic beverages. (UA)4. Audit costs and related services. (A)5. Bad debts. (UA)6. Bonding costs. (A)7. Communications. (A)8. Compensation for personal services. (AWR) f. Overtime, extra-pay shift, multi-shift premiums. (AWR) g. Fringe benefits. (A) h. Organizational-furnished automobiles. (UWE) i. Pension plan costs. (AWR) RED FONT for Unallowable Expenses 83
    84. 84. 8. Compensation for personal services. (AWR) j. Incentive compensation. (A) k. Severance pay. (AWR)9. Contingency provisions. (UA)10. Defense and prosecution of criminal and civil proceedings, claims, appeals, and patent infringement. (UWE)11. Depreciation. (AWR)12. Donations and contributions (UA) a. Contributions. (UA) b. Donated services received. (UA) c. Donated goods or space. (UA)13. Employee morale, health, and welfare costs. (A)14. Entertainment costs. (UA)15. Equipment and other capital expenditures. (AWR)16. Fines and penalties. (UA) 84
    85. 85. 17. Fund raising and investment management costs. (UA)18. Gains and losses on depreciable assets. (AWR)19. Goods and services for personal use. (UA)20. Housing and personal living expense. (UWE)21. Idle facilities and idle capacity. (AWR)22. Insurance and indemnification. (AWR)23. Interest. (UWE)24. Labor relations costs. (A)25. Lobbying. (UWE)26. Losses on other sponsored agreements or contracts. (UA)27. Maintenance and repair costs. (A)28. Materials and supplies costs. (A) 85
    86. 86. 29. Meetings and conferences. (A)30. Memberships, subscriptions, and professional activity cost. (AWR)31. Organization costs. (UWE)32. Page charges in professional journals. (AWR)33. Participant support costs. (AWR)34. Patent costs. (AWR)35. Plant and homeland security costs. (A)36. Pre-agreement costs. (A)37. Professional services costs. (AWR)38. Publication and printing costs. (AWR)39. Rearrangement and alteration costs. (AWR)40. Re-conversion costs. (A) 86
    87. 87. 41. Recruiting costs. (AWR)42. Relocation costs. (AWR)43. Rental costs of buildings and equipment. (AWR)44. Royalties and other cost for use of patents and copyrights. (AWR)45. Selling and marketing. (UWE)46. Specialized service facilities. (AWR)47. Taxes. (AWR)48. Termination costs applicable to sponsored agreements. (AWR)49. Training costs. (AWR)50. Transportation costs. (A)51. Travel costs. (AWR)52. Trustees. (A) 87
    88. 88. Questions?