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Building Federal Budgets

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Writing a federal proposal is a multi-step process with every tier requiring an equal level of intense consideration. The federal budget piece is probably the most detailed and specific item on the ...

Writing a federal proposal is a multi-step process with every tier requiring an equal level of intense consideration. The federal budget piece is probably the most detailed and specific item on the federal proposal to-do list. Illinois ResourceNet’s face-to-face workshop will tackle the topic of federal budgets and help attendees sort through this daunting section of the federal proposal. In addition, this session describes the principles used in developing a budget narrative.

Illinois ResourceNet’s instructor will explain the importance of managing your organization’s finances to improve your success in applying for a federal grant.
Attendees will walk away knowing how to plan and monitor financial activity, while establishing a solid line of communication between program staff and budgeting staff. This course helps to prepare organizations to manage the detailed federal budget section of their proposals.

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  • Don’t be surprised, but this doesn’t start with your grant. Rather the starting point here is with your organization’s financial management.
  • Since we aren’t the accounting team, I’m giving a bit more detail here.Hybrid – more accurate picture of the org.’s finances and required for audit
  • -Major commitments: space rental, building purchase, new services (health insurance, retirement plans, etc.)-Insurances include: general liability, D&O, commercial property, professional liability, liability related to clients (malpractice), workers comp

Building Federal Budgets Building Federal Budgets Presentation Transcript

  • Building Federal Budgets
    Illinois ResourceNet
    2010
    Jay Readey, JD, MBA
  • Federal Grant Budgeting
    Session Objectives: to understand…
    The threshold levels of financial management necessary before applying for Federal grants
    Direct vs. Indirect Costs
    Matching/cost sharing
    Allowable Federal rates
    Accounting compliance requirements
    Budget completion and budget narrative principles
  • Preparing your grant budget
    • The starting point is…… your organization’s financial management
    • Let’s define soundfinancial management
    • It includes budgeting, creating effective tracking systems and reporting the organization’s financial activity and plans.
    • When carried out effectively, financial management enables an organization to plan and monitor financial activities, and show that all financial resources are responsibly applied to an organization’s charitable mission.
    Source: ACH Region V
  • Planning and Monitoring:
    Thresholds for applying for Federal grants:
    Budgeting
    Financial recordkeeping
    Financial reports
    Financial accountability
  • Budgeting Can you answer yes?
    We have an annual organization-wide budget that is monitored (planned vs. actual) every month
    The budget includes expenditures for all salaries, services, space, supplies, etc.
    The budget includes revenue from all income categories
    The board analyzes, discusses, modifies, if necessary, and approves the annual budget
  • Financial RecordkeepingCan you answer yes?
    • All financial transactions (i.e. receipts, expenses, deductions, credits, etc.) are recorded in a systematic way
    • The organization has a computerized bookkeeping system
    • We track separately fundraising, program and general management expenses and we use a project cost accounting or fund accounting system
    • Supporting documentation of all financial transactions is systematically filed and retained
    • Cash balances are reconciled monthly
    • Person(s) maintaining financial records are knowledgeable and skilled in the area
    • Financial data is backed up on a regular basis with a copy of electronic data maintained off-site
  • Financial ReportsCan you answer yes?
    We have an established fiscal year for which income and expenses are reported and tracked
    We use either a cash or accrual accounting method to report income and expenses
    Cash basis: records revenue when money is actually received and records and expenses are paid
    Accrual basis: records revenue when earned and expenses when incurred
    The ED and board have a clear understanding of finances and review on a regular basis (budget vs. actual)
    Financial reports are concise, easy to understand and produced on a timely basis
    An annual audit is conducted and reviewed by the board
  • Financial AccountabilityCan you answer yes?
    • Board reviews and authorizes major financial commitments
    • Budget is reviewed prior to any authorization of expenses
    • The board assures submission of required state, Federal, and other reporting to maintain tax-exempt status (e.g. filing IRS Form 990)
    • Federal, state and local tax obligations are met
    • The board assures the organization has the proper insurance coverage
    • Processes for handling finances and money (“internal controls”) are documented and followed
    • The use of restricted funds is monitored
    • Financial statements are reviewed in an independent audit conducted by a CPA
  • The Grant Budget
    • Follow the instructions
    • What can I include in my budget?
    • Budget MUST follow the program
    • Allowable Federal costs (this is technical)
    • OMB Circular A-122 – Allowable costs for nonprofits
    • Is there a cost-sharing (i.e. match) requirement?
    • Most grants require a budget narrative
    • Check, re-check and triple check the math
  • Dialogue Between Program Staff and Budgeting Personnel
    What costs relate to the proposed activities?
    Does the program proposal track the requirements of the grant application?
    Later: does the budget narrative match the program proposal? (come back and check)
    Do other sources pay some of the Direct Costs for the program activities? (more on costs in a moment)
  • Cost Principles
  • Cost Principles
    Total Costs = allowable direct costs + allowable indirect costs – any applicable credits
    Total costs = allowable Federal reimbursement
    Direct Costs: costs specifically relating to program activities for purposes of the grant
    Question: What would be some examples of Direct Costs?
    Question: What might credits be?
  • Allowability of Costs
    Costs must be:
    Reasonable (to the performance of the award)
    Conforming (to limits in the award)
    Consistent (with non-Federal activities of the organization)
    Consistent (treated the same over time and across program categories)
    Determined in accordance with GAAP
    Not included in other Federal awards (no double-dipping)
    Adequately documented
  • Reasonable Costs
    Costs are reasonable if they are…
    Ordinary and Necessary (for the organization or performance of the award)
    Bound by sound and accepted business practices (e.g. arm’s length negotiation)
    Incurred by persons acting with prudence in the circumstances
    Not SignificantDeviations from established practices
    Question: what would be some unreasonable costs?
  • Allowability of Costs
    Question: other examples of unallowable costs?
    What would make a cost inconsistent with other non-federal programs?
  • Unallowable Costs:
    Which of the following should be allowed for a federal grant?
    Advertising and Public Relations
    Alcoholic beverages
    Bad debts
    Contingency reserves for uncertain events
    Contributions to others
    Entertainment costs
    Capital expenditures
    Fines and penalties
    Housing as fringe benefits
    Interest expenses
    Lobbying
    Social and country club memberships
    Costs of corporate organizing and reorganizing
  • Allocable Costs
    A cost is allocable to a Federal award if it is treated consistently with other costs incurred for the same purpose in like circumstances and if it:
    Is incurred specifically for the award;
    Can be distributed in reasonable proportion to the benefits if it is allocable both to the award and other work; or
    Is necessary to the overall operation of the organization, even if a direct relationship to a cost objective can’t be shown.
    Don’t shift costs among Federal awards in order to overcome funding deficiencies, or to avoid restrictions of law or the award!
  • Direct Costs: More Detail
    Direct costs are “those that can be identified specifically with a particular final cost objective”
    i.e., a project, service or direct activity of the organization
    Not allowed as Direct Costs:
    Fundraising Costs
    Services to members:
    Maintenance of membership rolls
    Public information, public relations and lobbying
    Meetings and conferences
    Investment of funds not used in operations
    Administration of group benefits
  • Indirect Costs
    Indirect costs are “those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective
    Two broad categories:
    Facilities
    Administration
  • Indirect Costs: Facilities
    Facilities costs include:
    Depreciation and use allowances on buildings, equipment and capital improvements
    Interest on debt associated with such capital items, and
    Operations and maintenance expenses
  • Indirect Costs: Administration
    Administration costs include:
    General administration and general expenses such as the director’s office
    Accounting, finance, general counsel, IT support
    Administrative personnel & clerical staff
    Library expenses, office supplies, postage, local telephone
  • Indirect Cost Rate: Simple Calculation
    Determine portion of organizational expenses attributable to Management & General (M&G)
     Form 990 M&G expense reporting
    Fractional ratio for indirect costs:
    M&G Total Expense
    ________________________________________________
    Total of Program Expenses + Fundraising Expenses
    Numerator is called the “base”, and there are several variants, chosen by the organization
  • Matching & Cost Sharing
  • Matching and Cost Sharing
    Many grants contain requirements for a non-Federal share
    Section 23 of OMB Circular A-110 gives details
    Question: What are non-Federal sources?
    Specific requirements may obtain for the cash match
    Accounting for the non-Federal share
    Third party, in-kind contributions and how to value them
  • Matching and Cost Sharing
    Contributions are accepted as matching funds if they are:
    Verifiable from records
    Not counted as contributions for another Federally-assisted program
    Necessary and reasonable for achievement of project objectives
    Allowable under applicable cost principles
    Not paid for by Federal Government under another award
    Identified in the budget
  • Matching and Cost Sharing
    Contributed services and property count:
    As valued on the books at donation, or
    At current fair market value
    Volunteer services count if:
    The work would otherwise incur a cost to the organization, valued at prevailing market rates
    Ex.: legal, consulting, IT, plumbing
    Loaned executive valued at regular rate of pay
    Donated property, equipment and buildings shall not be valued at more than FMV at time of donation
  • Matching and Cost Sharing
    Requirements for supporting records:
    Cash match must be accounted for separately in fund accounting system
    Volunteer Services shall be documented and, if feasible, supported by the same accounting principles that an organization uses for its employees
    Basis for determining value of donated goods, services, equipment and property must be documented
  • Allowable Federal Rates
    For some agencies, or some grants, published rates may limit the amount that will be reimbursed by the Federal Government
    Example: Department of Education limits indirect rates to 8% of a MTDC base
    Example: travel rates can be found at GSA.gov, click on “Per Diem Rates”
    Example: Consultant Fees per day
    Most other costs are allowable or not based on principles of reasonableness, prudence, and consistency (see “Allow ability of Costs”)
  • Budget Narratives
  • Budget Narrative Principles
    Describe in detail how grant funds will be allocated and spent in each applicable category
    Show:
    Basis for computation
    Total amount of costs for each category
    If applicable, further explanation of how requested costs were determined
    Also describe all non-Federal funds that will be used to meet a cost-sharing or matching requirement
    Describe sources, contributions by budget category, and how value was determined for in-kind matches
  • Sample Budget Narrative Principles
    Personnel Salaries
    List name and title by position
    Salary rate x % of time devoted to grant project
    Taxes/benefits
    List name and title
    Compute taxes and benefits by a percentage, with description (again observing time devoted to project)
    Travel
    Itemize travel expenses by purpose
    Observe Federal per diem rates
  • Sample Budget Narrative Principles
    Training
    Show the basis for computation, e.g. a table:
    Purpose of training, location, cost per unit, and computation
    Expense Items: Printing/Copying, Supplies
    List by type; describe sample costs and list computations to arrive at total costs
    Equipment
    List and describe non-expendable items (e.g. computers) to be purchased with grant funds
    Items over $1500 and copiers are not allowed
  • Sample Budget Narrative Principles
    Rent and Utilities
    Include rent (are utilities included? CAM?)
    Telephone and Internet service
    Show and describe computations of totals
    Other
    List by type, with calculations; example:
  • Sample Budget Form
    Remember: In the end, it’s not that different from the budgets you know!
    This is a sample Education Department Budget
    Direct Costs are modified by subtracting equipment and tuition (MTDC), then multiplied by an indirect cost rate (8%)
  • Questions?hank you!
    Jay Readey
    jay_readey@yahoo.com
  • Thank You!