executive order #38 issues & guidance fred m. lamarca cpa, cfp® zoltan kemeny, cpa
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Executive Order #38Issues & Guidance
Fred M. LaMarca CPA, CFP®Fred M. LaMarca CPA, CFP®
Zoltan Kemeny, CPAZoltan Kemeny, CPA
“The EO 38 regulations are designed to place limits on Administrative Expenses and Executive Compensation for certain individuals/entities that receive State Funds or State-Authorized Payments (SF/SAP).”
EO 38 also adds a reporting requirement with which all covered agencies must comply. The EO38 Disclosure Form.
Background and Time Line
January 2012: Governor issues Executive Order #38
March 2012: Budget is adopted without changes to Executive Order #38
May 2012-2013: Several proposed regulations issued
May 2013: Final adoption June 2013 : Preliminary guidance documents
issued July 1, 2013: Effective date of Executive Order #38
Reporting Date: The reporting date is to coincide with the
provider’s annual Cost Report which is 180 days after the close of the period.
If the provider has multiple agencies to which it reports, it can choose a calendar year or fiscal year as to annual reporting period.
Who is subject to EO 38?
Covered providers are subject to regulatory limitations on administrative expenses and executive compensation for a covered reporting period.
Applicability1. Governmental Exemptions 2. Reporting Period
• Covered Reporting Period
3. Program Services 4. Other Exemptions 5. Determine State Funds/ State Authorized
Payments (SF/SAP) Received • Calculate amount received during applicable
period. • Calculate In-State Revenue from SF/SAP
Determining Covered Provider Status
Covered Provider Determination
Worksheet (CPDW)
From CPDW: Determines the entity’s reporting period. The $500,000 test - current year and prior
year. The 30% test - current reporting year and
prior year. Information to determine the entity’s status
as a Covered Provider for the CRP.
Compliance with Administrative
Expenses Limitations: Administrative expenses
cannot exceed 25% in a CRP beginning July 1, 2013 to June 30, 2014
Reduced to 20% for a CRP beginning July 1, 2014 to June 30, 2015.
Final Reduction to 10% Administrative Cost for a CPR on July 1, 2015.
Covered Operating Expenses
Distinguishing between Program Service Expenses and Administrative Expenses
Program Service Expenses
Salaries and benefits of staff providing program services.
Expenses incurred in connection with and attributable to the provision of particular services.
(ie. Direct care supplies, public outreach, legal expenses necessary to accomplish program service objectives)
Administrative Expenses
Salaries for administrative functions Legal expenses Overhead
(ie. Computer networks, audit services, publicity not attributable to the provision of program services)
Other Expense Category Expenses not included in the Covered Operating Expenses and
not part of the 25-75% split :
Capital Expenses Property rental, mortgage,
maintenance (unless specifically part of program services).
Taxes or payments in lieu of taxes
Equipment rental, depreciation, and interest.
Salaries for policy development and research
Compliance with Executive
Compensation
Which individuals are considered covered
executives?
Directors, trustees, officers, and key employees with overall compensation over $199,000.
Individuals directly attributed to Program Services are excluded.
Individuals of related organizations must be considered covered executives.
Calculating Executive
Compensation1. Identify the name & title of the potential executive 2. Indentify CRP (Covered Reporting Period) 3. Determine the executive’s gross compensation4. Determine gross compensation paid to executive for
program services that is excluded from Executive Compensation.
5. Determine if the executive compensation is contracted prior to July 1, 2012 which is not subject to limitation until the end of the contract or April 1, 2015.
Executive Gross Compensation
Gross Includes: W-2 or 1099 wages Housing allowance Below market loans
Excludes: Workers
Compensation Health Insurance
Deferred compensation (as
long as these benefits are offered to other
employees)
Threshold for compensation is $199,000 of SF/SAP
Executive Compensation
Compensation is in excess of $199,000 from all sources – not only SF/SAP
And
1. Compensation is below 75th percentile of comparable executives determined by a valid compensation survey.
2. Compensation is approved by the Board of Directors.
Other Exceptions:
RemediesWaivers available for excess administrative
expenses & executive compensation. Can be submitted early but no later than
the filing date of the covered provider. Waiver available only for a specific time.
Not Compliant Corrective action will commence. 1. Covered provider will submit
an explanationIf that fails:
2. Covered provider will submit a corrective action plan
If that fails: 3. Sanctions and/or
Penalties may be imposed
Redirecting of SF/SAP Suspension,
modification, revocation of CP contracts or licenses
Any other action permitted by law
Take Away – Summary
Verify if you are subject to Executive Order #38 . Did you receive state funds or state approved
funds greater than $500,000 in the past 2 years? Did you have administrative expenses greater
than 25% of total SF/SAP expenses? Do you have executives or other key employees
earning greater than $199,000?
Effect Puts nonprofits on notice of limits of
spending on administrative and executive costs.
Alerts nonprofits of decreasing aid for administrative overhead.
Increases paperwork and reporting requirements.
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