charter schools: allowability and grants management compliance nysed – may 2013
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Charter Schools: Allowability and Grants Management Compliance NYSED – May 2013. Tiffany R. Winters, Esq. Brustein & Manasevit, PLLC [email protected] www.bruman.com Twitter: @ Trwinters. Agenda. Allowability Basic Cost Principles Time and Effort Documentation - PowerPoint PPT PresentationTRANSCRIPT
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Charter Schools: Allowability Charter Schools: Allowability and Grants Management and Grants Management ComplianceComplianceNYSED – May 2013NYSED – May 2013
Tiffany R. Winters, Esq.Brustein & Manasevit, [email protected]: @Trwinters
Brustein & Manasevit, PLLC
AgendaAgenda
Allowability◦Basic Cost Principles◦Time and Effort Documentation
Grants Management Systems◦Financial Management◦Procurement◦Inventory
Internal Controls
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HOW TO DETERMINE HOW TO DETERMINE IF A COST IS IF A COST IS ALLOWABLEALLOWABLE
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Helpful Questions to Helpful Questions to AskAskIs the proposed cost allowable
under the relevant program?Is the proposed cost consistent
with program specific fiscal rules?Is the proposed cost consistent
with federal cost principles?
Is the proposed cost consistent with EDGAR?
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Additional QuestionsAdditional Questions
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Is the proposed cost consistent with special conditions imposed on the grant?
Is the proposed cost consistent with the underlying needs of the program
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Federal Cost Federal Cost PrinciplesPrinciples
A-21 Educational Institutions A-87 State, Local & Indian Tribal GovernmentsA-122 Non-Profit
Organizations 48 CFR pt. 31 For-Profit
Organizations
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Cost Principles: Basic Cost Principles: Basic GuidelinesGuidelines
All Costs Must Be:
1. Necessary 2. Reasonable3. Allocable4. Legal under state and local law5. Conform with federal law & grant
terms6. Consistently treated7. In accordance with GAAP8. Not included as match9. Net of applicable credits10.Adequately documented
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Necessary & Necessary & ReasonableReasonableNecessary 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 prices8
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Necessary & Reasonable Necessary & Reasonable (cont.)(cont.)Practical aspects of “necessary”
◦Do I really need this?◦Is this the minimum amount I need to
spend to meet my need?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?9
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AllocableAllocableAllocable
◦Can only charge in proportion to the value received by the program Example: LEA purchases a
computer to use 50% in the Title I program and 50% in a state program – can only charge half the cost to Title I
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Basic Guidelines (cont.)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.)Basic Guidelines (cont.)
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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.)Basic Guidelines (cont.)In accordance with GAAPNot included as matchNet 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.)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 PrinciplesFederal Cost Principles
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OMB Circulars43 specific costs detailedListed in alphabetical
order
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Selected Items of CostSelected Items of CostAdvertising/PR
◦Generally not allowable, except as specified in Attachment B
Alcohol◦Not allowable
Audit Costs◦Allowable to the extent provided
under A-133◦Other audit costs are allowable if
included in a cost allocation plan
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Time Distribution Time Distribution RecordsRecordsMust be maintained for all
employees whose salaries are: ◦Paid in whole or in part with federal
funds
◦Used to meet a match/cost share requirement
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Required Time Distribution Required Time Distribution DocumentationDocumentation
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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Examples . . . .Examples . . . .
A Minimum Set-Aside or Maximum Cap:◦ Title I- LEA Parent Involvement
minimum (at least 1%);◦ Title III – Cap on administration (no
more than 2%)
Program services:◦ Title I program services◦ 21st CCLC program services
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OCFO clarifications re: OCFO clarifications re: “single cost objective”“single cost objective”
OCFO: “The criteria for whether an employee may document
time and effort using a semiannual certification or must
fill out a monthly PAR can be confusing.
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OCFO GuidanceOCFO Guidance
It is possible for multiple programs to have the same cost objective, which creates confusion over whether the presence of a single cost objective or being funded by multiple programs should determine what time-and-effort documentation and employee must complete.
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OCFO Guidance OCFO Guidance (cont.)(cont.)It is possible to work on a single cost
objective even if an employee works on more than one Federal award or on a Federal award and a non-Federal award.
The key to determining whether it is a single cost objective is whether the employee’s salary and wages can be supported in full from each of the Federal awards on which the employee is working or from the Federal award alone if the employee’s salary is also paid with non-Federal funds. 23
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A-87 Single Cost Objectives – A-87 Single Cost Objectives – Semi-Annual CertificationSemi-Annual Certification
If an employee works on a single cost objective:◦Semi-Annual Certification◦Signed by employee or supervisor ◦Every six months (at least twice a year)◦After the Fact◦Account for 100% of the activity
Example: “I, Tiffany Winters, hereby certify that for the period January 1, 2012 through June 30, 2012 one-hundred percent (100%) of my time and effort was spent on 21stCCLC Administration.” 24
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A-87 Multiple Cost Objectives – A-87 Multiple Cost Objectives – Personnel Activity Report (PAR)Personnel Activity Report (PAR)
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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Grant Management Grant Management SystemsSystems
Three major “systems” in grants management:
Financial Management, Inventory and Procurement
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Financial Management Financial Management System: System: Common ProblemsCommon Problems
Controlling allowable costsClear record trailCash management
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Financial Management Financial Management System (FMS)System (FMS)7 requirements:
◦Financial Reporting◦Accounting Records◦Internal Control◦Budget Control◦Allowable Cost◦Source Documentation◦Cash Management
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Financial ReportingFinancial ReportingAccurate, current and complete
disclosure of financial information◦All financial reports required by ED
◦Consistent with GASB Rule 34
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Accounting RecordsAccounting RecordsMust 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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Internal ControlsInternal ControlsInternal 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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Budget ControlBudget Control
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Must compare actual expenditures to budgeted amounts on a routine basis
Make sure all obligations are timely!!◦Payment Process Obligation Liquidation Drawdown Payment
Obligation = Transaction that requires payment
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ObligationsObligationsType of Obligation When Obligation
Occurs
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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Allowable CostsAllowable CostsMust 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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Source DocumentationSource DocumentationType of documents:
◦Canceled checks (or similar bank record)
◦Paid bills◦Payrolls◦Time and attendance records◦Contract and subaward
documentsElectronic copies okMust retain for at least 5
years ◦(Statute of Limitations under GEPA = 5 years)
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Procurement: Common Procurement: Common ProblemsProblems
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Controls over purchase orders
Lack of descriptions in contracts/invoices
Lack of approval over payment process
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Open CompetitionOpen 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 Open Competition (cont.)(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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Vendor Selection Vendor Selection ProcessProcessMust have written selection
proceduresProcedures 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 Vendor Selection Process (cont.)(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 Vendor Selection Process (cont.)(cont.)
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As a practical matter, noncompetitive contract raises “red flags”◦Ensure persuasive and adequate documentation to facilitate audit
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Vendor Selection Process Vendor Selection Process (cont.)(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 Vendor Selection Process (cont.)(cont.)
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Cannot contract with vendor who has been suspended or debarred
Must verify if contract is $25,000 or more◦http://www.epls.gov/ ◦www.sam.gov
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Vendor Selection Process Vendor Selection Process (cont.)(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 Contract Administration (cont.)(cont.)
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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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Inventory Management: Inventory Management: Common ProblemsCommon Problems
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Determining between “equipment” and “supply”
Determining level of control over item
Tracking non-equipment items
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Inventory ManagementInventory ManagementDifferent 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
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EquipmentEquipmentMust have adequate controls in
place to account for:◦Location of equipment◦Custody of equipment◦Security of equipment
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Equipment (cont.)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.)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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SuppliesSupplies
Supplies = Everything ElseMust maintain effective control
and accountabilityMust adequately safeguard all
such property Must assure that it is used solely
for authorized purposes
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Supplies (cont.)Supplies (cont.)EDGAR does not set out any
specific tracking requirementsBut, as a practical matter, ED
expects subgrantees to track all property purchased with federal funds in order to prove there has been an allocable benefit to the federal program
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Internal Controls Internal Controls Objectives of Internal Controls
◦Effectiveness and efficiency of operations
◦Reliability of financial reporting◦Compliance with applicable laws and regulations
◦Safeguarding assets
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Components of Internal Components of Internal ControlsControls
Risk Assessment
ControlActivities
Information and
CommunicationsMonitoring
ControlEnvironment
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Internal Controls – Internal Controls – Control EnvironmentControl EnvironmentGoal: Sets the tone for the organization –
allows management and employees to maintain a positive and supporting attitude toward compliance.
Maintaining a level of competence that allows personnel to accomplish their assigned duties
Clearly defined organizational structureProper amounts of supervisionMaintaining a good relationship with
oversight agencies (like ED and OIG for example!)
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Internal Controls – Internal Controls – Control Environment Control Environment (cont.)(cont.)Examples:
◦Well-written policies and procedures manuals addressing employee responsibilities, limits to authority, performance standards, control procedures, and reporting relationships.
◦Discuss ethical questions.◦Make sure all personnel comply with
Conflict of Interest policies.◦Clear job descriptions so all personnel
understand their responsibilities.◦Adequate training programs.◦Performance evaluations. 60
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Internal Controls – Risk Internal Controls – Risk AssessmentAssessment
Every Agency Has Problems and Risks!!First Establish clear and consistent
objectives ◦Operation objectives – pertain to
achievement of efficiency of operations, performance standards and safeguarding resources.
◦Financial reporting objectives – pertain to preventing fraudulent financial reporting.
◦Compliance objectives – pertain to adherence with applicable laws and regulations. 61
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Internal Controls – Risk Internal Controls – Risk AssessmentAssessment
Then determine internal and external risks to obtaining those objectives:◦ What could go wrong?◦ What assets do we need to protect?◦ How could someone steal or disrupt
operations?◦ What information do we rely on?
Examples:◦ Changes in operating environment◦ New personnel◦ New or updated information systems or
technology◦ Rapid growth◦ New programs, activities or grants◦ Lack of personnel 62
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Internal Controls – Risk Internal Controls – Risk Assessment (cont.)Assessment (cont.)
Once risks are identified, conduct risk analysis:◦ Assess the likelihood
(or frequency) of risk occurring
◦ Estimate the potential impact if the risk were to occur
◦ Determine how the risk should be managed
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Ris
k
High
Low
JudgmentRequired
Low HighImpact
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Internal Controls – Internal Controls – Control ActivitiesControl ActivitiesGoal: Help ensure that management’s
directives are carried out. Examples:
◦ Segregating Key Responsibilities Among Different People
◦ Restricting Access to Systems and Records Authorizations / Passwords
◦ Implementing Clear Written Policies in Key Areas
◦ Performance Reviews◦ Maintaining Physical Control Over Valuable
Assets Maintenance of Security
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Internal Controls – Internal Controls – Control Activities (cont.)Control Activities (cont.)Examples (cont.)
◦Maintaining Appropriate Documentation Approvals Record Retention
◦Data System Checks Check for accounting of transactions in
numerical sequence.
◦Accurate and Timely Recording of Information
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Internal Controls – Internal Controls – Information and Information and CommunicationsCommunicationsGoal: Ensure personnel receive relevant,
reliable and timely information that enables them to carry out their responsibilities.
Develop procedures for identifying pertinent information and distributing it in a form and timeframe that permits people to perform their duties efficiently.
All personnel must receive a clear message from top down that control responsibilities must be taken seriously.
Personnel must understand how they relate to one another in the system.
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Internal Controls – Internal Controls – MonitoringMonitoring
Goal: Assess the quality of internal controls over time and ensure any findings are promptly resolved.
Ongoing program and fiscal monitoring Regular oversight by supervisorsRecord reconciliationFormal program reviews / auditsOMB Circular A-133 audits
Include policies and procedures for correcting any findings in a timely manner.
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