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Property Management – Property Management – From Purchasing to From Purchasing to Disposition!Disposition!
Tiffany R. Winters, [email protected] & Manasevit, PLLCwww.bruman.comSpring Forum 2013
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What Rules Apply??What Rules Apply??State educational agencies (SEAs) and
local educational agencies/school districts (LEAs):◦ EDGAR Part 80◦ OMB Circular A-102 (Sections __.30- __.36)
Institutions of Higher Education (IHEs) and Nonprofit Organizations◦ EDGAR Part 74◦ OMB Circular A-110 (2 C.F.R. 215.30 –
215.48)
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What is Equipment?What is Equipment?Equipment: tangible,
nonexpendable, personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit
Grantees may lower the threshold34 C.F.R. 74.234 C.F.R. 80.3
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What about everything What about everything else?else?Technically – everything else are
“supplies”Supplies means
◦Personal property, excluding equipment◦34 C.F.R. 74.2; 34 C.F.R. 80.3
34 C.F.R. 74.2 adds… Intangible property Debt instruments Inventions of a contractor conceived or first
actually reduced to practice in the performance of work under a funding agreement
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Other Technological Other Technological Items?Items?Prior audits applied equipment rules
to other items◦Found setting threshold of $500 was too
high Significant Technological Items Easily Pilferable Items Highly Walkables
New OMB Notice◦Introduces New Category of “Computing
Devices”5Brustein & Manasevit, PLLC
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OMB: Computing Devices OMB: Computing Devices Are Allowable Direct Cost Are Allowable Direct Cost SuppliesSuppliesExplicitly includes the cost of
computing devices as allowable direct cost supplies
Documented in separate line itemNot required to conduct more
stringent inventory controls in place for equipment!
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Would new OMB Would new OMB requirements actually requirements actually
change equipment change equipment thresholds set by thresholds set by
auditors?auditors?
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PURCHASINGPURCHASING
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Purchasing Equipment: Purchasing Equipment: Procurement Standards Procurement Standards
IHEs and Nonprofits: Must follow policies and procedures that meet the standards set out in 34 C.F.R. 74.41 through 74.48. Rules are designed to ensure materials and services are obtained in an effective and compliant manner.
34 C.F.R. 74.40
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Purchasing Equipment: Purchasing Equipment: Procurement Standards Procurement Standards
SEAs: States may use their own
procurement policies and procedures to procure equipment. 34 C.F.R. 80.36◦Best Practice: Ensure that policies and
procedures meet all standards for other grantees and subgrantees.
LEAs:Other grantees and subgrantees must
follow policies and procedures that meet the standards set out in 80.36(b)-(i).
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Ownership Ownership
Generally, title to equipment purchased with Federal funds vests in the organization that made the purchase.
34 C.F.R. 80.32(a)34 C.F.R. 74.34(a)
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Ensuring Purchases are Ensuring Purchases are NecessaryNecessary
All costs have to be necessary for the performance or administration of the Federal grant
34 C.F.R. 80.22/ 34 C.F.R. 74.27 (OMB Circulars A-87/A-21/A-122)
Must review all proposed purchases to avoid unnecessary or duplicative items
34 C.F.R. 80.36(b)(4-7)34 C.F.R. 74.44(a)
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Open CompetitionOpen CompetitionSEAs and LEAsAll procurement transactions will be
conducted in a manner providing full and open competition
34 C.F.R. 80.36
IHEs and NonprofitsAll procurement transactions shall be
conducted in a manner to provide, to the maximum extent practical, open and free competition
34 C.F.R. 74.43
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Open CompetitionOpen CompetitionSEAs and LEAsSituations 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
34 C.F.R. 80.36(c)14Brustein & Manasevit, PLLC
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Open CompetitionOpen CompetitionIHEs and NonprofitsBe alert to organizational
conflicts of interest and noncompetitive practices that may restrict or eliminate competition or restrain trade
34 C.F.R. 74.43
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Conflict of Interest Conflict of Interest Must have written policies and procedures
regarding conflict of interest.
A conflict of interest arises when any of the following has a financial or other interest in the firm selected for award:◦ Employee, officer or agent◦ Any member of that person’s immediate
family◦ That person’s partner◦ An organization which employs, or is about to
employ, any of the above or has a financial interest in the firm selected for award.
34 C.F.R. 80.36(b)(3)34 C.F.R. 74.42
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Conflict of InterestConflict of InterestIHEs and NonprofitsOfficers, employees, agents of the
recipient shall neither:◦Solicit nor accept gratuities, favors, or
anything of monetary value from contractors or parties to subagreements.
◦However, recipients may set standards for situations in which the financial interest is not substantial or gift is an unsolicited nominal value. Standards must include disciplinary actions for
violations.34 C.F.R. 74.42
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Role of Cost/Price AnalysisRole of Cost/Price AnalysisMethod and degree of cost or
price analysis depends on the particular facts and circumstances
Must make independent estimate before receiving bids or proposals
34 C.F.R. 80.36(f)34 C.F.R. 74.45
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Vendor Selection ProcessVendor Selection ProcessMust 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
34 C.F.R. 80.36(c)34 C.F.R. 74.44
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Types of ProcurementTypes of ProcurementSEAs and LEAsMethods of procurement:
◦Small purchase procedures◦Competitive sealed bids◦Competitive proposals◦Noncompetitive proposals
34 C.F.R. 80.36(d)
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Vendor Selection Process: Vendor Selection Process: Small Purchase ProceduresSmall Purchase Procedures
Good or service that costs $100,000 or less◦State or local government may set
lower thresholdMust obtain price or rate quotes
from an adequate number of qualified sources
“Relatively simply and informal”34 C.F.R. 80.36(d)(1)
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Vendor Selection Process:Vendor Selection Process:Noncompetitive ProposalsNoncompetitive ProposalsUnder 34 C.F.R. 80.36(d)(4):
Appropriate only when:◦The good or service 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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Types of ProcurementTypes of ProcurementIHEs and NonprofitsRecipients shall make procurement
documents available upon request when any of the following conditions apply:
A procurement is expected to exceed the small purchase threshold, fixed at $100,000.◦ Note: While EDGAR states the amount is set
at $25,000 41 U.S.C. 403(11) was updated and increased.
The procurement specifies a brand name;The proposed award is to be awarded to
other than the apparent low bidder under a sealed bid; etc.
34 C.F.R. 74.44(e)23Brustein & Manasevit, PLLC
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Brand Name Brand Name RequirementsRequirementsSEAs and LEAsStates Brand Names restrict
competition◦Must state “brand name or equal”
34 C.F.R. 80.36(c)
IHEs and NonprofitsThe specific features of a brand
name or equal descriptions that bidders are required to meet must be included in the solicitation
34 C.F.R. 74.44(a)24Brustein & Manasevit, PLLC
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Noncompetitive Noncompetitive ProcurementProcurementStandard more relaxed for IHEs
and Nonprofits:◦Must maintain justification for lack of
competition when competitive bids or offers are not obtained and it exceeds the small purchase threshold
34 C.F.R. 74.44(e)
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Vendor Selection Process:Vendor Selection Process:Noncompetitive ProposalNoncompetitive Proposal
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As a practical matter, a noncompetitive contract raises “red flags”◦ Ensure persuasive and
adequate documentation to facilitate audit
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Vendor Selection ProcessVendor Selection ProcessCan 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
34 C.F.R. 80.36(b)(8)34 C.F.R. 74.44(d)
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Vendor Selection ProcessVendor Selection Process
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Cannot contract with vendor who has been suspended or debarred◦http://www.epls.gov/ ◦www.sam.gov
34 C.F.R. 80.3534 C.F.R. 74.44(d)34 C.F.R. 85.530
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Procurement Procurement DocumentationDocumentation
SEAs and LEAs: Retain records to document:◦Rationale for the method of procurement
◦Selection of contract type◦Contractor selection or rejection◦Basis for contract price
34 C.F.R. 80.36(b)(9)
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Procurement Documentation Procurement Documentation (cont.)(cont.)IHEs and Nonprofits: Retain records
to document:◦Basis for contract selection◦Justification for lack of competition
(if applicable)◦Basis for award cost or price
34 C.F.R. 74.46
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YOU FINALLY YOU FINALLY PURCHASED THE PURCHASED THE ITEM, NOW WHAT?ITEM, NOW WHAT?
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Contract AdministrationContract Administration
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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
Clearly stated in Part 74Implied in Part 80
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Contract AdministrationContract AdministrationIHEs and NonprofitsA system for contract administration
must be maintained to ensure contractor conformance with terms of contract
To ensure adequate and timely follow up of all purchases
Must document whether contractors have met the terms of their contracts!
34 C.F.R. 74.4733Brustein & Manasevit, PLLC
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Contract ProvisionsContract ProvisionsAll contracts supported with Federal
funds must contain certain required provisions◦ Specifics vary slightly
34 C.F.R. 80.36(i)34 C.F.R. 74.48
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Contract AdministrationContract AdministrationAs 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 Dates of performance Location of services or delivery Description of number of students/teachers/etc. to be
served (if applicable)◦Invoice must match the purchase order◦Both must be reviewed and approved
before payment!!!35Brustein & Manasevit, PLLC
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INVENTORY INVENTORY MANAGEMENTMANAGEMENT
Must have adequate controls in place to account for:• Location of equipment• Custody of equipment• Security of equipment
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Inventory ManagementInventory ManagementEquipment 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
34 C.F.R. 80.3234 C.F.R. 74.34
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Inventory Management Inventory Management (cont.)(cont.)Must protect against
unauthorized use◦May use for other projects as long as
use is incidental and does not interfere
Control system must be in place to prevent loss, damage, theft ◦All incidents must be investigated
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HOW CAN I USE MY HOW CAN I USE MY INVENTORY?INVENTORY?
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Use of Grant-Acquired Use of Grant-Acquired Equipment Equipment SEAs and LEAsMay be used for the grant program that purchased
the equipment:◦ As long as needed; and◦ Even if no longer funded with Federal funds
When no longer needed, may be used in other activities currently or previously supported by a Federal agency. Preference given to ED programs.
May be used on other projects/programs currently or previously funded by the Federal government, but watch allocability!
34 C.F.R. 80.32(c)
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Use of Grant-Acquired Use of Grant-Acquired Equipment Equipment
IHEs and NonprofitsMay be used for the grant program that
purchased the equipment:◦ As long as needed; and◦ Even if no longer funded with Federal funds
When no longer needed, may be used in other Federally funded activities, but must be prioritized to: Preference given to ED programs (if initial
grantee); then Other Federal agency programs
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DISPOSING OF DISPOSING OF INVENTORYINVENTORY
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Equipment DispositionEquipment DispositionWhen equipment no longer needed,
must follow disposition rules:◦Transfer to another Federal program◦Over $5,000 – pay Federal share◦Under $5,000 – no accountability
34 C.F.R. 80.32(e); 34 C.F.R. 74.34(g)IHEs and Nonprofits Disposition rules requested from the
Secretary (i.e., granting agency)43Brustein & Manasevit, PLLC
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Disposition of SuppliesDisposition of SuppliesIf there is residual inventory of
unused supplies exceeding $5,000 in total aggregate fair market value upon termination or completion of the award; and
Supplies are not needed for any other Federal grant; then
Must compensate ED for its share!34 C.F.R. 80.3334 C.F.R. 74.35
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Sale of PropertySale of PropertyProper sales procedures shall
be used that provide for competition to the extent practicable and result in the highest possible return
A-133 Compliance Supplement Part 3 (3-F-1)
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STILL HAVE TROUBLE STILL HAVE TROUBLE WITH PROPERTY WITH PROPERTY MANAGEMENT RULES? MANAGEMENT RULES?
REVIEW YOUR REVIEW YOUR INTERNAL CONTROLS!INTERNAL CONTROLS!
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Components of Internal Components of Internal ControlsControls
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Control Environment Control Environment ExamplesExamplesManagement committed to
providing proper stewardship for property acquired with Federal awards.
No incentives exist to under-value assets at time of disposition.
Sufficient accountability exists to discourage temptation of misuse of Federal assets.
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Risk Assessment Risk Assessment ExamplesExamplesProcedures to identify risk of misappropriation or improper disposition of property acquired with Federal awards.
Management understands requirements and operations sufficiently to identify potential areas of noncompliance. ◦Decentralized locations, ◦Departments with budget constraints, ◦Transfers of assets between departments,
etc.
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Control Activity ExamplesControl Activity ExamplesAccurate records maintained on all acquisitions
and dispositions of property acquired with Federal awards.
Property tags are placed on equipment.A physical inventory of equipment is periodically
taken and compared to property records.Property records contain all required information.Procedures established to ensure that the
Federal awarding agency is appropriately reimbursed for dispositions of property acquired with Federal awards.
Policies and procedures in place for responsibilities of recordkeeping and authorities for disposition.
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Information and Information and Communications Communications Accounting system provides for separate identification of property acquired wholly or partly with Federal funds and with non-Federal funds.
A channel of communication exists for people to report suspected improprieties in the use or disposition of equipment.
Program managers are provided with applicable requirements and guidelines.
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Monitoring Monitoring Management reviews the results
of periodic inventories and follows up on inventory discrepancies.
Management reviews dispositions of property to ensure appropriate valuation and reimbursement to Federal awarding agencies.
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Testing Internal ControlsTesting Internal ControlsExample: Property Management1. Document an understanding of policies,
procedures and internal controls in place regarding property management◦ Use checklists, flowcharts, narratives
or questionnaires to determine the current internal controls
2. Select sample transactions and determine if the sample correctly flows through the system
3. Note any deviations53Brustein & Manasevit, PLLC
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Testing Internal Controls (cont.)Testing Internal Controls (cont.)
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Testing Internal Controls Testing Internal Controls (cont.)(cont.)
Discuss the results of the walkthrough with management and inform them of any deficiencies that need immediate attention
Document any changes to risk assessment
Document findings
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Weak Internal Controls – What Weak Internal Controls – What Now?Now?
When internal controls weaknesses are determined – various options:1. Increase supervision and monitoring2. Institute additional or compensating
controls3. Accept risk inherent with the control
weakness (assuming management is aware of the weakness)
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DisclaimerThis 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, PLLC. You should not take any action based
upon any information in this presentation without first consulting
legal counsel familiar with your particular circumstances.
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