brustein & manasevit, pllc charter schools: allowability and grants management compliance nysed...

Brustein & Manasevit, PLLC

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


AgendaAgenda

Allowability◦Basic Cost Principles◦Time and Effort Documentation

Grants Management Systems◦Financial Management◦Procurement◦Inventory

Internal Controls

2


HOW TO DETERMINE HOW TO DETERMINE IF A COST IS IF A COST IS ALLOWABLEALLOWABLE

3


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?

4


Additional QuestionsAdditional Questions

5

Is the proposed cost consistent with special conditions imposed on the grant?

Is the proposed cost consistent with the underlying needs of the program


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

6


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

7


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


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


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

10


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

11


Basic Guidelines (cont.)Basic Guidelines (cont.)

12

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


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

13


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

14


Federal Cost PrinciplesFederal Cost Principles

15

OMB Circulars43 specific costs detailedListed in alphabetical

order


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

16


Time and Effort Time and Effort DocumentationDocumentation


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

18


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

19


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

20


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.

21


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.

22


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


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


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

25


Grant Management Grant Management SystemsSystems

Three major “systems” in grants management:

Financial Management, Inventory and Procurement

Brustein & Manasevit, PLLC 27

Financial Financial Management Management SystemSystem


Financial Management Financial Management System: System: Common ProblemsCommon Problems

Controlling allowable costsClear record trailCash management

28


Financial Management Financial Management System (FMS)System (FMS)7 requirements:

◦Financial Reporting◦Accounting Records◦Internal Control◦Budget Control◦Allowable Cost◦Source Documentation◦Cash Management

29


Financial ReportingFinancial ReportingAccurate, current and complete

disclosure of financial information◦All financial reports required by ED

◦Consistent with GASB Rule 34

30


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

31


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

32


Budget ControlBudget Control

33

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


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

34


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

35


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)

36


ProcurementProcurement


Procurement: Common Procurement: Common ProblemsProblems

38

Controls over purchase orders

Lack of descriptions in contracts/invoices

Lack of approval over payment process


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

39


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

40


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

41


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

42


Vendor Selection Process Vendor Selection Process (cont.)(cont.)

43

As a practical matter, noncompetitive contract raises “red flags”◦Ensure persuasive and adequate documentation to facilitate audit


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

44


Vendor Selection Process Vendor Selection Process (cont.)(cont.)

45

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


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

46


Contract Administration Contract Administration (cont.)(cont.)

47

Must maintain a contract administration system that ensures contractors perform in accordance with the terms, conditions, and specifications of the contract


Inventory Inventory ManagementManagement


Inventory Management: Inventory Management: Common ProblemsCommon Problems

49

Determining between “equipment” and “supply”

Determining level of control over item

Tracking non-equipment items


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

50


EquipmentEquipmentMust have adequate controls in

place to account for:◦Location of equipment◦Custody of equipment◦Security of equipment

51


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

52


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

53


SuppliesSupplies

Supplies = Everything ElseMust maintain effective control

and accountabilityMust adequately safeguard all

such property Must assure that it is used solely

for authorized purposes

54


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

55


Internal Internal ControlsControls

56


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

57


Components of Internal Components of Internal ControlsControls

Risk Assessment

ControlActivities

Information and

CommunicationsMonitoring

ControlEnvironment

58


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!)

59


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


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


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


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

63

Ris

k

High

Low

JudgmentRequired

Low HighImpact


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

64


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

65


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.

66


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.

67


QUESTIONS?QUESTIONS?

68


This presentation is intended solely to provide general information and does not constitute

legal advice or a legal service. This presentation does not create a client-lawyer relationship with Brustein & Manasevit, PLLC

and, therefore, carries none of the protections under the D.C. Rules of Professional Conduct.

Attendance at this presentation, a later review of any printed or electronic materials,

or any follow-up questions or communications arising out of this

presentation with any attorney at Brustein & Manasevit, PLLC 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.

brustein & manasevit, pllc charter schools: allowability and grants management compliance nysed...

Documents