presented by leigh m. manasevit, esq. [email protected] brustein & manasevit, pllc fall...

Presented byLeigh M. Manasevit, [email protected]

Brustein & Manasevit, PLLCFall Forum 2013

Why “Supercircular”???1. Greater simplicity

2. Greater consistency

3. Obama Executive Order on Regulatory Review – 2011 Increase efficiency Strengthen oversight

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Brustein & Manasevit, PLLC

Greater “simplicity” means elimination of several compliance elements in the Compliance Supplement, including:

1. Equipment Management2. MOE/Ear-Marking3. Procurement4. Program Income

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What is covered?

1. Administrative Requirements (A-102, A-110)

2. Cost Principles (A-87, A-21, A-122)

3. Audit Requirements (A-133)

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Who is covered?All non-federal entities expending federal awards

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When is it effective?

NPRM – 2/1/13Close of comment period – 05/02/13Analysis of public commentFinal regulation – not likely before 1/1/14

EDGAR revisions – within one year of final regulation?

No splitting FY

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When is it effective?Part 2BUT SEE highly critical comments of Council of Inspectors General for Integrity and Efficiency (CIGIE)

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A Battle Over the Future Direction of Federal Grants Management

OMB vs. OIG

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Who?OMB did not issue 2/1/13 NPRM (Super Circular) in vacuum

Drafters from Council of Finance Assistance Reform (COFAR)

HHS, ED, DOL, NSF, AG, HS, DOT, HUD, Energy

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Who?But did “COFAR” include “CIGIE”? Council of Inspectors General for Integrity and Efficiency

20 Federal Agencies 94% of $1.2 trillion in direct federal awards covered by A-133

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OIG Goal:

1.Promote accountability

2.Eliminate fraud, waste, abuse and improper payments

Why?

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Why?Because goals are not aligned, OIG

disagrees, strongly disagrees, and extremely disagrees with many of the proposed OMB changes

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When?Prediction: The OIG comments will either delay the final regulation or result in issuance of new NPRM

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When?EDGAR must be revised within 12 months of final regulation

Since changes must be prospective, effective date may be 7/1/16, not 7/1/15

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1st Battleground

Time and Effort Certifications


OMB ProposalEliminate reference to PARsNow “Certified Reports”Reports may be electronicSemi-Annual for single cost objective – same

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Time and Effort ManagementAfter the fact, unless mutually satisfactory alternative approved by awarding agency

Certification periods cannot exceed 12 months

Activities may be expressed as percentages

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Time and Effort Management

At postsecondary level, “reliance may be placed on estimates in which a degree of tolerance is appropriate

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Time and Effort Management

Certified Reports on 2 or more cost objectives certified by employee or individual responsible for verification

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Time and Effort ManagementNo additional support other than certification is necessary

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Time and Effort ManagementSubstitute systems may be used if approved by cognizant agency

Federal agencies are encouraged to approve alternative proposals based on outcomes

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Time and Effort ManagementAwarding agencies may approve “blended funding” where multiple programs are involved and “performance-oriented metrics” are used

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OIG Rebuttal – Certifications All certifications must reference consequences of false certificationBy signing this report… I am aware that any false, fictitious, or fraudulent information, or the omission of any material fact may subject me to criminal, civil, or administrative penalties.

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OIG Rebuttal - Time and Effort

Any relaxation of time and effort rules would have “significant detrimental impact on government’s ability to protect from fraud, waste, abuse, improper payments.”

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NPRM proposed standards “would seriously undermine our community’s ability to identify and question unallowable and even fraudulent charges.”

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Do not issue final rule until results from four national pilot projects are considered

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OIG Rebuttal - Time and EffortOMB should provide uniform language:1. Time charged reflects time actually

worked on project2. Alerts signer that he/she is subject

to federal laws on submission of false information

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OIG Rebuttal - Time and EffortRetain A-87 language:“Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports or equivalent documentation.”

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OIG Rebuttal - Time and EffortPayroll distributions are based on budget estimates that do not focus on actual activity

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12 month certifications do not provide adequate oversight it is too extensive a period for persons to identify actual activity performed (unless supported by additional source documentation)

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Drop phrase “mutually satisfactory alternative” in lieu of “after the fact certifications.” According to OIG, there are “no mutually satisfactory alternatives.”

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How would quarterly adjustments be validated using 12 month certifications?

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Certifications from supervisory personnel must include review of labor distribution reports to ensure effort being charged is reasonable.

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OIG Rebuttal - Time and EffortCharges for salaries and wages of nonprofessional employees (old A-21) must be supported by records that include time on tasks

Substitute systems must contain sufficient detail to be useful for audit purposes

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2nd Battleground

Employee Morale, Health and Welfare Costs


Employee MoraleA-87 / A-21 currently allows for expenses incurred in accordance with the entity’s “established practice or custom for the improvement of working conditions, employer – employee relations, employee morale”

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OMB - ProposalNo Change

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OIG Rebuttal - Employee MoraleDo not allow expenses for recipient’s established practices could result in purchase of:

Groceries Pizza partiesToiletriesT-shirtsGiftsJewelryFlowersBalloons

Funds must be closely related to grant purposes

39Brustein & Manasevit, PLLC

403rd Battleground

Food / Meetings / Conferences

3 way battle

OMB / OIG / ED

? ? ? ?


Current Law: A-87 / A-21Costs of meals and transportation if primary purpose of meeting / conference is dissemination of technical information

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OMB Proposal

Cost of MeetingsCosts from meetings and conferences “beyond the recipient entity” are allowable

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OMB ProposalTravel CostsGrantee must retain documentation

a) Participation of individual is necessary to the federal award

b) Costs are reasonable and consistent with entity’s established travel policy

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Cost Principle Changes

TravelIf no institutional travel policy, GSA rates apply

-48 CFR 31.205

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OIG Rebuttal – Meetings and ConferencesOIGs have found conferences held by recipients where per-person cost of daily catering was between 189% and 400% of applicable location’s federal per diem for meals and incidental expenses

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OIG Rebuttal – Meetings and ConferencesOMB should limit meal costs to federal per diem rates and document a cost comparison of at least three sites to determine most cost-advantageous location

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New ED Guidance on Using Federal Funds for Conferences and Meetings

Very high burden of proof to show that paying for food is necessary

Grantee should structure agenda so there is time for participants to purchase own food; use location with easy access to food


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Grantees should not use grant funds to pay for food and beverages for receptions and networking sessions


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When grantees contract with a hotel, food and beverage costs should be “backed out”


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4th BattlegroundSingle Audit Thresholds


Single Audit ThresholdsSingle Audit Thresholds

Current Law $500,000OMB Increase to $750,000

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OIG Rebuttal - Single Audit Thresholds Increasing threshold from $500,000 to $750,000 loses audit coverage of 6,400 auditees

But these smaller auditees have more non-compliance and material weaknesses on internal control

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OIG Rebuttal - Audit QualityOIG recommends language that auditor engagement not exceed five consecutive years.

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OIG Rebuttal - Submission of Audit ReportsDo not eliminate requirement for subrecipients to submit audit reports to their “pass-through” entities. This would adversely impact the monitoring function.

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OIG Rebuttal - Questioned CostsRevise the proposed guidance to require the reporting of all known questioned costs, not just those over $25,000.

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5th Battleground

Should computers be classified as “supplies?”

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Current Law:

34 CFR 80.3Tangible personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit. A grantee may use its own definition of equipment provided such definition would at least include all equipment defined above.

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OMB Costs of computing devices classified as

“supplies.”


Reclassifying Computing Devices as “Supplies” OIG Opposes

Accounting definition of “supplies” are general purpose consumable items with shorter life span than machines

Computers would not be subject to basic inventory controls, although “misuse” is high

Federal agencies would not know if computers are being used for intended purposes or kept on entity’s premises


6th Battleground

Cash Management

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OMB – Cash ManagementRecipient shall maintain advances of federal funds in interest bearing accounts unless…a) Recipient receives less than

$120,000 in federal $ per yearb) Interest will not exceed $500c) Bank requires minimum balance

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OMB – Cash ManagementUnrecovered indirect costs may be included as match only with approval of federal agency

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OMB – Cash ManagementGeneral rule on program incomes: “program income shall be deducted from total allowable costs to determine the net allowable costs,” unless federal agency indicates otherwise

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OIGRequest OMB require recipients and subrecipients to provide interim financial statements

Such statements must contain basic line item information on how federal funds are spent

Without such interim statements pass-throughs and federal agencies cannot effectively monitor grantees

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OIG - Cash Management

Recommend specific time frames for which recipient can draw cash

Terms such as “minimize” or “anticipated needs” are too general and not auditable

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Clarify the type of working capital analysis that is required of federal agencies prior to providing advance payments

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All recipients should account for program income using the “deduction method” unless federal agency indicates otherwise

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OIG - Cash ManagementAlign Circular with Compliance Supplement on “Reimbursement”

Compliance Supplement requires that costs must be paid by the recipient before reimbursement is requested.

Under accrual accounting, a cost could be expensed on an award that has not been paid.

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OIG - Cash ManagementRecommend that federal funds never be placed in non-insured depository accounts

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OIG - Cash ManagementDo not allow program income to meet matching requirements because it could skew equitable cost sharing

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OIG - Cash ManagementClear language is needed to assure “profit” is prohibited from all grants and cooperative agreements

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7th BattlegroundAdministrative Costs

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OMB Proposes

Salaries of administrative and clerical staff should be treated as indirect, unless

a) Services are integral to project, and

b) Individuals can be specifically identified, and

c) Costs are explicitly set out in budget, and

d) Costs are not recovered as indirect

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OIG RebuttalAdministrative Costs vs. Indirect

Circular must explicitly state that it is recipient’s responsibility to prove through verifiable means that direct charging of administrative and clerical salaries are reasonable, necessary, allocable.

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OIG “would have a very difficult time auditing to determine whether administrative clerical salaries were charged both indirectly and directly, as indirect costs are not always identified by position.”

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OIG demands more detailed reporting to justify charging administrative and clerical salaries as a direct cost demonstrating that such costs “are so integral to a project or activity to warrant direct charging.”

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OIG RebuttalJanitorial Costs

Circular must clarify how janitorial costs charged directly or indirectly. OIG has same concerns on clerical salaries.

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8th BattlegroundAudit Resolution

Attorney Fees

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OMB ProposesCosts for services of counsel (in-house or Bruman) for administrative proceedings (OALJ) may not be charged if the ALJ imposes a “monetary penalty.” Legal expenses are allowable if the proceeding is resolved by consent or compromise.

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Section _.621 C-14(2)


OIG Rebuttal - Attorney FeesAll costs related to administrative proceedings should be completely unallowable, regardless of disposition

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OMB - Audit Follow-UpFederal awarding agencies shall use “cooperative audit resolution mechanisms” to improve federal program outcomes through better audit resolution, follow-up and corrective action

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Section _.713(c)(5)


Cooperative Audit ResolutionImprove communication, foster collaboration, promote trust, and develop understanding between auditor and auditee

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Appendix I - Definitions


Cooperative Audit Resolution

This approach is based upon “Federal agencies offering appropriate amnesty for past noncompliance when audits show prompt corrective action”

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Appendix I - Definitions


Agency Determination LettersThe federal agency or pass-through entity may request additional information from auditee as a way of mitigating disallowed costs

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Section _.714(a)


EnforcementAgencies that do not provide an opportunity to challenge suspension or terminations until after the action is taken (NSF) should be permitted to do so

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Internal Controls

Do not delete A-21 control“ensure that no one person has complete control overall aspects of a financial transactions.”

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Can a revised EDGAR be inconsistent with Supercircular?

Yes, but federal agencies applying more restrictive requirements need OMB approval

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If program statute differs from Supercircular, statute governs

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So what is new?89


Federal agencies must evaluate risks to the program posed by each applicant

a) Financial stability

b) Management system

c) History of performance

d) Generally available information

e) Single audits

f) Capacity to implement programs


Agencies may impose conditions on grantee based on risk assessed

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Performance Expectations

Award includes: timing and scope of expected performance – as related to intended outcomes

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Subawarding Scope of Work

Eligible recipients may perform or subaward the performance of all or a portion of the work

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Pass Through Agency should consider imposing risk conditions on subrecipients in noncompliance

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Pass Through Agency may impose “supplemental requirements”

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Pass Through monitoring shall include:

a) Analyzing financial and programmatic reports

b) Ensuring subrecipients take timely and appropriate corrective action

c) Issuing management decision on A-133 finding at subgrantee level

d) Other – as necessary

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Monitoring Tools of Pass Through

a) On-site reviews

b) Provide training and technical assistance

c) Arrange for “Agreed Upon Procedures”

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Risk Factors for Pass Through Monitoring

a) Previous audits

b) New subrecipients

c) New personnel or substantially changed system

d) Extent of federal monitoring

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Inventory Management

2 year inventory requirement remains

EquipmentDefinition same

a)Acquisition cost of $5,000

b)Useful life greater than one year

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Inventory Management

Use/Management/DispositionSame as EDGAR 80.32

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Procurement Management

States must follow same procurement rules it uses for procurements from nonfederal funds

All others must follow Section 504

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Procurement Management

Section 504 Procurement Standards derived from A-110, EDGAR Part 74 and A-102, EDGAR Part 80

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Record Retention ManagementSame as EDGAR: 3 years from date of submission of final expenditure report BUT – 5 year S/L

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Cost Principles – Basic Considerations

Similar to A-87 but restructured

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Cost Allocation

If a cost benefits two or more projects in a proportion easily determined, cost allocated on proportional benefit

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Cost Allocation

If proportion cannot be easily determined, allocate on any reasonable documented basis

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Indirect Costs

A federally approved negotiated rate shall be accepted by all federal agenciesException: If required by law/regulation (restricted rate)

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Indirect Costs

Pass through entities must abide by the federally recognized indirect cost rate negotiated between the federal agency and subrecipient

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Indirect Costs

But if no such rate exists, the pass through must negotiate the rate, or a de minimis indirect cost rate equal to 10% of total modified direct costs (But what about restricted rates? Most LEAs have restricted rates in single digits.)

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Disclaimer

This 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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presented by leigh m. manasevit, esq. [email protected] brustein & manasevit, pllc fall...

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