FEDERAL GRANTS UPDATE AND THE OMNI CIRCULAR: WHAT IS AND WHAT IS TO COME MARCH 2014 STEVEN SPILLAN,...

FEDERAL GRANTS UPDATE AND THE OMNI CIRCULAR:

WHAT IS AND WHAT IS TO COME

MARCH 2014

STEVEN SPILLAN, ESQ.BRUSTEIN & MANASEVIT, [email protected]

1

AGENDA

Congressional Update

The Omni Circular

Current Allowability Rules

Basic Cost Principles and Time and Effort Documentation

Grants Management Systems

Financial Management, Procurement and Property Standards

Additional Requirements and Changes

Audit Requirements

2

FEDERAL FUNDING UPDATE

BRIEF REFRESHER: SEQUESTRATION

Sequestration was triggered by the 2011 Budget Control Act (BCA) after failure of Congressional debt “supercommittee” to balance budget

Procedure generally follows 1985 Balanced Budget and Deficit Control Act, but specifics are subject to modification by Congress at any time

This sequester was modified in the American Taxpayer Relief Act of 2012, commonly known as the “fiscal cliff deal.”

That law changed the start date of sequester cuts and the amount of cuts for FY 2013

SEQUESTRATION REFRESHER

Began March 1, 2013In FY 2013, cuts were carried out as automatic,

across-the-board reductions to actual spending levels for all non-exempt programs, projects, and activities

Cuts were approximately 5%, but varied because: Cuts were relative to FY 2013 budget Budget allocations at State and district level vary due to:

New Census/population data

“Hold harmless” and “Small State Minimum” requirements in laws

Second 2013 CR made additional 0.2% across-the-board spending cut

5

SEQUESTRATION CUTS

6

SEQUESTRATION REFRESHER

FY 2013 sequestration cuts were implemented with first allocation after March 1, i.e.:

For single-allocation programs, like Head Start, beginning with programs which receive annual funding on April 1

For competitive grant programs, beginning with first competition using FY 2013 funds

For bifurcated funding programs like Title I of ESEA, the first allocation of FY 2013 budget year (October 2012) went out in full; sequester cuts were deducted from the second allocation (July 2013).

7

SEQUESTRATION IN FY 2014 (AS DESIGNED)

In FY 2014 through FY 2021, additional cuts were meant to be implemented through reductions to congressional “spending caps”Internal limits that Congress sets on its own

spending in each appropriations “account”Congress must pass individualized spending bills in

all 12 accounts that, as a whole, comply with two basic requirements of sequestration:Make equal cuts to defense and non-defense

spending capsMeet BCA requirements for reductions to

spending caps (additional $109 billion in new cuts annually)

8

OMNIBUS 2014

Massive, $1.1 trillion FY 2014 spending based on agreed-to caps

Individual appropriations account bills drafted by Appropriations subcommittees, then combined

Delayed by disagreements over: Funding for Affordable Care Act implementation

Abortion restrictions for DC

Funding for Early Education programs

Ultimately passed January 16th, 2014 Brings funding for non-defense discretionary federal

programs nearly – but not quite – back to pre-sequestration FY 2013 levels

OMNIBUS 2014

(in millions of dollars)

OMNIBUS 2014

Winners

Head Start

Increase over FY 2012 (COLA), plus $500 for Early Head Start

Early Education

New $250 million for competitive Race to the Top Early Education program

School Nutrition

New $25 million in competitive school equipment grants

OMNIBUS 2014

Losers

Department of Labor programs (except WIA)

Targeted programs (like Rural Education, Advanced Placement, Promise Neighborhoods) – no increase over sequestration

President’s Early Education program (Race to the Top instead)

President’s Race to the Top proposal (early education instead)

OMNIBUS 2014 – POLICY RIDERS

Restates and reinforces Charter School Grant Student achievement is the most important factor in renewing

a charter

SIG Changes New grants 5 years

Two new models

USDA Waivers USDA must offer waivers to SFAs who have difficulty/cost

issues implementing new snack rules

IDEA Maintenance of Effort State – no permanent penalty

LEA – Congressional intent agrees with ED’s 2012 “Letter to Boundy

WHAT’S NEXT FOR FEDERAL FUNDING?

Projected budget caps for FY 2014/FY 2015 represent slight increases each year

Projected future increases in funding to account for inflation (1-2%) – but not more

BUT this all depends on Congressional action

Next fiscal debates: Debt ceiling (this spring)

FY 2015 funding (this fall)

REAUTHORIZATIONS

15

LIKELIHOOD OF 2014 REAUTHORIZATIONS

Is there a number less than zero?Partisan Divide

2014 Midterm Elections

FY 2015 Spending

16

THE OMNI CIRCULAR

17

THE OMNI CIRCULAR: WHAT IS COVERED?

A-102: Administrative Rules State and Local Govts Part 80 – EDGAR

A-110: Administrative Rules IHEs and Nonprofits Part 74 – EDGAR

A-87: Cost Principals – State and Local Govts

A-21: Cost Principals – IHEs

A-122: Cost Principals – Nonprofit Orgs

A-133: Audit Rules18

REASONS FOR THE CHANGE?

1. Simplicity

2. Consistency

3. Obama Executive Order on Regulatory Review

Increase Efficiency

Strengthen Oversight 19

WHO CRAFTED THE CHANGES?

“COFAR” Council on Financial Assistance

Reform, and Key Stakeholders

www.cfo.gov/cofar

20

WHO IS COVERED?

All “nonfederal entities” expending federal awards

21

KEY DATES:

Feb 1, 2013 Notice of Proposed Rulemaking

Dec 19, 2013 Final Rule Released

Dec 26, 2013 Federal Register Published Rule

April 2014 New OMB Compliance Supplement

June 26, 2014 ED Draft EDGAR Changes

Dec 26, 2014 Final EDGAR Published22

INCONSISTENCY BETWEEN PROGRAM STATUTE AND CIRCULAR

If federal program statute or regulation differs from Omni Circular, then statute / regulation governs.

23

DATE OF APPLICABILITY OF REVISED RULES

OMB stated on 12/20/13:

All Drawdowns, after December 26, 2014

? ? ? 24

MOST SIGNIFICANT CHANGES

Shift from focus on Compliance to focus on PERFORMANCE!!! Auditors (A-133 + Federal OIG) and Monitors

(Federal and State Pass Through) must look more to “outcomes” than to “process”

The Omni Circular adds significant flexibility to way grantees / subgrantees can adopt their own processes

25

MOST SIGNIFICANT CHANGES (CONT.)

The Omni Circular has a MAJOR emphasis on “strengthening accountability” by improving policies that protect against waste, fraud and abuse

26

NEW: REQUIRED CERTIFICATIONS 200.415

NEW: Official authorized to legally bind the non-federal entity must certify on annual and final fiscal reports or vouchers requesting payment: “By signing this report, I certify to the best of my

knowledge and belief that the report is true, complete and accurate and the expenditures, disbursements and cash receipts are for the purposes and objectives set forth in the terms and conditions of the federal award. 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 for fraud, false statements, false claims, or otherwise.”

27

NEW: MANDATORY DISCLOSURES 200.113

Non federal entity must disclose in writing in timely manner to federal agency or pass-through all violations of federal criminal law involving fraud, bribery or gratuity violations potentially affecting federal award

28

CURRENT ALLOWABILITY RULES AND “OMNI” CHANGES

29

HOW TO DETERMINE IF A COST IS ALLOWABLE

Is the proposed cost allowable under the relevant program?

Is the proposed cost consistent with program specific fiscal rules?

Is the proposed cost consistent with EDGAR?

Is the proposed cost consistent with federal cost principles? (now be incorporated into EDGAR)

Is the proposed cost consistent with special conditions imposed on the grant? 30

PROGRAM ALLOWABILITY

Is the proposed cost allowable under the relevant program?In general, program restrict costs in 2 ways:

Costs must meet specific program purposes;

The program includes eligibility restrictions.

Entities must ensure all program costs meet program allowability rules and regulations

31

Examples:Contracts v. SubgrantsSupplement Not SupplantMaintenance of EffortExcess CostsMaintenance of State Financial SupportComparability

32

PROGRAM FISCAL RULES

NATURE OF FUNDING 200.330

Subgrant Contract Allowable activities based on applicable statute, local plan, State rules Management rules

EDGAR; Applicable OMB Circular; and State law/policies and procedures

Allowable activities based on terms and conditions of contract Management rules

Terms of the contract; and State contract law

A Pass-through entity must make a case-by-case determination whether each agreement casts the party as a subrecipient or contractor

33

SUBGRANT VS. CONTRACT

Subreipients 200.330(a)Determines who is eligible to participate in a

federal program Has its performance measured against whether

the objectives of the federal program are met Is responsible for programmatic decision making Is responsible for complying with federal program

requirementsUses the federal funds to carry out a program as

compared to providing goods or services for a program 34

SUBGRANT VS. CONTRACT (CONT.)

Contractor 200.330(b)

Provides the goods and services within normal business operations

Provides similar goods or services to many different purchasers

Operates in a competitive environment

Provides goods or services that are ancillary to the operation of the federal program

Is not subject to compliance requirements of the federal program

35

SUPPLEMENT NOT SUPPLANT

Federal funds must be used to supplement and in no case supplant (federal), state, and local resources

“What would have happened in the absence of

the federal funds??”

36

3 PRESUMPTIONS OF SUPPLANTING:

Auditors presume supplanting occurs if federal funds were used to provide services . . .

1. Required to be made available under other federal, state, or local laws

2. Provided with non-federal funds in prior year3. Provided services to Title I schools and the

same services were provided to non-Title I schools.

37

PRESUMPTION REBUTTED!(SOMETIMES)

If SEA or LEA demonstrates it would not have provided services if the federal funds were not available.

NO non-federal resources available this year!

38

EDGAR AND THE FEDERAL COST PRINCIPLES

A-21 Educational Institutions A-87 State, Local & Indian Tribal GovernmentsA-122 Non-Profit Organizations

48 CFR pt. 31 For-Profit Organizations 39

Omni Circular

Is the proposed cost consistent with EDGAR (which will now include all

federal cost principals)?

COST PRINCIPLES: “FACTORS AFFECTING ALLOWABILITY OF COSTS” 200.403

All Costs Must Be:

1. Necessary, Reasonable and Allocable

2. Conform with federal law & grant terms

3. Consistent with state and local policies

4. Consistently treated

5. In accordance with GAAP

6. Not included as match

7. Net of applicable credits (moved to 200.406)

8. Adequately documented40

“FACTORS AFFECTING ALLOWABILITY OF COSTS” 200.403

Necessary and Reasonable 200.404 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 prices 41

“FACTORS AFFECTING ALLOWABILITY OF COSTS” 200.403 (CONT.)

Necessary and Reasonable (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?

42

ALLOCABLE COSTS 200.405

Can only charge in proportion to the value received by the program

If a cost benefits 2 or more projects, the cost should be allocated to projects based on the proportional benefit.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

If cost benefits can not be determined because of the interrelationship of the work involved, the costs may be allocated or transferred to benefitted projects on any reasonable documented basis. 43


Conform with federal law & grant terms

Example: Match Requirements

Be Consistent with policies and procedures that apply uniformly to both federal and non-federal entity Incorporates prior rule that costs must be legal

under state and local law

44


45

Be Accorded Consistent TreatmentMust follow uniform policies that

apply equally to federal and non-federal activities

Cannot assign cost as direct cost if indirect under state programs

In accordance with GAAPNot included as cost-sharing or

match


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

46

APPLICABLE CREDITS 200.406

Must be credited to the federal award either as a cost reduction of cash refundExamples: purchase discounts, rebates or

allowances, recoveries or indemnities on losses, insurance refunds or rebates, adjustments of overpayments

47

NEW: PRIOR WRITTEN APPROVAL 200.407

In order to avoid subsequent disallowance:

Non-Federal entity may seek prior written approval of cognizant agency (for indirect cost rate) or Federal awarding agency in advance of the incurrence of special or unusual costs

48

NEW: DIRECT V. INDIRECT COSTS 200.413

Salaries of administrative and clerical staff should be treated as “indirect” unless all of following are met:

1. Such services are integral to the activity

2. Individuals can be specifically identified with the activity

3. Such costs are explicitly included in the budget

4. Costs not also recovered as indirect49

BUDGET MODIFICATIONS 200.308

May require prior approval

Program changes

Change in scope or object

Change in key personnel

No cost extension

Contract with 3rd party to administer program

50

50

EDGAR USE OF FUNDS RESTRICTIONS

Cannot use federal funds for (unless authorized by Statute):

Religious worship, instruction or proselytization

Construction, remodeling, repair, operation, or maintenance of religious facility

Acquisition of real property

Construction

51

SELECTED ITEMS OF COST

PRIOR OMB CIRCULARS HAD 43 SPECIFIC COSTS DETAILED •THE “OMNI” NOW HAS 55 SPECIFIC ITEMS OF COST! LISTED IN ALPHABETICAL ORDER 200.420

52

SELECTED ITEMS OF COST

Clarified: Advertising/PR 200.421◦ Allowable for programmatic purposes including:

◦ Recruitment◦ Procurement of goods◦ Disposal of materials◦ Program outreach◦ Public relations (in limited circumstances)

Alcohol 200.423◦ Not allowable

Audit Costs 200.425◦ A reasonably proportionate share of the Single Audit Act

costs are allowable◦ Other audit costs are allowable if included in a cost

allocation plan53

SELECTED ITEMS OF COST (CONT)

Conferences 200.432 (Changed)Prior Rule: Generally allowable

Includes Meals / Conferences / Travel and Family Friendly Policies

Allowable conference costs include rental of facilities, costs of meals and refreshments, transportation, unless restricted by the federal award

Costs related to identifying, but not providing, locally available dependent-care resources (but 200.474) allows for “above and beyond regular dependent care”

Conference hosts must exercise discretion in ensuring costs are appropriate, necessary and managed in manner than minimizes costs to federal award

54

SELECTED ITEMS OF COST (CONT.)

55

Defense and Prosecution of Criminal and Civil Proceedings, Claims, Appeals and Patent Infringements 200.435 (Changed)

Prior Rule: Generally allowable (unless prosecuting claims against the govt.)

New government-wide rule (despite OIG protest)

Fees not allowed in audits if there is a liability; Fees allowed when no liability found and if

reasonable and necessary, and authorized federal official approves (up to 80%)

But attorney fees to U.S. Court of Appeals from final agency decision are not allowable


Employee Morale, Health and Welfare 200.437Health or first aid clinics, recreational activities,

employee counseling services are allowableEntertainment 200.438

Amusement, diversion, and social activities are not allowable

Fines and Penalties 200.441Not allowable

56

SELECT ITEMS OF COST (CONT.)

57

Lobbying 200.450

Unallowable

Memberships, Subscriptions and Professional Activity Costs 200.454

Meetings and conference where the primary purpose is dissemination of technical information are allowable

Includes costs of meals, transportation, facility rental, and speakers’ fees

Training and Education Costs 200.472

Allowable


Travel Costs 200.474 (Changed)

Prior rule: allowable with certain restrictions

Travel costs may be charged on actual, per diem, or mileage basis

Travel charges must be consistent with entity’s written travel reimbursement policies

Grantee must retain documentation that participation of individual in conference is necessary for the project

Travel costs must be reasonable and consistent with written travel policy / or follow GSA 48 CFR 31.205-46(a)

58

TIME AND EFFORT DOCUMENTATION 200.430

MOST FLEXIBLE AND MOST CHANGED RULE

59

TIME DISTRIBUTION RECORDS “STANDARDS FOR DOCUMENTATION

OF PERSONNEL EXPENSES”

Must be maintained for all employees whose salaries are: Paid in whole or in part with federal

funds 200.430 (i)(1)Used to meet a match/cost share

requirement 200.430(i)(4)

60

REQUIRED TIME DISTRIBUTION DOCUMENTATION

Prior Rule: Type of documentation depends on how many “cost objectives” the employee worked onThese cost objectives must be connected to the employee’s salary source

61

COST OBJECTIVES

What is a cost objective? 200.28 (slightly changed)◦ Program, function, activity, award, organizational

subdivision, contract, or work unit for which cost data are desired and for which provision is made to accumulate the measure the cost of processes, products, jobs, capital projects, etc.

62

COST OBJECTIVES (CONT)

Multiple Cost Objectives 200.430(vii):More than one Federal award.A Federal award and a non-Federal award.An indirect cost activity and a direct cost

activity.Two or more indirect activities that are

allocated using different allocation bases.An unallowable activity and a direct or

indirect cost activity.

STILL APPLICABLE EVEN WITH NEW OMNI CIRCULAR CHANGES!

OCFO Clarifications Re: “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.

OCFO GUIDANCE (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.

OCFO GUIDANCE EXAMPLES OF SINGLE COST OBJECTIVES:

Title I, Part A funds and State compensatory education funds

An LEA supports a supplemental math teacher to serve low-achieving students with 50 percent Title I, Part A funds and 50 percent State compensatory education funds.


Title I, Part A funds and local funds

A teacher in a Title I schoolwide school is paid with local funds to teach first grade in the morning to decrease class size for reading and is paid with Title I, Part A funds to teach a supplemental reading recovery class in the afternoon. (The school has a sufficient number of first-grade teachers to meet the requirements of ESEA section 1114(a)(2)(B).)


Title I, Part A funds and local funds (cont.)

Because the part-time first-grade teacher is not needed in order to provide the basic education program in the schoolwide program school, her salary could be supported with Title I, Part A funds, even though it is not.

Similarly, her salary for providing reading recovery could be supported with Title I, Part A funds.

Both her functions, therefore, are fully supportable with Title I, Part A funds, and the schoolwide program constitutes a single cost objective.


Funds under Sections 611 and 619 of the Individuals with Disabilities Education Act (IDEA)

A preschool special education teacher is funded with 50 percent IDEA section 611 funds and 50 percent with IDEA section 619 funds.

Teaching preschool special education is an allowable activity under both IDEA sections 611 and 619.


Title I, Part A funds and CEIS (comprehensive early intervening services) funds under IDEA

A teacher works with low-achieving students and is supported with 60 percent Title I, Part A funds and 40 percent CEIS funds.

Teaching low-achieving students is a single cost objective because it can be fully supported under both Title I, Part A and CEIS.


Title I, Part A funds and local funds An LEA supports an elementary school teacher with local

funds but pays her with Title I, Part A funds to provide after-school tutoring for low-achieving students.

Although the teacher could not be paid with Title I, Part A funds to provide elementary education, the portion of her time spent on after-school tutoring is easily separated from her teaching position by her schedule.


State leadership funds under the Carl D. Perkins Career and Technical Education Act of 2006 (Perkins IV) and State funds

A State curriculum specialist who develops new career and technical education courses and initiatives is funded 50 percent with Perkins IV funds reserved under section 112(a)(2) for State leadership and 50 percent with State general funds.

Career and Technical Education curriculum development is a single cost objective because it can be fully supported with State leadership funds under Perkins IV.

TIME AND EFFORT (PRIOR RULE)

Semi-Annual Certifications

If an employee works on a single cost objective: Semi-Annual Certification After the Fact Account for the total

activity Signed by employee or

supervisor Every six months (at

least twice a year)

Personnel Activity Report (PAR)

If an employee works on multiple cost objectives: 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

73

NEW: “STANDARDS FOR DOCUMENTATION OF PERSONNEL EXPENSES” 200.430

Charges for salaries must be based on records that accurately reflect the work performed

1. Must be supported by a system of internal controls which provides reasonable assurance charged are accurate, allowable and properly allocated

2. Be incorporated into official records

3. Reasonably reflect total activity for which employee is compensated

Not to exceed 100%74

NEW: “STANDARDS FOR DOCUMENTATION OF PERSONNEL EXPENSES” 200.430 (CONT)

4. Encompass all activities (federal and non-federal)

5. Comply with established accounting polices and practices

6. Support distribution among specific activities or cost objectives

75


Compare “reasonably reflect” to current law:

Philadelphia $123 million

Detroit $51 million

Orleans Parish $26 million

76


Budget estimates alone do not qualify as support for charges to Federal awards 200.430(i)(1)(viii)

Percentages may be used for distribution of total activities 200.430(i)(1)(ix)

77


Grantees encouraged to adopt “substitute systems” if approved by cognizant agency for indirect cost 200.430(i)(5)

Acceptable now to allocate sampled employee’s supervisors, clerical and support staffs, based on results of sampled employees

78


If records meet the standards: the non-federal entity will NOT be required to provide additional support or documentation for the work performed 200.430(i)(2)

BUT, if “records” of grantee do not meet new standards, ED may require PARs 200.430(i)(8)PARs are not defined!!

79

GRANT MANAGEMENT

SYSTEMS

80

Three major “systems” in grants management:

Financial Management, Procurement and Property Standards

FINANCIAL MANAGEMENT SYSTEM (FMS)

1. NEW Identification of Federal Awards

2. Financial Reporting

3. Accounting Records

4. Internal Control

5. Budget Control

6. NEW: Written Procedures to Implement CMIA

7. NEW: Written Procedures to Determine Allowability!

Source Documentation (moved to 200.333 and incorporated into Accounting Records)

81

NEW: IDENTIFICATION OF FEDERAL AWARDS

Accounts must be able to identify all Federal awards received and expended and the Federal programs under which they were received. 200.302(b)(1) Must include CFDA title and number, Federal award

identification number and year

Name of Federal agency

Name of Pass-through entity, if any.

82

FINANCIAL REPORTING

Accurate, current and complete disclosure of the financial results of each Federal awards or program 200.302(b)(2) All financial reports required by ED

83

ACCOUNTING RECORDS

Must identify source and application of funds (expenditure level detail) 200.302(b)(3)

Must contain information related to: Authorizations;

Obligations 200.71;

Unobligated balances 200.98;

Assets;

Expenditures 200.34;

Income (and Interest); and

Be Supported by Source Documentation 84

INTERNAL CONTROLS

Effective controls over, and accountability for, all funds, property and other assets. 200.302(b)(4)

Internal controls 200.61

Means a process, implemented and designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

Effectiveness and efficiency of operations

Reliability of financial reporting

Compliance with applicable laws and regulations

85

INTERNAL CONTROLS (CONT)

Internal control over compliance requirements for Federal awards 200.62 Transactions are properly recorded and accounted for in order

to: Permit the preparation of reliable financial statements and

Federal reports;

Maintain accountability over assets; and

Demonstrate compliance with Federal statutes, regulations and the terms and conditions of the Federal awards.

Transactions are executed in compliance with Federal statutes, regulations, federal awards, and other applicable requirements; and

Funds, property and other assets are safeguarded against loss from unauthorized use and disposition.

86

NEW: INTERNAL CONTROLS 200.303

NEW: Internal controls

The non-Federal entity must:Establish and maintain effective control over the federal

award.

Evaluate and monitor the non-federal entity’s compliance statutes, regulations, and terms of the federal award

Take prompt action when instances are identified including noncompliance identified in audit findings

Take reasonable measures to safeguard protected personally identifiable information as defined under 200.7987

88

TYPES OF INTERNAL CONTROLS

Preventative Controls - designed to discourage errors or irregularities.

Detective Controls - designed to identify an error or irregularity after it has occurred.

Corrective Controls - detect if a risk has been realized and reacts.

The cost of any internal control should not exceed the benefit!

88

89

COMPONENTS OF INTERNAL CONTROLS

Risk Assessment

ControlActivities

Information and

CommunicationsMonitoring

ControlEnvironment

89

90

INTERNAL CONTROLS – CONTROL ENVIRONMENT

Goal: 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 structure Proper amounts of supervision Maintaining a good relationship with oversight

agencies (like ED and OIG for example!)

90

91

INTERNAL CONTROLS – CONTROL ENVIRONMENT (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.91

92

INTERNAL CONTROLS – RISK ASSESSMENT

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.

93

INTERNAL CONTROLS – RISK ASSESSMENT

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 93

94

INTERNAL CONTROLS – RISK 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

Ris

k

High

Low

JudgmentRequired

Low HighImpact

95

INTERNAL CONTROLS – CONTROL ACTIVITIES

Goal: 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 Security95

96

INTERNAL CONTROLS – INFORMATION AND COMMUNICATIONS

Goal: 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.

96

97

INTERNAL CONTROLS – MONITORING

Goal: Assess the quality of internal controls over time and ensure any findings are promptly resolved.

Ongoing program and fiscal monitoring Regular oversight by supervisors Record reconciliation Formal program reviews / audits Single audits

Include policies and procedures for correcting any findings in a timely manner.

97

BUDGET CONTROL

98

Must compare actual expenditures to budgeted amounts on a routine basis

NEW: WRITTEN PROCEDURES ON CMIA

NEW: Must have Written Procedures to implement the requirements of 200.305 Payment (or the Cash Management Improvement Act (CMIA) rules)

99

NEW: WRITTEN PROCEDURES ALLOWABLE COSTS

Prior Rule: Must follow applicable cost principle to determine reasonableness, allowability, and allocability of all costs

NEW: Must have Written Procedures for Determining the allowability of costs in accordance with the Omni Circular!

100

PAYMENT 200.305

States apply the CMIA

All others: payments must minimize time elapsing between drawdown from U.S. Treasury and disbursement by electronic funds transfer, check, warrant or other means

Payment must be made to subgrantee at time it disburses funds to vendors 101

CHANGES: PAYMENT 200.305

Pass Through cannot require subgrantees maintain separate depository accounts Subgrantee must be able to account for the receipt,

obligation and expenditureCash advances must be kept in interest bearing

accounts unless: Entity received < $120,000 per year in Fed awards Best interest bearing account would not earn > $500/year The depository would require high minimum balance Foreign Gov or banking precludes interest bearing

accounts. Interest amounts up to $500 may be retained for

administrative expense102

CASH MANAGEMENT

The Omni-Circular does not change Parts 75 and 76 of EDGAR!

103

CASH MANAGEMENT

104

Payment Process Obligation Liquidation Drawdown Payment

Obligations 200.71 Orders placed for property and services, contracts

and subawards made and similar transactions during a given period that require payment by the nonFederal entity during the same or a future period.

OBLIGATIONS

Type 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 105

OBLIGATIONS (CONT.)

106

Grantees and subgrantees may begin to obligate funds when:Awarding agency approves

application; orAwarding agency

determines application is “substantially approvable”

Reimbursement subject to final approval 106

NEW: PERIOD OF PERFORMANCE 200.309

A non-Federal entity may charge to the Federal award only allowable costs incurred during the period of performance and; Any costs incurred before the Federal awarding

agency or pass-through entity made the Federal award that were authorized by the Federal awarding agency or pass through agency. Same as pre-award costs 200.458

107

OBLIGATIONS (CONT.)

Tydings Amendment Allows extra year to obligate funds

Does not apply to all grants

Under Tydings, funds are available for 24-27 months: 12-15 months under the grant award

(July 1, 2012 – September 30, 2013)

Plus 12 months

(October 1, 2013 – September 30, 2014)108

OBLIGATIONS (CONT.)

Under Tydings, unobligated funds can usually be “carried over” from first year

Generally, no limit on “carryover” unless stated

Title I, Part A = 15%, SEA may waive every 3 years

IDEA = no limit

Perkins = No carryover

109

LIQUIDATIONS

110

Liquidation = Settle an obligation by paying funds

State must liquidate all obligations within 90 days after the end of the period of availability Example:

Period of availability: July 1 – September 30th

Liquidation period ends: December 31st

State may impose shorter deadline on subgrantee

PROGRAM INCOME 200.307

“Deduction” method, rather than “addition” method, shall be used if ED does not specify otherwise in GAN

Costs may be deducted from gross income, provided these costs have not been charged to the Federal award.

111

PROCUREMENT

STATES: 200.317

ALL OTHERS: 200.318 THROUGH 200.326

112

WRITTEN PROCEDURES 200.318

Must have documented procurement procedures which reflect applicable Federal, State and local laws and regulations and the Omni Circular standards

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 resources113

COMPETITION 200.319

All procurement transactions must be conducted with full and open competition

Situations that restrict competition:

Unreasonable requirements on vendors to qualify to do business

Requiring unnecessary experience or excessive bonding

Noncompetitive pricing practices

Noncompetitive awards to consultants on retainer

Organizational conflicts of interest

Specifying a brand name

Any arbitrary action in the procurement process

In-state or local preferences

114

CONTRACT ADMINISTRATION 200.318

115

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

RECORD RETENTION 200.318

Must maintain records sufficient to detail the history of procurement, including but not limited to:

Rationale for the method of procurement

Selection of contract type

Contractor selection or rejection

Basis for contract price

116

COMPETITION 200.319 (CONT)

Must have written selection procedures

Procedures must ensure all solicitations:

Include a clear and accurate description of technical requirements

Identify all requirements vendor must fulfill

Identify evaluation factors

117

CONFLICT OF INTEREST 200.318

Must have written standards of conduct for all employees engaged in the award and administration of contracts (must address conflicts of interest) 200.318

NEW: If the non-federal entity has a parent, affiliate, or subsidiary organization that is not a state or local govt the entity must also maintain written standards of conduct covering organization conflicts of interest! 118

NEW: CONFLICT OF INTEREST 200.112

NEW: All non federal entities must establish conflict of interest policies, and disclose in writing any potential conflict to federal awarding agency in accordance with applicable Federal awarding agency policy.

119

COST/PRICE ANALYSIS 200.323

120

NEW: Must perform a cost or price analysis in connection with every procurement in excess of $150,000 Prior Rule: Must perform a cost or price analysis in

connection with every procurement action, including contract modifications

Method and degree of cost or price analysis depends on the particular facts and circumstances

Must make independent estimate before receiving bids or proposals

METHODS OF PROCUREMENT 200.320

Method of procurement:

NEW: Micro-purchases (Value not to exceed $3,000)

Small purchase procedures (NEW: $150,000) 200.88

Competitive sealed bids

Competitive proposals

Noncompetitive proposals121

NEW: MICRO-PURCHASES 200.320

Micro-purchases must be distributed equitably among qualified suppliers, to the extent practicable.

Micro-purchases may be awarded without soliciting competitive quotations if the non-Federal entity considers the price to be reasonable.

122

METHODS OF PROCUREMENT 200.320 (CONT)

Noncompetitive proposals appropriate only when: The good or services is available only from a single

source (sole source) There is a public emergency Change: The awarding agency expressly

authorizes noncompetitive proposals in response to a written request from the non-Federal entity

After soliciting a number of sources, competition is deemed inadequate

123

METHODS OF PROCUREMENT 200.320 (CONT)

124

As a practical matter, noncompetitive contract raises “red flags”

Ensure persuasive and adequate documentation to facilitate audit

CONTRACT PROVISIONS 200.326

125

Contracts must contain applicable provisions in Appendix II to Part 200 Suspension / Debarment

Provisions include that a non-Federal entity must NOT contract with vendor who has been suspended or debarred

Must verify on System for Award Management (SAM) at www.sam.gov

PROPERTY STANDARDS

126

PROPERTY DEFINITIONS Equipment 200.33

Tangible personal property, Useful life of more than one year Per unit acquisition cost which equals or exceeds

$5,000 NEW: Computing Devices 200.20

Machines used to acquire, store, analyze, process, public data and other information electronically

Incudes accessories for printing, transmitting and receiving or storing electronic information

Supplies 200.94 All tangible personal property other than equipment. Computing devices are supplies if less than

$5,000127

EQUIPMENT 200.313

Must have adequate controls in place to account for:

Location and custody of equipment

Procedures for managing equipment

Adequate maintenance of procedures

128

INTERNAL CONTROLS

Regardless of cost, grantee must maintain effective control and “safeguard all assets and assure that they are used solely for authorized purposes.” 200.302(b)(4)

129

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 incidents must be investigated

130

EQUIPMENT 200.313 (CONT)

Clarified: shared use is allowed if such use will not “interfere”: 1st preference – projects supported by federal awarding

agency

2nd preference – project funded by other federal agencies

3rd preference – use for non federally funded programs

NEW: Cannot “encumber” the property without approval of Federal agency or Pass-through agency 131


“User fees” on equipment “should be considered if appropriate”

But “user fees” should not be less than private companies charge for equivalent services

132


NEW: When grantee acquiring replacement equipment, the equipment to be replaced may be used as a “trade-in” without recourse to federal agency

133


Disposition:Pay back to the Federal government the

proportionate value if over $5,000 at the time of disposition

Upon disposition federal agency may permit grantee to retain $500 or 10% of proceeds, whichever is less, for handling expenses 134

NEW: INSURANCE COVERAGE 200.310 AND 200.447

NEW: At a minimum, grantee must provide equivalent insurance coverage on equipment purchased with federal funds as provided to equipment purchased with nonfederal funds

NEW: Actual losses which could have been covered by permissible insurance are unallowable (unless provided in Federal award) If, however, costs are not covered under nominal

deductible insurance, costs are allowable135

SUPPLIES 200.314

NEW: Includes “computing devices” if <$5,000

Residual inventory of unused supplies exceeding $5,000 in total aggregate value – must compensate federal government for its share

136

SUPPLIES 200.314 (CONT.)

EDGAR does not set out any specific tracking requirements

But, 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 (i.e. internal control standard 200.302(b)(4)

137

RECORD RETENTION

138

RETENTION REQUIREMENTS FOR RECORDS 200.333

o Retains 3 year requirement, but MUST retain for at least 5 years (Statute of Limitations)o If program income is reports after

period of performance, than time period starts from end of fiscal year in which program income is earned

o If litigation, claim or audit, records must be retained until all litigation has been resolved and final action taken. 139

NEW: METHODS FOR COLLECTION, TRANSMISSION AND STORAGE OF INFORMATION 200.335

o When original records are electronic and cannot be altered, there is no need to create and retain paper copies.

o When original records are paper, electronic versions may be substituted through the use of duplication or other forms of electronic media provided they:o Are subject to periodic quality control

reviews, o Provide reasonable safeguards against

alteration; and o Remain readable. 140

REQUIREMENTS OF PASS-

THROUGH ENTITIES

141

NEW: FEDERAL AWARDING AGENCY REVIEW OF RISK POSED BY APPLICANTS 200.205

ED and “Pass-Through” must have in place a framework for evaluating risks before applicant receives funding

1.Financial Stability

2.Quality of Management System

3.History of Performance

4.Audit Reports

5.Applicant’s Ability to Effectively Implement Program

142

SPECIFIC CONDITIONS 200.207

ED or “Pass Through” May Impose “additional Federal award conditions”:Require reimbursement;

Withhold funds until evidence of acceptable performance;

More detailed reporting

Additional monitoring;

Require grantee to obtain technical or management assistance; or

Establish additional prior approvals.143

NEW: MONITORING AND REPORTING PROGRAM PERFORMANCE 200.328

Monitoring by the “Pass Through”

Monitor to assure compliance with applicable federal requirements and performance expectations are achieved

Must cover each program, function or activity(see also 200.331)

Must submit “performance reports” at least annually 144

REQUIREMENTS FOR PASS-THROUGH ENTITIES 200.331

All pass through entities must:

Ensure subawards include all required information

Evaluate each subrecipient’s risk considering: Prior experience with similar subawards

Prior audit findings

Whether new personnel or new or substantially changed systems

Results of Federal monitoring

Consider imposing special conditions, if appropriate

Monitor subrecipients, as necessary Issue management decisions for audit findings

145

NEW: REQUIREMENTS FOR PASS-THROUGH ENTITIES 200.331 (CONT.)

Depending on assessment of risk, the following monitoring tools may be useful for the pass-through entity to ensure proper accountability and compliance with program requirements and achievement of performance goals:

1. Training + technical assistance on program-related matters

2. On-site reviews

3. Arranging for “agreed-upon-procedures” engagements (described in 200.425) 146

AUDIT REQUIREMENTS

147

AUDIT RESOLUTION 200.501

Federal Compliance requirements do not pass through to contractors

Auditee is responsible for ensuring compliance for procurement transactions

148

RELATION TO OTHER AUDIT REQUIREMENTS 200.503

The federal agency, OIG, or GAO may arrange for audits in addition to single audit

149

AUDIT FINDINGS FOLLOW-UP 200.511

Auditees must prepare a summary schedule of prior audit findings and a corrective action plan for current year audit findings

150

FEDERAL AGENCY RESPONSIBILITIES 200.513

The federal awarding agency must use cooperative audit resolution to improve federal program outcomes Cooperative Audit Resolution: means the use of

audit follow-up techniques which promote prompt corrective action by improving communication, fostering collaboration, promoting trust and developing an understanding between the Federal agency and non-Federal entity 200.25. 151

AUDIT FINDINGS 200.516

The auditor must report (for major programs): Significant deficiencies and material weaknesses in internal

controls

Significant instances of abuse

Material noncompliance

Known questioned costs > $25,000

Auditor will not normally find questioned costs for a program that is not audited as a “major program” NEW: But if auditor becomes aware of

questioned costs > $25,000 for non-major program, must report 152

MAJOR PROGRAM DETERMINATION 200.518

See chart in 200.518

153

QUESTIONS?

154

155

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.

FEDERAL GRANTS UPDATE AND THE OMNI CIRCULAR: WHAT IS AND WHAT IS TO COME MARCH 2014 STEVEN SPILLAN,...

Documents

Transcript of FEDERAL GRANTS UPDATE AND THE OMNI CIRCULAR: WHAT IS AND WHAT IS TO COME MARCH 2014 STEVEN SPILLAN,...