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Presented By: Katherine Wakefield CPA Donna Denker & Associates.

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Presentation on theme: "Presented By: Katherine Wakefield CPA Donna Denker & Associates."— Presentation transcript:

1 Presented By: Katherine Wakefield CPA Donna Denker & Associates

2  Overview  Allowable Costs/Cost Principles (Section B in Part 3 of the OMB Compliance Supplement)  OMB A-133 Compliance Supplement 14 Compliance Requirements Internal Controls over Compliance  OMB A-133 Sub Part C Your (auditee) responsibilities

3 Compliance – What is it?  The act of complying with a wish, request, or demand.  Grant funding usually requires meeting certain requirements. For example: What is allowed to be purchased Supporting documentation How tracked and reported Policies and procedures in place Adequate internal controls Reporting 14 specific requirements (to be discussed)

4 How would you know?  Refer to the grant and make inquiries to the granting agency Code of Federal Regulation – Administrative Law by agency search.html  Cost Circulars and Compliance Supplement  The focus in this presentation is the federal requirements

5 What comes next?  Apply procedures that ensure that you are meeting all of the compliance requirements  Assign the responsibility to someone  Internal controls in place  Segregation of duties – someone to do the work and someone else to review  Financial statements and reports

6  Determine if an audit is required  Auditee requirements – OMB A-133 Sub Part C

7  Cost circulars are cost accounting principles and policies for Federal Awards  These cost circulars are required to be followed by entities receiving Federal funding  Three cost circulars

8  “Cost principles for State, Local, and Indian Tribal Governments”  Applicable to: State Government Local Government Federally-recognized Indian Tribal Governments Components of the above governments

9  “Cost Principles for Educational Institutions”  Applicable to Public and Private: Colleges Universities

10  “Cost Principles for Nonprofit Organizations”  Applicable to nonprofit organizations Operated primarily for the public interest, Not organized primarily for profit, and Uses its net proceeds to maintain, improve and/or expand its operations

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12  States, Local Governments, and Indian Tribes Follow: A-87 for cost principles (relocated to 2 CFR, Part 225) A-102 for administrative requirements, and A-133 for audit requirements. Agency CFR - Administrative

13  Educational Institutions (even part of a State or local government) follow: A-21 for cost principles (relocated to 2CFR, Part 220) A-110 for administrative requirements (Relocated to 2 CFR, Part 215), and A-133 for audit requirements. Agency Administrative CFR

14  Non-Profit Organizations Follow: A-122 for cost principles (Relocated to 2 CFR, Part 220) A-110 for administrative requirements (Relocated to 2 CFR, Part 215), and A-133 for audit requirements. Agency Administrative CFR

15  PART 3 – Compliance Requirements A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles

16  The different cost principles contain slightly different wording, but essentially the same baseline requirements.

17  General Principles Basic Guidelines Direct Costs Indirect Costs  Selected Items of Cost

18  Be necessary and reasonable for the program Subject to the prudent person test  Be allocated under the provisions of a 2 CFR Part 225  Be authorized or not prohibited under State or local laws or regulations  Conform to any limitations or exclusions set forth in these principles

19 A-21 Necessary for the operations Arms Length Bargaining Acted with Prudence Cost Consistent with Established Institutional Policies and Practices A-87 Ordinary & Necessary Sound Business Practices Market Prices Acted with Prudence Significant Deviations from Established Practices A-122 Ordinary & Necessary Generally Accepted Sound Business Practices Acted with Prudence

20  Be consistent with policies, regulations and procedures of the program  Be accorded consistent treatment (no doubling up, direct and indirect)  Be determined in accordance with generally accepted accounting principles (unless otherwise provided by the cost circular)

21  Not to be included as cost or used to meet cost sharing or matching requirements of another program (unless provided by Federal law)  Be net of all applicable credits  Be adequately documented

22  Are costs that can be specifically identified to the program Compensation of employees Cost of materials Equipment Travel Other

23  Are costs that can not be specifically identified to the program.  These types of costs benefit more than one function of the organization. For example, building costs, administrative staff, etc.  The rule of allowability: “Indirect costs need to be equitable to relative benefits received.”

24  A-87, 43 types of cost  A-21, 54 types of cost  A-122, 52 types of cost

25  Advertising  Alcoholic Beverages  Audit costs  Bad debt  Bonding costs  Communication costs  Compensation (Payroll)  Contingency  Legal defense  Depreciation  Donations and Contributions

26  Employee morale  Entertainment  Equipment  Fines and penalties  Fundraising and investment management  Gains and losses on assets  Personal use  Living expenses  Idle facilities  Insurance  Interest

27  Labor relations  Lobbying  Maintenance and repair costs  Meeting and conferences  Memberships  Organization costs  Patent costs  Plant and homeland security  Professional services  Publication and printing  Recruiting costs

28  Relocation costs  Rental costs  Royalties  Selling and marketing  Taxes  Training costs  Transportation costs  Travel costs  Trustees

29  Employee Morale Costs incurred by the entity's established practice or custom for improving  Working conditions  Employee-employer relations  Employee morale  Employee performance Must be equitably apportioned to all activities of the entity Allowable  Entertainment Cost of entertainment, including amusement, diversion, and social activities  Examples: tickets to shows, sporting events, meals, lodging, rentals, transportation, gratuities Unallowable

30  Allowable if the primary purpose is to disseminate technical information related to the program or administrative of the grant. Includes meals, transportation, etc. Caution – entertainment costs are not allowable EVER!

31  Compensation must be reasonable Consistent treatment throughout the entire entity.  Unallowable costs can not be considered under this section because they constitute personnel compensation. Example: Providing sporting event tickets to program support personnel as part of their compensation.

32  Allowable, examples noted in cost circular Leave (sick, annual, court, military, other) Employee insurance Pensions Unemployment  However, certain requirement must be met Benefits must be provided under established written policies, Benefits must be allocated equitably across the entity, AND Benefits must be either a cash or accrual basis (GAAP) of accounting.

33  Under A % Administrative (indirect) 100% of time is charged to one Federal program (direct) Time is changed to more than one activity or program (direct or indirect)

34  All charges to Federal programs (direct or indirect) must be documented based on payroll in accordance with accepted practices of the organization.

35  Must certify their time by: Making a statement, such as, “I Sean Walker, certify I have spent 100% of my efforts on the Medicare program (CFDA# ).” Signing such statement or having supervisor sign such statement. Must be at lease twice per year.

36  Time distribution must be supported by “Personnel Activity Reports” After-the-fact distribution of actual activity Accounts for 100% of total activity Prepared monthly Coincide with a payroll cycle Signed by the employee

37  I, Sean Walker, Have worked on the following programs and activities during the month of October 2010 Signed: Sean Walker

38  Does not qualify as adequate documentation (Questioned)  Can be used, however, they need to be adjusted at least quarterly

39  Sampling methods are allowable, however, they are usually required to be approved by the cognizant agency.  States use this technique, however, rare in small institutions.

40  Same rules with the following tweaks: All salaries and wages need to be supported by “Personal Activity Reports” Reports can be signed by employee or responsible official

41   Purpose of the Compliance Supplement: Identifies important compliance requirements Required to be used by the auditors Ensures audit consistency, efficiency, and effectiveness

42  Includes: Purpose and applicability Matrix of compliance requirements – programs by CFDA# Agency program requirements Clusters of programs Internal control Guidance for auditing programs not included in compliance supplements

43  14 Type of Compliance Requirements: A. Activities allowed or unallowed B. Allowable costs/cost principles C. Cash management D. Davis-Bacon Act E. Eligibility F. Equipment and real property management G. Matching, level of effort, earmarking H. Period of availability of Federal funds I. Procurement and suspension and debarment J. Program income K. Real property acquisition and relocation assistance L. Reporting M. Subrecipient monitoring N. Special tests and provisions

44 **Refer to the matrix or the grant to determine if applicable.  A. Activities Allowed or Unallowed: Unique to each Federal program Found in laws, regulation, and provisions of contract or grant agreement  B. Allowable Costs / Costs Principles: OMB Costs Principles Circulars (A-87, A-122 or A- 21) Find here a list of selected costs and a comparison of the circulars

45  C. Cash Management When funded on a reimbursement basis Procedures to minimize the time elapsing between the transfer of funds from the US Treasury and disbursement of those funds  D. Davis-Bacon Act When required by this Act, DOL, or other legislation All laborers and mechanics employed by contractors or subcontractors must be paid not less than established for the locality

46  E. Eligibility Unique to each program Criteria for determining if individuals, groups or subrecipients can participate and the amounts for which they qualify  F. Equipment and Real Property Management OMB Costs Principles Circulars (A-87, A-122, or A-21) CFR Title 25 Part for DOI stipulates requirements for property management  CFR=Admin law by agency 

47  G. Matching, Level of Effort, Earmarking Unique to each program Matching – to provide contributions (usually non- federal) of a specified amount or percentage to match Federal awards. It may be allowable costs incurred or in-kind contributions Level of effort refers to (a) specified level of service to perform, (b) specified level of expenditures and (c) Federal funds to supplement and not supplant non-Federal funding of services Earmarking refers to amount or percentage of funding that must be used for specified activities ( Head start example )

48  H. Period of Availability of Federal Funds Award may specify a time period during which the entity may use the funds Any funds appropriate under an ISDEAA contract or compact or a Tribally Controlled Schools Act grant are available until expended (25 USC 450I(c)(b)(9)).  I. Procurement and Suspension and Debarment Procurement – OMB Cost Principles Circulars (A-87, A-122 or A-21) Suspension and Debarment – Prohibited from contracting or making subawards to parties that are suspended or debarred. Threshold $100,000

49  J. Program Income Gross income generated by the Federal Program  Examples:  Fees for services  Use of rental property  Sale of commodities or items fabricated under the grant agreement Deduct from program outlays If specified, an award may:  Add to project budget or  Use as a match

50  K. Real Property Acquisition Relocation Assistance Uniform and equitable treatment of persons displaced by federally-assisted programs from their homes, businesses or farms Requirements for appraisals and property acquisitions  L. Reporting Standard financial reporting forms authorized by OMB SF-269, SF-425, SF-1512, SD-270, SF-271, SF-272 Reporting under Payment Management System (PMS) Performance Reporting Special Reporting

51  M. Subrecipient Monitoring Passing dollars through to another entity Pass through entity is responsible for:  Provide the CFDA title and number, award name and name of Federal agency  Monitor that subrecipient administers funds in compliance  Ensure required audits performed  Evaluate impact on pass through entities ability to comply

52  N. Special Tests and Provisions Unique to the Federal program Found in laws, regulations, and provisions of the contract/grant Examples:  Background investigations  Certified payrolls performed

53  Establish and maintain internal control designed to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements (A-102 & A-110)  A-133 requires auditors to obtain an understanding of the organization’s internal controls over Federal programs.  Intended to assist the entities and their auditors in complying with these requirements.

54  Objectives of these internal controls Transactions properly recorded and accounted for to:  Permit reliable financial statements and Federal reports  Maintain accountability over assets; and  Demonstrate compliance with laws, regulations, and other compliance requirements.

55 Transactions are executed in compliance with:  Laws, regulations, and provisions of contract or grant agreements that could have a direct and material effect on the Federal program; and  Any other laws and regulations identified in compliance supplements Funds, property, and other assets are safeguarded against loss from unauthorized use or disposition

56  Describes the characteristic of internal control to each of the 5 components: 1. Control Environment 2. Risk Assessment 3. Control Activities 4. Information and Communication 5. Monitoring

57  Provides objectives of internal control and examples of characteristics specific to 13 of the 14 compliance requirements (Omits Special Tests and Provisions)

58  Identify: 1. All federal awards received, expended, and the program under which received 2. CFDA title and number 3. Award number 4. Year 5. Name of Federal Agency and 6. Name of pass through entity

59  Maintain internal controls over Federal programs  Compliance with laws, regulations, contracts and grant agreements  Prepare financial statements and the Schedule of Expenditures of Federal Awards (SEFA)  Ensure audits are performed and submitted when due  Follow up - corrective action on audit findings Prepare summary of prior audit findings and corrective action plan  Submit the data collection form

60  Auditee to prepare  Auditor to determine if presented fairly in all material respects in relation to the financial statements  Auditor to issue a report on the schedule

61 a) Same period as the financial statements b) Programs listed individually by federal agency c) ARRA programs specifically identified d) Each program within a cluster to be listed separately and the cluster subtotaled e) Catalog of Federal Domestic Assistance (CFDA#) f) Name of pass-through entity, if a subrecipient, and identifying numberNote to describe accounting policy g) Amounts provided to subrecipients h) Total Federal awards expended during the period i) Value of awards of noncash assistance, insurance or loans and guarantees

62 Corrective Action Plan  At completion of the audit  Addresses each audit finding in CY report  Shall provide who, how, when: Name of contact person responsible for action plan Corrective action planned Anticipated completion date  If you don’t agree with the finding or believe corrective action is not required Explain with specific reasons

63 Pass-Through Entity Responsibilities  Identify award detail (Includes CFDA#) to subrecipient  Advise subrecipient of Federal requirements  Monitor the activities to ensure compliance  Ensure audit is done if expending $500,000 or more of Federal dollars  Issue management decision on audit findings within 6 months

64  OMB Circular A-133 Compliance Supplement Available at: A-133 A-87 A-122 A-21 Others

65  Why is this important?  What does it mean to you?

66  To stay in good standing with grantor  To remain eligible for future funding  To avoid having to pay Federal dollars back  To avoid findings or questioned costs  To further provide your service and meet the entity’s mission

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